<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON MAY 5, 1998
REGISTRATION NO. 333-
================================================================================
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
FORM S-4
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
------------------------
PLAINWELL INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
<TABLE>
<S> <C> <C>
DELAWARE 2621 38-3391489
(STATE OR OTHER JURISDICTION OF (PRIMARY STANDARD INDUSTRIAL (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) CLASSIFICATION CODE NUMBER) IDENTIFICATION NUMBER)
</TABLE>
200 ALLEGAN STREET
PLAINWELL, MICHIGAN 49080
TELEPHONE: (616) 685-8500
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE,
OF REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
------------------------
WILLIAM L. NEW
200 ALLEGAN STREET
PLAINWELL, MICHIGAN 49080
TELEPHONE: (616) 685-2500
(NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE,
OF AGENT FOR SERVICE)
COPY TO:
LANCE C. BALK
KIRKLAND & ELLIS
153 EAST 53RD STREET
NEW YORK, NEW YORK 10022-4675
TELEPHONE: (212) 446-4800
------------------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon
as practicable after this Registration Statement becomes effective.
If the securities being registered on this Form are being offered in
connection with the formation of a holding company and there is compliance with
General Instruction G, check the following box. [ ]
------------------
CALCULATION OF REGISTRATION FEE
- --------------------------------------------------------------------------------
<TABLE>
<S> <C> <C> <C> <C>
- ---------------------------------------------------------------------------------------------------------------------------
Proposed Proposed
Amount Maximum Maximum Amount of
Title of Each Class of Securities to be Offering Price Aggregate Registration
to be Registered Registered Per Unit(1) Offering Price(1) Fee
- ---------------------------------------------------------------------------------------------------------------------------
PLAINWELL INC.'s 11% Senior Subordinated
Notes due 2008........................... $130,000,000 $1,000 $130,000,000 $38,350
===========================================================================================================================
</TABLE>
* Not Applicable.
(1) Estimated solely for the purpose of calculating the registration fee.
------------------
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> 2
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 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.
SUBJECT TO COMPLETION, DATED MAY 5, 1998
PROSPECTUS
[PLAINWELL INC. LOGO] PLAINWELL INC.
OFFER TO EXCHANGE ITS SERIES B 11% SENIOR SUBORDINATED NOTES
DUE 2008 FOR ANY AND ALL OF ITS OUTSTANDING SERIES A
11% SENIOR SUBORDINATED NOTES DUE 2008
THE EXCHANGE OFFER WILL EXPIRE AT 5:00 P.M., NEW YORK CITY TIME, ON
, 1998, UNLESS EXTENDED.
PLAINWELL INC., a Delaware corporation ("Plainwell" or the "Company"),
hereby offers (the "Exchange Offer"), upon the terms and conditions set forth in
this Prospectus (the "Prospectus") and the accompanying Letter of Transmittal
(the "Letter of Transmittal"), to exchange $1,000 principal amount of its Series
B 11% Senior Subordinated Notes due 2008 (the "Exchange Notes"), which will have
been registered under the Securities Act of 1933, as amended (the "Securities
Act") pursuant to a Registration Statement of which this Prospectus is a part,
for each $1,000 principal amount of its outstanding Series A 11% Senior
Subordinated Notes due 2008 (the "Notes"), of which $130,000,000 principal
amount is outstanding. The form and terms of the Exchange Notes are the same as
the form and term of the Notes (which they replace) except that the Exchange
Notes will bear a Series B designation and will have been registered under the
Securities Act and, therefore, will not bear legends restricting their transfer
and will not contain certain provisions relating to an increase in the interest
rate which were included in the terms of the Notes in certain circumstances
relating to the timing of the Exchange Offer. The Exchange Notes will evidence
the same debt as the Notes (which they replace) and will be issued under and be
entitled to the benefits of the Indenture dated March 6, 1998 between Plainwell
and United States Trust Company of New York (the "Indenture") governing the
Notes. See "The Exchange Offer" and "Description of Exchange Notes."
Plainwell has not issued, and does not have any current firm arrangements to
issue, any indebtedness to which the Exchange Notes would rank senior or pari
passu in right of payment. The Exchange 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 December 31, 1997, after giving pro forma effect to the
Transactions (as defined), the amount of the Company's outstanding Senior Debt
would have been $22.3 million.
Plainwell will accept for exchange any and all Notes validly tendered and
not withdrawn prior to 5:00 p.m., New York City time, on , 1998, unless
extended by Plainwell in its sole discretion (the "Expiration Date").
Notwithstanding the foregoing, Plainwell will not extend the Expiration Date
beyond , 1998. Tenders of Notes may be withdrawn at any time prior to
5:00 p.m. on the Expiration Date. The Exchange Offer is subject to certain
customary conditions. The Notes were sold by Plainwell on March 6, 1998 to the
Initial Purchasers (as defined) in a transaction not registered under the
Securities Act in reliance upon an exemption under the Securities Act. The
Initial Purchasers subsequently placed the Notes with qualified institutional
buyers in reliance upon Rule 144A under the Securities Act and with a limited
number of institutional accredited investors that agreed to comply with certain
transfer restrictions and other conditions. Accordingly, the Notes may not be
reoffered, resold or otherwise transferred in the United States unless
registered under the Securities Act or unless an applicable exemption from the
registration requirements of the Securities Act is available. The Exchange Notes
are being offered hereunder in order to satisfy the obligations of Plainwell
under the Exchange and Registration Rights Agreement entered into by Plainwell
in connection with the offering of the Notes. See "The Exchange Offer."
With respect to resales of Exchange Notes, based on interpretations by the
staff of the Securities and Exchange Commission (the "Commission") set forth in
no-action letters issued to third parties, Plainwell believes the Exchange Notes
issued pursuant to the Exchange Offer may be offered for resale, resold and
otherwise transferred by any holder thereof (other than any such holder that is
an "affiliate" of Plainwell 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 Exchange Notes are acquired in the
ordinary course of such holder's business and such holder has no arrangement or
understanding with any person to participate in the distribution of such
Exchange Notes. See "The Exchange Offer -- Purpose and Effect of the Exchange
Offer" and "The Exchange Offer -- Resales of the Exchange Notes." Each
broker-dealer (a "Participating Broker-Dealer") that receives Exchange 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 Exchange Notes. The
Letter of Transmittal states that by so acknowledging and by delivering a
prospectus, a participating 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
Participating Broker-Dealer in connection with resales of Exchange Notes
received in exchange for Notes where such Notes were acquired by such
Participating Broker-Dealer as a result of market-making activities or other
trading activities. Plainwell has agreed that, for a period of up to one year
from the consummation of the Exchange Offer, it will make this Prospectus
available to any Participating Broker-Dealer for use in connection with any such
resale. See "Plan of Distribution."
If any holder of Notes is an affiliate of the Company, is engaged in or
intends to engage in or has any arrangement or understanding with any person to
participate in the distribution of the Exchange Notes to be acquired in the
Exchange Offer, such holder (i) cannot rely on the applicable interpretations of
the Commission and (ii) must comply with the registration requirements of the
Securities Act in connection with any resale transaction.
Holders of Notes not tendered and accepted in the Exchange Offer will
continue to hold such Notes and will be entitled to all the rights and benefits
and will be subject to the limitations applicable thereto under the Indenture
and with respect to transfer under the Securities Act. Plainwell will pay all
the expenses incurred by it incident to the Exchange Offer. See "The Exchange
Offer."
------------------------------
SEE "RISK FACTORS" ON PAGE 17 FOR A DESCRIPTION OF CERTAIN FACTORS THAT
SHOULD BE CONSIDERED BY HOLDERS WHO TENDER THEIR NOTES IN 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 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 , 1998.
<PAGE> 3
There has not previously been any public market for the Notes or the
Exchange Notes. Plainwell does not intend to list the Exchange Notes on any
securities exchange or to seek approval for quotation through any automated
quotation system. There can be no assurance that an active market for the
Exchange Notes will develop. See "Risk Factors -- Absence of Public Market."
Moreover, to the extent that Notes are tendered and accepted in the Exchange
Offer, the trading market for untendered and tendered but unaccepted Notes could
be adversely affected.
The Exchange Notes will be available initially only in book-entry form.
Plainwell expects that the Exchange Notes issued pursuant to this Exchange Offer
will be issued in the form of a Global Certificate (as defined), which will be
deposited with, or on behalf of, The Depository Trust Company (the "Depositary")
and registered in its name or in the name of Cede & Co., its nominee. Beneficial
interests in the Global Certificate representing the Exchange Notes will be
shown on, and transfers thereof to qualified institutional buyers will be
effected through, records maintained by the Depositary and its participants.
After the initial issuance of the Global Certificate, Exchange Notes in
certified form will be issued in exchange for the Global Certificate only on the
terms set forth in the Indenture. See "Description of Exchange Notes."
AVAILABLE INFORMATION
Plainwell has filed with the Commission a Registration Statement on Form
S-4 (the "Exchange Offer Registration Statement," which term shall encompass all
amendments, exhibits, annexes and schedules thereto) pursuant to the Securities
Act, and the rules and regulations promulgated thereunder, covering the Exchange
Notes being offered hereby. This Prospectus includes a discussion of all
material elements of the Exchange Offer Registration Statement, but does not
contain all of the information set forth therein. For further information with
respect to Plainwell and the Exchange Offer, reference is made to the Exchange
Offer Registration Statement. Statements made in this Prospectus as to the
contents of any contract, agreement or other document referred to are not
necessarily complete. With respect to each such contract, agreement or other
document filed as an exhibit to the Exchange Offer Registration Statement,
reference is made to the exhibit for a more complete description of the document
or matter involved, and each such statement shall be deemed qualified in its
entirety by such reference. The Exchange Offer Registration Statement, including
the exhibits thereto, can be inspected and copied at the public reference
facilities maintained by the Commission at Room 1024, 450 Fifth Street, N.W.,
Washington, DC 20549, at the Regional Offices of the Commission at 7 World Trade
Center, Suite 1300, New York, NY 10048 and at Northwestern Atrium Center, 500
West Madison Street, Suite 1400, Chicago, Illinois 60661. Copies of such
materials can be obtained from the Public Reference Section of the Commission at
450 Fifth Street, N.W., Washington, DC 20549, at prescribed rates. Additionally,
the Commission maintains a web site (http://www.sec.gov) that contains reports,
proxy and information statements and other information regarding registrants
that file electronically with the Commission, including the Company.
As a result of the filing of the Exchange Offer Registration Statement with
the Commission, Plainwell will become subject to the informational requirements
of the Securities Exchange Act of 1934, as amended (the "Exchange Act"), and in
accordance therewith will be required to file periodic reports and other
information with the Commission. The obligation of Plainwell to file periodic
reports and other information with the Commission will be suspended if the
Exchange Notes are held of record by fewer than 300 holders as of the beginning
of any fiscal year of Plainwell other than the fiscal year in which the Exchange
Offer Registration Statement is declared effective. Plainwell will nevertheless
be required to continue to file reports with the Commission if the Exchange
Notes are listed on a national securities exchange. In the event Plainwell
ceases to be subject to the informational requirements of the Exchange Act,
Plainwell will be required under the Indenture to continue to file with the
Commission the annual and quarterly reports, information, documents or other
reports, including, without limitation, reports on Forms 10-K, 10-Q and 8-K,
which would be required pursuant to the informational requirements of the
Exchange Act. Under the Indenture, Plainwell shall file with the Trustee such
annual, quarterly and other reports. Further, to the extent that annual,
quarterly or other financial reports are furnished by Plainwell to stockholders
generally it will mail such reports to holders of Exchange Notes. Plainwell will
furnish annual and quarterly financial reports to stockholders of Plainwell and
will mail such reports to holders of Exchange Notes pursuant to the Indenture,
i
<PAGE> 4
thus holders of Exchange Notes will receive financial reports every quarter.
Annual reports delivered to the Trustee and the holders of Exchange Notes will
contain financial information that has been examined and reported upon, with an
opinion expressed by an independent public or certified public accountant.
Plainwell will also furnish such other reports as may be required by law.
FORWARD LOOKING STATEMENTS
THE PROSPECTUS CONTAINS CERTAIN FORWARD LOOKING STATEMENTS WITH RESPECT TO
THE FINANCIAL CONDITION, RESULTS OF OPERATIONS AND BUSINESS OF THE COMPANY,
INCLUDING STATEMENTS UNDER THE CAPTIONS "SUMMARY," "UNAUDITED PRO FORMA
FINANCIAL INFORMATION," "MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS" AND "BUSINESS." ALL OF THESE FORWARD
LOOKING STATEMENTS ARE BASED ON ESTIMATES AND ASSUMPTIONS MADE BY THE MANAGEMENT
OF THE COMPANY WHICH, ALTHOUGH BELIEVED TO BE REASONABLE, ARE INHERENTLY
UNCERTAIN. THEREFORE, UNDUE RELIANCE SHOULD NOT BE PLACED UPON SUCH ESTIMATES
AND STATEMENTS. NO ASSURANCE CAN BE GIVEN THAT ANY OF SUCH ESTIMATES WILL BE
REALIZED AND IT IS LIKELY THAT ACTUAL RESULTS WILL DIFFER MATERIALLY FROM THOSE
CONTEMPLATED BY SUCH FORWARD LOOKING STATEMENTS. FACTORS THAT MAY CAUSE SUCH
DIFFERENCES INCLUDE: (1) INCREASED COMPETITION; (2) INCREASED COSTS; (3) LOSS OR
RETIREMENT OF KEY MEMBERS OF MANAGEMENT; (4) INCREASES IN THE COMPANY'S COST OF
BORROWING OR INABILITY OR UNAVAILABILITY OF ADDITIONAL DEBT OR EQUITY CAPITAL;
(5) ADVERSE STATE OR FEDERAL LEGISLATION OR REGULATION OR ADVERSE DETERMINATIONS
IN PENDING LITIGATION; AND (6) CHANGES IN GENERAL ECONOMIC CONDITIONS AND/OR IN
THE MARKETS IN WHICH THE COMPANY MAY, FROM TIME TO TIME, COMPETE. MANY OF SUCH
FACTORS ARE BEYOND THE CONTROL OF THE COMPANY AND ITS MANAGEMENT. FOR FURTHER,
INFORMATION OR OTHER FACTORS WHICH COULD AFFECT THE FINANCIAL RESULTS OF THE
COMPANY AND SUCH FORWARD LOOKING STATEMENTS, SEE "RISK FACTORS."
ii
<PAGE> 5
PROSPECTUS SUMMARY
The following summary is qualified in its entirety by, and should be read
in conjunction with, the more detailed information and financial statements,
including the notes thereto, contained elsewhere in this Prospectus. References
in this Prospectus to "Consumer Products Division" refer to the tissue business
of Plainwell acquired from Pope & Talbot, Inc. and Pope & Talbot, Wis., Inc.
(collectively, "Pope & Talbot"). References to "Specialty Paper Division" refer
to the specialty paper business of Plainwell, formerly known as Plainwell Paper
Company. References to the "Company" refer to Plainwell immediately following
the consummation of the Transactions (as defined). References to 1993, 1994,
1995, 1996 and 1997 with respect to financial information for the Specialty
Paper Division refer to the fiscal year ending on the Sunday closest to December
31 for such year.
THE COMPANY
The Company is a leading U.S. producer and marketer of value-added paper
products for niche markets within the paper industry. The Company conducts its
business through two divisions: (i) the Consumer Products Division, which
produces private label consumer tissue products such as bath tissue, paper
towels, napkins and facial tissue, and (ii) the Specialty Paper Division, which
produces premium coated and uncoated printing papers and release and other
technical/specialty papers. The Company has established leading market positions
in certain of these niche markets by combining high quality products, broad
product offerings, strong customer service, efficient manufacturing and the
significant use of recycled materials. In addition, the Company believes that
operating in different niche markets provides the Company with a larger, more
diversified income stream. The Company's pro forma net sales, pro forma EBITDA
and pro forma income before extraordinary were $222.9 million, $30.5 million and
$1.6 million, respectively, for the year ended December 31, 1997. Pro forma for
the same period, the Consumer Products Division contributed 61.1% of net sales
and the Specialty Paper Division contributed 38.9% of net sales of the Company.
CONSUMER PRODUCTS DIVISION
The Consumer Products Division manufactures and markets a broad line of
consumer tissue products, with an estimated 21% share of the U.S. private label
consumer tissue market. Its products include bath tissue, paper towels, napkins
and facial tissue which range from economy to premium quality grades, including
premium quality paper towels and napkins with embossing and colored prints in a
variety of designs. Its product assortment is designed for the private label
consumer market. The Company believes that the private label tissue market will
continue to be an attractive niche market because of: (i) increased recognition
by consumers that private label tissue products offer quality at value prices;
(ii) increased emphasis by retailers who generally receive higher margins on
private label tissue products than on their nationally branded counterparts; and
(iii) the growth of mass merchandisers and wholesale clubs which have
traditionally emphasized private label tissue products.
The Consumer Products Division has well established relationships with its
customer base and serves as a major private label tissue supplier to many of its
customers. The division sells its products to customers located throughout the
U.S., with a concentration near its manufacturing facilities in the Midwest and
Northeast. Its customers include: (i) mass merchandisers such as Kmart
Corporation and Wal-Mart Stores, Inc.; (ii) warehouse clubs such as B.J.
Wholesale Club; (iii) supermarkets that operate under the names A&P, Giant, Tops
Markets and Stop & Shop; and (iv) other retailers and wholesalers.
The Company believes that the Consumer Products Division is currently the
only private label tissue supplier to its customers that utilizes an integrated
computer-based customer service system. Since 1992, the Consumer Products
Division has invested approximately $10 million to develop and implement its
customer service system, which includes Electronic Data Interchange ("EDI") and
Vendor Managed Inventory ("VMI") technologies. By providing the division's sales
force and customer service representatives with real-time information on
customers, orders, shipments and inventory status, the system has enabled the
division to monitor and replenish customer inventories, provide information on
category activity and shelf space profitability and to offer just-in-time order
delivery to its top customers. The Company believes that its system
1
<PAGE> 6
provides a significant competitive advantage and has been an important factor in
increasing sales to mass merchandisers and wholesale clubs from approximately
4,268 tons in 1993 to approximately 29,800 tons for 1997. By focusing on these
larger accounts, which generally involve higher volume transactions and fewer
Stock Keeping Units ("SKUs"), the Consumer Products Division is able to improve
overall efficiency through longer production runs and reduced inventory.
The Consumer Products Division owns and operates two fully-integrated
tissue manufacturing and converting facilities located in Eau Claire, Wisconsin
and Ransom, Pennsylvania with converting and distributing facilities for the
Ransom facility located in nearby Pittston, Pennsylvania (collectively, the
"Consumer Products Facilities"). The Consumer Products Facilities are
strategically located in proximity to the retail distribution centers of the
Consumer Product Division's largest customers, which enables just-in-time
delivery while reducing transportation costs. The Consumer Products Division
uses primarily recycled fiber as the raw material for its tissue products.
The Consumer Products Division has recently generated significant
improvement in its operating performance. In 1997, net sales and EBITDA were
$136.2 million and $20.7 million, respectively, as compared to $104.9 million
and a $6.8 million loss, respectively, for 1994. The Company believes this
improvement was primarily due to the approximately $50 million of capital
investment over the last five years, used primarily to strategically reposition
the division. Important elements of the strategic repositioning included the
upgrade of existing facilities, including a new pulping and de-inking operation
at the Eau Claire, Wisconsin facility, the construction of the Pittston,
Pennsylvania converting facility and the development and implementation of the
integrated computer-based customer service system. Such capital expenditures
have enabled the Company to: (i) produce a brighter, softer pulp which has
improved finished product quality and allowed the Company to command higher
prices for its products; (ii) increase sales of higher margin, premium tissue
products such as two-ply bath tissue and paper towels; (iii) improve its level
of customer service; (iv) increase sales to mass merchandisers and wholesale
clubs; and (v) increase productivity and realize manufacturing efficiencies. As
a result of these improvements, the net selling price per ton realized by the
division increased 23.7% from 1994 to 1997. During the same period, market
tissue prices, as measured by the U.S. Bureau of Labor Statistics, increased by
10.8%. In addition, to address the Ransom, Pennsylvania facility's historically
high labor cost structure, the Company implemented a labor contract in 1995
which resulted in an eight-month strike. The strike was resolved in December
1995 and a new labor agreement was adopted, resulting in increased workforce
flexibility and reduced labor costs. The Company believes that the strategic
repositioning of the division has resulted in significant improvement in the
Consumer Products Division's operating performance and positions the division to
pursue future growth opportunities.
SPECIALTY PAPER DIVISION
The Specialty Paper Division produces and supplies premium coated and
uncoated printing papers and release and other technical/specialty papers
throughout the U.S. to end users which require high quality and high performance
paper. Premium printing papers are used for corporate annual reports, high-end
advertising brochures, magazines and catalogs, coffee table books, menus and
high quality, full color desktop publishing. Customers of such products include
paper merchants which market such products to graphic designers and specialty
and commercial printers. Release and other technical/specialty papers include
base papers which are silicone coated by the division's customers and used as a
protective layer or backing paper for pressure sensitive applications.
Applications include release papers for self-adhesive postage stamps, mailing
labels, bar code labels, and labels for retail food packages. Release papers are
also increasingly being used to protect industrial adhesives used as fastening
systems for certain automotive trim and aircraft assembly applications as well
as for the manufacture of sound, thermal and electrical insulating materials.
Because release and other technical/specialty paper specifications vary
depending upon their end use, the division's sales force, specialized technical
service staff and research and development team work closely with customers to
customize and develop products to meet their specific needs.
The Specialty Paper Division owns and operates a paper mill and converting
plant for the production of specialty paper in Plainwell, Michigan (the
"Plainwell Mill"). The Plainwell Mill is strategically located to serve the
major printing centers of Chicago and New York. The Specialty Paper Division
uses a combination
2
<PAGE> 7
of technologies to produce high recycled content paper which the Company
believes is comparable to virgin fiber content paper in appearance, performance
and selling price. The Plainwell Mill is able to blend a broad range of fibers,
including a high percentage of generally lower cost recycled fibers, into a base
sheet which is then coated using a rod coating technology. The Company believes
that this technology and its capability to produce high quality recycled content
papers provide the Company with significant cost savings and marketing
advantages. In addition, the Plainwell Mill is configured to handle frequent
paper grade changes. As a result of such manufacturing flexibility, the Company
believes that the division is well positioned to produce a wide range of paper
products that meet the product requirements of many end users in the premium
printing paper and release and other technical/specialty paper niche markets.
The Specialty Paper Division was purchased from Simpson Paper Company
("Simpson") in June 1997 by an investor group led by William L. New, the
Company's Chairman, Chief Executive Officer and President, together with
affiliates of 399 Venture Partners, Inc. The investor group believed that the
Specialty Paper Division represented an attractive investment opportunity based
on: (i) the quality and condition of the manufacturing assets which resulted
from the substantial capital expenditures made by the division's previous
owners; (ii) the investor group's knowledge of the plant and its operations;
(iii) the historical profitability of the business; (iv) the division's
reputation as a leader in the premium printing paper and release and other
technical/specialty paper niche markets; (v) the division's technical expertise;
and (vi) the opportunity to increase profitability of underutilized assets
through more focused management. In anticipation of the pending sale of the
division, beginning in 1996, Simpson began to implement the investor group's
initiatives to increase profitability of the division by: (i) reducing
headcount; (ii) reducing fiber costs by using a higher percentage of recycled
fiber; (iii) reviewing and reducing other operating costs; and (iv) increasing
production and capacity utilization.
BUSINESS STRATEGY
The Company's business strategy is to increase revenues and profitability
in its Consumer Products Division and Specialty Paper Division. The Company
intends to implement its strategy by: (i) capitalizing on attractive niche
markets; (ii) fully utilizing existing capacity; (iii) increasing sales of
higher margin products; (iv) enhancing its high level of customer service; (v)
reducing costs and increasing operating efficiencies; and (vi) pursuing
strategic acquisitions.
- CAPITALIZE ON ATTRACTIVE NICHE MARKETS. The Company has positioned
itself to take advantage of several niche markets within the paper
industry which it believes are attractive and growing. The Consumer
Products Division has established a leading market position in the
private label segment of the at-home consumer tissue market. The Company
believes that the private label tissue market will continue to be an
attractive niche market because of: (i) increased recognition by
consumers that private label tissue products offer quality at value
prices; (ii) increased emphasis by retailers who generally receive higher
margins on private label tissue products than on their nationally branded
counterparts; and (iii) the growth of mass merchandisers and wholesale
clubs which have traditionally emphasized private label tissue products.
The Company believes the premium printing paper, release and
technical/specialty paper niche markets offer generally higher margins,
fewer competitors and more stable prices than the commodity paper market.
In addition, according to industry sources, U.S. sales of coated
two-sided No. 1 and No. 2 paper, the division's primary printing
products, grew at 6.3% and 8.6%, respectively, for 1997 from 1996. The
Company further believes it is well positioned for growth in these niche
markets due to the Specialty Paper Division's technical expertise,
flexible manufacturing capabilities and customized selling process.
- FULLY UTILIZE EXISTING CAPACITY. The Company's objective is to fully
utilize existing capacity in both the Specialty Paper Division and the
Consumer Products Division. The Specialty Paper Division has recently
been operating at production levels which are below the approximately
88,000 tons of finished product which it produced in 1994. During 1996
and 1997, the Specialty Paper Division produced approximately 67,450 tons
and approximately 83,903 tons, respectively, of finished product. The
3
<PAGE> 8
Company believes that in the future it can exceed production levels which
were achieved in 1994. In addition, the Company believes that there is
additional converting capacity in the Consumer Products Division which
can be utilized over the next twelve months. The Consumer Products
Division also intends to commence full scale production of "pop-up"
facial tissue by mid-1998. The Company expects to invest approximately
$3.7 million (of which $742,000 has been invested as of December 31,
1997) to acquire and install the necessary "pop-up" converting equipment
which will add approximately 5,000 tons of converting capacity.
- INCREASE SALES OF HIGHER MARGIN PRODUCTS. The Company plans to continue
to increase sales of higher margin products. The Consumer Products
Division has successfully increased sales of higher margin two-ply bath
tissue and paper towels from 43.2% of tons sold in 1994 to 54.2% of tons
sold in 1997. The Company plans to commence in mid-1998 the full scale
production of higher margin "pop-up" facial tissue. The Company expects
this new product will enhance the Company's product line, result in
increased sales to the division's existing customers and generate
incremental demand for all its private label tissue products. The
Specialty Paper Division plans to use its focused marketing, product
engineering capabilities, and flexible manufacturing to continue to
develop new higher margin products for niche applications. In addition,
the Company will also continue to focus on increasing sales of its
existing higher margin products, such as its Kashmir(R) brand of No. 1
coated printing paper.
- ENHANCE HIGH LEVEL OF CUSTOMER SERVICE. The Company intends to continue
to enhance its high level of customer service to strengthen its
relationships with its customers. The Company believes that the Consumer
Products Division is currently the only private label tissue supplier to
its customers that utilizes EDI and VMI systems, which enable the Company
to assist customers with inventory management, the development of a
favorable product mix and the implementation of category management
programs. The Company believes that continued high levels of customer
service will further increase sales to existing mass merchandisers and
warehouse club customers and attract new ones.
Management believes that it can extend the application of the Consumer
Products Division's computer-based customer service system to customers
of the Specialty Paper Division. The system should provide the Specialty
Paper Division with a competitive advantage as it seeks to better serve
its customer base. In addition, the Specialty Paper Division's sales and
service staff expects to continue to fulfill its customers' needs through
a highly specialized technical service staff and research and development
team.
- REDUCE COSTS AND IMPROVE OPERATING EFFICIENCIES. The Company continually
focuses on reducing costs and improving operating efficiencies. For
example, the Specialty Paper Division has recently increased
productivity, as measured by tons of production per employee, by 22.4%,
from 210 tons per employee for 1996 to 257 tons per employee for 1997.
The Company intends to continue to focus on the Specialty Paper
Division's cost reduction efforts as well as implement cost reduction
efforts at the Consumer Products Division to: (i) improve manufacturing
and converting yield; (ii) reduce freight transportation costs; (iii)
improve fiber purchasing and mix; (iv) reduce energy and other
manufacturing costs; and (v) eliminate duplicative administrative
functions.
- PURSUE STRATEGIC ACQUISITIONS. The Company intends to supplement its
growth strategy by actively pursuing specialty paper acquisition
candidates to expand its manufacturing capacity, strengthen its presence
within various channels of distribution, serve new geographic markets or
further diversify its operations and income stream. The Company is in
discussions from time to time with potential acquisition candidates and
believes that the ongoing consolidation of the North American paper
industry should present the Company with attractive acquisition
opportunities.
4
<PAGE> 9
THE TRANSACTIONS
Pursuant to an agreement dated as of January 22, 1998 among Pope & Talbot,
Inc., Pope & Talbot, Wis., Inc., the Company's parent, Plainwell Holding Company
("Holdings"), and the Company (the "Acquisition Agreement"), Plainwell purchased
substantially all of the assets, properties and rights and assumed certain
related liabilities of the tissue business of Pope & Talbot (the "Acquisition"
and, together with the Offering (as defined herein), the use of proceeds
thereof, the Contributions (as defined herein) and the Merger (as defined
herein), the "Transactions"). Pope & Talbot received, as part of the
consideration for the Acquisition, $121.0 million in cash, subject to
adjustments for working capital, and the Company assumed $18.8 million of
indebtedness in the form of the Eau Claire IRBs (as defined herein) and assumed
certain other liabilities. In connection with the financing of the Acquisition,
399 Venture Partners, Inc. ("399 Venture Partners") and its affiliates, and
certain members of the management of the Consumer Products Division and the
Specialty Paper Division (the "Management Stockholders") purchased common stock
and preferred stock of Holdings for an aggregate purchase price of approximately
$25.0 million. Holdings contributed the full amount of such equity investment to
the Company (the "Contributions"). In conjunction with the Acquisition, the
Company entered into an agreement with Pope & Talbot, Inc. pursuant to which
Pope & Talbot, Inc. agreed to provide certain transition services to the Company
for a period of up to 18 months after the closing of the Acquisition.
In connection with the offering of the Notes (the "Offering"), Plainwell
Paper Company merged with and into the Company and its business operates as the
Specialty Paper Division (the "Merger"). In June 1997, Holdings consummated the
acquisition of the Specialty Paper Division for $32.5 million by acquiring (i)
100% of the common stock of Plainwell Paper Company from Simpson for $22.7
million and (ii) substantially all of the inventory of Plainwell Paper Company
from Simpson for $9.8 million (the "1997 Acquisition"). In addition, Holdings
assumed certain liabilities of Plainwell Paper Company. Of the aggregate
purchase price, $4.0 million was paid by Holdings by issuing $4.0 million of its
Series A Preferred Stock to Simpson and $1.8 million was paid during the first
quarter of 1998. In conjunction with the 1997 Acquisition, an affiliate of 399
Venture Partners (Citicorp Venture Capital, Ltd.), certain members of management
of the Specialty Paper Division, and certain other investors made an equity
investment in the Specialty Paper Division by purchasing shares of common stock,
shares of preferred stock and warrants to purchase common stock of Holdings
pursuant to the terms and conditions of various securities purchase agreements.
------------------------
The Company is a Delaware corporation. The Company's principal offices are
located at 200 Allegan Street, Plainwell, Michigan 49080, and its telephone
number is (616) 685-2500.
5
<PAGE> 10
THE OFFERING
NOTES..................
The Notes were sold by the Company on March 6, 1998 to
Bear, Stearns & Co. Inc. and Salomon Brothers Inc (the
"Initial Purchasers") pursuant to a Purchase Agreement
dated March 3, 1998 (the "Purchase Agreement"). The
Initial Purchasers subsequently resold the Notes to
qualified institutional buyers pursuant to Rule 144A under
the Securities Act and to a limited number of
institutional accredited investors that agreed to comply
with certain transfer restrictions and other conditions.
EXCHANGE AND
REGISTRATION RIGHTS
AGREEMENT............
Pursuant to the Purchase Agreement, the Company and the
Initial Purchasers entered into an Exchange and
Registration Rights Agreement dated March 6, 1998, which
grants the holder of the Notes certain exchange and
registration rights. The Exchange Offer is intended to
satisfy such exchange rights which terminate upon the
consummation of the Exchange Offer.
THE EXCHANGE OFFER
SECURITIES OFFERED.....
$130,000,000 aggregate principal amount of Series B 11%
Senior Subordinated Notes due 2008.
THE EXCHANGE OFFER.....
$1,000 principal amount of the Exchange Notes in exchange
for each $1,000 principal amount of Notes. As of the date
hereof, $130,000,000 aggregate principal amount of Notes
are outstanding. The Company will issue the Exchange Notes
to holders on or promptly after the Expiration Date.
Based on an interpretation by the staff of the Commission
set forth in no-action letters issued to third parties,
the Company believes that the Exchange Notes issued
pursuant to the Exchange Offer in exchange for Notes may
be offered for resale, resold and otherwise transferred by
any holder 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 Exchange Notes are
acquired in the ordinary course of such holder's business
and that such holder does not intend to participate and
has no arrangement or understanding with any person to
participate in the distribution of such Exchange Notes.
Each Participating Broker-Dealer that receives Exchange
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 Exchange Notes. The
Letter of Transmittal states that by so acknowledging and
by delivering a prospectus, a Participating 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 Participating Broker-Dealer in connection
with resales of Exchange Notes received in exchange for
Notes where such Notes were acquired by such Participating
Broker-Dealer as a result of market-making activities or
other trading activities. The Company has agreed that, for
a period of up to one year from the consummation of the
Exchange Offer, it will make this Prospectus available to
any Participating Broker-Dealer for use in connection with
any such resale. See "Plan of Distribution."
Any holder who tenders in the Exchange Offer with the
intention to participate, or for the purpose of
participating, in a distribution of the Exchange Notes
could
6
<PAGE> 11
not rely on the position of the staff of the Commission
enunciated in no-action letters and, in the absence of an
exemption therefrom, must comply with the registration and
prospectus delivery requirements of the Securities Act in
connection with any resale transaction. Failure to comply
with such requirements in such instance may result in such
holder incurring liability under the Securities Act for
which the holder is not indemnified by the Company.
EXPIRATION DATE........
5:00 p.m., New York City time, on , 1998 unless
the Exchange Offer is extended, in which case the term
"Expiration Date" means the latest date and time to which
the Exchange Offer is extended.
ACCRUED INTEREST ON THE
EXCHANGE NOTES AND
THE NOTES............
Each Exchange Note will bear interest from its issuance
date. Holders of Notes that are accepted for exchange will
receive, in cash, accrued interest thereon to, but not
including, the issuance date of the Exchange Notes. Such
interest will be paid with the first interest payment on
the Exchange Notes. Interest on the Notes accepted for
exchange will cease to accrue upon issuance of the
Exchange Notes.
CONDITIONS TO THE
EXCHANGE OFFER.......
The Exchange Offer is subject to certain customary
conditions, which may be waived by the Company. See "The
Exchange Offer -- Conditions."
PROCEDURES FOR
TENDERING NOTES......
Each holder of Notes wishing to accept the Exchange Offer
must complete, sign and date the accompanying 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 Notes and any other required
documentation to the Exchange Agent (as defined) at the
address set forth herein. By executing the Letter of
Transmittal, each holder will represent to the Company
that, among other things, the Exchange Notes acquired
pursuant to the Exchange Offer are being obtained in the
ordinary course of business of the person receiving such
Exchange Notes, whether or not such person is the holder,
that neither the holder nor any such other person has any
arrangement or understanding with any person to
participate in the distribution of such Exchange 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. See "The Exchange Offer -- Purpose
and Effect of the Exchange Offer" and "-- Procedures for
Tendering."
UNTENDERED NOTES.......
Following the consummation of the Exchange Offer, holders
of Notes eligible to participate but who do not tender
their Notes will not have any further exchange rights and
such Notes will continue to be subject to certain
restrictions on transfer. Accordingly, the liquidity of
the market for such Notes could be adversely affected.
CONSEQUENCES OF FAILURE
TO EXCHANGE..........
The Notes that are not exchanged pursuant to the Exchange
Offer will remain restricted securities. Accordingly, such
Notes may be resold only: (i) to the Company; (ii)
pursuant to Rule 144A or Rule 144 under the Securities Act
or pursuant to some other exemption under the Securities
Act; (iii) outside the United States to a foreign person
pursuant to the requirements of Rule 904 under the
Securities Act; or (iv) pursuant to an effective
registration statement under the Securities Act. See "The
Exchange Offer -- Consequences of Failure to Exchange."
7
<PAGE> 12
SHELF REGISTRATION
STATEMENT............
If any holder of the Notes (other than any such holder
which is an "affiliate" of the Company within the meaning
of Rule 405 under the Securities Act) is not eligible
under applicable securities laws to participate in the
Exchange Offer, and such holder has provided information
regarding such holder and the distribution of such
holder's Notes to the Company for use therein, the Company
has agreed to register the Notes on a shelf registration
statement (the "Shelf Registration Statement") and use its
best efforts to cause it to be declared effective by the
Commission as promptly as practicable on or after the
consummation of the Exchange Offer. The Company has agreed
to maintain the continuous effectiveness of the Shelf
Registration Statement for, under certain circumstances, a
maximum of two years, to cover resales of the Notes held
by any such holders.
SPECIAL PROCEDURES FOR
BENEFICIAL OWNERS....
Any beneficial owner whose Notes are registered in the
name of a broker, dealer, commercial bank, trust company
or other nominee and who wishes to tender should contact
such registered holder promptly and instruct such
registered holder to tender on such beneficial owner's
behalf. If such beneficial owner wishes to tender on such
owner's own behalf, such owner must, prior to completing
and executing the Letter of Transmittal and delivering its
Notes, either make appropriate arrangements to register
ownership of the Notes in such owner's name or obtain a
properly completed bond power from the registered holder.
The transfer of registered ownership may take considerable
time. The Company will keep the Exchange Offer open for
not less than twenty days in order to provide for the
transfer of registered ownership.
GUARANTEED DELIVERY
PROCEDURES...........
Holders of Notes who wish to tender their Notes and whose
Notes are not immediately available or who cannot deliver
their Notes, the Letter of Transmittal or any other
documents required by the Letter of Transmittal to the
Exchange Agent (or comply with the procedures for
book-entry transfer) prior to the Expiration Date must
tender their Notes according to the guaranteed delivery
procedures set forth in "The Exchange Offer -- Guaranteed
Delivery Procedures."
WITHDRAWAL RIGHTS......
Tenders may be withdrawn at any time prior to 5:00 p.m.,
New York City time, on the Expiration Date.
ACCEPTANCE OF NOTES AND
DELIVERY OF EXCHANGE
NOTES................
The Company will accept for exchange any and all Notes
which are properly tendered in the Exchange Offer prior to
5:00 p.m., New York City time, on the Expiration Date. The
Exchange Notes issued pursuant to the Exchange Offer will
be delivered promptly following the Expiration Date. See
"The Exchange Offer -- Terms of the Exchange Offer."
USE OF PROCEEDS........
There will be no cash proceeds to the Company from the
exchange pursuant to the Exchange Offer.
EXCHANGE AGENT.........
United States Trust Company of New York
THE EXCHANGE NOTES
GENERAL................
The form and terms of the Exchange Notes are the same as
the form and terms of the Notes (which they replace)
except that: (i) the Exchange Notes bear a Series B
designation; (ii) the Exchange Notes have been registered
under the
8
<PAGE> 13
Securities Act and, therefore, will not bear legends
restricting the transfer thereof; and (iii) the holders of
Exchange Notes will not be entitled to certain rights
under the Exchange and Registration Rights Agreement,
including the provisions providing for an increase in the
interest rate on the Notes in certain circumstances
relating to the timing of the Exchange Offer, which rights
will terminate when the Exchange Offer is consummated. See
"The Exchange Offer -- Purpose and Effect of the Exchange
Offer." The Exchange Notes will evidence the same debt as
the Notes and will be entitled to the benefits of the
Indenture. See "Description of Exchange Notes." The Notes
and the Exchange Notes are referred to herein collectively
as the "Senior Subordinated Notes."
SECURITIES OFFERED.....
$130,000,000 aggregate principal amount of Series B 11%
Senior Subordinated Notes due 2008 of the Company.
MATURITY DATE..........
March 1, 2008.
INTEREST PAYMENT
DATES................
March 1 and September 1, commencing September 1, 1998.
EVENTS OF DEFAULT......
The Indenture under which the Exchange Notes will be
issued provides that each of the following, should they
occur, constitutes an Event of Default thereunder: Such
events include the following: (i) default for 30 days in
the payment when due of interest on, or Liquidated
Damages, if any, with respect to, the Senior Subordinated
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 Senior
Subordinated Notes (whether or not prohibited by the
subordination provisions of the Indenture); (iii) failure
by the Company to comply with the provisions described
under the captions "-- Repurchase at the Option of
Holders -- Change of Control" or "-- Asset Sales" or
"-- Certain Covenants -- Merger, Consolidation or Sale of
Assets;" (iv) failure by the Company for 30 days after
written notice by the Trustee or the Holders of at least
25% in principal amount of the then outstanding Senior
Subordinated Notes 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 Closing Date, 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 such Indebtedness on the date
of such 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,
fully bonded (by a financially responsible institution
regularly engaged in the issuance of security bonds)
discharged or stayed within a period of 45 days; (vii)
except as permitted by the Indenture, any guarantee of the
Senior Subordinated Notes shall be held in any judicial
proceeding to be unenforceable or invalid or shall cease
for any reason to be in full force and effect or any
Restricted Subsidiary, or any Person acting on behalf of
any Restricted Subsidiary, shall deny or disaffirm its
9
<PAGE> 14
obligations under its guarantee; and (viii) certain events
of bankruptcy or insolvency with respect to the Company or
any of its Restricted Subsidiaries. See "Description of
Exchange Notes -- Events of Default."
OPTIONAL REDEMPTION....
Except as set forth below, the Exchange Notes will not be
redeemable at the option of the Company prior to March 1,
2003. Thereafter, the Exchange 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 and Liquidated Damages, if
any, to the applicable redemption date. Notwithstanding
the foregoing, at any time prior to March 1, 2001, the
Company may redeem up to 35% of the Senior Subordinated
Notes at a redemption price of 111% of the principal
amount thereof, plus accrued and unpaid interest and
Liquidated Damages, if any, to the redemption date, with
the net cash proceeds of a Public Offering (as defined
herein); provided that at least 65% in aggregate principal
amount of the Senior Subordinated 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 consummation of each such Public Offering.
See "Description of Exchange Notes -- Optional
Redemption."
CHANGE OF CONTROL......
Upon the occurrence of a Change of Control at any time,
the Company will be obligated to make an offer to
repurchase each Holder's Exchange Notes at a price equal
to 101% of the aggregate principal amount thereof, plus
accrued and unpaid interest and Liquidated Damages, if
any, to the date of purchase. There can be no assurance
that the Company will have the financial resources to
repurchase the Exchange Notes upon a Change of Control.
See "Description of Exchange Notes -- Repurchase at the
Option of Holders -- Change of Control."
RANKING................
The Exchange 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
December 31, 1997, after giving pro forma effect to the
Transactions, the amount of the Company's outstanding
Senior Debt would have been $22.3 million.
RESTRICTIVE
COVENANTS..............
The indenture pursuant to which the Exchange Notes will be
issued (the "Indenture") contains 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. See "Description of Exchange
Notes -- Certain Covenants."
For additional information regarding the Exchange Notes, see "Description of
Exchange Notes."
RISK FACTORS
Holders of Notes should carefully consider all of the information set forth
in this Prospectus and, in particular, should evaluate the specific factors
under "Risk Factors" as well as the other information and data included in this
Prospectus prior to tendering their Notes in the Exchange Offer.
10
<PAGE> 15
PLAINWELL INC.
SUMMARY UNAUDITED PRO FORMA CONSOLIDATED FINANCIAL AND OTHER DATA
(DOLLARS IN THOUSANDS)
The following table sets forth summary unaudited pro forma consolidated
financial data of the Company as of December 31, 1997 and for the year ended
December 31, 1997. The summary unaudited pro forma consolidated statement of
operations data give effect to the Transactions as if they had occurred on
January 1, 1997. The summary unaudited pro forma consolidated balance sheet data
at December 31, 1997 give effect to the Transactions as if they had occurred on
December 31, 1997. The information contained in the following table should also
be read in conjunction with "Capitalization," "Unaudited Pro Forma Consolidated
Financial Information," "Management's Discussion and Analysis of Financial
Condition and Results of Operations," and the historical financial statements,
including the notes thereto, contained elsewhere in this Prospectus.
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31,
1997
------------
<S> <C>
STATEMENT OF OPERATIONS DATA:
Net sales................................................... $222,892
Cost of sales............................................... 190,653
--------
Gross profit................................................ 32,239
Selling, general and administrative expenses................ 13,394
--------
Operating income............................................ 18,845
Interest expense............................................ 15,957
--------
Income before income taxes.................................. 2,888
Income tax provision........................................ 1,326
--------
Income before extraordinary item............................ $ 1,562
========
OTHER DATA:
Pro forma EBITDA (1)........................................ $ 30,473
Capital expenditures........................................ 4,366
Depreciation and amortization............................... 11,628
Ratio of earnings to fixed charges(2)....................... 1.2x
BALANCE SHEET DATA (AT END OF PERIOD):
Cash........................................................ $ 2,371
Working capital(3).......................................... 23,669
Total assets................................................ 224,841
Total debt.................................................. 152,300
Total stockholder's equity.................................. 28,321
</TABLE>
11
<PAGE> 16
- ------------------------------
(1) Pro forma EBITDA represents pro forma operating income plus pro forma
depreciation and amortization. The Company has included information
concerning EBITDA because management believes that EBITDA is generally
accepted as providing useful information regarding a company's ability to
service and/or incur debt. EBITDA should not be considered in isolation or
as a substitute for net income, cash flows 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. The Company understands
that, while EBITDA is frequently used by securities analysts in the
evaluation of companies, EBITDA, as used herein, is not necessarily
comparable to other similarly titled captions of other companies due to
potential inconsistencies in the method of calculation. EBITDA is not
intended as an alternative to cash flow from operating activities as a
measure of liquidity, as an alternative to net income as an indicator of the
Company's operating performance or an alternative to any other measure of
performance in conformity with generally accepted accounting principles.
(2) For purposes of computing this ratio, earnings consist of income before
income taxes plus fixed charges. Fixed charges consist of interest expense,
amortization of deferred financing costs and the portion of rent expense
estimated to represent interest.
(3) Working capital represents total current assets less total current
liabilities.
12
<PAGE> 17
CONSUMER PRODUCTS DIVISION
SUMMARY HISTORICAL FINANCIAL AND OTHER DATA
(DOLLARS IN THOUSANDS, EXCEPT PER TON AMOUNTS)
The following table sets forth summary historical financial and other data
of the Consumer Products Division as of and for each of the fiscal years in the
five-year period ended December 31, 1997. The summary historical financial and
other data, with the exception of tons sold and average selling price per ton,
as of and for each of the years in the three-year period ended December 31,
1997, have been derived from the financial statements of the Consumer Products
Division, contained elsewhere herein, which have been audited by Arthur Andersen
LLP, independent public accountants. The summary historical financial and other
data, with the exception of tons sold and average selling price per ton, as of
and for each of the years in the two-year period ended December 31, 1994 have
been derived from the unaudited financial statements of the Consumer Products
Division. The information contained in the following table should also be read
in conjunction with "Capitalization," "Unaudited Pro Forma Consolidated
Financial Information," "Management's Discussion and Analysis of Financial
Condition and Results of Operations," and the historical financial statements of
the Consumer Products Division, including the notes thereto, contained elsewhere
in this Prospectus.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
----------------------------------------------------
1993 1994 1995 1996 1997
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Net sales................................... $105,040 $104,884 $107,013 $133,649 $136,176
Cost of sales............................... 110,619 115,713 129,483 124,052 121,751
-------- -------- -------- -------- --------
Gross profit (loss)......................... (5,579) (10,829) (22,470) 9,597 14,425
Selling, general and administrative
expenses.................................. 3,490 3,967 3,228 3,351 2,919
Corporate overhead allocation(1)............ 1,555 1,724 1,509 1,962 2,057
-------- -------- -------- -------- --------
Operating income (loss)..................... (10,624) (16,520) (27,207) 4,284 9,449
Interest expense............................ -- 89 881 812 846
-------- -------- -------- -------- --------
Income (loss) before income taxes........... (10,624) (16,609) (28,088) 3,472 8,603
Income tax provision (benefit)(2)........... (3,957) (6,187) (10,533) 1,354 3,355
-------- -------- -------- -------- --------
Net income (loss)........................... $ (6,667) $(10,422) $(17,555) $ 2,118 $ 5,248
======== ======== ======== ======== ========
OTHER DATA:
Capital expenditures........................ $ 9,988 $ 14,450 $ 21,113 $ 1,922 3,737
Depreciation and amortization(3)............ 8,906 9,710 11,298 11,809 11,309
Ratio of earnings to fixed charges(4)....... -- -- -- 5.3x 11.2x
Tons sold................................... 94,212 92,292 80,609 90,445 96,888
Average selling price per ton............... $ 1,115 $ 1,136 $ 1,328 $ 1,478 $ 1,405
BALANCE SHEET DATA (AT END OF PERIOD):
Cash........................................ $ -- $ -- $ -- $ -- $ --
Working capital............................. 10,369 18,211 18,053 19,294 15,560
Total assets................................ 113,669 139,713 139,670 129,443 116,473
Total debt(5)............................... -- 18,800 18,800 18,800 18,800
Intercompany accounts(6).................... 82,548 94,951 99,107 89,638 75,489
</TABLE>
13
<PAGE> 18
- ------------------------------
(1) Corporate overhead allocation represents a pro rata (based on sales dollars)
allocation of certain Pope & Talbot, Inc. corporate administrative costs not
directly attributable to the Consumer Products Division. These costs include
such items as tax services, certain human resource services, and general
corporate administrative costs.
(2) The Consumer Products Division historically has been included in the
consolidated income tax returns of Pope & Talbot, Inc. Income taxes are
presented here as if Consumer Products Division filed its taxes on a
separate return basis.
(3) Includes amortization of deferred financing costs of $2, $14, $14, and $13
for the years ended December 31, 1994, 1995, 1996 and 1997, respectively.
(4) For purposes of computing this ratio, earnings consist of income before
income taxes plus fixed charges. Fixed charges consist of interest expense
and amortization of deferred financing costs. For the years ended December
31, 1993, 1994 and 1995, earnings were inadequate to cover fixed charges by
$10,624, $16,609 and $28,088, respectively.
(5) Total debt consists of a note payable to the City of Eau Claire, Wisconsin
due 2014 in connection with the issuance of the Eau Claire IRBs to finance a
wastepaper pulping improvement project at the Consumer Products Division's
Eau Claire, Wisconsin facility. The note payable is to be assumed by the
Company in connection with the Acquisition.
(6) The Consumer Products Division has historically been accounted for as a
division of Pope & Talbot, Inc. and therefore has no separate historical
equity accounts. Cash funding and distributions have been managed through
Pope & Talbot, Inc.'s corporate cash management system. Cash collected from
and distributed to the Consumer Products Division has been reflected in the
intercompany account balance. The intercompany account balance represents
the net accumulated transactions between the Consumer Products Division and
Pope & Talbot, Inc.
14
<PAGE> 19
SPECIALTY PAPER DIVISION
SUMMARY HISTORICAL FINANCIAL AND OTHER DATA
(DOLLARS IN THOUSANDS, EXCEPT PER TON AMOUNTS)
The following table sets forth summary historical financial and other data
of the Specialty Paper Division as of and for each of the fiscal years in the
four-year period ended December 29, 1996, the period from December 30, 1996
through June 16, 1997 and the period from June 17, 1997 through December 31,
1997. The summary historical financial and other data, with the exception of
tons sold and average selling price per ton, as of and for the year ended
December 29, 1996, the period from December 30, 1996 through June 16, 1997 and
the period from June 17, 1997 through December 31, 1997 have been derived from
the financial statements of the Specialty Paper Division, contained elsewhere
herein, which have been audited by Ernst & Young LLP, independent auditors. The
summary historical financial and other data, with the exception of tons sold and
average selling price per ton, as of and for each of the years in the three-year
period ended December 31, 1995 have been derived from the unaudited financial
statements of the Specialty Paper Division. The information contained in the
following table should also be read in conjunction with "Capitalization,"
"Unaudited Pro Forma Consolidated Financial Information," "Management's
Discussion and Analysis of Financial Condition and Results of Operations," and
the historical financial statements of the Specialty Paper Division, including
the notes thereto, contained elsewhere in this Prospectus.
<TABLE>
<CAPTION>
PERIOD FROM PERIOD FROM
DECEMBER 30, JUNE 17,
1996 1997
FISCAL YEAR(1) THROUGH THROUGH
-------------------------------------- JUNE 16, DECEMBER 31,
1993 1994 1995 1996 1997(2) 1997
------- ------- -------- ------- ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Net sales............................ $86,202 $96,736 $101,049 $85,230 $40,795 $45,921
Cost of sales........................ 73,184 87,587 99,536 76,425 34,231 40,805
------- ------- -------- ------- ------- -------
Gross profit......................... 13,018 9,149 1,513 8,805 6,564 5,116
Selling, general and administrative
expenses............................ 3,231 4,833 3,455 4,434 1,539 3,302
Corporate overhead allocation........ 5,165 5,829 6,260 5,537 724 --
------- ------- -------- ------- ------- -------
Operating income (loss).............. 4,622 (1,513) (8,202) (1,166) 4,301 1,814
Interest expense..................... 117 146 146 144 124 1,187
------- ------- -------- ------- ------- -------
Income (loss) before income taxes.... 4,505 (1,659) (8,348) (1,310) 4,177 627
Income tax provision (benefit)....... 1,945 (494) (2,777) (335) 1,655 413
------- ------- -------- ------- ------- -------
Net income (loss).................... $ 2,560 $(1,165) $ (5,571) $ (975) $ 2,522 $ 214
======= ======= ======== ======= ======= =======
OTHER DATA:
Capital expenditures................. $ 1,854 $ 1,568 $ 4,677 $ 1,220 $ 66 $ 563
Depreciation and amortization........ 2,038 2,104 2,181 2,330 1,070 766
Ratio of earnings to fixed
charges(3).......................... 20.2x -- -- -- 25.0x 1.5x
Tons sold............................ 79,627 87,764 79,662 73,019 36,594 43,736
Average selling price per ton........ $ 1,083 $ 1,102 $ 1,268 $ 1,167 $ 1,115 $ 1,050
BALANCE SHEET DATA (AT END OF
PERIOD):
Cash................................. $ -- $ 88 $ 67 $ -- $ -- $ 772
Working capital(4)................... 4,857 3,989 8,555 3,259 5,761 5,437
Total assets......................... 54,769 56,842 47,786 49,619 51,591 51,892
Total debt........................... 3,500 3,500 3,500 3,500 3,500 20,839
Total stockholder's equity........... 37,112 35,947 30,376 29,401 31,923 8,188
</TABLE>
15
<PAGE> 20
- ------------------------------
(1) The Specialty Paper Division has a fiscal year ending on the Sunday closest
to December 31.
(2) The Specialty Paper Division was acquired from Simpson as of June 17, 1997
in a transaction accounted for under the purchase method of accounting.
(3) For purposes of computing this ratio, earnings consist of income before
income taxes plus fixed charges. Fixed charges consist of interest expense,
amortization of deferred financing costs and the portion of rent expense
estimated to represent interest. For fiscal years 1994, 1995 and 1996,
earnings were inadequate to cover fixed charges by $1,659, $8,348, and
$1,310, respectively.
(4) Working capital represents total current assets less total current
liabilities. Throughout 1993 to June 16, 1997, Simpson performed cash
management on a centralized basis and processed related accounts receivable.
Accordingly, accounts receivable were funded immediately by Simpson and are
not included in working capital for fiscal years 1993, 1994, 1995 and 1996
and the period from December 30, 1996 through June 16, 1997.
16
<PAGE> 21
RISK FACTORS
Holders of the Notes should carefully consider the following factors, in
addition to the other information contained in this Prospectus, before tendering
their Notes in the Exchange Offer.
SUBSTANTIAL LEVERAGE; ABILITY TO SERVICE INDEBTEDNESS
As a result of the Offering, the Company is highly leveraged. As of
December 31, 1997, after giving pro forma effect to the Transactions, the
Company would have had $152.3 million of indebtedness outstanding and would have
had available $35.0 million of borrowing capacity under the New Credit Facility
(as defined herein), subject to borrowing base limitations. For the year ended
December 31, 1997, after giving pro forma effect to the Transactions, the
Company's ratio of earnings to fixed charges would have been 1.2x. See
"Capitalization," "Unaudited Pro Forma Consolidated Financial Information,"
"Selected Financial and Other Data" and "Management's Discussion and Analysis of
Financial Condition and Results of Operations."
The significant indebtedness incurred as a result of the Offering has
several important consequences to the holders of the Exchange 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 Exchange 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 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 Exchange 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 Senior Subordinated 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 EXCHANGE NOTES
The Exchange Notes are not secured by any of the assets of the Company. In
addition, the payment of principal, accrued and unpaid interest and Liquidated
Damages, if any, with respect to the Exchange 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
Exchange 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, a substantial portion
of which are pledged to secure the Company's obligations under the New Credit
Facility, will be insufficient to pay all or a portion of the obligations on the
Exchange Notes. In addition, the Company may not pay principal, accrued and
unpaid interest and Liquidated Damages, if any, with respect to the Exchange
Notes, or defease, purchase, redeem or otherwise acquire any Exchange Notes,
under the circumstances described under "Description of Exchange
Notes -- Subordination."
17
<PAGE> 22
NEW CREDIT FACILITY AND INDENTURE RESTRICTIONS
The New Credit Facility and the Indenture impose certain operating and
financial restrictions on the Company. The New Credit Facility requires the
Company to maintain specified financial ratios, among other obligations,
including a maximum leverage ratio and a minimum fixed charge coverage ratio,
each as defined in the New Credit Facility. In addition, the New Credit Facility
restricts, among other things, the Company's ability to: (i) declare dividends
or redeem or repurchase capital stock; (ii) prepay, redeem or purchase debt;
(iii) incur liens and engage in sale/leaseback transactions; (iv) make loans and
investments; (v) incur indebtedness and contingent obligations; (vi) amend or
otherwise alter debt and other material agreements; (vii) make capital
expenditures; (viii) engage in mergers, consolidations, acquisitions and asset
sales; (ix) engage in transactions with affiliates; and (x) alter its lines of
business or accounting methods. In addition, the Indenture limits, among other
things: (i) the incurrence of additional indebtedness by the Company and its
Restricted Subsidiaries; (ii) the payment of dividends and other restricted
payments by the Company and its Restricted Subsidiaries; (iii) asset sales; (iv)
transactions with affiliates; (v) the incurrence of liens; and (vi) mergers and
consolidations. The Company's ability to comply with such covenants may be
affected by events beyond its control, including prevailing economic and
financial conditions, a breach of any of these covenants could result in a
default under the New Credit Facility and/or the Indenture. Upon the occurrence
of an event of default under the New Credit Facility or the Indenture, the
lender under the New Credit Facility could elect to declare all amounts
outstanding under the New Credit Facility, together with accrued and unpaid
interest, to be immediately due and payable. If the Company were unable to repay
any such amounts, such lender could proceed against the collateral securing such
indebtedness. If the lender under the New Credit Facility accelerates the
payment of such indebtedness, there can be no assurance that the assets of the
Company would be sufficient to repay in full such indebtedness and the other
indebtedness of the Company, including the Exchange Notes. In addition, 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 Certain Indebtedness" and "Description of Exchange Notes."
CYCLICAL INDUSTRY CONDITIONS
The markets for paper products, including the Company's, are highly
cyclical, being characterized by periods of supply and demand imbalance,
sensitivity to changes in industry capacity, overall domestic economic activity
and competitive conduct, all of which are beyond the Company's control. A number
of structural factors accentuate the cyclicality of the paper industry,
including the substantial capital investment and high fixed costs required to
manufacture paper products and the significant exit costs associated with
capacity reductions. In addition, because of the high fixed costs associated
with paper production, paper manufacturers need to maintain high levels of
capacity utilization (operating rates) to cover fixed costs and accordingly,
relatively small changes in operating rates due to changes in domestic demand,
capacity, levels of imports or otherwise, may significantly affect prices.
There can be no assurance that the current price levels of the Company's
products will be maintained, that any announced price increases will be
achieved, that the paper industry will not add incremental capacity, either from
new machines or from rebuilds of existing machines, or that imports from
overseas will not increase. Prices for the Company's products may fluctuate
substantially in the future. A significant downturn in such prices could have a
material adverse effect on the Company's results of operations.
RISKS ASSOCIATED WITH FLUCTUATIONS IN SUPPLY AND COSTS OF RAW MATERIALS
The Consumer Products Division purchases pre-consumer and post-consumer
wastepaper for the production of its products through a combination of supply
arrangements with brokers located in the Midwest and the Northeast. While these
relationships have historically been stable, supply arrangements are by purchase
order and are terminable at will at the option of either party. There can be no
assurance that any of these supply relationships will not be terminated in the
future. Although the Company believes that current sources of supply for the
Consumer Products Division's raw materials are adequate to meet its
requirements, occasional periods of short supply of certain raw materials may
occur. Some of the Consumer Products
18
<PAGE> 23
Division's competitors control collection sources of consumer wastepaper, and
may therefore have better access to such raw materials during periods of short
supply.
The Specialty Paper Division depends on pulp as a key raw material for the
manufacturing of its products. The Specialty Paper Division purchases pulp
through a broad based system of suppliers and brokers, and seeks competitive
bids on all major purchases to ensure competitive prices. While these
relationships have historically been stable, there can be no assurance that any
of these supplier relationships will continue in the future.
Prices for pulp and waste paper show considerable price volatility over the
business cycle. Prices for pulp and waste paper increased dramatically in 1995
and as a result of such increase, the 1995 results of the Consumer Products
Division and the Specialty Paper Division were adversely affected. No assurance
can be given that future price fluctuations in pulp, waste paper and other raw
materials will not have a material adverse effect on the Company. In addition,
prices for the Company's other raw materials fluctuate. 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 lag time that generally
accompanies the implementation of both raw materials and subsequent selling
price changes. See "Management's Discussion and Analysis of Financial Condition
and Results of Operations."
DEPENDENCE ON CERTAIN CUSTOMERS
The Company's revenues are substantially dependent upon a limited number of
large customers. For 1996 and 1997, the 10 largest customers of the Consumer
Products Division represented 73.7% and 77.5% of its net sales, respectively.
For the same periods, the 10 largest customers of the Specialty Paper Division
represented 62.7% and 67.5% of its net sales, respectively. On a pro forma
basis, for the same periods, the 10 largest customers of the Company represented
50.0% and 58.5% of the Company's net sales, respectively. In conjunction with
the 1997 Acquisition, Holdings and Simpson entered into a requirements contract
pursuant to which Simpson has the right to purchase from Plainwell Paper Company
all of Simpson's requirements, up to 20,000 tons per twelve-month period through
June 30, 1998, for coated two-sided matte paper products sold by Simpson under
the brand name EVERGREEN(R). Simpson is not obligated to make any purchases
under the contract, and each purchase is subject to the terms and conditions set
forth in the contract, including price. From June 17, 1997 to December 31, 1997,
Simpson purchased an average of 2,364 tons per month, and accounted for 36.5% of
Plainwell Paper Company's net sales during such period. The requirements
contract expires June 30, 1998, the date on which Simpson's license to use the
EVERGREEN(R) brand name expires, but may be extended at the option of Simpson.
If the term of the requirements contract is extended by Simpson, Simpson has the
right to purchase from Plainwell Paper Company all of Simpson's requirements, up
to 20,000 tons per twelve-month period through June 30, 2000, for sheets and
rolls of matte paper of the same grade and quality as EVERGREEN(R). There can be
no assurance that Simpson will continue to make purchases from the Company under
this contract or that it will be extended beyond its current term. The loss of,
or significant decrease or interruption in business from, one or more of the
Company's significant customers, including Simpson, could have a material
adverse effect on the Company. See "Business -- Marketing and Sales," and
"Business -- Customers."
INTEGRATION OF ACQUISITIONS; MANAGEMENT INFORMATION SYSTEMS
Part of the Company's business strategy is to actively pursue strategic
acquisition candidates. The Company has been in, and expects to continue to be
in, discussions with potential acquisition candidates. The integration of the
Consumer Products Division and future acquired business could be affected by a
number of factors, some of which are not in the Company's control. Such factors
include the response of competition, general economic conditions, the ability of
the Company's existing management and systems infrastructure to absorb increased
operations and the integration of new operations and inventory procedures into
the Company's management information systems and operations. The Company has
determined that the Specialty Paper Division's management information systems
are inadequate and intends to upgrade such systems over the next two years. No
assurance can be given that such upgrade will be accomplished, or will not
interfere with the Company's operations. In connection with the 1997
Acquisition, Plainwell Paper Company and Simpson entered into a Transition
Services Agreement pursuant to which Simpson agreed to provide
19
<PAGE> 24
certain transition services to Plainwell Paper Company for a period ending not
later than the second anniversary of the 1997 Acquisition. The Company is
dependent upon the continued services of Simpson under such agreement, and the
early termination of such agreement could have a material adverse effect on the
Company. Acquisitions may also increase the Company's leverage and debt service
requirements. 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 on acceptable terms, that
financing for future acquisitions will be available on acceptable terms, that
future acquisitions will be advantageous to the Company or that anticipated
benefits of such acquisitions will be realized. The pursuit, timing and
integration of possible future acquisitions may cause substantial fluctuations
in operating results. See "Business -- Business Strategy."
COMPETITION
The Consumer Products Division participates in the highly competitive
private label consumer tissue market. The division's competitors include large,
vertically integrated, multinational companies and smaller, regional companies
including Fort James Corporation, Georgia-Pacific Corporation, Shepherd Tissue
Inc., American Tissue Corporation, Orchids Paper Products Co. and Potlach
Corporation. Many of the division's competitors are larger and have equal or
greater access to financial and other resources than the Company.
The Specialty Paper Division sells products in the highly competitive
premium coated printing paper and release and other technical/specialty paper
markets. The division's products compete directly with those of a number of
companies, some which are significantly larger than the Company and which have
integrated pulp supplies at their mill sites. Such companies may manufacture a
significant amount of their pulp requirements which may reduce their exposure to
fluctuations in the market price of pulp compared to the Company. See "-- Risks
Associated with Fluctuations in Supply and Costs of Raw Materials." In addition,
certain of the mills operated by the division's competitors may be lower cost
producers of pulp and coated paper than the Plainwell Mill. The Specialty Paper
Division's main competitors in premium coated printing paper and release and
other technical/specialty paper markets include Champion International
Corporation, Consolidated Papers Inc., Potlach Corporation and S.D. Warren Co.,
the Nicolet Division of International Paper Company, and Rhinelander Paper
Company, Inc. and Otis Specialty Papers, units of Wausau-Mosinee Paper
Corporation. See "Business -- Competition."
CONTROLLING STOCKHOLDERS
The Management Stockholders and 399 Venture Partners beneficially own
substantially all of the outstanding common stock of Holdings and collectively
control the affairs and policies of the Company. Circumstances may occur in
which the interests of these stockholders could be in conflict with the
interests of the Holders of the Exchange Notes. In addition, these stockholders
may have an interest in pursuing acquisitions, divestitures or other
transactions that, in their judgment, could enhance their equity investment,
even though such transactions might involve risks to the Holders of the Exchange
Notes. See "Principal Stockholders."
DEPENDENCE ON KEY PERSONNEL
The Company is dependent on the continued services of its senior management
team, including William L. New, its Chairman, Chief Executive Officer and
President. The Company believes that the loss of the services of any of its
senior management team could have a material adverse effect on the Company. See
"Management."
LABOR MATTERS
As of December 31, 1997, 100% of the Company's hourly production employees
were covered by collective bargaining agreements. The collective bargaining
agreements covering employees at the Consumer Products Division expire in
September 1999 and March 2000. The collective bargaining agreement covering
employees at the Specialty Paper Division expires in November 2000. There can be
no assurance that the Company will be successful in renegotiating such
agreements or that the Company will not incur increased
20
<PAGE> 25
costs as a result of such negotiations. The Consumer Products Division
experienced an eight-month work strike at its Ransom, Pennsylvania facility from
May 1995 through December 1995 which had a material adverse effect on the
Consumer Products Division. Extended interruption of operations at the Consumer
Products Facilities or the Plainwell Mill could have a material adverse effect
on the Company's financial condition and results of operations. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" and "Business -- Employees."
ENVIRONMENTAL MATTERS
The Company is subject to comprehensive and evolving federal, state and
local environmental and occupational health and safety requirements, including
laws and regulations relating to air emissions, wastewater management, the
handling and disposal of solid and hazardous waste and related financial
responsibility requirements, and the cleanup of properties affected by hazardous
substances. Certain environmental laws impose significant penalties for
noncompliance, and others impose strict, retroactive, joint and several
liability on persons responsible for releases of hazardous substances.
The Company believes that its operations have been and are in substantial
compliance with environmental requirements, and that it has no liabilities
arising under environmental requirements, except as would not be expected to
have a material adverse effect on the Company's operations, financial condition
or competitive position. Some risk of environmental liability is inherent in the
Company's business, however, and there can be no assurance that material
environmental costs will not arise in the future.
The Company will continue to incur capital and operating expenditures to
achieve and maintain compliance with current environmental laws and new
requirements. Such new requirements include rules promulgated by the U.S.
Environmental Protection Agency ("U.S. EPA") that may require more stringent
controls on air emissions and wastewater discharges from pulp and paper mills
(generally referred to as the "Cluster Rules"). U.S. EPA has also promulgated
regulations implementing the Great Lakes Initiative ("GLI"), which affects the
control of water quality in certain Midwest states. The Company's future
spending on environmental matters may be significantly influenced by the Cluster
Rules and the state-adopted regulations implementing the GLI. The Company
estimates that future capital spending to comply with the Cluster Rules and the
GLI could be up to $5 million, depending on the timing and specific requirements
imposed. The Company cannot predict if or when such rules will be promulgated in
a form that will require the Company to make such expenditures. The Company
believes that the costs of compliance with the Cluster Rules, the GLI and other
environmental requirements will not have an material adverse effect on the
Company's liquidity, operations or financial condition.
Certain environmental laws, such as the federal Comprehensive Environmental
Response, Compensation, and Liability Act of 1980 ("CERCLA," or "Superfund")
provide in particular instances for strict, joint and several liability for
investigation and cleanup of contaminated sites. Such laws impose liability on
several classes of persons (and their successors), including current and former
owners and operators of contaminated sites and others responsible for the
arrangement and disposal of contaminants. The Company is currently considered a
potentially responsible party for costs associated with five sites. The Company
is also a party to various indemnification agreements with respect to most of
these known sites, and the Company believes such agreements should cover most of
the Company's associated liabilities. There can be no assurance, however, that
the indemnifying parties will perform under the indemnification agreements or
that the Company will not incur material liabilities with respect to the known
sites or others under Superfund or other laws. Based on information currently
available and the contractual rights to indemnification, management believes
that the costs associated with these sites will not have a material adverse
effect on the liquidity, operations or financial condition of the Company. See
"Business -- Environmental Matters."
Additionally, there can be no assurance that the Company will not be
involved in a CERCLA 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
21
<PAGE> 26
may be found to exist for which the Company may have liability. 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.
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 Senior Subordinated Notes at a
price equal to 101% of the aggregate principal amount thereof plus accrued and
unpaid interest and Liquidated Damages, if any, to the date of purchase. There
can be no assurance that the Company will have the financial resources necessary
to repurchase the Senior Subordinated Notes upon a Change of Control. In
addition, the terms of the New Credit Facility require that the New Credit
Facility be repaid in full upon a Change of Control before repurchase of the
Senior Subordinated Notes. The requirement to repurchase the Senior Subordinated
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 Certain Indebtedness"
and "Description of Exchange Notes -- Repurchase at the Option of
Holders -- Change of Control."
ABSENCE OF PUBLIC MARKET
Prior to the Exchange Offer, there has been no public market for the Notes.
The Notes have not been registered under the Securities Act and will be subject
to restrictions on transferability to the extent that they are not exchanged for
Exchange Notes by holders who are entitled to participate in this Exchange
Offer. The holders of Notes (other than any such holder that is an "affiliate"
of the Company within the meaning of Rule 405 under the Securities Act) who are
not eligible to participate in the Exchange Offer are entitled to certain
registration rights, and the Company is required to file a Shelf Registration
Statement with respect to such Notes. The Exchange Notes are new securities for
which there currently is no market. The Exchange Notes are eligible for trading
by qualified buyers in the Private Offerings, Resale and Trading though
Automated Linkages (PORTAL) market. The Company does not intend to apply for
listing of the Exchange Notes, on any securities exchange or for quotation
through the National Association of Securities Dealers Automated Quotation
System. Although the Exchange Notes are eligible for trading through PORTAL, the
Exchange 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 Company has been advised by the
Initial Purchasers that they currently intend to make a market in the Exchange
Notes as permitted by applicable law and regulations; however, the Initial
Purchasers are not obligated to do so and any such market-making activities, if
commenced, may be discontinued at any time without notice. In addition, such
market-making activities may be limited during the Exchange Offer and pendency
of the Shelf Registration Statement. Therefore, there can be no assurance that
an active market for any of the Exchange Notes will develop, either prior to or
after the Company's performance of its obligations under the Exchange and
Registration Rights Agreement. See "Description of Exchange Notes."
The Exchange Notes generally will be permitted to be resold or otherwise
transferred (subject to the restrictions described under "Description of
Exchange Notes") by each holder without the requirement of further registration.
The Exchange Notes, however, will also constitute a new issue of securities with
no established trading market. The Exchange Offer will not be conditioned upon
any minimum or maximum aggregate principal amount of Notes being tendered for
exchange. No assurance can be given as to the liquidity of the trading market
for the Exchange Notes, or, in the case of non-exchanging holders of Notes, the
trading market for the Notes following the Exchange Offer.
The liquidity of, and trading market for, the Exchange Notes also may be
adversely affected by general declines in the market or by declines in the
market for similar securities. Such declines may adversely affect such liquidity
and trading markets independently of the financial performance of, and prospects
for, the Company.
22
<PAGE> 27
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.
EXCHANGE OFFER PROCEDURES
Issuance of the Exchange Notes in exchange for the Notes pursuant to the
Exchange Offer will be made only after a timely receipt by the Company of such
Notes, a properly completed and duly executed Letter of Transmittal and all
other required documents. Therefore, holders of the Notes desiring to tender
such Notes in exchange for Exchange Notes should allow sufficient time to ensure
timely delivery. The Company is under no duty to give notification of defects or
irregularities with respect to the tenders of Notes for exchange. Notes that are
not tendered or are tendered but not accepted will, following the consummation
of the Exchange Offer, continue to be subject to the existing restrictions upon
transfer thereof and, upon consummation of the Exchange Offer, certain
registration rights under the Exchange and Registration Rights Agreement will
terminate. In addition, any holder of Notes who tenders in the Exchange Offer
for the purpose of participating in a distribution of the Exchange Notes may be
deemed to have received restricted securities and, if so, will be required to
comply with the registration and prospectus delivery requirements of the
Securities Act in connection with any resale transactions. Each Participating
Broker-Dealer that receives Exchange Notes for its own account in exchange for
Notes, where such Notes were acquired by such Participating 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 Exchange
Notes. See "Plan of Distribution." To the extent that Notes are tendered and
accepted in the Exchange Offer, the trading market for untendered and tendered
but unaccepted Notes could be adversely affected. See "The Exchange Offer."
23
<PAGE> 28
USE OF PROCEEDS
The Exchange Offer is intended to satisfy certain of the Company's
obligations under the Exchange and Registration Rights Agreement. The Company
will not receive any cash proceeds from the issuance of the Exchange Notes in
the Exchange Offer. The estimated sources and uses of cash from the proceeds
from the Offering as of March 6, 1998, the Contributions and borrowings under
the New Credit Facility are set forth below:
<TABLE>
<CAPTION>
(DOLLARS IN
THOUSANDS)
-----------
<S> <C>
SOURCES OF FUNDS:
11% Senior Subordinated Notes due 2008.................... $130,000
Contributions from Holdings............................... 25,000
New Credit Facility(1).................................... --
Cash of Specialty Paper Division(2)....................... 304
--------
Total............................................. $155,304
========
USES OF FUNDS:
Cash consideration for Consumer Products Division......... $121,000
Repayment of Existing Credit Facility(3).................. 21,879
Dividend to Holdings to redeem preferred stock of Holdings
held by Simpson(4)..................................... 4,288
Transaction costs......................................... 8,137
--------
Total............................................. $155,304
========
</TABLE>
- ------------------------------
(1) The New Credit Facility provides up to $35.0 million on a revolving basis,
subject to borrowing base limitations and provides up to an additional $20.0
million for letters of credit to secure the Eau Claire IRBs. See
"Description of Certain Indebtedness."
(2) Reflects use of cash of the Specialty Paper Division. Actual cash of the
Specialty Paper Division as of March 6, 1998 was $.6 million.
(3) Reflects amounts outstanding under the Existing Credit Facility as of March
6, 1998.
(4) Reflects accrued dividends as of March 6, 1998. In connection with the
Transactions, Holdings was required to redeem preferred stock pursuant to
change of control provisions.
24
<PAGE> 29
CAPITALIZATION
The following table sets forth the cash and cash equivalents and
capitalization of the Company as of December 31, 1997 (i) on a historical basis
for the Consumer Products Division and the Specialty Paper Division and (ii) on
a pro forma basis after giving effect to the Transactions assuming they were
consummated on such date. The table should be read in conjunction with the
"Unaudited Pro Forma Consolidated Financial Information," "Selected Financial
and Other Data," "Management's Discussion and Analysis of Financial Condition
and Results of Operations" and the historical financial statements, including
the notes thereto, contained elsewhere in this Prospectus.
<TABLE>
<CAPTION>
CONSUMER SPECIALTY PRO FORMA AS
PRODUCTS DIVISION PAPER DIVISION ADJUSTED
----------------- -------------- ------------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
Cash and cash equivalents......................... $ -- $ 772 $ 2,371
======= ======= ========
Debt:
Industrial Revenue Bonds:
City of Plainwell, Michigan due 2007......... $ -- $ 3,500 $ 3,500
City of Eau Claire, Wisconsin due 2014....... 18,800 -- 18,800
Existing Credit Facility........................ -- 20,339 --
New Credit Facility(1).......................... -- -- --
11% Senior Subordinated Notes due 2008.......... -- -- 130,000
------- ------- --------
Total debt................................... 18,800 23,839 152,300
------- ------- --------
Total stockholder's equity........................ 75,489 8,188 28,321
------- ------- --------
Total capitalization.................... $94,289 $32,027 $180,621
======= ======= ========
</TABLE>
- ------------------------------
(1) The New Credit Facility provides up to $35.0 million on a revolving basis,
subject to borrowing base limitations, and provides up to an additional
$20.0 million for letters of credit to secure the Eau Claire IRBs. See
"Description of Certain Indebtedness."
25
<PAGE> 30
UNAUDITED PRO FORMA CONSOLIDATED FINANCIAL INFORMATION
The following unaudited pro forma consolidated financial information (the
"Unaudited Pro Forma Financial Information") of the Company has been derived by
the application of pro forma adjustments, which give effect to the Transactions,
to the historical financial statements of the Consumer Products Division and the
Specialty Paper Division included elsewhere in this Prospectus. The Acquisition
occurred simultaneously with the closing of the Offering. The Unaudited Pro
Forma Consolidated Balance Sheet gives effect to the Transactions as if such
Transactions had occurred on December 31, 1997. The Unaudited Pro Forma
Consolidated Statement of Operations for the year ended December 31, 1997 give
effect to the Transactions as if such Transactions had occurred on January 1,
1997.
The Unaudited Pro Forma Financial Information is for comparative purposes
only and does not purport to represent what the Company's financial position or
results of operations would actually have been had the Transactions in fact
occurred on the assumed dates or to project the Company's financial position or
results of operations for any future date or future period. The Unaudited Pro
Forma Financial Information 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 Consumer Products
Division and the Specialty Paper Division, including the notes thereto,
contained elsewhere in this Prospectus.
The pro forma adjustments, as described in the accompanying Notes to the
Unaudited Pro Forma Consolidated Balance Sheet and Statement of Operations, are
based on available information and certain assumptions that management believes
are reasonable.
The Acquisition is accounted for under the purchase method of accounting.
The purchase price for the Consumer Products Division has been allocated to
tangible and intangible assets and liabilities based on preliminary estimates of
their fair values. However, the allocation of the purchase price is subject to
revision when additional information concerning the final determination of the
fair value of assets acquired and liabilities assumed is obtained. Management
believes that the final allocation of the purchase price will not materially
differ from the preliminary estimated amounts.
26
<PAGE> 31
PLAINWELL INC.
UNAUDITED PRO FORMA CONSOLIDATED BALANCE SHEET
DECEMBER 31, 1997
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
HISTORICAL HISTORICAL
SPECIALTY CONSUMER
PAPER PRODUCTS PRO FORMA PRO FORMA
DIVISION DIVISION ADJUSTMENTS CONSOLIDATED
---------- ---------- ----------- ------------
<S> <C> <C> <C> <C>
ASSETS:
Current assets:
Cash................................... $ 772 $ -- $ 1,599(a) $ 2,371
Accounts receivable.................... 6,473 10,676 -- 17,149
Inventories............................ 10,681 17,669 252(b) 28,602
Deferred income taxes and prepaid
expenses............................. 2,244 2,315 (2,053)(b) 2,506
------- -------- -------- --------
20,170 30,660 (202) 50,628
Properties, net........................... 24,594 74,969 43,591(b) 143,154
Deferred income taxes..................... -- 6,936 (6,936)(b) --
6,527(c)
(1,032)(g)
Other assets.............................. 7,128 211 1,757(b) 14,591
(3,697)(b)
Intangible assets......................... -- 3,697 16,468(b) 16,468
------- -------- -------- --------
Total assets.............................. $51,892 $116,473 $ 56,476 $224,841
======= ======== ======== ========
LIABILITIES AND STOCKHOLDER'S EQUITY:
Current liabilities:
New Credit Facility.................... $ -- $ -- $ -- $ --
Current portion of long-term debt...... 3,000 -- (3,000)(d) --
Accounts payable....................... 7,857 5,712 -- 13,569
(14)(b)
(848)(b)
1,370(b)
Accrued liabilities.................... 3,876 9,388 (382)(g) 13,390
------- -------- -------- --------
14,733 15,100 (2,874) 26,959
Post-retirement benefits.................. 1,234 7,084 502(b) 8,820
Long-term debt:
Existing Credit Facility............... 17,339 -- (17,339)(d) --
Industrial Revenue Bonds............... 3,500 18,800 -- 22,300
11% Senior Subordinated Notes due
2008................................. -- -- 130,000(d) 130,000
Other long-term liabilities............... 2,126 -- 1,543(b) 3,669
Deferred income taxes..................... 4,772 -- -- 4,772
------- -------- -------- --------
Total liabilities......................... 43,704 40,984 111,832 196,520
(75,489)(b)
25,000(e)
(4,217)(f)
Stockholder's equity...................... 8,188 75,489 (650)(g) 28,321
------- -------- -------- --------
Total liabilities and stockholder's
equity................................. $51,892 $116,473 $ 56,476 $224,841
======= ======== ======== ========
</TABLE>
See Notes to Unaudited Pro Forma Consolidated Balance Sheet.
27
<PAGE> 32
PLAINWELL INC.
NOTES TO UNAUDITED PRO FORMA CONSOLIDATED BALANCE SHEET
(DOLLARS IN THOUSANDS)
(a) Adjustment to reflect the net effect of the Transactions, as follows:
<TABLE>
<S> <C>
Proceeds from Senior Subordinated Notes..................... $ 130,000
Proceeds from Contributions from Holdings................... 25,000
Purchase price, including working capital adjustment........ (120,708)
Acquisition costs........................................... (1,610)
Repayment of certain existing Specialty Paper Division
indebtedness.............................................. (20,339)
Dividend to Holdings to redeem preferred stock of Holdings
held by Simpson........................................... (4,217)
Financing costs............................................. (6,527)
---------
$ 1,599
=========
</TABLE>
(b) Adjustments to reflect the push-down of the $122,318 purchase price (which
includes the acquisition costs) to the assets and liabilities of the
Consumer Products Division, allocated as follows:
<TABLE>
<S> <C>
Book value of the Consumer Products Division as of December
31, 1997.................................................. $ 75,489
Fair value adjustments(1):
Write-up inventories...................................... 252
Eliminate current deferred income tax asset............... (2,053)
Write-up properties(2).................................... 43,591
Eliminate long-term deferred income tax asset............. (6,936)
Eliminate historical goodwill............................. (3,697)
Eliminate historical pension obligation................... 14
Establish pension asset as a result of purchase price
accounting............................................. 1,757
Establish additional liabilities(3)....................... (1,370)
Increase post retirement benefit obligation............... (502)
Increase workers compensation liability to $1,543 and
reclassify $848 to other long-term liabilities......... (695)
Residual -- goodwill(4)................................... 16,468
---------
$ 122,318
=========
</TABLE>
- ------------------------------
(1) For all other recorded assets and liabilities of the Consumer Products
Division, the historical book values were estimated to approximate their
fair values at the balance sheet date.
(2) The fair value of properties was based on an outside appraisal completed in
connection with the Transactions. The remaining economic useful lives used
in depreciating the new basis of the depreciable fixed assets range from two
to 26 years.
(3) The additional liabilities represent accruals for estimated costs to be
incurred, related to the relocation of certain former corporate Pope &
Talbot, Inc. employees and the present value of costs to monitor a landfill
to be closed.
(4) An amortization period of 40 years will be used for goodwill because the
period expected to be benefited exceeds 40 years. For purposes of the pro
forma consolidated balance sheet, the residual has been allocated to
goodwill. To the extent identifiable intangible assets are identified in
connection with an outside appraisal to be completed, the amounts will be
recorded as identifiable intangible assets and goodwill will be reduced.
28
<PAGE> 33
(c) Adjustment to record the estimated transaction costs of $6,527. The amount
is being amortized over 10 years, the life of the Senior Subordinated Notes.
(d) Adjustment to record the debt used to finance the acquisition of the
Consumer Products Division and the repayment of certain existing
indebtedness of the Specialty Paper Division:
<TABLE>
<S> <C> <C>
Senior Subordinated Notes.............................. $130,000
Repayment of certain existing Specialty Paper Division
indebtedness:
Term note:
Current portion................................. (3,000)
Long-term portion............................... $(10,500)
Revolving line of credit.......................... (6,839)
--------
(17,339)
--------
$109,661
========
</TABLE>
(e) Adjustment to record the $25,000 Contributions from Holdings.
(f) Adjustment to record the dividend to Holdings to redeem preferred stock of
Holdings held by Simpson.
(g) Adjustment to write-off the deferred financing costs related to the existing
indebtedness of the Specialty Paper Division being repaid, net of taxes at
37%.
29
<PAGE> 34
PLAINWELL INC.
UNAUDITED PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS
YEAR ENDED DECEMBER 31, 1997
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
HISTORICAL SPECIALTY PAPER
DIVISION
---------------------------
PERIOD FROM PERIOD FROM
DECEMBER 30, JUNE 17, PRO FORMA HISTORICAL
1996 TO 1997 TO SPECIALTY CONSUMER
JUNE 16, DECEMBER 31, PRO FORMA PAPER PRODUCTS PRO FORMA PRO FORMA
1997 1997 ADJUSTMENTS DIVISION DIVISION ADJUSTMENTS CONSOLIDATED
------------ ------------ ----------- --------- ---------- ----------- ------------
<S> <C> <C> <C> <C> <C> <C> <C>
Net sales................ $40,795 $45,921 $ -- $86,716 $136,176 $ -- $222,892
(1,317)(e)
Cost of sales............ 34,231 40,805 (432)(a) 74,604 121,751 (4,385)(f) 190,653
------- ------- ------- ------- -------- -------- --------
Gross profit............. 6,564 5,116 432 12,112 14,425 5,702 32,239
(6)(e)
4,385(f)
Selling, general and 5(a) 246(g)
administrative
expenses............ 1,539 3,302 504(b) 5,350 2,919 500(h) 13,394
Corporate overhead
allocation............. 724 -- (724)(b) -- 2,057 (2,057)(h) --
------- ------- ------- ------- -------- -------- --------
Operating income......... 4,301 1,814 647 6,762 9,449 2,634 18,845
Interest expense......... 124 1,187 941(c) 2,252 846 12,859(i) 15,957
------- ------- ------- ------- -------- -------- --------
Income before income
taxes.................. 4,177 627 (294) 4,510 8,603 (10,225) 2,888
Income tax provision..... 1,655 413 (109)(d) 1,959 3,355 (3,988)(j) 1,326
------- ------- ------- ------- -------- -------- --------
Income before
extraordinary item..... $ 2,522 $ 214 $ (185) $ 2,551 $ 5,248 $ (6,237) $ 1,562
======= ======= ======= ======= ======== ======== ========
Calculation of EBITDA:
Operating income....... $ 4,301 $ 1,814 $ 647 $ 6,762 $ 9,449 $ 2,634 $ 18,845
Depreciation........... 1,070 766 (427) 1,409 11,130 (1,323) 11,216
Amortization of
intangibles......... -- -- -- -- 166 246 412
------- ------- ------- ------- -------- -------- --------
EBITDA................. $ 5,371 $ 2,580 $ 220 $ 8,171 $ 20,745 $ 1,557 $ 30,473
======= ======= ======= ======= ======== ======== ========
Amortization of deferred
financing costs
included in interest
expense................ $ -- $ 124 $ 112 $ 236 $ 13 $ 417 $ 666
======= ======= ======= ======= ======== ======== ========
</TABLE>
See Notes to Unaudited Pro Forma Consolidated Statement of Operations.
30
<PAGE> 35
PLAINWELL INC.
NOTES TO UNAUDITED PRO FORMA
CONSOLIDATED STATEMENT OF OPERATIONS
(DOLLARS IN THOUSANDS)
(a) Adjustment to depreciation expense based on the purchase price accounting
adjustment and remaining economic useful lives of the Specialty Paper
Division's properties, as follows:
<TABLE>
<CAPTION>
PERIOD FROM DECEMBER 30, 1996
THROUGH JUNE 16, 1997
---------------------------------
SELLING,
GENERAL AND
ADMINISTRATIVE
COST OF SALES EXPENSES
------------- --------------
<S> <C> <C>
Remove historical depreciation.............................. $(1,037) $(33)
New basis
depreciation.............................................. 605 38
------- ----
$ (432) $ 5
======= ====
</TABLE>
(b) Adjustment to reduce selling, general and administrative expenses for the
corporate overhead allocation from Simpson, offset by additional selling,
general and administrative expenses (principally, compensation expense,
professional fees and marketing costs) that management estimates would have
been incurred by the Specialty Paper Division to replace services previously
provided by Simpson.
(c) Adjustment to record interest expense and amortization of deferred financing
costs on the debt incurred to finance the acquisition of the Specialty Paper
Division, calculated as follows:
<TABLE>
<CAPTION>
PERIOD FROM
DECEMBER 30, 1996
THROUGH
JUNE 16, 1997
-----------------
<S> <C>
Term Note................................................... $589
Revolving credit facility................................... 240
----
829
Amortization of deferred financing costs.................... 112
----
$941
====
</TABLE>
The effect on interest expense pertaining to the variable rate term
note and revolving credit facility of an adjustment of a 1/8 th of a
percent variance in interest rates would be $163 for the period from
December 30, 1996 through June 16, 1997.
(d) Adjustment to record the tax effect on the above adjustments using the
marginal effective income tax rate of 37%.
(e) Adjustment to reflect depreciation expense based on the new basis and
remaining economic useful lives of the Consumer Products Division's
properties, as follows:
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31, 1997
------------------------------
SELLING,
GENERAL AND
ADMINISTRATIVE
COST OF SALES EXPENSES
------------- --------------
<S> <C> <C>
Remove historical depreciation.............................. $(11,079) $ (51)
New basis
depreciation.............................................. 9,762 45
-------- -------
$ (1,317) $ (6)
======== =======
</TABLE>
(f) Reclassification of the Consumer Products Division general and
administrative expenses to conform to the Specialty Paper Division's
classification.
31
<PAGE> 36
(g) Adjustment to record in selling, general and administrative expenses the
amortization of the residual goodwill over 40 years, calculated as follows:
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31,
1997
------------
<S> <C>
Remove historical amortization.............................. $ (166)
New basis amortization...................................... 412
------
$ 246
======
</TABLE>
(h) Adjustment to reduce selling, general and administrative expenses for the
corporate overhead allocation from Pope & Talbot, Inc., offset by additional
selling, general and administrative expenses (principally compensation
expense and professional fees) to be incurred by the Company after the
Acquisition. Compensation expense relating to replacements, including
additional compensation to employees who will assume new responsibilities,
is included based on planned employment arrangements.
(i) Adjustment to record interest expense and amortization of deferred financing
costs on the debt incurred to finance the Acquisition and the repayment of
certain existing indebtedness of the Specialty Paper Division, calculated as
follows:
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31,
1997
------------
<S> <C>
11% Senior Subordinated Notes due 2008...................... $14,300
Eliminate historical interest expense on the Specialty Paper
Division indebtedness repaid.............................. (1,858)
-------
12,442
Amortization of deferred financing costs (over 10 years,
straight line)............................................ 653
Eliminate amortization of deferred financing costs on the
Specialty Paper Division indebtedness repaid.............. (236)
-------
$12,859
=======
</TABLE>
(j) Adjustment to record the tax effect on the above adjustments using the
marginal effective income tax rate of 39%.
32
<PAGE> 37
SELECTED HISTORICAL FINANCIAL AND OTHER DATA
(DOLLARS IN THOUSANDS, EXCEPT PER TON AMOUNTS)
CONSUMER PRODUCTS DIVISION
The following table sets forth selected historical financial and other data
of the Consumer Products Division as of and for each of the years in the
five-year period ended December 31, 1997. The selected historical financial and
other data, with the exception of tons sold and average selling price per ton,
as of and for each of the years in three-year period ended December 31, 1997,
have been derived from the financial statements of the Consumer Products
Division, contained elsewhere herein, which have been audited by Arthur Andersen
LLP, independent public accountants. The selected historical financial and other
data, with the exception of tons sold and average selling price per ton, as of
and for each of the years in the two-year period ended December 31, 1994 have
been derived from the unaudited financial statements of the Consumer Products
Division. The information contained in the following table should also be read
in conjunction with "Capitalization," "Unaudited Pro Forma Consolidated
Financial Information," "Management's Discussion and Analysis of Financial
Condition and Results of Operations," and the historical financial statements of
the Consumer Products Division, including the notes thereto, contained elsewhere
in this Prospectus.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
----------------------------------------------------------
1993 1994 1995 1996 1997
----------- ----------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Net sales................................................ $105,040 $104,884 $107,013 $133,649 $136,176
Cost of sales............................................ 110,619 115,713 129,483 124,052 121,751
-------- -------- -------- -------- --------
Gross profit (loss)...................................... (5,579) (10,829) (22,470) 9,597 14,425
Selling, general and administrative expenses............. 3,490 3,967 3,228 3,351 2,919
Corporate overhead allocation(1)......................... 1,555 1,724 1,509 1,962 2,057
-------- -------- -------- -------- --------
Operating income (loss).................................. (10,624) (16,520) (27,207) 4,284 9,449
Interest expense......................................... -- 89 881 812 846
-------- -------- -------- -------- --------
Income (loss) before income taxes........................ (10,624) (16,609) (28,088) 3,472 8,603
Income tax provision (benefit)(2)........................ (3,957) (6,187) (10,533) 1,354 3,355
-------- -------- -------- -------- --------
Net income (loss)........................................ $ (6,667) $(10,422) $(17,555) $ 2,118 $ 5,248
======== ======== ======== ======== ========
OTHER DATA:
Capital expenditures..................................... $ 9,988 $ 14,450 $ 21,113 $ 1,922 $ 3,737
Depreciation and amortization(3)......................... 8,906 9,710 11,298 11,809 11,309
Ratio of earnings to fixed charges(4).................... -- -- -- 5.3x 11.2x
Tons sold................................................ 94,212 92,292 80,609 90,445 96,888
Average selling price per ton............................ $ 1,115 $ 1,136 $ 1,328 $ 1,478 $ 1,405
BALANCE SHEET DATA (AT END OF PERIOD):
Cash and cash equivalents................................ $ -- $ -- $ -- $ -- $ --
Working capital.......................................... 10,369 18,211 18,053 19,294 15,560
Total assets............................................. 113,669 139,713 139,670 129,443 116,473
Total debt(5)............................................ -- 18,800 18,800 18,800 18,800
Intercompany accounts(6)................................. 82,548 94,951 99,107 89,638 75,489
</TABLE>
33
<PAGE> 38
- ------------------------------
(1) Corporate overhead allocation represents a pro rata (based on sales dollars)
allocation of certain Pope & Talbot, Inc. corporate administrative costs not
directly attributable to the Consumer Products Division. These costs include
such items as tax services, certain human resource services, and general
corporate administrative costs.
(2) The Consumer Products Division historically has been included in the
consolidated income tax returns of Pope & Talbot, Inc. Income taxes are
presented here as if Consumer Products Division filed its taxes on a
separate return basis.
(3) Includes amortization of deferred financing costs of $2, $14, $14 and $13
for the years ended December 31, 1994, 1995, 1996 and 1997, respectively.
(4) For purposes of computing this ratio, earnings consist of income before
income taxes plus fixed charges. Fixed charges consist of interest expense
and amortization of deferred financing costs. For the years ended December
31, 1993, 1994 and 1995, earnings were inadequate to cover fixed charges by
$10,624, $16,609 and $28,088, respectively.
(5) Total debt consists of a note payable to the City of Eau Claire, Wisconsin
due 2014 in connection with the issuance of the Eau Claire IRBs to finance a
wastepaper pulping improvement project at the Consumer Products Division's
Eau Claire, Wisconsin facility. The note payable is to be assumed by the
Company in connection with the Acquisition.
(6) The Consumer Products Division has historically been accounted for as a
division of Pope & Talbot, Inc. and therefore has no separate historical
equity accounts. Cash funding and distributions have been managed through
Pope & Talbot, Inc.'s corporate cash management system. Cash collected from
and distributed to the Consumer Products Division has been reflected in the
intercompany account balance. The intercompany account balance represents
the net accumulated transactions between the Consumer Products Division and
Pope & Talbot, Inc.
34
<PAGE> 39
SPECIALTY PAPER DIVISION
The following table sets forth the selected historical financial and other
data of the Specialty Paper Division as of and for each of the fiscal years in
the four-year period ended December 29, 1996, the period from December 30, 1996
through June 16, 1997 and the period from June 17, 1997 through December 31,
1997. The selected historical financial and other data, with the exception of
tons sold and average selling price per ton, as of and for the year ended
December 29, 1996, the period from December 30, 1996 through June 16, 1997 and
the period from June 17, 1997 through December 31, 1997 have been derived from
the financial statements of the Specialty Paper Division, contained elsewhere
herein, which have been audited by Ernst & Young LLP, independent auditors. The
selected historical financial and other data, with the exception of tons sold
and average selling price per ton, as of and for each of the years in the
three-year period ended December 31, 1995 have been derived from the unaudited
financial statements of the Specialty Paper Division. The information contained
in the following table should also be read in conjunction with "Capitalization,"
"Unaudited Pro Forma Consolidated Financial Information," "Management's
Discussion and Analysis of Financial Condition and Results of Operations," and
the historical financial statements of the Specialty Paper Division, including
the notes thereto, contained elsewhere in this Prospectus.
<TABLE>
<CAPTION>
PERIOD FROM PERIOD FROM
DECEMBER 30, JUNE 17,
1996 1997
FISCAL YEAR(1) THROUGH THROUGH
-------------------------------------- JUNE 16, DECEMBER 31,
1993 1994 1995 1996 1997(2) 1997
------- ------- -------- ------- ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Net sales.................................................. $86,202 $96,736 $101,049 $85,230 $40,795 $45,921
Cost of sales.............................................. 73,184 87,587 99,536 76,425 34,231 40,805
------- ------- -------- ------- ------- -------
Gross profit............................................... 13,018 9,149 1,513 8,805 6,564 5,116
Selling, general and administrative expenses............... 3,231 4,833 3,455 4,434 1,539 3,302
Corporate overhead allocation.............................. 5,165 5,829 6,260 5,537 724 --
------- ------- -------- ------- ------- -------
Operating income (loss).................................... 4,622 (1,513) (8,202) (1,166) 4,301 1,814
Interest expense........................................... 117 146 146 144 124 1,187
------- ------- -------- ------- ------- -------
Income (loss) before income taxes.......................... 4,505 (1,659) (8,348) (1,310) 4,177 627
Income tax provision (benefit)............................. 1,945 (494) (2,777) (335) 1,655 413
------- ------- -------- ------- ------- -------
Net income (loss).......................................... $ 2,560 $(1,165) $ (5,571) $ (975) $ 2,522 $ 214
======= ======= ======== ======= ======= =======
OTHER DATA:
Capital expenditures....................................... $ 1,854 $ 1,568 $ 4,677 $ 1,220 $ 66 $ 513
Depreciation and amortization.............................. 2,038 2,104 2,181 2,330 1,070 766
Ratio of earnings to fixed charges(3)...................... 20.2x -- -- -- 25.0x 1.5x
Tons sold.................................................. 79,627 87,764 79,662 73,019 36,594 43,736
Average selling price per ton.............................. $ 1,083 $ 1,102 $ 1,268 $ 1,167 $ 1,115 $ 1,050
BALANCE SHEET DATA (AT END OF PERIOD):
Cash....................................................... $ -- $ 88 $ 67 $ -- $ -- $ 772
Working capital(4)......................................... 4,857 3,989 8,555 3,259 5,761 5,437
Total assets............................................... 54,769 56,842 47,786 49,619 51,591 51,892
Total debt................................................. 3,500 3,500 3,500 3,500 3,500 20,859
Total stockholder's equity................................. 37,112 35,947 30,376 29,401 31,923 8,188
</TABLE>
- ------------------------------
(1) The Specialty Paper Division has a fiscal year ending on the Sunday closest
to December 31.
(2) The Specialty Paper Division was acquired from Simpson as of June 17, 1997
in a transaction accounted for under the purchase method of accounting.
(3) For purposes of computing this ratio, earnings consist of income before
income taxes plus fixed charges. Fixed charges consist of interest expense,
amortization of deferred financing costs and the portion of rent expense
estimated to represent interest. For fiscal years 1994, 1995 and 1996,
earnings were inadequate to cover fixed charges by $1,659, $8,348 and
$1,310, respectively.
(4) Working capital represents total current assets less total current
liabilities. Throughout 1993 to June 16, 1997, Simpson performed cash
management on a centralized basis and processed related accounts receivable.
Accordingly, accounts receivable were funded immediately by Simpson and are
not included in working capital for fiscal years 1993, 1994, 1995 and 1996
and the period from December 30, 1996 through June 16, 1997.
35
<PAGE> 40
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
INTRODUCTION
The following discussion and analysis should be read in conjunction with
the financial statements of the Consumer Products Division and the Specialty
Paper Division, including the notes thereto, contained elsewhere in this
Prospectus. Prior to the 1997 Acquisition and the Acquisition, the Specialty
Paper Division and the Consumer Products Division were not operated as separate,
stand alone companies. As described under "Unaudited Pro Forma Consolidated
Financial Information," a number of significant changes occurred in the funding
and operation of the Specialty Paper Division and the Consumer Products Division
in connection with the Transactions. As a result, the historical financial
information included in this Prospectus does not necessarily reflect what
Plainwell's financial position and results of operations would have been had
each division been operated as a separate, stand-alone entity during the periods
presented.
The Company acquired the Consumer Products Division simultaneously with the
consummation of the Offering. Accordingly, the following discussion regarding
the Consumer Products Division is based on its historical financial information
relating to periods of ownership by Pope & Talbot.
Holdings acquired the Specialty Paper Division on June 16, 1997, and merged
the division with and into the Company in connection with the consummation of
the Offering. The results of operations of the Specialty Paper Division have
been included in the financial statements of the Company since June 17, 1997.
Prior to the 1997 Acquisition, the Company had no operations and no significant
assets.
The Offering and the Acquisition will prospectively affect the Company's
results of operations and financial position in significant respects. The
acquisition of the Specialty Paper Division and the Consumer Products Division
were each accounted for using the purchase method of accounting. The purchase
price of the Specialty Paper Division was $32.5 million, which included $9.8
million for inventory. The purchase price of the Consumer Products Division was
$121.0 million in cash (less a working capital adjustment), plus the assumption
of certain liabilities. See "Prospectus Summary -- The Transactions."
GENERAL
The Company is a leading U.S. producer and marketer of value-added paper
products for niche markets within the paper industry. The Company conducts its
business through two divisions: (i) the Consumer Products Division, which
produces private label consumer tissue products such as bath tissue, paper
towels, napkins, and facial tissue, and (ii) the Specialty Paper Division, which
produces premium coated and uncoated printing papers and release and other
technical/specialty papers.
Market conditions and demand for the Company's products are generally
subject to cyclical changes in the economy and changes in industry operating
rate and capacity, all of which can significantly impact selling prices and the
Company's profitability. The Company believes that these two divisions are
generally subject to different market conditions and supply and demand
characteristics.
CONSUMER PRODUCTS DIVISION
The selling prices of the Consumer Product Division's products are largely
a function of demand and industry capacity. The Consumer Products Division's
private label tissue products are generally priced at a discount to their
nationally branded counterparts. The tissue markets, which were subject to
industry-wide overcapacity and substantial price competition beginning in the
early 1990s, began to recover in early 1995 as supply and demand began to
equalize and manufacturers were able to pass through increases in raw material
prices. According to the U.S. Bureau of Labor Statistics, market tissue prices
for 1991, 1992, 1993, 1994, 1995, and 1996 increased (decreased) by 0.7%, 0.5%,
(1.7%), (1.0%), 8.4%,and 3.8%, respectively. Based on preliminary estimates by
the U.S. Bureau of Labor Statistics, tissue prices declined by 2.0% (subject to
change), in 1997. Management believes that this decline was the result of
downward pricing pressure based on lower pulp and waste paper costs. However,
management anticipates that tissue prices will improve in 1998,
36
<PAGE> 41
and in January 1998 one industry participant announced tissue price increases of
approximately 4% to 7%. There can be no assurance, however, that any such price
increase will be implemented.
The division's profitability is affected by the timing and degree to which
it is able to pass through price increases of its raw materials, particularly
wastepaper. Wastepaper generally follows the pricing trends of world pulp
markets. In the second half of 1994 and the first half of 1995, pulp and
wastepaper prices increased significantly. From 1994 to 1995, the Consumer
Products Division's wastepaper costs per ton increased from $127 to $247 for
post-consumer waste and from $128 to $299 for pre-consumer waste. These costs
per ton declined along with the pulp market by early 1996 and in 1997 have
averaged $153 for pre-consumer waste and $110 for post-consumer waste.
Generally, the Company is able to increase sales prices in times of rising
material costs and is forced to reduce prices in times of declining costs.
However, there is usually a lag of several months before the Company adjusts its
prices.
The Consumer Products Division has recently generated significant
improvement in its operating performance. In 1997, net sales and EBITDA were
$136.2 million and $20.7 million, respectively, as compared to $104.9 million
and a $6.8 million loss, respectively, for 1994. The Company believes this
improvement was primarily due to the approximately $50.0 million of capital
investment over the last five years, used primarily to strategically reposition
the division. Important elements of the strategic repositioning included the
upgrade of existing facilities, including a new pulping and de-inking operation
at the Eau Claire, Wisconsin facility, the construction of the Pittston,
Pennsylvania converting facility and the development and implementation of the
integrated computer-based customer service system. Such capital expenditures
have enabled the Company to: (i) produce a brighter, softer pulp which has
improved finished product quality and allowed the Company to command higher
prices for its products; (ii) increase sales of higher margin, premium tissue
products such as two-ply bath tissue and paper towels; (iii) improve its level
of customer service; (iv) increase sales to mass merchandisers and wholesale
clubs; and (v) increase productivity and realize manufacturing efficiencies. As
a result of these improvements, the net selling price per ton realized by the
division increased 23.7% from 1994 to 1997. During the same period, market
tissue prices as measured by the U.S. Bureau of Labor Statistics increased by
10.8%. In addition, to address the Ransom, Pennsylvania facility's historically
high labor cost structure, the Company implemented a labor contract in 1995
which resulted in an eight-month strike. The strike was resolved in December
1995 and a new labor agreement was adopted, resulting in increased workforce
flexibility and reduced labor costs. The 1995 strike had a significant impact on
financial performance in 1995 and also affected financial performance in 1996 as
the Company resumed full-scale operations at the Ransom, Pennsylvania facility.
The Company believes that the strategic repositioning of the division has
resulted in significant improvement in the Consumer Products Division's
operating performance and positions the division to pursue future growth
opportunities.
RESULTS OF OPERATIONS -- CONSUMER PRODUCTS DIVISION
The following table sets forth for the periods presented the Consumer
Products Division's historical results of operations as a percentage of net
sales.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-----------------------
1995 1996 1997
----- ----- -----
<S> <C> <C> <C>
Net sales................................................... 100.0% 100.0% 100.0%
Cost of sales............................................... 121.0 92.8 89.4
----- ----- -----
Gross profit (loss)......................................... (21.0) 7.2 10.6
Selling, general and administrative expenses................ 3.0 2.5 2.1
Corporate overhead allocation............................... 1.4 1.5 1.5
----- ----- -----
Operating income (loss)..................................... (25.4)% 3.2% 7.0%
===== ===== =====
</TABLE>
1997 Compared to 1996
Net Sales. The Consumer Products Division's net sales increased $2.6
million, or 1.9%, to $136.2 million for 1997 compared to $133.6 million for
1996. The increase was attributable to a 7.1% increase in tons
37
<PAGE> 42
sold to 96,888 for 1997 compared to 90,445 for 1996 and which was partially
offset by a 4.9% reduction in the average selling price per ton to $1,405 for
1997 as compared to $1,478 per ton for 1996. The decrease in the selling price
per ton was primarily the result of downward pricing pressure based on lower
wastepaper costs for 1997, which was partially offset by a more favorable mix of
higher margin products.
Cost of Sales and Gross Profit. Cost of sales decreased $2.3 million, or
1.9%, to $121.8 million for 1997 compared to $124.1 million for 1996. Cost of
sales as a percentage of net sales decreased to 89.4% for 1997 compared to 92.8%
for 1996. As a percentage of net sales, gross profit improved to 10.6% for 1997
compared to 7.2% for 1996. The improvement in both cost of goods sold and gross
profit as a percentage of net sales was primarily due to increased sales of
higher margin products, higher utilization rates on manufacturing equipment,
lower raw material costs as a percentage of net sales, and increased salary
absorption related to increased volume. In addition, costs were higher for 1996
as the division recovered from the effects of the strike at the Ransom,
Pennsylvania facility which ended in December 1995.
Selling, General and Administrative Expenses. Selling, general and
administrative expenses decreased $432,000, or 12.9% to $2.9 million for 1997
compared to $3.4 million for 1996. Selling, general and administrative expenses
as a percentage of net sales decreased 0.4% to 2.1% for 1997 compared to 2.5%
for 1996. The decrease was primarily due to a continued emphasis on controlling
costs, and in particular for this period, reduction in salary and benefits
expenses.
Corporate Overhead Allocation. Corporate overhead allocation represents
amounts charged to the division from Pope & Talbot, Inc. for certain
administrative services rendered. Corporate overhead allocation remained
essentially flat at $2.1 million and $2.0 million, or 1.5% of net sales, for
1997 compared to 1996, respectively. The Company believes the corporate overhead
allocation amounts are higher than amounts that would have been realized had the
division operated as a stand alone business. See "Unaudited Pro Forma
Consolidated Financial Information."
Operating Income. Operating income increased $5.1 million, or 118.6% to
$9.4 million for 1997 compared to $4.3 million for 1996. Operating income as a
percentage of net sales increased 3.8% to 7.0% for 1997 compared to 3.2% for
1996. This improvement was primarily attributable to higher gross profit for
1997.
1996 Compared to 1995
Net Sales. The Consumer Products Division's net sales increased $26.6
million, or 24.9%, to $133.6 million for 1996 compared to $107.0 million for
1995. The increase was attributable to (i) a 12.2% increase in tons sold for
1996 to 90,445 compared to 80,609 for 1995 as the Company recovered from an
eight-month strike at its Ransom, Pennsylvania facility in 1995 and (ii) an
11.3% increase in the average selling price per ton for 1996 to $1,478 compared
to $1,328 for 1995, due in part to higher percentage of sales in higher price
product lines such as two-ply paper towels and napkins.
Cost of Sales and Gross Profit (Loss). Cost of sales decreased $5.4
million, or 4.2% to $124.1 million for 1996 compared to $129.5 million for 1995.
Cost of sales as a percentage of net sales decreased to 92.8% for 1996 compared
to 121.0% for 1995. As a percentage of net sales, gross profit improved to 7.2%
for 1996 compared to a gross loss in 1995. The improvement in both cost of goods
sold as a percentage of net sales and gross profit was primarily due to the
settlement at the end of 1995 of an eight-month strike at the Ransom,
Pennsylvania facility which negatively impacted 1995 results. In addition, this
improvement was due to increased sales of higher quality, higher margin products
as the division began to realize the benefits of its capital improvement program
at the Eau Claire, Wisconsin facility, which was completed in 1995, lower raw
material costs and higher utilization rates on manufacturing equipment.
Selling, General and Administrative Expenses. Selling, general and
administrative expenses increased $123,000, or 3.8%, to $3.4 million for 1996
compared to $3.2 million for 1995. Selling, general and administrative expenses
as a percentage of net sales decreased 0.5% to 2.5% for 1996 compared to 3.0%
1995. The decrease was primarily due to the increase in net sales.
38
<PAGE> 43
Corporate Overhead Allocation. Corporate overhead allocation increased
$453,000, or 30.0% to $2.0 million for 1996 compared to $1.5 million for 1995.
Corporate overhead allocation as a percentage of net sales increased 0.1% to
1.5% for 1996 compared to 1.4% for 1995.
Operating Income (Loss). Operating income increased $31.5 million to $4.3
million for 1996 compared to a $27.2 million loss for 1995. Operating income as
a percentage of net sales was 3.2% for 1996. The improvement in operating income
was primarily attributable to higher gross profit for 1996.
SPECIALTY PAPER DIVISION
Although the selling prices of the Specialty Paper Division's products are
impacted by the general movement in the cost of principal raw materials,
primarily pulp, they have historically been less vulnerable to such movements
than the products of the Consumer Products Division. When raw material prices
increase, the division's profitability is dependent on the timing and degree to
which it is able to pass through price increases to its customers. The actual
impact on the division 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 lag time that generally
accompanies the implementation of selling price changes following increases in
raw materials prices. In 1995, the division was adversely affected by a more
than doubling of the price of pulp compared to 1994. During 1996, pulp prices
returned to near 1994 levels and remained relatively stable throughout 1997.
In addition to selling and raw material prices, the division's gross and
operating income margins are impacted by manufacturing utilization levels.
Management believes the division's previous owners used the facility to supply
inventory as a portion of its corporate-wide needs and did not seek to maximize
production at the Plainwell Mill. As part of its current business strategy,
management has restructured its sales force in an effort to increase sales and
will seek to improve margins and profitability by operating the facility at or
near capacity in the future.
RESULTS OF OPERATIONS -- SPECIALTY PAPER DIVISION
Holdings acquired the Specialty Paper Division on June 16, 1997. The
financial results of the division for all periods prior to such date reflect the
operations of the division while it was under the ownership of Simpson. For the
period from June 17, 1997 through December 31, 1997, the financial results of
the Specialty Paper Division have been included in the financial statements of
Holdings. The financial information for the Specialty Paper Division before and
after its acquisition are not directly comparable because of differences in
accounting policies applied by Simpson and the Company and purchase method
accounting adjustments relating to its acquisition. In particular, Simpson used
the last in first out (LIFO) method of accounting for inventory and the Company
uses the first in first out (FIFO) method of accounting for inventory. The
Company has not attempted to quantify the differences resulting from the
application of different inventory accounting methods or the purchase accounting
adjustments. The following discussion of the division's twelve months ended
December 31, 1997 is derived by combining the financial results of the Specialty
Paper Division for the period from December 30, 1996 through June 16, 1997
(while it was owned by Simpson) and for the period from June 17, 1997 through
December 31, 1997 (following the 1997 Acquisition), including adjustments for
the 1997 Acquisition. As a result, the financial information for the combined
twelve months ended December 31, 1997 has not been prepared on a basis in
conformity with generally accepted accounting principles.
39
<PAGE> 44
The following table sets forth for the periods presented the Specialty
Paper Division's historical results of operations as a percentage of net sales.
<TABLE>
<CAPTION>
FISCAL YEAR
-----------------------
1995 1996 1997
----- ----- -----
<S> <C> <C> <C>
Net sales................................................... 100.0% 100.0% 100.0%
Cost of sales............................................... 98.5 89.7 86.5
----- ----- -----
Gross profit................................................ 1.5 10.3 13.5
Selling, general and administrative expenses................ 3.4 5.2 5.6
Corporate overhead allocation............................... 6.2 6.5 0.8
----- ----- -----
Operating income (loss)..................................... (8.1)% (1.4)% 7.1%
===== ===== =====
</TABLE>
1997 Compared to 1996
Net Sales. The Specialty Paper Division's net sales increased $1.5
million, or 1.7%, to $86.7 million for 1997 compared to $85.2 million for 1996.
The increase was attributable to a 10.0% increase in tons sold from 73,019 tons
for 1996 to 80,330 tons for 1997 which was partially offset by a 7.6% reduction
in the average selling price per ton.
Cost of Sales and Gross Profit. Cost of sales decreased $1.4 million, or
1.8%, to $75.0 million for 1997 compared to $76.4 million for 1996. Cost of
sales as a percentage of net sales decreased to 86.5% for 1997 compared to 89.7%
for 1996. As a percentage of net sales, gross profit improved to 13.5% for 1997
compared to 10.3% for 1996. The improvement in both cost of sales as a
percentage of net sales and gross profit was primarily due to lower pulp prices,
reduced headcount and improved capacity utilization which were partially offset
by lower average selling prices per ton.
Selling, General and Administrative Expenses. Selling, general and
administrative expenses increased $407,000, or 9.2% to $4.8 million for 1997
compared to $4.4 million for 1996. Selling, general and administrative expenses
as a percentage of net sales increased 0.4% to 5.6% for 1997 compared to 5.2%
for 1996. The increase was primarily due to additional general and
administrative expenses incurred by the division from June 17, 1997 (immediately
following the consummation of the 1997 Acquisition) to December 31, 1997. These
expenses represent costs for administrative services previously provided by
Simpson and thus previously reflected in the corporate overhead allocation.
Corporate Overhead Allocation. Corporate overhead allocation represents
amounts charged to the division from Simpson for certain administrative services
rendered. Corporate overhead allocation declined $4.8 million to $724,000 for
1997 compared to $5.5 million for 1996. Corporate overhead allocation was not
charged to the division subsequent to the acquisition from Simpson, and thus for
the period June 17, 1997 to December 31, 1997, there were no costs charged to
the division. Subsequent to June 17, 1997, incremental costs for the required
services previously provided by Simpson are reflected in selling, general and
administrative expenses.
Operating Income (Loss). Operating income increased $7.3 million to $6.1
million for 1997 compared to an operating loss of $1.2 million for 1996.
Operating income as a percentage of net sales was 7.1% for 1997 compared to a
1.4% loss for 1996. This improvement was primarily attributable to higher gross
margins resulting from decreased costs of raw materials.
1996 Compared to 1995
Net Sales. The Specialty Paper Division's net sales decreased $15.8
million, or 15.7%, to $85.2 million for 1996 compared to $101.0 million for
1995. The decrease in net sales was due to a combination of a 8.3% reduction in
tons sold to 73,019 tons for 1996 from 79,662 tons for 1995, and an 8.0%
decrease in the average selling price per ton. The reduction in tons sold was
partially attributable to the announcement of the pending sale of the division.
40
<PAGE> 45
Cost of Sales and Gross Profit. Cost of sales decreased $23.1 million, or
23.2%, to $76.4 million for 1996 compared to $99.5 million for 1995. Cost of
sales as a percentage of net sales decreased to 89.7% for 1996 compared to 98.5%
for 1995. As a percentage of net sales, gross profit increased to 10.3% for 1996
compared to 1.5% for 1995. The reduction in cost of sales was primarily due to
the decrease in tons sold and a reduction in prices of raw materials compared to
1995.
Selling, General and Administrative Expenses. Selling, general and
administrative expenses increased $979,000, or 28.3% to $4.4 million for 1996
compared to $3.5 million for 1995. Selling, general and administrative expenses
as a percentage of net sales increased 1.8% to 5.2% for 1996 compared to 3.4%
for 1995. The increase was primarily due to an increase in workers compensation
insurance expense.
Corporate Overhead Allocation. Corporate overhead allocation decreased
$723,000, or 11.5% to $5.5 million for 1996 compared to $6.3 million for 1995.
Corporate overhead allocation as a percentage of net sales increased to 6.5% for
1996 compared to 6.2% for 1995.
Operating Loss. Operating loss decreased $7.0 million to $1.2 million for
1996 compared to an $8.2 million loss for 1995. The improvement in operating
loss was primarily attributable to reduced costs of raw materials.
LIQUIDITY AND CAPITAL RESOURCES
The Company's primary capital requirements are for working capital, debt
service, capital expenditures and possible acquisitions. Management believes
that cash generated from operations, together with borrowings under the New
Credit Facility, will be sufficient to meet the Company's capital needs in the
foreseeable future.
Capital expenditures at the Consumer Products Division were $3.7 million
for 1997 compared to $1.9 million and $21.1 million for 1996 and 1995,
respectively. The 1995 expenditures were primarily used for a new pulping
operation at the Eau Claire, Wisconsin facility which substantially increased
pulp production capacity and improved the product quality at that facility.
Capital expenditures for the Specialty Paper Division were $629,000 for
1997 compared to $1.2 million and $4.7 million in 1996 and 1995, respectively.
The 1995 expenditures were primarily used to: (i) construct a new pulping
building; (ii) install a new pulping system; (iii) relocate an existing pulper;
and (iv) replace certain other equipment.
For 1998 the Company anticipates capital expenditures of approximately $7
million to $9 million which is expected to be used to complete installation of
the "pop-up" facial converting line at the Pittston, Pennsylvania facility, for
additional converting capacity and for general equipment maintenance. The
Company estimates that $730,000 will be spent in 1998 on environmental
compliance and cleanup work at its operating locations. The Company further
estimates that future capital spending to comply with the Cluster Rules and the
GLI could be up to $5 million. The Company cannot predict if or when such rules
will be promulgated in a form that will require the Company to make such
expenditures. In addition, the Company is indemnified under various agreements
with respect to other contingent environmental liabilities. See "Risk
Factors -- Environmental Matters" and "Business -- Environmental Matters."
In connection with the consummation of the Merger and the Acquisition, the
Company established the New Credit Facility which matures in 2003 and which
provides for up to $35.0 million of borrowings on a revolving basis, subject to
a borrowing base, and up to an additional $20.0 million for letters of credit to
secure the Eau Claire IRBs. The New Credit Agreement contains certain financial
and operational covenants and other restrictions with which the Company must
comply, including among others, a requirement to maintain certain financial
ratios and limitations on the Company's ability to incur additional
indebtedness. See "Description of Certain Indebtedness."
41
<PAGE> 46
In connection with the 1997 Acquisition, Plainwell Paper Company and
Simpson entered into a Transition Services Agreement pursuant to which Simpson
agreed to provide certain transition services to Plainwell Paper Company for a
period ending not later than the second anniversary of the 1997 Acquisition. The
Company entered into an 18-month Transition Services Agreement on behalf of the
Consumer Products Division with Pope & Talbot, Inc. for the purpose of
transferring the existing information systems. The Company has engaged a
consulting firm to assist in: (i) inventorying the Consumer Products Division's
existing systems; (ii) determining the ongoing productivity of each such system
to the division; (iii) determining fitness for use of such systems by the
Specialty Paper Division; and (iv) certain other tasks. Based on preliminary
estimates, the Company expects to make capital investments of approximately $2.5
million during the next 18 months to implement such systems. The Company
anticipates completion of such implementation prior to the expiration of the
Transition Services Agreement with Pope & Talbot, Inc.
The Company believes that with modifications to existing software and
conversions to new software, the Year 2000 Issue will not pose significant
operational problems for its computer systems. However, if such modifications
and conversions are not made, or are not completed timely, the Year 2000 Issues
could have a material impact on the operations of the Company.
The costs of the project and the date on which the Company believes it will
complete the Year 2000 modifications are based on management's best estimates,
which were derived utilizing numerous assumptions of future events, including
the continued availability of certain resources and other factors. However,
there can be no guarantee that these estimates will be achieved and actual
results could differ materially from those anticipated. Specific factors that
might cause such material differences include, but are not limited to, the
availability and cost of personnel trained in this area, the ability to locate
and correct all relevant computer codes, and similar uncertainties.
Management believes that based on current levels of operations and
anticipated internal growth, cash flow from operations, together with other
available sources of funds including the availability of seasonal borrowings
under the New Credit Facility will be adequate for the foreseeable future to
make required payments of principal and interest on the Company's indebtedness,
to fund anticipated capital expenditures and working capital requirements. The
ability of the Company to meet its debt service obligations and reduce its total
debt will be dependent, however, upon the future performance of the Company
which, in turn, will be subject to general economic conditions and to financial,
business and other factors, including factors beyond the Company's control. A
portion of the debt of the Company bears interest at floating rates; therefore,
its financial condition is and will continue to be affected by changes in
prevailing interest rates.
INFLATION
The Company believes that inflation has not had a material impact on the
results of operations of either the Consumer Products Division or the Specialty
Paper Division.
42
<PAGE> 47
INDUSTRY OVERVIEW
The paper industry is generally divided into three market segments: (i)
printing and writing papers; (ii) packaging; and (iii) tissue. The Company
competes in the tissue segment and the premium end of the printing and writing
papers segment. The Company also produces release and other technical/specialty
papers.
TISSUE
Tissue paper is used principally for bath tissue, facial tissue, napkins
and paper towels and is sold to consumer and commercial/industrial customers.
According to industry sources, the U.S. tissue industry has among the highest
profit margins and most stable growth rates in the paper industry. From 1975 to
1996, total shipments for the U.S. tissue industry increased from 4.0 million
tons to 6.3 million tons, a compound annual growth rate of 2.2%. In the last 10
years total shipments have declined only once and in the last 22 years shipments
have not declined in successive years.
[U.S. SHIPMENT OF TISSUE BAR CHART]
In 1996, the U.S. consumer tissue industry had sales of approximately $7
billion, which accounted for approximately 63% of the U.S. tissue industry's
sales. Domestic consumer tissue shipments grew from 2.7 million tons in 1984 to
3.9 million tons in 1996, a compound annual growth rate of 3.1%. The Company
believes that shipment growth rates in the consumer market are primarily
affected by population growth trends and general economic growth. In 1996,
branded premium products, branded value products and private label products
accounted for 44%, 40% and 16%, respectively, of total consumer tissue
shipments. In 1996, bath tissue accounted for 54% of the market, with paper
towels making up 31%, and facial tissue and napkins accounting for the
remainder. Historically, the primary channels of distribution for the at home
market have been grocery stores, and to a lesser extent, retail drug stores and
pharmacies. However, during the past several years mass merchandisers and
warehouse clubs have become increasingly important distribution channels.
The private label market is a niche market in the tissue segment of the
paper industry. The Company believes that there are significant opportunities
for growth in the private label tissue market because of: (i) increased
recognition by consumers that private label tissue products offer quality at
value prices; (ii) increased emphasis by retailers who generally receive higher
margins on private label tissue products than on their nationally branded
counterparts; and (iii) the growth of mass merchandisers and wholesale clubs
which have traditionally emphasized private label tissue products.
43
<PAGE> 48
The Company believes that tissue segment operating rates of approximately
92% to 93% represent balanced supply and demand. During the period from 1991
through 1993, tissue industry operating rates fell to approximately 91% due to
higher than historic capacity additions. At the same time, there was significant
price competition in the premium branded segment of the market which, as seen in
the chart below, effectively capped prices for the period from 1991 through
1994. According to the American Forest & Paper Association, tissue industry
operating rates have since increased from the levels experienced in 1992 and
were 94.3% for the year ended December 31, 1997. The tissue pricing environment
has improved as operating rates increased, price competition at the premium
level decreased and market prices, as measured by the tissue price index shown
in the table below, have increased by 10.8% (as of September 30, 1997) since
1994 and at a compound annual rate of 4.6% since 1975. According to information
provided by the American Forest & Paper Association, capacity additions are
expected to be approximately 2.3% in 1998 and approximately 3.8% in 1999. Since
this information was published, there have been public announcements of capacity
curtailments that would reduce industry capacity growth to (0.1)% in 1998 and
3.0% in 1999. These rates compare to the growth rate in industry capacity of
2.1% per year from 1977 to 1997 and 1.7% per year for the last five years ended
1997.
<TABLE>
<CAPTION>
1975 100
Measurement Period
(Fiscal Year Covered) 110
122
<S> <C>
1978 130
144
167
1981 179
182
186
1984 188
194
197
1987 198
209
229
1990 246
248
249
1993 245
242
263
1996 273
267
</TABLE>
PRINTING AND WRITING PAPERS
Coated Paper
Coated papers are primarily used in media and marketing applications
including corporate annual reports, high-end advertising brochures, magazines
and catalogs, and direct mail advertising. Coated papers can be split into two
main categories based on price and quality: coated groundwood papers (made with
10% or more of mechanical pulp) and free-sheet papers (made with chemically
treated pulp). Chemically treated pulp produces brighter and stronger paper than
groundwood pulp. Coated papers are further differentiated into five product
grades of decreasing brightness ranging from No. 1 (highest quality and
brightness) to No. 5 (lowest quality and brightness). Each grade is produced in
a variety of basis weights (weight per sheet size) and finish which can be
gloss, dull or matte. The coating process changes the gloss, ink absorption,
texture and opacity of the paper to meet the performance requirements of each
customer group.
44
<PAGE> 49
The following table shows the characteristics, applications and relative
market size of each of the coated paper grades.
<TABLE>
<CAPTION>
GENERAL 1997 U.S.
GRADE CHARACTERISTICS TONS SOLD BASESTOCK BRIGHTNESS TYPICAL USE
- ----- ------------------- --------- ------------------- ---------- -------------------
<S> <C> <C> <C> <C> <C>
No.1... Enameled, double- 455,255 High-brightness 82 to 88 Corporate
coated, expensive chemical pulp, communications,
base and coating, heavily filled high-end
high gloss advertising
No.2... Double-coated, 1,142,314 High-brightness 78 to 82 Expensive
expensive base and chemical pulp advertising,
coating brochures, magazine
covers
No.3... Single or double 2,218,619 Chemical pulp, 76 to 82 Upscale catalogs,
coated, lower minor amounts of direct mail
quality basesheet groundwood promotions,
magazines and text
books
No.4... Lower cost, lower 1,146,307 Groundwood and 72 to 78 Magazines, catalogs
brightness chemical pulp, some and direct mail
clay filler catalogs
No.5... Lower basis weight, 3,934,199 Mostly groundwood 68 to 72 Mass market,
high groundwood or thermo- catalogs, weekly
content mechanical pulp, magazines, large
chemical pulp volume mailings
---------
Total 8,896,694
</TABLE>
- ------------------------------
Sources: American Forest & Paper Association.
The Specialty Paper Division primarily produces No. 1 and No. 2 premium
grades of paper. No. 1 and No. 2 premium grades of paper accounted for
approximately 1.5 million tons, or 19.1%, of the total 7.8 million tons of
coated two-sided printing paper produced in 1996. Coated free-sheet is typically
used for corporate annual reports, high-end advertising brochures, magazines and
catalogs, coffee table books and menus for which higher reproduction and
graphics quality is required. These grades are characterized by short production
runs with frequent grade changes.
Coated paper demand and prices are cyclical. Prices are driven by domestic
supply and demand and to a lesser extent by the availability and price of
imports. Coated two-sided printing paper net imports accounted for 8.6% of
domestic consumption in 1996. Demand is generally correlated with domestic
economic conditions and more specifically to consumption in end-use markets such
as magazine and book publications, food and consumer packaging and business
papers. From 1988 to 1993 North American and European coated paper manufacturers
increased capacity by approximately six million tons or approximately 40%. At
the same time the world's economies moved into a recession which resulted in
decreased demand, low operating rates and decreased prices. The improved
economic environment and increased demand resulting from a pick-up in
advertising pages, catalogs and new publications fueled higher selling prices
and lower inventories during 1994 with prices for No.1 coated free-sheet peaking
in mid-1995. In response to near record prices demand decreased late in 1995 and
through 1996 resulting in lower realized prices across all coated paper grades.
Release and Other Technical/Specialty Papers
The Company also produces release and other technical/specialty papers.
Release paper is used for backing paper for products ranging from postage stamps
to food labeling. According to an industry source, this market has had a
compound annual growth rate of 8.8% for the period from 1993 through 1997. Much
of this growth has been driven by (i) consumer applications such as food
nutritional labeling, self-adhesive postage stamps and computer printer labels
and (ii) industrial applications such as bar code labels, automotive trim and
insulation applications.
45
<PAGE> 50
Uncoated Papers
The Specialty Paper Division participates to a small degree in the uncoated
paper market. The Specialty Paper Division produces a film coated sheet sold
under the brand name Satin Kote which is a hybrid between the coated and
uncoated segment. The Specialty Paper Division also sells some uncoated offset
as filler tonnage when needed.
46
<PAGE> 51
BUSINESS
GENERAL
The Company is a leading U.S. producer and marketer of value-added paper
products for niche markets within the paper industry. The Company conducts its
business through two divisions: (i) the Consumer Products Division, which
produces private label consumer tissue products such as bath tissue, paper
towels, napkins and facial tissue, and (ii) the Specialty Paper Division, which
produces premium coated and uncoated printing papers and release and other
technical/specialty papers. The Company has established leading market positions
in certain of these niche markets by combining high quality products, broad
product offerings, strong customer service, efficient manufacturing and the
significant use of recycled materials. In addition, the Company believes that
operating in different niche markets provides the Company with a larger, more
diversified income stream.
BUSINESS STRATEGY
The Company's business strategy is to increase revenues and profitability
in its Consumer Products Division and Specialty Paper Division. The Company
intends to implement its strategy by: (i) capitalizing on attractive niche
markets; (ii) fully utilizing existing capacity; (iii) increasing sales of
higher margin products; (iv) enhancing its high level of customer service; (v)
reducing costs and increasing operating efficiencies; and (vi) pursuing
strategic acquisitions.
- CAPITALIZE ON ATTRACTIVE NICHE MARKETS. The Company has positioned
itself to take advantage of several niche markets within the paper
industry which it believes are attractive and growing. The Consumer
Products Division has established a leading market position in the
private label segment of the at-home consumer tissue market. The Company
believes that the private label tissue market will continue to be an
attractive niche market because of: (i) increased recognition by
consumers that private label tissue products offer quality at value
prices; (ii) increased emphasis by retailers who generally receive higher
margins on private label tissue products than on their nationally branded
counterparts; and (iii) the growth of mass merchandisers and wholesale
clubs which have traditionally emphasized private label tissue products.
The Company believes the premium printing paper, release and
technical/specialty paper niche markets offer generally higher margins,
fewer competitors and more stable prices than the commodity paper market.
In addition, according to industry sources, U.S. sales of coated
two-sided No. 1 and No. 2 paper, the division's primary printing
products, grew at 6.3% and 8.6%, respectively, for 1997 from 1996. The
Company further believes it is well positioned for growth in these niche
markets due to the Specialty Paper Division's technical expertise,
flexible manufacturing capabilities and customized selling process.
- FULLY UTILIZE EXISTING CAPACITY. The Company's objective is to fully
utilize existing capacity in both the Specialty Paper Division and the
Consumer Products Division. The Specialty Paper Division has recently
been operating at production levels which are below the approximately
88,000 tons, respectively, of finished product which it produced in 1994.
During 1996 and 1997, the Specialty Paper Division produced approximately
67,450 tons and approximately 83,903 tons, of finished product. The
Company believes that in the future it can exceed production levels which
were achieved in 1994. In addition, the Company believes that there is
additional converting capacity in the Consumer Products Division which
can be utilized over the next twelve months. The Consumer Products
Division also intends to commence full scale production of "pop-up"
facial tissue by mid-1998. The Company expects to invest approximately
$3.7 million (of which $742,000 has been invested as of December 31,
1997) to acquire and install the necessary "pop-up" converting equipment
which will add approximately 5,000 tons of converting capacity.
- INCREASE SALES OF HIGHER MARGIN PRODUCTS. The Company plans to continue
to increase sales of higher margin products. The Consumer Products
Division has successfully increased sales of higher
47
<PAGE> 52
margin two-ply bath tissue and paper towels from 43.2% of tons sold in
1994 to 54.2% of tons sold in 1997. The Company plans to commence in
mid-1998 the full scale production of higher margin "pop-up" facial
tissue. The Company expects this new product will enhance the Company's
product line, result in increased sales to the division's existing
customers and generate incremental demand for all its private label
tissue products. The Specialty Paper Division plans to use its focused
marketing, product engineering capabilities and flexible manufacturing to
continue to develop new higher margin products for niche applications. In
addition, the Company will also continue to focus on increasing sales of
its existing higher margin products, such as its Kashmir(R) brand of No.
1 coated printing paper.
- ENHANCE HIGH LEVEL OF CUSTOMER SERVICE. The Company intends to continue
to enhance its high level of customer service to strengthen its
relationships with its customers. The Company believes that the Consumer
Products Division is currently the only private label tissue supplier to
its customers that utilizes EDI and VMI systems, which enable the Company
to assist customers with inventory management, the development of a
favorable product mix and the implementation of category management
programs. The Company believes that continued high levels of customer
service will further increase sales to existing mass merchandisers and
warehouse club customers and attract new ones.
Management believes that it can extend the application of the Consumer
Products Division's computerbased customer service system to customers of
the Specialty Paper Division. The system should provide the Specialty
Paper Division with a competitive advantage as it seeks to better serve
its customer base. In addition, the Specialty Paper Division's sales and
service staff expects to continue to fulfill its customers' needs through
a highly specialized technical service staff and research and development
team.
- REDUCE COSTS AND IMPROVE OPERATING EFFICIENCIES. The Company continually
focuses on reducing costs and improving operating efficiencies. For
example, the Specialty Paper Division has recently increased
productivity, as measured by tons of production per employee, by 22.4%,
from 210 tons per employee for 1996 to 257 tons per employee for 1997.
The Company intends to continue to focus on the Specialty Paper
Division's cost reduction efforts as well as implement cost reduction
efforts at the Consumer Products Division to: (i) improve manufacturing
and converting yield; (ii) reduce freight transportation costs; (iii)
improve fiber purchasing and mix; (iv) reduce energy and other
manufacturing costs; and (v) eliminate duplicative administrative
functions.
- PURSUE STRATEGIC ACQUISITIONS. The Company intends to supplement its
growth strategy by actively evaluating specialty paper acquisition
candidates to expand its manufacturing capacity, strengthen its presence
within various channels of distribution, serve new geographic markets or
further diversify its operations and income stream. The Company is in
discussions from time to time with potential acquisition candidates and
believes that the ongoing consolidation of the North American paper
industry should present the Company with attractive acquisition
opportunities.
PRODUCTS
The following table sets forth net sales of the Consumer Products Division
and the Specialty Paper Division for the periods shown:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
--------------------------
1995 1996 1997
------ ------ ------
(DOLLARS IN MILLIONS)
<S> <C> <C> <C>
Consumer Products Division.................................. $107.0 $133.7 $136.2
Specialty Paper Division.................................... 101.0 85.2 86.7
------ ------ ------
Total............................................... $208.0 $218.9 $222.9
====== ====== ======
</TABLE>
Consumer Products Division. The Consumer Products Division's broad line of
private label consumer tissue products includes bath tissue, paper towels,
napkins and facial tissue which range from economy to premium quality grades,
including premium quality paper towels and napkins. Its product assortment is
48
<PAGE> 53
designed for the private label consumer tissue market. The Company intends to
add "pop-up" tissue to its product offering in mid-1998 and believes that with
this addition, the Company will have a broad product line that offers retailers
one-stop shopping for their private label tissue needs. The division's premium
products include two-ply bath tissue and paper towels, napkins and paper towels
with embossing and colored prints in a variety of designs, including seasonal
designs. In addition, from time to time the Consumer Products Division sells
excess jumbo rolls of tissue (i.e., large rolls of manufactured paper used for
conversion into finished product) to other tissue converters.
The following table sets forth the Consumer Products Division's net sales
and tons sold by product line for the periods shown:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
---------------------------------------------------------------------
1995 1996 1997
--------------------- --------------------- ---------------------
(DOLLARS IN MILLIONS)
NET SALES TONS SOLD NET SALES TONS SOLD NET SALES TONS SOLD
--------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
l-Ply Bath Tissue.......................... $ 12.9 10,513 $ 15.7 11,229 $ 17.7 13,369
2-Ply Bath Tissue.......................... 29.8 22,750 34.2 24,021 36.5 27,579
Facial Tissue.............................. 9.6 5,455 9.8 5,110 9.4 4,854
Napkins.................................... 17.0 11,599 23.0 13,229 22.4 13,331
1-Ply Paper Towels......................... 8.6 8,128 11.1 8,991 11.4 9,620
2-Ply Paper Towels......................... 26.8 19,161 37.3 24,272 36.6 24,958
Jumbo Rolls................................ 2.3 3,003 2.6 3,593 2.2 3,177
------ ------ ------ ------ ------ ------
Total.............................. $107.0 80,609 $133.7 90,445 $136.2 96,888
====== ====== ====== ====== ====== ======
</TABLE>
Specialty Paper Division. The Specialty Paper Division produces and
supplies premium coated and uncoated printing papers and release and other
technical/specialty papers throughout the U.S. to end users which require high
quality and high performance paper. Premium coated printing paper is used for
corporate annual reports, high-end advertising brochures, magazines and
catalogs, coffee table books, menus and high quality, full color desktop
publishing. Uncoated printing paper is used for quality books, manuals, direct
mail, brochures, reply cards, newsletters, inserts, maps, data sheets and
envelopes. Release papers include base papers which are silicone coated by the
division's customers and used as a protective layer or backing paper for
pressure sensitive applications. Applications include release papers for
self-adhesive postage stamps, mailing labels, bar code labels, and labels for
retail food packages. Release papers are also increasingly being used to protect
industrial adhesives used as fastening systems for certain automotive trim and
aircraft applications as well as for the manufacture of sound, thermal and
electrical insulating materials. Other technical/specialty papers are used for
special dry release, cigarette mouthpiece, tamperproof label, archival bond and
other customer specific applications. The division's sales force, specialized
technical service staff and research and development team work closely with
customers to improve its products and to develop new products to address market
needs. The division's research and development team is currently developing new
coated printing paper products for use in connection with digital imaging
systems such as desktop color ink jet printers and digital printing presses.
49
<PAGE> 54
The following table sets forth the Specialty Paper Division's net sales and
tons sold by product line for the periods shown:
<TABLE>
<CAPTION>
FISCAL YEAR
---------------------------------------------------------------------
1995 1996 1997
--------------------- --------------------- ---------------------
(DOLLARS IN MILLIONS)
NET SALES TONS SOLD NET SALES TONS SOLD NET SALES TONS SOLD
--------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
Coated Printing Paper.................................... $ 44.0 34,773 $38.6 32,682 $42.6 39,349
Uncoated Printing Paper.................................. 12.9 12,706 9.1 10,606 9.2 11,746
Release Paper............................................ 42.0 30,467 35.4 28,303 33.5 27,037
Other Technical/Specialty Paper(1)....................... 2.1 1,716 2.1 1,428 1.4 2,198
------ ------ ----- ------ ----- ------
Total................................................ $101.0 79,662 $85.2 73,019 $86.7 80,330
====== ====== ===== ====== ===== ======
</TABLE>
- ---------------
(1) Includes sales adjustments.
MARKETING AND SALES
Consumer Products Division. The Consumer Products Division's marketing and
sales efforts are primarily targeted at the retail consumer market. It sells
products through a number of distribution channels including mass merchandisers,
warehouse clubs, supermarkets and drug store chains principally in the Midwest
and the Northeast. Approximately 90% of its consumer products are sold under
major grocery and mass merchandisers' private label brand names which the
Company believes have become well-recognized and accepted among their
value-conscious consumers. The remaining 10% of the division's products are sold
under its own brand names such as Nature's Choice(R), Best Value(R), Pert(R) and
Capri(R) generally by smaller retailers that do not have their own private label
brand names.
The Consumer Products Division markets and sells its products to a wide
variety of customers through an eight-person sales force and selected
independent brokers. Its sales force works directly with customers to evaluate
and develop favorable product mixes and to implement category management
programs that are designed to assist customers with distribution and inventory
management. The Consumer Products Division has developed and implemented an
integrated computer-based customer service system which includes technologies
such as EDI, VMI, Advanced Shipment Notification ("ASN") and Continuous
Replenishment Planning ("CRP"). The system provides real-time information on
customers, orders, shipments and inventory status. Using such information, the
division is able to monitor and replenish customer inventories, provide
information on category activity and shelf space profitability and to offer
just-in-time order delivery to its top customers. In addition, such information
is used to schedule production operations in a cost effective manner and to
maintain sufficient inventories to meet customer demand. The Consumer Products
Division has six customer service representatives and four scheduling
representatives who serve customers by processing, tracking and confirming
orders and answering general product inquiries. Customer service and scheduling
representatives are linked to its customer service database and are capable of
providing customers with inventory and order data. Such representatives manage
the day-to-day operation of the EDI, ASN, CRP and VMI services to evaluate
customers' inventory needs and product mix and enable the division to maintain a
dialogue with customers. The Company believes that from these services, the
Consumer Products Division has fostered long-term relationships with many of its
customers through its efforts to increase customer profitability in the private
label tissue industry and to provide high levels of customer service. The
Company believes that such system provides a significant competitive advantage
and has been an important factor in increasing sales to mass merchandisers and
wholesale clubs from approximately 4,268 tons in 1993 to approximately 29,800
tons for 1997.
The Consumer Products Division's marketing and sales effort includes
materials such as printed advertisements in trade publications, targeted direct
mailings and product brochures which assist the promotion of products by its
customers. The Company also has agreements with approximately 30 selected
independent brokers for the marketing and sale of the division's various
products to certain customers. The agreements are generally for a one-year term
and are terminable by either party upon 30 days written notice. The brokers
receive commissions which range from one to three percent of net sales.
50
<PAGE> 55
Specialty Paper Division. The Specialty Paper Division uses two separate
sales forces to market and sell its products. Premium coated and uncoated
printing papers are sold to customers in major metropolitan markets through a
four-person sales force focused primarily to paper merchants which market such
products to graphic designers, specialty and commercial printers. Premium coated
printing paper is marketed and sold under the Kashmir(R) brand name and the
division's new brand name, "Plainwell." The Specialty Paper Division markets and
sells a film-coated grade of printing paper to printing markets under the brand
name Satin Kote. The Company's sales groups and research and development
department frequently work with end users such as graphic designers, printers
and hardware companies such as printer manufacturers to develop products
tailored for specific customer requirements.
The release and other technical/specialty papers are sold by a dedicated
three-person technical sales group. These products are sold directly to the
division's customers which include companies that silicone coat base papers for
use as a protective layer or backing paper for pressure sensitive applications
by end users. The division's customers also include other industries that use
release and other technical/specialty papers. In providing a customized product
offering, the Company seeks to capitalize on its technical product development
and flexible manufacturing capabilities to differentiate itself from its
competitors.
CUSTOMERS
Consumer Products Division. The Consumer Products Division has well
established relationships with its customer base and serves as a major private
label tissue supplier to many of its customers. The division sells its products
to customers located throughout the U.S., with a concentration near its
manufacturing facilities in the Midwest and Northeast. Its customers include:
(i) mass merchandisers such as Kmart Corporation and Wal-Mart Stores, Inc.; (ii)
warehouse clubs such as B.J. Wholesale Club; (iii) supermarkets that operate
under the names A&P, Giant, Tops Markets and Stop & Shop; and (iv) other
retailers and wholesalers. In 1997, its top 10 customers accounted for
approximately 77.5% of its net sales. The Company expects to focus on increasing
the Consumer Products Division's sales to its top customers and large, growing
customers such as mass merchandisers and wholesale clubs that typically purchase
a full line of products which generally involve higher volume transactions and
fewer SKUs. By focusing on these larger accounts, the Consumer Products Division
is able to improve overall efficiency through longer production runs and reduced
inventory.
Specialty Paper Division. Premium coated and uncoated papers are sold to
paper merchants such as Zellerbach, a division of Mead, and Unisource. Release
and other technical/specialty papers are sold to silicone coating companies such
as the Akrosil Division of the International Paper Company and Avery Dennison
Corporation. In 1997, the 10 largest customers of the Specialty Paper Division
represented 67.5% of its net sales. In conjunction with the 1997 Acquisition,
Holdings and Simpson entered into a requirements contract pursuant to which
Simpson has the right to purchase specific products from Plainwell Paper
Company. The Specialty Paper Division has agreed to supply Simpson with up to
20,000 tons of a specific product during the initial year (and an additional two
years if the term is extended by Simpson) under Simpson's brand name to maintain
continuity of supply of products. See "Risk Factors -- Dependence on Certain
Customers."
MANUFACTURING
Consumer Products Division. The Consumer Products Division operates two
paper mills which have an estimated combined capacity to produce 110,000 tons of
tissue paper per year. Each mill is equipped with (i) a wet crepe paper machine
used to process pulp to manufacture products that require greater strength and
durability such as paper towels, and (ii) a dry crepe machine used to process
pulp to manufacture lighter weight products that emphasize softness and
brightness such as bath tissue and facial tissue. The mill located in Eau
Claire, Wisconsin pulps, de-inks and removes debris such as staples and fine
fiber remnants from pre-consumer and post-consumer wastepaper to produce pulp.
As a result of a recent $21.0 million investment in the Eau Claire, Wisconsin
facility, it has excess capacity of 25,000 tons of pulp per year which could
support future growth of paper making operations. The mill located in Ransom,
Pennsylvania uses pre-consumer wastepaper, predominantly polycoated trimmings
from the production of paper cups and food board used in frozen food packaging,
to produce pulp. The mill separates the polycoating from the wastepaper which is
51
<PAGE> 56
washed and does not require de-inking. The Ransom, Pennsylvania facility blends
minimal amounts of virgin fiber with its recycled pulp. The Ransom, Pennsylvania
facility uses a computerized monitoring process to ensure quality control.
Converting involves mounting jumbo rolls of paper on converting machines
which unroll, emboss and print tissue as needed. The machines then roll or fold
the processed tissue into finished products such as bath tissue, napkins or
paper towels. Finished goods are then packaged and stored in warehouses. The
Company conducts converting operations at its Eau Claire, Wisconsin facility and
Pittston, Pennsylvania facility which is located near the Company's Ransom,
Pennsylvania facility.
Specialty Paper Division. The Plainwell Mill has three Black Clawson
Fourdrinier paper machines with independent fiber lines and associated
converting operations. The mill has an estimated capacity to produce 99,600 tons
of paper per year. The Plainwell Mill uses a wide range of pulp grades purchased
from outside suppliers as well as large volumes of post-industrial and
post-consumer waste to meet product specifications. Each of the three paper
machines has its own dedicated stock preparation line matched to the size of the
machine. The lines can be interchanged to allow for specialty runs which enables
greater flexibility. The Plainwell Mill is able to blend a broad range of
fibers, including a high percentage of generally lower cost recycled fibers,
into a base sheet which is then coated using a rod coating technology. The
Company believes that this technology and its capability to produce high quality
recycled content papers provide the Company with significant cost savings and
marketing advantages. The mill has complete process control and on-line dye
control through a Measurex system that allows the mill to meet and maintain
exact customer specifications. The division's converting operations are housed
in a 32,000 square foot facility adjacent to the paper machine building.
Approximately 60% of the Plainwell Mill's production is shipped in roll form,
and the mill has an automated roll wrap system. The remainder of the mill's
production is sheeted on cutter/trimmer operations. The quality control system
at the Plainwell Mill is ISO 9002 certified.
COMPETITION
Consumer Products Division. The private label consumer tissue products
industry is highly competitive. The Consumer Products Division competes with
large, vertically integrated, multinational companies and smaller, regional
companies. The markets in which the division operates have been increasingly
characterized by a limited number of large companies selling under recognized
brand names. Some of the division's competitors are significantly larger than
the Company, are vertically integrated and have equal or greater access to
financial and other resources. The Consumer Products Division's primary
competitors include Fort James Corporation, Georgia-Pacific Corporation,
Shepherd Tissue Inc., American Tissue Corporation, Orchids Paper Products Co.
and Potlach Corporation. The Company believes that it has a competitive
advantage based largely on its focus on private label tissue products, its
integrated computer-based customer service and the Company's ability to offer a
broad range of products at competitive prices and to deliver these products on a
timely basis.
Specialty Paper Division. The Specialty Paper Division sells products in
the highly competitive premium coated printing paper and release and other
technical/specialty paper markets. The division's products directly compete with
those of a number of companies, some which are significantly larger than the
Company and which have integrated pulp supplies at their mill sites. Such
companies may manufacture a significant amount of their pulp requirements which
may reduce their exposure to fluctuations in the market price of pulp compared
to the Company. See "Risk Factors -- Risks Associated with Fluctuations in
Supply and Costs of Raw Materials." In addition, certain of the mills operated
by the division's competitors may be lower cost producers of pulp and coated
paper than the Plainwell Mill. The Specialty Paper Division's main competitors
in premium coated printing paper and release and other technical/specialty paper
markets include Champion International Corporation, Consolidated Papers Inc.,
Potlach Corporation, S.D. Warren Co., the Nicolet Division of International
Paper Company, and Rhinelander Paper Company, Inc. and Otis Specialty Papers,
units of Wausau-Mosinee Paper Corporation. The Company believes that it has a
competitive advantage based largely on its ability to produce small quantities
of highly customized products that vary in specifications such as paper weight,
opacity, brightness and coatings. See "Risk Factors -- Competition."
52
<PAGE> 57
RAW MATERIALS AND SUPPLIERS
Consumer Products Division. Raw materials are a significant component of
the Consumer Products Division's cost structure. Principal raw materials for the
division's products are pre-consumer and post-consumer waste paper. Wastepaper
is purchased by the division under a combination of supply arrangements with
brokers located in the Midwest and the Northeast. In order to minimize freight
costs, the Consumer Products Division focuses on maintaining and establishing
relationships with dealers located near its manufacturing facilities and in
proximity to urban areas where a majority of post-consumer waste is produced.
The division has a network of consistent suppliers for substantially all of its
raw materials and believes that current sources of supply are adequate to meet
its requirements. The division purchases the bulk of its raw materials under
purchase orders.
Specialty Paper Division. The Specialty Paper Division depends on pulp as
a key raw material for the manufacturing of its products. All supplies and raw
materials, including pulp, are sourced and purchased by the Plainwell Mill under
purchase orders. The purchasing department utilizes a broad network of suppliers
who provide all goods and services necessary for the mill's operations. Pulp is
purchased locally through a broad based system of suppliers and brokers. The
division seeks competitive bids on all major purchases to ensure competitive
prices and believes that current sources of supply are adequate to meet its
requirements. The Company's energy requirements are satisfied through
electricity, water, and natural gas. See "Risk Factors -- Risks Associated with
Fluctuations in Supply and Costs of Raw Materials."
FACILITIES
The Company owns manufacturing, converting and warehouse facilities at the
locations shown in the following table:
<TABLE>
<CAPTION>
SIZE (APPROXIMATE
LOCATION DIVISION TYPE OF FACILITY SQUARE FEET)
-------- -------- ---------------- -----------------
<S> <C> <C> <C>
Eau Claire, Wisconsin Consumer Products Manufacturing, Converting, 462,000
Distribution, Warehouse
Pittston, Pennsylvania Consumer Products Converting, Distribution, 330,000
Warehouse
Ransom, Pennsylvania Consumer Products Manufacturing 238,000
Plainwell, Michigan Specialty Paper Manufacturing, Converting, 526,000
Distribution, Warehouse
Plainwell, Michigan Specialty Paper Warehouse 40,000
</TABLE>
The Company's executive offices are located in Plainwell, Michigan. The
Company also leases warehouse space in Eau Claire, Wisconsin and, on a
short-term, as needed basis, at locations in Pennsylvania.
EMPLOYEES
As of December 31, 1997, the Company employed 1,073 persons, consisting of
747 persons at the Consumer Products Division and 326 persons at the Specialty
Paper Division. All of the Company's hourly production employees are represented
by the United Paperworkers International Union, and all of the Company's
facilities are covered by labor agreements. The labor agreement covering the
Wisconsin facility expires in March 2000. The labor agreements for the Ransom
and Pittston, Pennsylvania facilities expire in September 1999. The labor
agreement for the Plainwell Mill expires in November 2000.
The employees at the Eau Claire, Wisconsin facility participate in a
multiemployer pension plan which is not administered by the Company but by a
separate plan administrator. Under the Multiemployer Pension Plan Act of 1980,
if a contributing employer totally or partially withdraws from an underfunded
multiemployer plan, the employer would become liable to fund a portion of the
plan's unfunded vested liability. The plan administrator informed Pope & Talbot,
Inc. in a letter dated December 6, 1996 that if Pope & Talbot, Inc. withdrew in
1996 from the multiemployer plan relating to the Eau Claire, Wisconsin facility,
the withdrawal liability would have been $9.7 million. The Acquisition will not
cause a withdrawal to occur and management
53
<PAGE> 58
has no intention of changing operations so as to subject the Company to any
material withdrawal obligation under such plan.
In 1995, to address the Ransom, Pennsylvania facility's historically high
labor cost structure, the Company implemented a labor contract which resulted in
an eight-month strike. The division's union employees in Ransom, Pennsylvania
rejected this contract, went on strike for eight months and returned to work in
December 1995. The strike was resolved in December 1995 and a new labor
agreement was adopted, resulting in increased workforce flexibility and reduced
labor costs. The Company considers its relationships with its employees to be
good.
LEGAL PROCEEDINGS
The Company is a party to various litigation matters incidental to the
conduct of its business. Management does not believe that the outcome of any of
the matters in which the Company is currently involved will have a material
adverse effect on the financial condition or results of operations of the
Company.
ENVIRONMENTAL MATTERS
The Company is subject to increasingly stringent and comprehensive federal,
state and local environmental requirements, including laws and regulations
relating to air emissions, wastewater management, the handling and disposal of
solid and hazardous waste and related financial responsibility requirements, and
the cleanup of properties affected by hazardous substances. Certain
environmental laws impose significant penalties for noncompliance, and others
impose strict, retroactive, joint and several liability on persons responsible
for releases of hazardous substances. The Company believes that its operations
have been and are in substantial compliance with environmental requirements, and
that it has no liabilities arising under such requirements except as would not
be expected to have a material adverse effect on the Company's operations,
liquidity or financial condition.
The Company estimates that $730,000 will be spent in 1998 on environmental
compliance and clean up work at its operating locations. Although the Company
believes its estimate of 1998 costs is reasonable, there can be no assurances
that actual expenditures will not exceed the estimated amount.
The Company owns and operates a landfill in Washington County, Wisconsin,
for disposal of its paper-making sludge. Pope & Talbot, Wis., Inc. has already
closed two of three sections of the landfill and the Company is currently
monitoring those sections in accordance with requirements of environmental laws.
The Company expects to begin closure of the third section of the landfill by
2002. Closure will cost approximately $1.3 million, and the Company will then
spend an additional $80,000 per year for 40 years to monitor the closed
landfill. The Company believes that, based on current information and regulatory
requirements, the estimates for the landfill closure established by the Company
are adequate, although there can be no assurance that the costs will not
eventually exceed the amount presently estimated.
The Company or its predecessors has received requests for information and
notice letters from government agencies or other third parties indicating that
the Company may be responsible for costs associated with the investigation and
cleanup of several contaminated sites. Because investigation and remediation
activities at some of these sites are in preliminary stages, the Company cannot
estimate with any certainty the costs it may incur to resolve its involvement in
these known cases. Based on current information about materials sent to the
sites and the fact that the Company has certain indemnification and statutory
rights against its corporate predecessors and other responsible parties, the
Company does not expect these matters to have a material adverse effect on the
Company's operations, liquidity or financial condition.
In 1990, the Company was named a potentially responsible party ("PRP") with
respect to the Allied Paper, Inc./Portage Creek/Kalamazoo River Superfund Site
("Kalamazoo River Site"). The site is named on U.S. EPA's National Priorities
List ("NPL"), the agency's inventory of contaminated sites designated for
ranking and cleanup under the federal Superfund law. According to investigations
conducted by U.S. EPA, the Kalamazoo River and associated paper mill properties,
including the Company's, may be contaminated with polychlorinated biphenyls
("PCBs"). U.S. EPA believes that the contamination is a result of historical
54
<PAGE> 59
paper-making operations at a number of mills in the Kalamazoo area. The Company
entered into an Administrative Consent Order with the Michigan Department of
Environmental Quality ("MDEQ"), under which it and other PRPs agreed to perform
certain environmental investigation activities at the site. The Company also
joined a group of four PRPs, the Kalamazoo River Study Group ("KRSG"), to
conduct the work required under the Order and attempt to identify other PRPs who
might contribute to the investigation and cleanup effort. Litigation involving
KRSG and other prospective PRPs is pending. To the Company's knowledge, neither
U.S. EPA nor the PRPs have developed comprehensive estimates of overall cleanup
costs for the Kalamazoo River Site. Although the Company's share of such costs
could be material, the Company believes that any costs likely to be incurred by
it in connection with this matter would be borne by Simpson pursuant to the
indemnity provisions contained in the 1997 Acquisition agreement. Therefore,
based on its understanding of the Kalamazoo River Site contamination, the
involvement of other PRPs and the indemnity rights against Simpson the Company
does not expect this matter to have a material adverse effect on the Company's
operations, liquidity or financial condition.
One discrete portion (a so-called "Operable Unit") of the Kalamazoo River
Site is the 12th Street Landfill, a property wholly owned by the Company. The
Company expects to pay for the entire cost of the investigation and cleanup work
at this location. An environmental consultant retained by the Company estimates,
based on recent studies of the site and an evaluation of possible cleanup
strategies, that the present value cost of the final remedy is $1.8 million. The
Company expects that costs associated with the 12th Street Landfill, as with
other portions of the Kalamazoo River Site, will be borne by Simpson pursuant to
the indemnity agreement discussed above.
The Company has been identified as a PRP with respect to the West KL Avenue
Landfill NPL site in Oshtemo Township, Michigan. On May 2, 1997, the Company
entered into a Settlement Agreement with other PRPs, one faction of which had
sued another, pursuant to which each PRP agreed to pay a certain share of the
site's cleanup costs. The Company's share of the costs was $15,000. On June 19,
1997, the underlying lawsuit regarding costs associated with the cleanup was
dismissed with prejudice by the U.S. District Court for the Western District of
Michigan. The court's order also barred future claims for contribution and
response costs by non-parties. The Company therefore believes this matter is
resolved. The Company expects that any further costs associated with this matter
would be borne by Simpson pursuant to the indemnity agreement discussed above.
The Company received notice from private parties that it might be liable
for releases of hazardous substances at the Cork Street Landfill NPL Site, in
Kalamazoo, Michigan. The Company believes that wastewater treatment plant
sludge, fly ash and bottom ash from the Plainwell Mill may have been disposed of
at the site in the mid-1980s. Sludge from the mill is currently being sent to
the landfill for use as cover material, with regulatory agency approval.
According to the environmental consultant who reviewed the available information
in 1997, U.S. EPA's responsible project manager has stated that the information
known about the Company's involvement at the Cork Street Landfill would not now
support the agency's naming the entity a PRP with respect to the site. The
Company believes this matter is resolved and expects that any further costs
associated with this matter would be borne by Simpson pursuant to the indemnity
agreement discussed above.
In 1987, the Company's predecessor, Pope & Talbot, Wis., Inc. received a
request for information from the U.S. EPA that indicated that it was considered
a PRP with respect to the Blue Valley Landfill Superfund Site in Eau Claire,
Wisconsin. Available records indicate that Pope & Talbot, Wis., Inc. sent a de
minimis amount of wastewater treatment sludge from the de-inking process and
general wastes from the tissue division to the Blue Valley Landfill. Pope &
Talbot, Wis., Inc.'s predecessor at the Eau Claire facility, the Brown Company,
also sent waste to the Blue Valley Landfill Superfund Site and has been named a
PRP with respect to the site. Based on the amount of material that Pope &
Talbot, Wis., Inc. sent to the Blue Valley Landfill and its indemnification
agreement with the Brown Company, the Company does not anticipate that its costs
associated with the site will have a material adverse effect on the Company's
operations, liquidity or financial condition.
55
<PAGE> 60
In 1996, Pope & Talbot, Wis., Inc. received notification from U.S. EPA that
it was considered a PRP with respect to the A.E. Schneider & Son Salvage Yard
Site in Chippewa Falls, Wisconsin ("Schneider Site"). U.S. EPA indicated in
subsequent correspondence with Pope & Talbot, Wis, Inc. that it believed that
lead from the Eau Claire, Wisconsin facility might have been disposed of at the
Schneider Site. Pope & Talbot, Wis, Inc. conducted a followup investigation and
reported to U.S. EPA that the only potentially lead-containing waste transported
from the Eau Claire, Wisconsin mill to the Schneider Site was believed to be a
counterweight to a steam engine crane that was disposed of in the mid-1970s,
when Pope & Talbot, Wis., Inc.'s predecessor at the Eau Claire, Wisconsin
facility, the Brown Company, owned the mill. The Company does not believe the
costs associated with this matter will have a material adverse effect on the
Company's operations, liquidity or financial condition.
56
<PAGE> 61
MANAGEMENT
DIRECTORS AND EXECUTIVE OFFICERS
The following table sets forth the names, ages as of February 1, 1998, and
a brief account of the business experience of each person who is a director or
executive officer of the Company.
<TABLE>
<CAPTION>
NAME AGE POSITION
- ---- --- --------
<S> <C> <C>
William L. New......................... 54 Chairman, Chief Executive Officer and
President
Francis J. Fitzpatrick................. 58 Group Executive and Chief Operating
Officer -- Specialty Paper Division
George E. Mangarelli................... 55 Executive Vice President, Chief
Financial Officer -- Specialty Paper
Division, Secretary and Director
Roy E. Fuchs........................... 54 Executive Vice President and Chief
Financial Officer -- Consumer Products
Division
Gary A. Hayden......................... 49 Vice President and General Manager --
Consumer Products Division
Brenton S. Halsey...................... 70 Director
David F. Thomas........................ 48 Director
John D. Weber.......................... 34 Director
</TABLE>
WILLIAM L. NEW has served as Chairman of the Board of Directors, Chief
Executive Officer and President of the Plainwell Paper Company since June 1997.
Prior to that, from 1991 to 1995, Mr. New founded and was Chairman, Chief
Executive Officer and President of Encore Paper Company. Prior to that, from
1970 to 1991, Mr. New held various positions at Wisconsin Tissue, previously an
affiliate of Philip Morris (which owned Plainwell Paper Company over this
tenure), including Executive Vice President and Chief Operating Officer.
Following the consummation of the Transactions, Mr. New serves as Chairman of
the Board of Directors, Chief Executive Officer and President of the Company.
Since 1991, Mr. New has served as a director of Integrated Paper Services.
FRANCIS J. FITZPATRICK has served as Executive Vice President and Chief
Operating Officer of Plainwell Paper Company since June 1997. Prior to that he
was a principal in Longmeadow Associates which provided consulting services for
product and market development in the paper industry. From 1982 to 1990, he was
President of Westfield River Paper Company. Prior to that he was Director of
marketing and sales for the Nicolet Division, previously an affiliate of Philip
Morris (which owned Plainwell Paper Company over this tenure). Mr. Fitzpatrick
serves as Group Executive and Chief Operating Officer -- Specialty Paper
Division.
GEORGE E. MANGARELLI has served as Executive Vice President and Chief
Financial Officer of Plainwell Paper Company since July 1997. Prior to that,
from May 1995 to July 1997, he was Senior Vice President, Chief Financial
Officer and Secretary of Encore Paper Company. From 1993 to 1994, Mr. Mangarelli
was Senior Vice President and Chief Financial Officer of Overhead Door
Corporation. From 1990 to 1993, he was Vice President, Finance and Chief
Financial Officer of Global Technology Systems, Inc. Mr. Mangarelli serves as
Executive Vice President, Chief Financial Officer -- Specialty Paper Division,
Secretary and a director of the Company. Mr. Mangarelli is a certified public
accountant.
ROY E. FUCHS has served as a financial consultant to Plainwell Paper
Company since November 1997. Prior to that, from September 1989 to September
1997, he was Vice President, Paper Industry Financing for the CIT Group, Inc.
From 1987 to 1989 he was an independent consultant to the paper industry. From
1974 to 1987 he held positions in finance and marketing management with
International Paper Company. Mr. Fuchs serves as Executive Vice President and
Chief Financial Officer -- Consumer Products Division.
GARY A. HAYDEN has served as Division Manufacturing Manager for the tissue
business of Pope & Talbot since 1996. Prior to that, Mr. Hayden served as
Resident Manager for the Eau Claire, Wisconsin facility.
57
<PAGE> 62
From 1977 to 1993, Mr. Hayden worked in various operational and managerial
capacities for Pope & Talbot. Mr. Hayden serves as Vice President and General
Manager -- Consumer Products Division.
BRENTON S. HALSEY is a director of the Company. Mr. Halsey was the founding
Chief Executive Officer and Chairman of the James River Corporation from 1969 to
1990. He continued as Chairman until 1992 when he became Chairman Emeritus.
DAVID F. THOMAS is a director of the Company. Mr. Thomas has been President
of 399 Venture Partners since December 1994. In addition, Mr. Thomas has been a
Managing Director of Citicorp Venture Capital, Ltd., an affiliate of 399 Venture
Partners, for over five years. Mr. Thomas is currently a director of Lifestyle
Furnishings International Ltd., Galey & Lord, Inc., Anvil Knitwear, Inc., Stage
Stores, Inc., Neenah Foundry Company and a number of private companies.
JOHN D. WEBER is a director of the Company. Since 1994, Mr. Weber has been
a Vice President at Citicorp Venture Capital, Ltd. Previously, Mr. Weber worked
at Putnam Investments from 1992 through 1994. Mr. Weber is a director of Anvil
Knitwear, Inc., Neenah Foundry Company and a number of private companies.
DIRECTOR COMPENSATION
The Company will reimburse directors for any out-of-pocket expenses
incurred by them in connection with services provided in such capacity. In
addition, the Company may compensate directors for services provided in such
capacity.
EXECUTIVE COMPENSATION
For the period from June 17, 1997 through December 31, 1997 William L. New,
Francis J. Fitzpatrick and George E. Mangarelli received $168,030, $108,159, and
$101,172, respectively, in cash compensation from the Plainwell Paper Company.
Messrs. New, Fitzpatrick and Mangarelli serve as executive officers of the
Company. The Company is currently negotiating salaries and other cash
compensation to be paid to the executive officers.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
Messrs. Halsey, Thomas and Weber comprise the members of the Compensation
Committee of the Board of Directors.
EXECUTIVE EMPLOYMENT AND STOCK PURCHASE AGREEMENTS
Plainwell Paper Company has entered into an Executive Employment and Stock
Purchase Agreement with William L. New, and in connection with the Transactions,
the Company assumed the obligations of Plainwell Paper Company thereunder. Such
agreement provides for: (i) a three year employment term; (ii) severance
benefits and noncompetition, nonsolicitation and confidentiality agreements in
certain situations; (iii) restrictions on the transfer of Mr. New's common stock
in Holdings; (iv) the vesting of certain of Mr. New's common stock in Holdings
(the "Common Stock"); and other terms and conditions of Mr. New's employment.
See "Certain Transactions -- Executive Employment Stock Purchase Agreements."
58
<PAGE> 63
PRINCIPAL STOCKHOLDERS
All of the Company's issued and outstanding capital stock is owned by
Holdings. The following table sets forth certain information with respect to the
equity interests of the Company.
<TABLE>
<CAPTION>
PERCENTAGE OF
NAME AND ADDRESS OF BENEFICIAL OWNER COMMON STOCK
------------------------------------ -------------
<S> <C>
Plainwell Holding Company(1)................................ 100%
c/o PLAINWELL INC.
200 Allegan Street
Plainwell, Michigan 49080
</TABLE>
- ---------------
(1) Plainwell Holding Company is an affiliate of 399 Venture Partners. The
Management Shareholders also have, through an investment in Plainwell
Holding Company, a beneficial interest in the Company.
DESCRIPTION OF HOLDINGS' CAPITAL STOCK
In connection with the Acquisition, Holdings' certificate of incorporation
was amended and restated to provide for two series of preferred stock (series A
and B) and four classes of common stock (classes A, B, C and D). The Series A
Preferred Stock (the "Series A Preferred") has a liquidation value of $100 per
share, an accruing dividend of 13.0% and a scheduled redemption 13 years after
the closing of the Acquisition. Holdings is authorized to issue 240,000 shares
of Series A Preferred, of which approximately 232,300 shares are issued and
outstanding as of the closing of the Acquisition. The Series B Preferred Stock
(the "Series B Preferred") has a liquidation value of $100 per share, an
accruing dividend of 12.5% and a scheduled redemption 13 years after the closing
of the Acquisition. Holdings is authorized to issue 40,000 shares of Series B
Preferred, of which 35,000 shares are issued and outstanding as of the closing
of the Acquisition. Each share of common stock is entitled to participate pro
rata in any distribution made by Holdings with respect to its common stock. The
Class A Common Stock (the "Class A Common") is Holdings' only class of voting
stock. The holders of Class A Common are entitled to one vote per share. Shares
of Class A Stock are convertible into an equal number of shares of Class B
Common Stock (the "Class B Common"). The Class B Common are non-voting common
stock and are convertible into an equal number of shares of Class A Common upon
the occurrence of a public offering of Holdings' equity securities or at the
election of the holders of a majority of the Class B Common then outstanding.
The Class C Common Stock (the "Class C Common") are non-voting common stock and,
upon any distribution by Holdings upon its common stock, each share of Class C
Common is entitled to a distribution, prior in right to the remaining common
stock of Holdings, equal to the unreturned original cost thereof (as defined in
Holdings' certificate of incorporation) plus a yield of 8.0% compounded annually
on the unreturned original cost thereof from the date of issuance thereof. The
Class D Common Stock (the "Class D Common") is non-voting common stock and, upon
any distribution by Holdings upon its common stock, each share of Class D Common
is entitled to a distribution, junior in right to distributions made on the
Class C Common with respect to the unreturned original cost thereof and prior in
right to the remaining common stock of Holdings, equal to the unreturned
original cost thereof (as defined in Holdings' certificate of incorporation).
59
<PAGE> 64
CERTAIN TRANSACTIONS
EXECUTIVE EMPLOYMENT AND STOCK PURCHASE AGREEMENT
Plainwell Paper Company has entered into an Executive Employment and Stock
Purchase Agreement with William L. New, and in connection with the Transactions,
the Company assumed the obligations of Plainwell Paper Company thereunder. Such
agreement provides for: (i) a three year employment term; (ii) severance
benefits and noncompetition, nonsolicitation and confidentiality agreements in
certain situations; (iii) restrictions on the transfer of Mr. New's common stock
in Holdings; (iv) the vesting of certain of Mr. New's common stock in Holdings;
and other terms and conditions of Mr. New's employment.
STOCKHOLDERS AGREEMENT
In connection with the 1997 Acquisition, Holdings, 399 Venture Partners,
management stockholders and the other stockholders of Holdings entered into a
Stockholders Agreement, dated as of June 16, 1997, as amended ( the
"Stockholders Agreement"). The Stockholders Agreement provides, among other
things, for the following: (i) an agreement by all parties to vote their Common
Stock so as to cause the Board of Directors of the Company to consist of five
members, two of whom shall be selected by 399 Venture Partners (currently,
Messrs. Thomas and Weber), one of whom shall be designated by the holders of a
majority Holdings' Class A Common Stock (currently, Mr. Halsey), one of whom
shall be the Chief Executive Officer of the Company (currently, Mr. New), and
one of whom shall be the Chief Financial Officer of the Specialty Paper Division
(currently, Mr. Mangarelli), (ii) certain restrictions on transfer of the Common
Stock, including, but not limited to, provisions providing that (a) the Company
and certain holders of the Common Stock will have limited rights of first offer
in any proposed third party sale of Common Stock by any of Holdings'
stockholders, and (b) certain holders of the Common Stock will have limited
participation rights in any proposed third party sale of Common Stock by other
stockholders, (iii) certain limited preemptive rights to Holdings' stockholders
with respect to an issuance or sale of Common Stock by Holdings, and (iv) an
agreement by all parties that, upon approval of a sale of all Common Stock or a
sale of all or substantially all of Holdings' assets by Holdings' Board of
Directors and 399 Venture Partners, such parties will consent to and raise no
objections against such sale and sell its Common Stock in such sale, if so
required.
REGISTRATION RIGHTS AGREEMENT
In connection with the 1997 Acquisition, the parties to the Stockholders
Agreement contemporaneously entered into a Registration Rights Agreement (as
amended, the "Registration Rights Agreement"). Pursuant to the terms of the
Registration Rights Agreement, 399 Venture Partners has the right to require
Holdings, at the expense of Holdings and subject to certain limitations, to
register under the Securities Act all or part of the shares of Common Stock (the
"Registrable Securities") held by them. 399 Venture Partners is entitled to
demand up to five long-form registrations at any time and unlimited short-form
registrations. Subject to certain limitations set forth in the Registration
Rights Agreement, all holders of Registrable Securities are entitled to an
unlimited number of "piggyback" registrations, with Holdings paying all expenses
of the offering, whenever Holdings proposes to register Common Stock under the
Securities Act. Each such holder is subject to certain pro rata limitations on
its ability to participate in such a "piggyback" registration. In addition,
pursuant to the Registration Rights Agreement, Holdings has agreed to indemnify
all holders of Registrable Securities against certain liabilities, including
certain liabilities under the Securities Act.
60
<PAGE> 65
DESCRIPTION OF CERTAIN INDEBTEDNESS
NEW CREDIT FACILITY
Concurrently with the consummation of the Transactions, the Company entered
into the New Credit Facility with Sanwa Business Credit Corporation. The
following is a summary of the material terms and conditions of the New Credit
Facility and is subject to the detailed provisions of the New Credit Facility
and various related documents entered into in connection with the New Credit
Facility.
General. The New Credit Facility consists of (i) a five-year revolving
line of credit providing up to $35.0 million of availability (the "Revolver")
and (ii) a five-year letter of credit guaranty providing for a maximum amount of
up to $20.0 million (the "LC Facility") to support obligations of the Company
under the Eau Claire IRBs. The Revolver is available in multiple drawings from
time to time, subject to certain limitations, including a requirement that
amounts outstanding under the Revolver (including certain letters of credit
other than the letters of credit applicable to the Eau Claire IRBs) will at all
times be less than a borrowing base based on (i) 85% of the Company's Eligible
Accounts Receivable (as defined), and (ii) 60% of the Company's Eligible Raw
Materials and Finished Goods Inventory (as defined) subject to a cap of $21.0
million. Up to $6.0 million of the amount available under the Revolver may be
used for letters of credit supporting obligations of the Company, which will
reduce the availability under the Revolver. Advances under the Revolver will be
used to finance ongoing working capital and general corporate requirements of
the Company. Under certain circumstances, the Company is required to repay the
Revolver with the proceeds of asset sales.
Interest Rate; Fees. Amounts outstanding under the Revolver bear interest,
at the Company's option, at either (i) the Prime Rate plus a margin which varies
between 0% and .25% depending upon the Company's financial performance and
leverage ratio; or (ii) LIBOR plus a margin which varies between 2.0% and 2.75%
depending upon the Company's financial performance and leverage ratio, payable
monthly in arrears. The Company pays a non-use fee equal to 0.375% of the unused
amount of the Revolver per annum, payable monthly in arrears. In addition, the
Company pays a fee equal to 1.5% per annum on the undrawn face amount of the LC
Facility and a fee equal to 2.0% per annum on the undrawn face amount of letters
of credit issued under the $6.0 million subfacility of the Revolver payable
monthly in arrears plus expenses.
Collateral. The New Credit Facility is secured by a first priority
perfected lien on, and security interest in, all of the Company's common stock
and present and future tangible and intangible assets (subject to first priority
liens on the Eau Claire, Wisconsin facility attributable to the applicable
IRBs), and proceeds thereof, including, without limitation, accounts receivable,
inventory, machinery, equipment, tooling, real property, leasehold interests,
patents, trademarks, copyrights, royalty interest, brand-names, customer lists
and general intangibles, (collectively the "Collateral"); provided, that as of
the Closing Date the Collateral will not include the Company's real property at
its Ransom and Pittston, Pennsylvania facilities or the equipment and fixtures
installed therein. The Revolver and the LC Facility are cross-collateralized.
Under certain circumstances, the Company is required to cash collateralize the
LC Facility.
Covenants. The Company is subject to certain affirmative and negative
covenants contained in the New Credit Facility, including covenants that limit:
(i) liens; (ii) additional indebtedness; (iii) mergers and acquisitions; (iv)
sale of assets; and (v) ability to pay dividends. In addition, the New Credit
Facility requires the Company to maintain compliance with certain specified
financial covenants, including covenants relating to net funded debt to EBITDA,
fixed charge coverage and capital expenditures and requires repayment upon a
change of control (as defined therein).
THE IRBS
Eau Claire Industrial Revenue Bonds
Concurrently with the consummation of the Acquisition, the Company assumed
all liabilities under Industrial Revenue Bonds issued by the City of Eau Claire,
Wisconsin (the "Eau Claire IRBs"). The
61
<PAGE> 66
following is a summary of the material terms and conditions of the Eau Claire
IRBs and various related documents.
General. The Eau Claire IRBs mature in 2014, were issued by the City of
Eau Claire, Wisconsin on November 1, 1994, and the proceeds from the sale
thereof were loaned to Pope & Talbot, Wis., Inc. to finance the acquisition,
construction, installation and equipping of a solid waste disposal facility and
to pay certain costs of issuance of the Eau Claire IRBs.
The Eau Claire IRBs are limited obligations of the City of Eau Claire
payable only from amounts paid by Pope & Talbot, Wis., Inc. and its permitted
assigns and other amounts held in certain funds and accounts established under
an indenture (the "Eau Claire IRB Indenture") and pledged therefor. The Company
will be obligated to make payments in amounts sufficient to pay the principal of
and interest and premium on the Eau Claire IRBs and certain other fees and
expenses and to make payments sufficient to pay the purchase price of Eau Claire
IRBs tendered for purchase.
Interest Rate; Fees. The Eau Claire IRBs bear interest at various rates
set forth in the Eau Claire IRB Indenture, subject to adjustment from time to
time. At no time will any of the Eau Claire IRBs bear interest at a rate in
excess of the lesser of (i) 12% per annum or (ii) the maximum rate permitted by
applicable law. In addition, the Company will be obligated to pay a fee equal to
1.5% per annum on the undrawn face amount of the LC Facility. At September 30,
1997, the interest rate on the Eau Claire IRBs was 4.25%.
Demand Purchase Option. At any time or from time to time, the Eau Claire
IRBs may be tendered for repurchase by the holders thereof prior to maturity at
a purchase price equal to the principal amount plus accrued interest. The
repurchase date varies depending upon the interest rate reset date applicable at
the time a holder tenders for repurchase. The sources of funds for the
repurchase of any tendered Eau Claire IRBs is as follows and in the following
order of priority: (i) funds from a bond purchase fund required to be maintained
with the trustee under the Eau Claire IRB Indenture; (ii) proceeds from a
remarketing of the Eau Claire IRBs; (iii) funds drawn from certain permitted
credit facilities established to provide security for certain obligations with
respect to the Eau Claire IRBs; and (iv) any other funds furnished by or on
behalf of the Company.
Redemption. The Eau Claire IRBs may be redeemed by the City of Eau Claire
prior to maturity in whole at the option of the Company during certain periods
and upon the occurrence of certain events, at a redemption price equal to the
principal amount plus accrued interest thereon. The Eau Claire IRBs are also
subject to mandatory redemption by the City of Eau Claire in whole, without a
redemption premium, upon the occurrence of certain tax-significant events
defined and set forth in the Eau Claire IRB Indenture.
Collateral. The payment of the principal and purchase price of and
interest on the Eau Claire IRBs is secured by the LC Facility, which provides
for a maximum amount of up to $20.0 million to support obligations of the
Company under the Eau Claire IRBs.
Covenants. The Company is subject to certain affirmative and negative
covenants contained in the Eau Claire IRB Indenture and related agreements,
including covenants that limit: (i) liens; (ii) additional senior indebtedness;
(iii) mergers and acquisitions; (iv) sale of assets; and (v) ability to pay
dividends. In addition, the Indenture and related agreements require the Company
to maintain compliance with certain specified financial covenants, including
covenants relating debt to net worth, fixed charge coverage and capital
expenditures.
Plainwell Industrial Revenue Bonds
Concurrently with the consummation of the Merger, the Company assumed all
liabilities under the Plainwell IRBs. The following is a summary of the material
terms and conditions of the Plainwell IRBs and various related documents.
General. The Plainwell IRBs mature in 2007, were issued by the City of
Plainwell, Michigan on November 1, 1983 and the proceeds from the sale thereof
were loaned to Plainwell Paper Company to finance the cost of acquiring,
constructing and installing certain facilities including pollution control
facilities.
62
<PAGE> 67
The Plainwell IRBs are limited obligations of the City of Plainwell payable
only from amounts paid by Plainwell Paper Company and its permitted assigns and
other amounts held in, or as guaranty of, certain funds and accounts established
under an indenture (the "Plainwell IRB Indenture") and pledged therefor. The
Company is obligated to make payments in amounts sufficient to pay the principal
of and interest and premium on the Plainwell IRBs and certain other fees and
expenses. Following the Merger, the obligations of the Company under the
Plainwell IRBs remained subject to the absolute and unconditional guaranty of
Philip Morris Corporation, a Virginia corporation and former parent of the
Specialty Paper Division, pursuant to a parent guaranty agreement.
Interest Rate; Fees. The Plainwell IRBs are variable rate obligations
which bear interest at a rate equal to a benchmark rate, plus an amount in the
range of 1/4% to 2 1/4%, adjusted from time to time in accordance with and
subject to certain exceptions set forth in the Plainwell IRB Indenture. The
interest rate is subject to conversion to a fixed rate of interest at any time
at the option of the Company. At December 31, 1997, the interest rate on the
Plainwell IRBs was 4.45%
Demand Purchase Option. The Plainwell IRBs may be purchased on the demand
of the owners thereof at a purchase price of par plus accrued interest.
Following conversion to a fixed rate of interest, however, the Plainwell IRBs
shall no longer be subject to purchase on demand.
Redemption. The Plainwell IRBs may be redeemed by the City of Plainwell
prior to maturity in whole or in part at the option of the Company (i) at any
time at the redemption price of 100% of the principal amount thereof plus
accrued interest, or (ii) on any interest payment date at various redemption
prices set forth in the Plainwell IRB Indenture. The Plainwell IRBs are also
callable for redemption by the City of Plainwell in whole, without a redemption
premium, if the Company is obligated, or exercises its option, to cause the
Plainwell IRBs to be redeemed upon the occurrence of certain tax-significant or
materially adverse events.
Covenants. The Company is not be subject to any material affirmative or
negative covenants contained in the Plainwell IRB Indenture or related
agreements.
63
<PAGE> 68
DESCRIPTION OF EXCHANGE NOTES
GENERAL
The Exchange Notes will be issued pursuant to the Indenture among the
Company and United States Trust Company of New York, as trustee (the "Trustee").
The terms of the Exchange Notes include those stated in the Indenture and those
made part of the Indenture by reference to the Trust Indenture Act of 1939 (the
"Trust Indenture Act"). The Exchange Notes are subject to all such terms, and
Holders of Exchange Notes are referred to the Indenture and the Trust Indenture
Act for a statement thereof. The following summary of the material 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. Copies of the Indenture and the Exchange and Registration
Rights Agreement will be made available to Holders as set forth under
"-- Additional Information." The definitions of certain terms used in the
following summary are set forth below under "-- Certain Definitions." For
purposes of this "Description of Exchange Notes," the term "Company" refers only
to PLAINWELL INC. and not to Holdings or any of its Subsidiaries.
The Exchange Notes will be general unsecured obligations of the Company and
will be subordinated in right of payment to all existing and future Senior Debt
of the Company. As of December 31, 1997, after giving pro forma effect to the
Transactions, the amount of the Company's outstanding Senior Debt would have
been $22.3 million. In addition, the Company has $35.0 million of additional
borrowings available under the New Credit Facility. The Indenture permits the
Company to incur additional indebtedness, including additional Senior Debt,
subject to certain restrictions. See "-- Certain Covenants -- Incurrence of
Indebtedness."
Although the Company currently has no Subsidiaries, under certain
circumstances, the Company will be able to designate any future Subsidiaries as
Unrestricted Subsidiaries. Unrestricted Subsidiaries will not be subject to many
of the restrictive covenants set forth in the Indenture. The Company's payment
obligations under the Exchange Notes will be guaranteed, on a senior
subordinated basis, by all of the Company's future Restricted Subsidiaries, if
any. See "-- Certain Covenants -- Subsidiary Guarantees."
PRINCIPAL, MATURITY AND INTEREST
The Exchange Notes will be limited in aggregate principal amount to
$130,000,000 and will mature on March 1, 2008. Interest on the Exchange Notes
will accrue at the rate of 11% per annum and will be payable semi-annually in
arrears on March 1 and September 1 of each year, commencing on September 1,
1998, to Holders of record on the immediately preceding February 15 and August
15. Interest on the Exchange 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 and premium, interest and
Liquidated Damages, if any, on the Exchange 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 may be made by check mailed
to the Holders of the Exchange Notes at their respective addresses set forth in
the register of Holders of Exchange Notes; provided that all payments of
principal, premium, interest and Liquidated Damages with respect to Exchange
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 Exchange Notes will be issued in denominations
of $1,000 and integral multiples thereof.
SUBORDINATION
The payment of principal of and premium, interest and Liquidated Damages,
if any, on the Exchange 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 Closing Date 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 marshaling of the Company's
assets and liabilities,
64
<PAGE> 69
the holders of Senior Debt will be entitled to receive payment in full 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 Senior Subordinated Notes will be entitled to
receive any payment with respect to the Senior Subordinated Notes, and until all
Obligations with respect to Senior Debt are paid in full, any distribution to
which the Holders of Senior Subordinated Notes would be entitled shall be made
to the holders of Senior Debt (except that Holders of Senior Subordinated Notes
may receive Permitted Junior Securities 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 Senior
Subordinated Notes (except in Permitted Junior 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 any Designated
Senior Debt occurs and is continuing beyond any applicable period of grace or
(ii) any other default occurs and is continuing with respect to any Designated
Senior Debt 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 Company or the holders of
such Designated Senior Debt. Payments on the Senior Subordinated 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 has been accelerated. No new
period of payment blockage as a result of a nonpayment default may be commenced
unless and until (i) 360 days have elapsed since the effectiveness of the
immediately prior Payment Blockage Notice issued as a result of a nonpayment
default. 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 unless the same has been cured
for a period of at least 181 consecutive days, provided that 360 days have
elapsed since the effectiveness of the immediately prior Payment Blockage
Notice.
The Indenture further requires that the Company promptly notify holders of
Senior Debt if payment of the Senior Subordinated Notes is accelerated because
of an Event of Default.
As a result of the subordination provisions described above, in the event
of a liquidation or insolvency, Holders of Exchange Notes may recover less
ratably than creditors of the Company who are holders of Senior Debt. As of
December 31, 1997, after giving pro forma effect to the Transactions, the amount
of the Company's outstanding Senior Debt would have been $22.3 million. The
Company will be able to incur additional Senior Debt in the future, subject to
certain limitations. See "-- Certain Covenants -- Incurrence of Indebtedness."
OPTIONAL REDEMPTION
The Exchange Notes are not redeemable at the Company's option prior to
March 1, 2003. Thereafter, the Exchange Notes are subject to redemption at any
time 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:
<TABLE>
<CAPTION>
YEAR PERCENTAGE
- ---- ----------
<S> <C>
2003........................................................ 105.500%
2004........................................................ 103.666%
2005........................................................ 101.833%
2006 and thereafter......................................... 100.000%
</TABLE>
Notwithstanding the foregoing, prior to March 1, 2001, the Company may
redeem up to an aggregate of $45,500,000 in principal amount of Senior
Subordinated Notes at a redemption price of 111% of the principal amount
thereof, plus accrued and unpaid interest and Liquidated Damages, if any,
thereon to the redemption
65
<PAGE> 70
date, with the net cash proceeds of a Public Offering of common stock of the
Company; provided that (i) at least 65% in aggregate principal amount of the
Senior Subordinated Notes originally issued under the Indenture remain
outstanding immediately after the occurrence of such redemption and (ii) such
redemption shall occur within 60 days of the date of the consummation of each
such Public Offering.
SELECTION AND NOTICE
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 principal amount 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. Notices of
redemption may not be conditional. 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. Senior Subordinated Notes
called for redemption become due on the date fixed for redemption. On and after
the redemption date, interest and Liquidated Damages, if any, cease to accrue on
the Senior Subordinated Notes or portions of them called for redemption.
MANDATORY REDEMPTION
The Company is not required to make mandatory redemption or sinking fund
payments with respect to the Senior Subordinated Notes.
REPURCHASE AT THE OPTION OF HOLDERS
Change of Control
Upon the occurrence of a Change of Control, the Company will be obligated
to make an offer (a "Change of Control Offer") to each Holder of Senior
Subordinated Notes to repurchase all or any part (equal to $1,000 or an integral
multiple thereof) of the principal amount of such Holder's Senior Subordinated
Notes at an offer price in cash equal to 101% of the principal amount thereof,
plus accrued and unpaid interest and Liquidated Damages, if any, thereon to the
date of purchase (the "Change of Control Payment"). Within 30 days following a
Change of Control, the Company will mail a notice to each Holder describing the
transaction or transactions that constitute the Change of Control and offering
to repurchase Senior Subordinated Notes on the date specified in such notice,
which date shall be no earlier than 30 days and no later than 60 days from the
date such notice is mailed (the "Change of Control Payment Date"), pursuant to
the procedures required by the Indenture and described in such notice. 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 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
66
<PAGE> 71
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 Change of Control provisions described above will be applicable whether
or not any other provisions of the Indenture are applicable. Except as described
above with respect to a Change of Control, the Indenture does not contain
provisions that permit the Holders of the Senior Subordinated Notes to require
that the Company repurchase or redeem the Senior Subordinated Notes in the event
of a takeover, recapitalization or similar transaction.
The New Credit Facility prohibits, and future credit agreements or other
agreements relating to Senior Debt to which the Company becomes a party may
prohibit, the Company from purchasing any Senior Subordinated Notes following a
Change of Control and/or provide that certain change of control events with
respect to the Company would constitute a default thereunder. In the event a
Change of Control occurs at a time when the Company is prohibited from
purchasing Senior Subordinated Notes, the Company could seek the consent of its
lenders to the purchase 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 purchasing Senior Subordinated Notes. The Company's failure to
purchase tendered Senior Subordinated Notes following a Change of Control would
constitute an Event of Default under the Indenture which would, in turn,
constitute a default under the New Credit Facility. In such circumstances, the
subordination provisions in the Indenture would likely restrict payments to the
Holders of Senior Subordinated Notes. See "-- Subordination."
The Company will not be required to make a Change of Control Offer
following 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.
Asset Sales
The Indenture provides that the Company will not, and will not permit any
of its Restricted Subsidiaries to, consummate 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 75% 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 such Restricted Subsidiary (other than contingent liabilities and
liabilities that are by their terms subordinated to the Notes or any guarantee
thereof) 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 securities, 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 360 days of the receipt of any Net Proceeds from an Asset Sale, the
Company may apply such Net Proceeds, at its option, (i) to repay Senior Debt
(and to correspondingly permanently reduce commitments with respect thereto in
the case of revolving borrowings) or (ii) to fulfill reimbursement obligations
arising under the LC Facility to the extent such reimbursement obligations arose
as a result of actual cash payments having been made under such facility for the
benefit of the Company in connection with the Eau Claire IRBs (and to
correspondingly permanently reduce reimbursement obligations with respect
thereto) or to cash collateralize the LC Facility if the Indebtedness under the
New Credit Facility has been accelerated or (iii) the making of a capital
expenditure or the acquisition of other long-term assets (including the
acquisition of Capital Stock of a Person) in the same line of business as the
Company immediately prior to
67
<PAGE> 72
such acquisition. 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 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 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. 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 an Asset Sale
Offer, the amount of Excess Proceeds shall be reset at zero.
CERTAIN COVENANTS
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 or any of its Restricted Subsidiaries' Equity Interests (including,
without limitation, any payment in connection with any merger or consolidation
involving the Company or any of its Restricted Subsidiaries) or to any direct or
indirect holders of the Company's or any of its Restricted Subsidiaries' Equity
Interests in their capacity as such (other than dividends or distributions (a)
payable in Equity Interests (other than Disqualified Stock) of the Company, (b)
to the Company or any Wholly Owned Restricted Subsidiary of the Company or (c)
paid by a Restricted Subsidiary pro rata to the holders of its common stock);
(ii) purchase, redeem or otherwise acquire or retire for value (including
without limitation, in connection with any merger or consolidation involving the
Company) any Equity Interests of the Company or any direct or indirect parent 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 payment on or
with respect to, or purchase, redeem, defease or otherwise acquire or retire for
value any Indebtedness of the Company or any Restricted Subsidiary that is
subordinated to the Senior Subordinated Notes or any Guarantee thereof, except a
payment of interest or principal at Stated Maturity; 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; and
(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 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 below under caption "-- Incurrence of Indebtedness;"
and
(c) such Restricted Payment, together with the aggregate amount of all
other Restricted Payments made by the Company and its Restricted
Subsidiaries after the Closing Date, is less than the sum of (i) 50% of the
Consolidated Net Income of the Company for the period (taken as one
accounting period) from the beginning of the first fiscal quarter
commencing after the Closing Date to the end of the Company's most recently
ended fiscal quarter for which internal 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 (ii) 100% of
the aggregate net cash proceeds received by the Company from the issue or
sale since the Closing Date of, or equity contributions with respect to,
Equity Interests of the
68
<PAGE> 73
Company (other than Disqualified Stock) or of Disqualified Stock or debt
securities of the Company that have been converted into such Equity
Interests (other than Equity Interests (or Disqualified Stock or
convertible debt securities) sold to a Subsidiary of the Company and other
than Disqualified Stock or convertible debt securities that have been
converted into Disqualified Stock), plus (iii) 100% of the fair market
value of non-cash property contributed as equity contributions to the
Company, provided that (a) such property is related, ancillary or
complementary to a business of the Company conducted on the Closing Date,
(b) such fair market value is determined by the Company in good faith
evidenced by a resolution of the Board of Directors set forth in an
Officer's Certificate delivered to the Trustee and, if the fair market
value of such contribution or series of related contributions is in excess
of $5.0 million, an opinion as to the value thereof issued by an investment
banking firm of national standing shall simultaneously be delivered to the
Trustee (which opinion shall provide a specific value, or a range of values
the lowest point of which, is not lower than the value set forth in the
related resolution of the Board of Directors) and (c) the Fixed Charge
Coverage Ratio for the Company's most recently ended four full fiscal
quarters for which internal financial statements are available immediately
preceding the date of such non-cash contribution (or the dates of each
non-cash contribution in the case of a series of related contributions)
determined on a pro forma basis as if such contribution (or series of
related contributions) had been made at the beginning of such four quarter
period (or periods) shall be greater than the Company's historical Fixed
Charge Coverage Ratio for such period (or periods) plus (iv) 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 (i) of this
clause (c)).
The foregoing provisions will not prohibit (i) the payment of any dividend
within 60 days after the date of declaration thereof, if at the date of
declaration such payment would have complied with the provisions of the
Indenture; (ii) the redemption, repurchase, retirement, defeasance or other
acquisition of any subordinated Indebtedness or Equity Interests of the Company
or any Restricted Subsidiary in exchange for, or out of the net cash 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, defeasance or other acquisition shall
be excluded from the calculation of the amount available for Restricted Payments
pursuant to clause (c) of the preceding paragraph; (iii) the defeasance,
redemption, repurchase or other acquisition of subordinated Indebtedness with
the net cash proceeds from an incurrence of Permitted Refinancing Indebtedness;
provided that the amount of any such net cash proceeds that are utilized for any
such defeasance, redemption, repurchase or other acquisition shall be excluded
from the calculation of the amount available for Restricted Payments pursuant to
clause (c) of the preceding paragraph; (iv) payments to, which are promptly used
by, Holdings for the repurchase, redemption or other acquisition or retirement
for value of any Equity Interests of Holdings held by any of the Company's (or
any of its Restricted Subsidiaries') directors, officers or employees who have
died or whose employment has been terminated; provided that the aggregate price
paid for all such repurchased, redeemed, acquired or retired Equity Interests
shall not exceed $500,000 in any twelve-month period or $2,000,000 in the
aggregate and no Default or Event of Default shall have occurred and be
continuing immediately after such transaction; (v) payments of up to $4.2
million (from the net proceeds of the Offering) to, which are promptly used by,
Holdings for the repurchase of up to $4.0 million in liquidation value of
Holdings' Series A Preferred Stock, par value $0.01 per share, held by Simpson
and accrued but unpaid dividends thereon provided such shares are permanently
retired; and (vi) other Restricted Payments in an aggregate amount not to exceed
$5.0 million.
The amount of all Restricted Payments (other than cash) shall be the fair
market value on the date of the Restricted Payment of the asset(s) or securities
proposed to be transferred or issued by the Company or such Restricted
Subsidiary, as the case may be, pursuant to the Restricted Payment. The fair
market value of any non-cash Restricted Payment shall be determined in good
faith by the Board of Directors whose resolution with respect thereto shall be
set forth in an Officers' Certificate and delivered to the Trustee. 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.
69
<PAGE> 74
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.
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. If, at any time, any
Unrestricted Subsidiary would fail to meet the definition of 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 "-- Certain Covenants -- Incurrence of
Indebtedness," the Company shall be in default of such covenant). The Board of
Directors of the Company 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 "-- Certain Covenants -- Incurrence of
Indebtedness," calculated on a pro forma basis as if such designation had
occurred at the beginning of the four-quarter reference period, and (ii) no
Default or Event of Default would be in existence following such designation.
Incurrence of Indebtedness
The Indenture provides that the Company will not, and will not permit any
of its Restricted Subsidiaries to, directly or indirectly, create, incur, issue,
assume, guarantee or otherwise become directly or indirectly liable,
contingently or otherwise, with respect to (collectively, "incur") any
Indebtedness (including Acquired Debt); provided, however, that 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 internal 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 provisions of the first paragraph of this covenant will not apply to
the incurrence of any of the following (collectively, "Permitted Debt"):
(i) the incurrence by the Company or its Restricted Subsidiaries of
Indebtedness under the Revolver under the New Credit Facility in an
aggregate amount not to exceed the greater of $35.0 million at any time
outstanding and the Borrowing Base as of such date, less the aggregate
amount of all Net Proceeds of Asset Sales applied to repay any such
Indebtedness pursuant to clause (i) of the second paragraph of the covenant
described above under the caption "-- Repurchase at the Option of Holders
-- Asset Sales;"
(ii) the incurrence by the Company of reimbursement or term loan
obligations of up to $20.0 million arising with respect to the LC Facility
under the New Credit Facility to the extent such reimbursement or term loan
obligations arise as a result of actual cash payments having been made
under such facility for the benefit of the Company in connection with the
Eau Claire IRBs or the incurrence of Indebtedness to cash collateralize the
LC facility if Indebtedness under the New Credit Facility has been
accelerated;
70
<PAGE> 75
(iii) the incurrence by the Company of Indebtedness represented by the
Senior Subordinated Notes;
(iv) the incurrence by the Company and its Restricted Subsidiaries of
the Existing Indebtedness;
(v) 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 (or purchase of the
outstanding Capital Stock of a Person that owns such property, plant or
equipment), in an aggregate principal amount not to exceed at any one time
outstanding the greater of $5.0 million or 5% of the Company's net tangible
assets (determined in accordance with GAAP applied on a consistent basis)
as of the most recent quarterly balance sheet date;
(vi) 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 (vi), does not exceed $5.0
million;
(vii) the incurrence by the Company or any of its Restricted
Subsidiaries of Permitted Refinancing Indebtedness in exchange for, or the
net proceeds of which are used to refund, refinance or replace Indebtedness
that was permitted to be incurred by the first paragraph, or by clauses
(iii) through (vii) of the second paragraph of this covenant;
(viii) the incurrence of Indebtedness between or among the Company and
any of its Wholly Owned Restricted Subsidiaries; provided, however, 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, and any sale or other transfer of any such
Indebtedness to a Person that is not either the Company or a Wholly Owned
Restricted Subsidiary, shall be deemed, in each case, to constitute an
incurrence of such Indebtedness by the Company or such Restricted
Subsidiary, as the case may be;
(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;
(x) the guarantee by the Company or any of its Restricted Subsidiaries
of Indebtedness that was permitted to be incurred by another provision of
this covenant;
(xi) Indebtedness incurred pursuant to commodity agreements of the
Company or any of its Restricted Subsidiaries to the extent entered into in
the ordinary course of the Company's business and not for speculative
purposes to protect the Company and its Restricted Subsidiaries from
fluctuations in the prices of raw materials used in their businesses in
amounts reasonably related to the Company's business;
(xii) Indebtedness incurred pursuant to exchange rate agreements of
the Company or any of its Restricted Subsidiaries to the extent entered
into in the ordinary course of the Company's business and not for
speculative purposes to protect the Company and its Restricted Subsidiaries
from fluctuations in exchange rates relating to sales of inventory in the
ordinary course of business in a currency other than U.S. dollars in
amounts reasonably related to such sales;
(xiii) Indebtedness incurred by the Company or any of its Restricted
Subsidiaries constituting reimbursement obligations with respect to letters
of credit issued in the ordinary course of business, including, without
limitation, letters of credit in respect of workers' compensation claims or
self-insurance, or other Indebtedness with respect to reimbursement type
obligations regarding workers'
71
<PAGE> 76
compensation claims or self-insurance, and obligations in respect of
performance and surety bonds and completion guarantees provided by the
Company or any Restricted Subsidiary of the Company in the ordinary course
of business; provided, however, that upon the drawing of such letters of
credit or the incurrence of such Indebtedness, such obligations are
reimbursed within 30 days following such drawing or incurrence; and
(xiv) the incurrence by the Company and its Restricted Subsidiaries of
additional Indebtedness in an aggregate amount not to exceed $10 million at
any one time outstanding, which Indebtedness may be incurred under the New
Credit Facility or otherwise.
For purposes of determining compliance with this covenant, in the
event that an item of Indebtedness meets the criteria of more than one of
the categories of Permitted Debt described in clauses (i) through (xiv)
above or is entitled to be incurred pursuant to the first paragraph of this
covenant, the Company shall, in its sole discretion, classify such item of
Indebtedness in any manner that complies with this covenant and such item
of Indebtedness will be treated as having been incurred pursuant to only
one of such clauses or pursuant to the first paragraph hereof. Accrual of
interest, the accretion of accreted value and the payment of interest in
the form of additional Indebtedness will not be deemed to be an incurrence
of Indebtedness for purposes of this covenant.
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 securing Indebtedness or trade payables 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 unless all
payments of principal of, and premium, interest and Liquidated Damages, if any,
on the Notes or otherwise under the Indenture are equally and ratably secured
with (or prior to) such Indebtedness.
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 (1) on
its 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 Closing Date, (b) the Credit Agreement as in
effect as of the Closing Date, and any amendments, modifications, restatements,
renewals, increases, supplements, refundings, replacements or refinancings
thereof, provided that such amendments, modifications, restatements, renewals,
increases, supplements, refundings, replacement or refinancings are no more
restrictive with respect to such dividend and other payment restrictions than
those contained in the Credit Agreement as in effect on the Closing Date, (c)
the Indenture and the 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, provided that, in the case of
Indebtedness, such Indebtedness was permitted by the terms of the Indenture to
be incurred, (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, or (h) Permitted Refinancing
Indebtedness, provided that the restrictions contained in the agreements
governing such Permitted Refinancing Indebtedness are no more restrictive than
those contained in the agreements governing the Indebtedness being refinanced.
72
<PAGE> 77
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 corporation), 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
corporation 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 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, after giving pro forma
effect to such transaction 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
"-- Incurrence of Indebtedness."
Transactions with Affiliates
The Indenture provides that the Company will not, and will not permit any
of its Restricted Subsidiaries to, 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 transaction,
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 such Restricted Subsidiary than those that would have been
obtained in a comparable transaction by the Company or such Restricted
Subsidiary 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 accounting, appraisal or investment banking firm of national
standing.
The foregoing provisions will not prohibit (i) any employment agreement
entered into by 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 or other agreements which provide for reasonable
and customary indemnities provided on behalf of, officers, directors and
employees of the Company and its Restricted Subsidiaries, in each case as
determined in good faith by the Company evidenced by a resolution of the Board
of Directors set forth in an Officers' Certificate delivered to the Trustee,
(ii) transactions between or among the Company and/or its Restricted
Subsidiaries; and (iii) any Restricted Payment that is permitted by the
provisions of the Indenture described above under the caption "-- Restricted
Payments."
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 Subsidiary of the Company to any
Person (other than the Company or a Wholly Owned Restricted Subsidiary of the
73
<PAGE> 78
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 "-- Repurchase at the Option
of Holders -- 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 Restricted
Subsidiary will incur 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 thereof.
Subsidiary Guarantees
The Indenture provides that if the Company or any of its Restricted
Subsidiaries shall acquire or create after the date of the Indenture a
Subsidiary substantially all of whose assets are located in the United States or
that conducts substantially all of its business in the United States, then such
newly acquired or created Subsidiary shall execute a Guarantee of the Senior
Subordinated Notes (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 Senior Subordinated 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."
The Indenture permits the Company's Subsidiaries to incur additional
indebtedness, including additional Senior Debt, subject, in the case of the
Company's Restricted Subsidiaries, to certain restrictions. See "-- Incurrence
of Indebtedness."
The Indenture provides that in the event of a sale or other disposition of
all of the assets of any Restricted Subsidiary, by way of merger, consolidation
or otherwise, or a sale or other disposition of all of the capital stock of any
Restricted Subsidiary, or in the case the Company designates a Restricted
Subsidiary to be an Unrestricted Subsidiary in accordance with the Indenture,
then such Restricted Subsidiary will be released and relieved of any obligations
under its guarantee; provided that the Net Proceeds of such sale or other
disposition are applied in accordance with the applicable provisions of the
Indenture. See "-- Repurchase at the Option of Holders -- Asset Sales."
Reports
The Indenture provides that, whether or not required by the rules and
regulations of the Commission, so long as any Senior Subordinated Notes are
outstanding, the Company will 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 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
consolidated Subsidiaries (showing in reasonable detail, either on the face of
the financial statements or in the footnotes thereto and in Management's
Discussion and Analysis of Financial Condition and Results of Operations, the
financial condition and results of operations of the Company and its Restricted
Subsidiaries separate from the financial information and results of operations
of the Unrestricted Subsidiaries of the Company) 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
74
<PAGE> 79
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 Company and its
Restricted Subsidiaries will agree that, for so long as any Senior Subordinated
Notes remain outstanding, they 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 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, or
Liquidated Damages, if any, with respect to, the Senior Subordinated 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
Senior Subordinated Notes (whether or not prohibited by the subordination
provisions of the Indenture); (iii) failure by the Company to comply with the
provisions described under the captions "-- Repurchase at the Option of
Holders -- Change of Control" or "-- Asset Sales" or "-- Certain
Covenants -- Merger, Consolidation or Sale of Assets;" (iv) failure by the
Company for 30 days after written notice by the Trustee or the Holders of at
least 25% in principal amount of the then outstanding Senior Subordinated Notes
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 Closing Date, 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 such Indebtedness on the date of
such default (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, fully bonded (by a financially responsible institution regularly engaged
in the issuance of security bonds) discharged or stayed within a period of 45
days; (vii) except as permitted by the Indenture, any guarantee of the Senior
Subordinated Notes shall be held in any judicial proceeding to be unenforceable
or invalid or shall cease for any reason to be in full force and effect or any
Restricted Subsidiary, or any Person acing on behalf of any Restricted
Subsidiary, shall deny or disaffirm its obligations under its guarantee; and
(viii) 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 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 arising from certain events of bankruptcy or insolvency, with respect to
the Company, any Significant Subsidiary or any group of Restricted Subsidiaries
that, taken together, would constitute a Significant Subsidiary, all outstanding
Senior Subordinated Notes will become due and payable without further action or
notice. Holders of the Exchange Notes may not enforce the Indenture or the
Exchange Notes except as provided in the Indenture. Subject to certain
limitations, Holders of a majority in principal amount of the then outstanding
Senior Subordinated Notes may direct the Trustee in its exercise of any trust or
power. 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 the optional redemption provisions of the Indenture, an equivalent
premium shall also become and
75
<PAGE> 80
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, 2003 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 the premium specified in the Indenture with respect to the year 2003 shall
also become immediately due and payable to the extent permitted by law upon the
acceleration of the Senior Subordinated Notes.
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.
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, INCORPORATORS AND
STOCKHOLDERS
No director, officer, employee, incorporator or stockholder of the Company
or any Restricted Subsidiary (other than the Company and its Restricted
Subsidiaries), as such, shall have any liability for any obligations of the
Company or such Restricted Subsidiary under the Senior Subordinated Notes, any
Guarantee thereof, the 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
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 Senior Subordinated Notes
("Legal Defeasance") except for (i) 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 the Senior Subordinated
Notes when such payments are due from the trust referred to below, (ii) 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, (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 Senior Subordinated Notes. In the event Covenant Defeasance occurs, certain
events (not including non-payment, bankruptcy, receivership, rehabilitation and
insolvency events) described under "Events of Default" will no longer constitute
an Event of Default with respect to the Senior Subordinated 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 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; (ii) in the case of
Legal Defeasance, the Company shall have delivered to the Trustee an opinion of
counsel in
76
<PAGE> 81
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 Closing Date, 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; (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 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; (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 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 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 (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, except that the opinion of counsel need not speak as to the conditions
precedent stated in clauses (iv) and (vii) of this paragraph.
TRANSFER AND EXCHANGE
A Holder may transfer or exchange the Exchange 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 Exchange Note selected for redemption. Also, the Company is not required to
transfer or exchange any Exchange Note for a period of 15 days before a
selection of Notes to be redeemed.
The registered Holder of an Exchange 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,
the Senior Subordinated Notes and the Guarantees thereof may be amended or
supplemented with the consent of the Holders of at least a majority in principal
amount of the Senior Subordinated Notes then outstanding (including, without
limitation, consents obtained in connection with a purchase of, or tender offer
or exchange offer for, Senior Subordinated Notes), and any existing default or
compliance with any provision of the Indenture, the Senior Subordinated Notes or
the Guarantees thereof may be waived with the consent of the Holders of a
majority in principal amount of the then outstanding Senior Subordinated Notes
(including consents obtained in connection with a tender offer or exchange offer
for Senior Subordinated Notes).
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):
(i) reduce the principal amount of Senior Subordinated Notes whose Holders must
consent to an amendment, supplement or waiver, (ii) reduce the principal of or
change the fixed maturity of any Senior Subordinated Note or alter the
provisions with respect
77
<PAGE> 82
to the redemption of the Senior Subordinated 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 or Liquidated Damages, if any, on any Senior Subordinated Note, (iv)
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),
(v) make any Senior Subordinated Note payable in money other than that stated in
the Senior Subordinated Notes, (vi) make any change in the provisions of the
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, (vii)
waive a redemption payment with respect to any Senior Subordinated Note (other
than a payment required by one of the covenants described above under the
caption "-- Repurchase at the Option of Holders"), (ix) release any Restricted
Subsidiary from its Guarantee of the Senior Subordinated Notes or (ix) 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) requires 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 Senior Subordinated
Notes.
Notwithstanding the foregoing, without the consent of any Holder of Senior
Subordinated Notes, the Company and the Trustee may amend or supplement the
Indenture, the Senior Subordinated Notes or any Guarantee thereof 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 or any
Restricted Subsidiary's obligations to Holders of 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 Senior Subordinated 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
Senior Subordinated 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 Senior Subordinated Notes, unless such
Holder shall have offered to the Trustee security and indemnity satisfactory to
it against any loss, liability or expense.
ADDITIONAL INFORMATION
Anyone who receives this Prospectus may obtain a copy of the Indenture and
Exchange and Registration Rights Agreement without charge by writing to
PLAINWELL INC., 200 Allegan Street, Plainwell, MI 49080, Attention: Chief
Financial Officer.
78
<PAGE> 83
CERTAIN DEFINITIONS
Set forth below are certain defined terms used in the Indenture. Reference
is made to the Indenture for a full definition 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 became a 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.
"Asset Sale" means (i) the sale, lease, conveyance or other disposition of
any assets or rights (including, without limitation, by way of a sale and
leaseback), excluding sales of inventory in the ordinary course of business
(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 -- 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 Subsidiaries of Equity Interests of any of the Company's Subsidiaries, in
the case of either clause (i) or (ii), 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, (ii) an issuance of Equity
Interests by a Wholly Owned Restricted Subsidiary to the Company or to another
Wholly Owned Restricted Subsidiary, (iii) a Restricted Payment that is permitted
by the covenant described above under the caption "-- Certain
Covenants -- Restricted Payments," (iv) the grant in the ordinary course of
business of a non-exclusive license of patents, trademarks, registrations
therefor and other similar intellectual property for fair value as determined in
good faith by the Company evidenced by a resolution of the Board of Directors
set forth in an Officers' Certificate delivered to the Trustee and (v) any Lien
(or foreclosure thereon) securing Indebtedness to the extent that such Lien is
granted in compliance with "-- Certain Covenants -- Liens" above will not be
deemed to be Asset Sales.
"Borrowing Base" means, as of any date, an amount equal to the sum of (i)
85% of the book value of accounts receivable, net of allowances for doubtful
accounts, owned by the Company and its Restricted Subsidiaries as of such date,
plus (ii) 60% of the book value of inventory owned by the Company and its
Restricted Subsidiaries as of such date, minus (iii) the principal amount of
borrowings outstanding as of such date under the Revolver to the extent that the
amount of such borrowings exceeds the sum of clauses (i) and (ii) above, all of
the foregoing calculated on a consolidated basis in accordance with GAAP.
"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 or limited liability
company, partnership or membership 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.
79
<PAGE> 84
"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 one year 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 $500.0 million and a Thompson 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
Corporation 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,
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 50% or more of the voting power of the voting stock of the
Company; 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.
"Closing Date" means the date of the closing of the sale of the Notes.
"Consolidated Cash Flow" means, with respect to any Person for any period,
the Consolidated Net Income of such Person for such period plus, to the extent
deducted in computing such 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, (iii) consolidated interest
expense whether paid or accrued and whether or not capitalized (including,
without limitation, amortization of debt issuance costs and 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) in each case, on a consolidated basis and determined in accordance with
GAAP. Notwithstanding the foregoing, the provision for taxes based on the income
or profits of, and the depreciation and amortization of, a Restricted Subsidiary
of a Person shall be added to Consolidated Net Income to compute Consolidated
Cash Flow only to the extent (and in the same proportion) that the Net Income of
such Restricted 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 to the Company by such Restricted
Subsidiary without prior approval (that has not been obtained) pursuant to the
terms of its charter and all agreements, instruments, judgments, decrees,
orders, statutes, rules and governmental regulations applicable to such
Restricted 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 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 Restricted
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 that Net Income is not at the
80
<PAGE> 85
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 (but not loss) of any Unrestricted
Subsidiary shall be excluded, whether or not distributed to the Company or one
of its Restricted Subsidiaries; provided that for purposes of the covenant
described under the caption "-- Certain Covenants -- Restricted Payments,"
"Consolidated Net Income" means with respect to the Company for any period, the
Company's Consolidated Net Income for such period plus the portion of the
Company's non-cash charges for such period for amortization of goodwill or other
intangibles recorded in connection with acquisitions as a result of the
application of the purchase method of accounting in accordance with Accounting
Principles Board Opinion Nos. 16 and 17, provided, that such adjustments shall
not be made in respect of any subsidiary of the Company or portion of the
Company's business which the Company received as a contribution, the fair market
value of which contribution was included in clause (c)(iii) of the first
paragraph of the covenant described under the caption "-- Certain
Covenants -- Restricted Payments."
"Consolidated Net Worth" means, with respect to any Person as of any date,
the sum of (a) the consolidated equity of the common stockholders of such Person
and its consolidated Restricted Subsidiaries as of such date, plus (b) 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 (i) 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 Restricted Subsidiary of such
Person, (ii) all investments as of such date in unconsolidated Subsidiaries and
in Persons that are not Restricted Subsidiaries and (iii) all unamortized debt
discount and expense and unamortized deferred charges as of such date, in each
case 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 such Board of
Directors on the date of the Indenture, (ii) was nominated for election or
elected to such Board of Directors with the approval of a majority of the
Continuing Directors who were members of such Board at the time of such
nomination or election (which approval may be specific or by approval of a proxy
statement which contains the name of such nominees for election) or (iii) is an
employee of and was nominated in good faith by 399 Venture Partners, Inc.
pursuant to the Stockholders Agreement, for 399 Venture Partners, Inc.'s own
benefit and not pursuant to any arrangement, agreement or understanding with any
third party (other than the Stockholders Agreement).
"Credit Agreement" means that certain credit agreement, dated as of the
Closing Date, by and among the Company, the lenders party thereto, including the
Revolver and the LC Facility, as amended, restated, modified, renewed, refunded,
replaced or refinanced in whole or in part from time to time.
"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" means (i) any Indebtedness outstanding under the
Credit Agreement and (ii) any other Senior Debt permitted under the Indenture
the principal amount of which is $10.0 million or more and that has been
designated by the Company 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 (other than pursuant to an offer to repurchase such Capital Stock due
to a change of control provision substantially similar to the "Change of
Control" covenant applicable to the Senior Subordinated Notes, which offer may
not be completed until 60 days after completion of the Change of
81
<PAGE> 86
Control Offer), 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.
"Equity Interests" means Capital Stock and all warrants, options or other
rights to acquire Capital Stock (but excluding any debt security that is
convertible into, or exchangeable for, Capital Stock).
"Existing Indebtedness" means Indebtedness in existence on the date of the
Indenture, until such Indebtedness is 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 debt issuance costs and 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), (ii) the consolidated
interest expense of such Person and its Restricted Subsidiaries that was
capitalized during such period, (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, whether or not in cash, on
any series of preferred stock of such Person or any of its Restricted
Subsidiaries, other than dividend payments on Equity Interests payable solely in
Equity Interests of the Company, 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 and its Restricted Subsidiaries 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 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, (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 from time to time.
82
<PAGE> 87
"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.
"Guarantor" means each of the Company's Restricted Subsidiaries existing on
the Closing Date, and each other Restricted Subsidiary that executes a Guarantee
of the Senior Subordinated Notes pursuant to the terms of the Indenture.
"Hedging Obligations" means, with respect to any Person, the obligations of
such Person under (i) interest rate, currency or commodity swap agreements, cap
agreements and collar agreements and (ii) other agreements or arrangements
designed to protect such Person against fluctuations in interest rates, currency
exchange rates or commodity prices.
"Holdings" means Plainwell Holding Company, a Delaware corporation.
"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 banker's 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 deferred 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, including without
limitation, accrued interest, premiums, fees and expenses, (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), (iii) Disqualified Stock of such Person
and (iv) 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.
If the Company or any Restricted Subsidiary of the Company sells or otherwise
disposes of any Equity Interests of any direct or indirect Restricted Subsidiary
of the Company such that, after giving effect to any such sale or disposition,
such Person is no longer a Restricted Subsidiary of the Company, the Company
shall be deemed to have made an Investment on the date of any such sale or
disposition equal to the value of the Equity Interests of such Restricted
Subsidiary not sold or disposed of.
"LC Facility" means the letter of credit guaranty under the Credit
Agreement providing for a maximum amount of $20.0 million to support certain
obligations of the Company as specified therein, as amended, restated, modified,
renewed, refunded, replaced or refinanced in whole or in part from time to time.
"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).
"Net Income" means, with respect to any Person, the net income (loss) of
such Person, 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
83
<PAGE> 88
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) and any relocation expenses
incurred as a result thereof, taxes paid or payable 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) and (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 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 Restricted Subsidiary of
the Company in a Person, if as a result of such Investment (a) such Person
becomes a Wholly Owned Restricted Subsidiary of the Company and a Guarantor 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
Restricted 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) any acquisition of assets solely in exchange
for the issuance of Equity Interests (other than Disqualified Stock) of the
Company.
"Permitted Junior Securities" means Equity Interests in the Company or debt
securities that are subordinated to all Senior Debt (and any debt securities
issued in exchange for Senior Debt) to substantially the same extent as, or to a
greater extent than, the Senior Subordinated Notes are subordinated to Senior
Debt pursuant to Article 10 of the Indenture.
"Permitted Liens" means (i) Liens securing Senior Debt of the Company and
its Restricted Subsidiaries which Senior Debt was permitted by the terms of the
Indenture to be incurred; (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
Restricted Subsidiary of the Company; provided that such Liens were not created
in 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;
(iv) Liens on property existing at the time of acquisition thereof by the
Company or any Restricted Subsidiary of the Company, provided that such Liens
were not created in 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; (v) Liens existing on the date of the Indenture; (vi) 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
84
<PAGE> 89
have been made therefore; and (vii) Liens incurred in the ordinary course of
business of the Company or any Restricted Subsidiary of the Company with respect
to obligations that do not exceed $5.0 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 such Restricted Subsidiary; (viii) Liens to secure
Indebtedness (including Capital Lease Obligations) permitted by clause (iv) of
the second paragraph of the covenant entitled "Incurrence of Indebtedness"
covering only the assets acquired with the proceeds of such Indebtedness; (ix)
Liens to secure Permitted Refinancing Indebtedness so long as such Liens do not
extend to any property not subject to the Liens securing the Indebtedness
exchanged for, or extended, refinanced, renewed, replaced, defeased by, or
refunded from the net proceeds of, such Permitted Refinancing Indebtedness and
(x) Liens in favor of the Trustee as provided for in the Indenture on money or
property held or collected by the Trustee in its capacity as Trustee.
"Permitted Refinancing Indebtedness" 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 of its Restricted Subsidiaries;
provided that: (i) the principal amount (or accredit value, if applicable) of
such Permitted Refinancing Indebtedness does not exceed the principal amount of
(or accredit value, if applicable), plus accrued interest on, the Indebtedness
so extended, refinanced, renewed, replaced, defeased or refunded (plus the
amount of reasonable expenses incurred in connection therewith); (ii) such
Permitted Refinancing Indebtedness has a final maturity date later than the
final maturity date of, and has 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 Indebtedness 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 either 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, trust, unincorporated organization, government
or any agency or political subdivision thereof, or any other entity.
"Principals" means 399 Venture Partners, Inc., CCT Partners IV, L.P. and
William L. New and their respective Affiliates.
"Public Offering" means an underwritten public offering of 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 $35.0 million to the Company.
"Restricted Investment" means an Investment other than a Permitted
Investment.
"Restricted Subsidiary" of a Person means any Subsidiary of the referent
Person that is not an Unrestricted Subsidiary.
"Revolver" means the revolving line of credit under the Credit Agreement
providing up to $35.0 million of availability, as amended, restated, modified,
renewed, refunded, replaced or refinanced in whole or in part from time to time.
"Senior Debt" of a Person means (i) all Indebtedness of such Person
outstanding under the Credit Agreement and all Hedging Obligations with respect
thereto, (ii) any other Indebtedness of such Person permitted to be incurred
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 and (iii) all Obligations of such
Person with respect to the foregoing including interest accruing at the contract
rate or rates therefor from and after the initiation of a bankruptcy proceeding
with respect to any
85
<PAGE> 90
such Person regardless of whether such interest in allowed as a claim in such
bankruptcy proceeding. Notwithstanding anything to the contrary in the
foregoing, Senior Debt of a Person 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.
"Stated Maturity" means, with respect to any installment of interest or
principal on any series of Indebtedness, the date on which such payment of
interest or principal was scheduled to be paid in the original documentation
governing such Indebtedness, and shall not include any contingent obligations to
repay, redeem or repurchase any such interest or principal prior to the date
originally scheduled for the payment thereof.
"Stockholders Agreement" means that certain Stockholders Agreement, dated
as of June 16, 1997, by and among Holdings, 399 Venture Partners, Inc., CCT
Partners IV, L.P., Brenton Halsey, Larkspur Capital Corporation, William L. New
(and any other executives of the Company executing a joinder thereto) and the
Individual Purchasers (as defined in the Stockholders Agreement), as amended, in
whole or in part from time to time.
"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).
"Unrestricted Subsidiary" means (i) 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: (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 Restricted Subsidiary of
the Company 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 of its Restricted Subsidiaries has any direct or indirect
obligation (1) to subscribe for additional Equity Interests or (2) 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 director
on its board of directors that is not a director or executive officer of the
Company or any of its Restricted Subsidiaries and has at least one executive
officer that is not a director or executive officer of the Company or any of its
Restricted Subsidiaries.
"Voting Stock" of any Person as of any date means the Capital Stock of such
Person that is at the time entitled to vote in the election of the Board of
Directors of such Person.
"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 or by one or more Wholly Owned Restricted
Subsidiaries of such Person and one or more Wholly Owned Restricted Subsidiaries
of such Person.
86
<PAGE> 91
THE EXCHANGE OFFER
PURPOSE AND EFFECT OF THE EXCHANGE OFFER
The Notes were originally sold by the Company on March 6, 1998 to the
Initial Purchasers pursuant to the Purchase Agreement. The Initial Purchasers
subsequently resold the Notes to qualified institutional buyers in reliance on
Rule 144A under the Securities Act and to a limited number of institutional
accredited investors that agreed to comply with certain transfer restrictions
and other conditions. As a condition to the Purchase Agreement, the Company
entered into the Exchange and Registration Rights Agreement with the Initial
Purchaser pursuant to which the Company has agreed to: (i) file with the
Commission on or prior to 60 calendar days after the date of issuance of the
Notes (the "Issue Date") a registration statement on an appropriate form under
the Securities Act (the "Exchange Offer Registration Statement") relating to a
registered exchange offer (the "Exchange Offer") for the Notes under the
Securities Act and (ii) use its best efforts to cause the Exchange Offer
Registration Statement to become effective under the Securities Act as soon as
practicable thereafter, but in no event later than 150 calendar days after the
Issue Date. Upon the effectiveness of the Exchange Offer Registration Statement,
unless it would not be permitted by applicable law or Commission policy, the
Company will promptly offer to exchange any and all of the outstanding Notes for
the Exchange Notes that are identical in all material respects to the Notes
(except that the Exchange Notes will not contain terms with respect to transfer
restrictions) and that would be registered under the Securities Act. The Company
will keep the Exchange Offer open for not less than 20 days (or longer, if
required by applicable law) after the date on which notice of the Exchange Offer
is mailed to the holders of the Notes. For each Note surrendered to the Company
pursuant to the Exchange Offer, the holder of such Note will receive an Exchange
Note having a principal amount equal to that of the surrendered Note. Interest
on each Exchange Note will accrue from the date of its original issue.
Under existing interpretations of the staff of the Commission contained in
several no-action letters to third parties, the Company believes that the
Exchange Notes would in general be freely tradeable after the Exchange Offer
without further registration under the Securities Act. However, any purchaser of
Notes who is an "affiliate" of the Company or who intends to participate in the
Exchange Offer for the purpose of distributing the Exchange Notes: (i) will not
be able to rely on the interpretation of the staff of the Commission; (ii) will
not be able to tender its Notes in the Exchange Offer; and (iii) must comply
with the registration and prospectus delivery requirements of the Securities Act
in connection with any sale or transfer of the Notes, unless such sale or
transfer is made pursuant to an exemption from such requirements.
If (i) the Company is not required to file the Exchange Offer Registration
Statement or permitted to effect the Exchange Offer because the Exchange Offer
is not permitted by applicable law or Commission policy; or (ii) any Holder of
Transfer Restricted Securities notifies the Company prior to the 20th day
following commencement of the Exchange Offer that (a) it is prohibited by law or
Commission policy from participating in the Exchange Offer or (b) that it may
not resell the Exchange Notes acquired by it in the Exchange Offer to the public
without delivering a prospectus and the prospectus contained in the Exchange
Offer Registration Statement is not appropriate or available for such resales or
(c) that it is a Broker-Dealer and owns Notes acquired directly from the Company
or an affiliate of the Company, then the Company will file with the Commission a
shelf registration statement (the "Shelf Registration Statement") to cover
resales of Transfer Restricted Securities by such holders who satisfy certain
conditions relating to the provision of information in connection with the Shelf
Registration Statement. For purposes of the foregoing, "Transfer Restricted
Securities" means each Note and each Exchange Note, the Holder of which is
subject to prospectus delivery requirements of the Securities Act in order to
sell such Note or Exchange Note, until the occurrence of any of the following
events: (i) the first date on which such Note may be exchanged for an Exchange
Note in the Exchange Offer, if following such exchange such Holder would be
entitled to resell such Exchange Note to the public without complying with the
prospectus delivery requirements of the Securities Act; (ii) the date on which
such Note has been registered pursuant to an effective Shelf Registration
Statement under the Securities Act and disposed of in accordance with the "Plan
of Distribution" section of the Prospectus contained in such Shelf Registration
Statement; (iii) the date on which such Note is sold to the public pursuant to
Rule 144 under the Securities Act or by a Broker-Dealer pursuant to the "Plan of
87
<PAGE> 92
Distribution" contemplated by the Exchange Offer Registration Statement
(including delivery of the Prospectus contained therein); or (iv) such Note or
Exchange Note, as the case may be, shall have ceased to be outstanding.
The Company will use its best efforts to cause the Exchange Offer
Registration Statement or, if applicable, the Shelf Registration Statement
(each, a "Registration Statement") to become effective under the Securities Act
by the Commission as soon as practicable after the filing thereof but in no
event later than 150 calendar days after the Issue Date.
Upon the effectiveness of the Exchange Offer Registration Statement, unless
it would not be permitted by applicable law or Commission policy, the Company
will promptly commence the Exchange Offer to enable each Holder of the Notes
(other than Holders who are affiliates (within the meaning of the Securities
Act) of the Company or underwriters (as defined in the Securities Act) with
respect to the Exchange Notes) to exchange the Notes for Exchange Notes. If
applicable, the Company shall keep the Shelf Registration Statement continuously
effective for, under certain circumstances, a maximum of two years after the
Issue Date.
In the event that, for any reason whatsoever: (a) the Company fails to file
any of the Registration Statements on or before the date specified for such
filing; (b) any of such Registration Statements is not declared effective by the
Commission on or prior to the date specified for such effectiveness (the
"Effectiveness Target Date"); (c) the Company fails to consummate the Exchange
Offer within 30 Business Days of the Effectiveness Target Date with respect to
the Exchange Offer Registration Statement; or (d) the Shelf Registration
Statement or the Exchange Offer Registration Statement is declared effective but
thereafter ceases to be effective or usable in connection with resales of
Transfer Restricted Securities during the periods specified in the Exchange and
Registration Rights Agreement (each such event referred to in clauses (a)
through (d) above a "Registration Default"), then the Company will pay
liquidated damages ("Liquidated Damages") to each Holder of Notes, with respect
to the first 90 calendar day period, or any portion thereof, immediately
following the occurrence of a Registration Default, in an amount equal to 50
basis points per annum of the principal amount of 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 Notes with respect to each subsequent 90
calendar day period, or any portion thereof, until all Registration Defaults
have been cured, up to a maximum amount of Liquidated Damages of 200 basis
points per annum of the principal amount of Notes. At such time as no
Registration Default is continuing, the accrual of Liquidated Damages will
cease. In the event of any Registration Default, the Company will provide
appropriate notice thereof and of the imposition of the related Liquidated
Damages to the Holders of the Notes.
The Company (i) shall make available for a period of up to one year from
the consummation of the Exchange Offer a prospectus meeting the requirements of
the Securities Act to any broker-dealer for use in connection with any resale of
any such Exchange Notes and (ii) shall pay all expenses incident to the Exchange
Offer (including the expense of one counsel to the Holders covered thereby) and
will indemnify certain holders of the Notes (including any broker-dealer)
against certain liabilities, including liabilities under the Securities Act. A
broker-dealer which delivers such a prospectus to purchasers in connection with
such resales will be subject to certain of the civil liability provisions under
the Securities Act and will be bound by the provisions of the Exchange and
Registration Rights Agreement (including certain indemnification rights and
obligations).
Each holder of Notes who wishes to exchange such Notes for Exchange Notes
in the Exchange Offer will be required to make representations in the Letter of
Transmittal that (a) it is not an "affiliate" of the Company (within the meaning
of Rule 405 of the Securities Act); (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 Exchange Notes to be issued in the
Exchange Offer; (c) it is acquiring the Exchange Notes in its ordinary course of
business; and (d) if it is a Participating Broker-Dealer holding Notes acquired
for its own account as a result of market-making activities or other trading
activities, it acknowledges that it will deliver a prospectus meeting the
requirements of the Securities Act in connection with any resale of Exchange
Notes received in respect of such Exchange Notes pursuant to the Exchange Offer.
The Commission has taken the position and the Company believes that
Participating Broker-Dealers may fulfill their prospectus delivery requirements
88
<PAGE> 93
with respect to the Exchange Notes (other than a resale of an unsold allotment
from the original sale of the Notes) with the prospectus contained in the
Exchange Offer Registration Statement. Under the Exchange and Registration
Rights Agreement, the Company is required to allow Participating Broker-Dealers
and other persons, if any, subject to similar prospectus delivery requirements
to use the prospectus contained in the Exchange Offer Registration Statement in
connection with the resale of such Exchange Notes.
If the holder is a Participating Broker-Dealer, it will be required to
include a representation in such Participating Broker-Dealer's letter of
transmittal with respect to the Exchange Offer that such Participating
Broker-Dealer has not entered into any arrangement or understanding with the
Company or any affiliate of the Company to distribute the Exchange Notes.
Holders of the Notes will be required to make certain representations to
the Company (as described above) in order to participate in the Exchange Offer
and will be required to deliver information to be used in connection with the
Shelf Registration Statement in order to have their Notes included in the Shelf
Registration Statement and benefit from the provisions regarding liquidated
damages set forth in the preceding paragraphs. A holder who sells Notes pursuant
to the Shelf Registration Statement generally will be required to be named as a
selling securityholder in the related prospectus and to deliver a prospectus to
purchasers, will be subject to certain of the civil liability provisions under
the Securities Act in connection with such sales and will be bound by the
provisions of the Exchange and Registration Rights Agreement which are
applicable to such a holder (including certain indemnification obligations).
For so long as the Notes are outstanding, the Company will continue to
provide to holders of the Notes and to prospective purchasers of the Notes the
information required by Rule 144A(d)(4) under the Securities Act.
The foregoing description of the Exchange and Registration Rights Agreement
contains a discussion of all material elements thereof, but does not purport to
be complete and is qualified in its entirety by reference to all provisions of
the Exchange and Registration Rights Agreement. The Company will provide a copy
of the Exchange and Registration Rights Agreement to prospective purchasers of
Notes identified to the Company by an Initial Purchaser upon request.
TERMS OF THE EXCHANGE OFFER
Upon the terms and subject to the conditions set forth in this Prospectus
and in the Letter of Transmittal, the Company will accept any and all Notes
validly tendered and not withdrawn prior to 5:00 p.m., New York City time, on
the Expiration Date. The Company will issue $1,000 principal amount of Exchange
Notes in exchange for each $1,000 principal amount of outstanding Notes accepted
in the Exchange Offer. Holders may tender some or all of their Notes pursuant to
the Exchange Offer. However, Notes may be tendered only in integral multiples of
$1,000.
The form and terms of the Exchange Notes are the same as the form and terms
of the Notes except that: (i) the Exchange Notes bear a Series B designation and
a different CUSIP Number from the Notes; (ii) the Exchange Notes have been
registered under the Securities Act and hence will not bear legends restricting
the transfer thereof; and (iii) the holders of the Exchange Notes will not be
entitled to certain rights under the Exchange and Registration Rights Agreement,
including the provisions providing for an increase in the interest rate on the
Notes in certain circumstances relating to the timing of the Exchange Offer, all
of which rights will terminate when the Exchange Offer is terminated. The
Exchange Notes will evidence the same debt as the Notes and will be entitled to
the benefits of the Indenture.
As of the date of this Prospectus, $130,000,000 aggregate principal amount
of Notes were outstanding. The Company has fixed the close of business on
, 1998 as the record date for the Exchange Offer for purposes of
determining the persons to whom this Prospectus and the Letter of Transmittal
will be mailed initially.
Holders of Notes do not have any appraisal or dissenters' rights under the
General Corporation Law of Delaware or the Indenture in connection with the
Exchange Offer. The Company intends to conduct the Exchange Offer in accordance
with the applicable requirements of the Exchange Act and the rules and
regulations of the Commission thereunder.
89
<PAGE> 94
The Company shall be deemed to have accepted validly tendered Notes when,
as and if the Company has given oral or written notice thereof to the Exchange
Agent. The Exchange Agent will act as agent for the tendering holders for the
purpose of receiving the Exchange Notes from the Company.
If any tendered Notes are not accepted for exchange because of an invalid
tender, the occurrence of certain other events set forth herein or otherwise,
the certificates for any such unaccepted Notes will be returned, without
expense, to the tendering holder thereof as promptly as practicable after the
Expiration Date.
Holders who tender 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 Notes pursuant to
the Exchange Offer. The Company will pay all charges and expenses, other than
transfer taxes in certain circumstances, in connection with the Exchange Offer.
See "-- Fees and Expenses."
EXPIRATION DATE; EXTENSIONS; AMENDMENTS
The term "Expiration Date" shall mean 5:00 p.m., New York City time, on
, 1998, unless the Company, in its sole discretion, extends the
Exchange Offer, in which case the term "Expiration Date" shall mean the latest
date and time to which the Exchange Offer is extended. Notwithstanding the
foregoing, the Company will not extend the Expiration Date beyond ,
1998.
In order to extend the Exchange Offer, the Company will notify the Exchange
Agent of any extension by oral or written notice and will mail to the registered
holders an 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, in its sole discretion, (i) to delay
accepting any Notes, to extend the Exchange Offer or to terminate the Exchange
Offer if any of the conditions set forth below under "-- Conditions" shall not
have been satisfied, by giving oral or written notice of such delay, extension
or termination to the Exchange Agent or (ii) to amend the terms of the Exchange
Offer in any manner. Any such delay in acceptance, extension, termination or
amendment will be followed as promptly as practicable by oral or written notice
thereof to the registered holders.
INTEREST ON THE EXCHANGE NOTES
The Exchange Notes will bear interest from their date of issuance. Holders
of Notes that are accepted for exchange will receive, in cash, accrued interest
thereon to, but not including, the date of issuance of the Exchange Notes. Such
interest will be paid with the first interest payment on the Exchange Notes on
September 1, 1998. Interest on the Notes accepted for exchange will cease to
accrue upon issuance of the Exchange Notes.
Interest on the Exchange Notes is payable semi-annually on each March 1 and
September 1, commencing on September 1, 1998.
PROCEDURES FOR TENDERING
Only a holder of Notes may tender such Notes in the Exchange Offer. To
tender in the Exchange Offer, a 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 Notes and any other
required documents, to the Exchange Agent prior to 5:00 p.m., New York City
time, on the Expiration Date. To be tendered effectively, the Notes, Letter of
Transmittal and other required documents must be completed and received by the
Exchange Agent at the address set forth below under "Exchange Agent" prior to
5:00 p.m., New York City time, on the Expiration Date. Delivery of the Notes may
be made by book-entry transfer in accordance with the procedures described
below. Confirmation of such book-entry transfer must be received by the Exchange
Agent prior to the Expiration Date.
90
<PAGE> 95
By executing the Letter of Transmittal, each holder will make to the
Company the representations set forth above in the eighth paragraph under the
heading "--Purpose and Effect of the Exchange Offer."
The tender by a holder and the acceptance thereof by the Company will
constitute 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.
THE METHOD OF DELIVERY OF NOTES AND THE LETTER OF TRANSMITTAL AND ALL OTHER
REQUIRED DOCUMENTS TO THE EXCHANGE AGENT IS AT THE ELECTION AND SOLE RISK OF THE
HOLDER. AS AN ALTERNATIVE TO DELIVERY BY MAIL, HOLDERS MAY WISH TO CONSIDER
OVERNIGHT OR HAND DELIVERY SERVICE. IN ALL CASES, SUFFICIENT TIME SHOULD BE
ALLOWED TO ASSURE DELIVERY TO THE EXCHANGE AGENT BEFORE THE EXPIRATION DATE. NO
LETTER OF TRANSMITTAL OR NOTES SHOULD BE SENT TO THE COMPANY. HOLDERS MAY
REQUEST THEIR RESPECTIVE BROKERS, DEALERS, COMMERCIAL BANKS, TRUST COMPANIES OR
NOMINEES TO EFFECT THE ABOVE TRANSACTIONS FOR SUCH HOLDERS.
Any beneficial owner whose Notes are registered in the name of a broker,
dealer, commercial bank, trust company or other nominee and who wishes to tender
should contact the registered holder promptly and instruct such registered
holder to tender on such beneficial owner's behalf. See "Instruction to
Registered Holder and/or Book-Entry Transfer Facility Participant from Owner"
included with the Letter of Transmittal.
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 Notes tendered pursuant thereto are tendered (i) by a registered
holder who has not completed the box entitled "Special Registration
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 firm of the
Medallion System (an "Eligible Institution").
If the Letter of Transmittal is signed by a person other than the
registered holder of any Notes listed therein, such Notes must be endorsed or
accompanied by a properly completed bond power, signed by such registered holder
as such registered holder's name appears on such Notes with the signature
thereon guaranteed by an Eligible Institution.
If the Letter of Transmittal or any Notes or bond powers are signed by
trustees, executors, administrators, guardians, attorneys-in-fact, offices of
corporations or others acting in a fiduciary or representative capacity, such
persons should so indicate when signing, and evidence satisfactory to the
Company of their authority to so act must be submitted with the Letter of
Transmittal.
The Company understands that the Exchange Agent will make a request
promptly after the date of this Prospectus to establish accounts with respect to
the Notes at the book-entry transfer facility, The Depository Trust Company (the
"Book-Entry Transfer Facility"), for the purpose of facilitating the Exchange
Offer, and subject to the establishment thereof, any financial institution that
is a participant in the Book-Entry Transfer Facility's system may make
book-entry delivery of Notes by causing such Book-Entry Transfer Facility to
transfer such Notes into the Exchange Agent's account with respect to the Notes
in accordance with the Book-Entry Transfer Facility's procedures for such
transfer. Although delivery of the Notes may be effected through book-entry
transfer into the Exchange Agent's account at the Book-Entry Transfer Facility,
an appropriate Letter of Transmittal properly completed and duly executed with
any required signature guarantee and all other required documents must in each
case be transmitted to and received or confirmed by the Exchange Agent at its
address set forth below on or prior to the Expiration Date, or, if the
guaranteed delivery procedures described below are complied with, within the
time period provided under such procedures. Delivery of documents to the
Book-Entry Transfer Facility does not constitute delivery to the Exchange Agent.
The Depositary and DTC have confirmed that the Exchange Offer is eligible
for the DTC Automated Tender Offer Program ("ATOP"). Accordingly, DTC
participants may electronically transmit their accept-
91
<PAGE> 96
ance of the Exchange Offer by causing DTC to transfer Notes to the Depositary in
accordance with DTC's ATOP procedures for transfer. DTC will then send an
Agent's Message to the Depositary.
The term "Agent's Message" means a message transmitted by DTC, received by
the Depositary and forming part of the confirmation of a book-entry transfer,
which states that DTC has received an express acknowledgment from the
participant in DTC tendering Notes which are the subject of such book-entry
confirmation, that such participant has received and agrees to be bound by the
terms of the Letter of Transmittal and that Pen-Tab may enforce such agreement
against such participant. In the case of an Agent's Message relating to
guaranteed delivery, the term means a message transmitted by DTC and received by
the Depositary, which states that DTC has received an express acknowledgment
from the participant in DTC tendering Notes that such participant has received
and agrees to be bound by the Notice of Guaranteed Delivery.
Notwithstanding the foregoing, in order to validly tender in the Exchange
Offer with respect to Securities transferred pursuant to ATOP, a DTC participant
using ATOP must also properly complete and duly execute the applicable Letter of
Transmittal and deliver it to the Depositary. Pursuant to authority granted by
DTC, any DTC participant which has Notes credited to its DTC account at any time
(and thereby held of record by DTC's nominee) may directly provide a tender as
though it were the registered holder by so completing, executing and delivering
the applicable Letter of Transmittal to the Depositary. DELIVERY OF DOCUMENTS TO
DTC DOES NOT CONSTITUTE DELIVERY TO THE DEPOSITARY.
All questions as to the validity, form, eligibility (including time of
receipt), acceptance of tendered Notes and withdrawal of tendered 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
Notes not properly tendered or any Notes the Company's acceptance of which
would, in the opinion of counsel for the Company, be unlawful. The Company also
reserves the right in its sole discretion to waive any defects, irregularities
or conditions of tender as to particular 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 Notes must
be cured within such time as the Company shall determine. Although the Company
intends, to notify holders of defects or irregularities with respect to tenders
of Notes, neither the Company, the Exchange Agent nor any other person shall
incur any liability for failure to give such notification. Tenders of Notes will
not be deemed to have been made until such defects or irregularities have been
cured or waived. Any 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.
GUARANTEED DELIVERY PROCEDURES
Holders who wish to tender their Notes and (i) whose Notes are not
immediately available, (ii) who cannot deliver their Notes, the Letter of
Transmittal or any other required documents to the Exchange Agent or (iii) who
cannot complete the procedures 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 holder, the certificate number(s)
of such Notes and the principal amount of Notes tendered, stating that the
tender is being made thereby and guaranteeing that, within five New York
Stock Exchange trading days after the Expiration Date, the Letter of
Transmittal (or facsimile thereof) together with the certificate(s)
representing the Notes (or a confirmation of book-entry transfer of such
Notes into the Exchange Agent's account at the Book-Entry Transfer
Facility), and any other documents required by the Letter of Transmittal
will be deposited by the Eligible Institution with the Exchange Agent; and
92
<PAGE> 97
(c) such properly completed and executed Letter of Transmittal (of
facsimile thereof), as well as the certificate(s) representing all tendered
Notes in proper form for transfer (or a confirmation of book-entry transfer
of such Notes into the Exchange Agent's account at the Book-Entry Transfer
Facility), and all other documents required by the Letter of Transmittal
are received by the Exchange Agent upon five New York Stock Exchange
trading days after the Expiration Date.
Upon request to the Exchange Agent, a Notice of Guaranteed Delivery will be
sent to holders who wish to tender their Notes according to the guaranteed
delivery procedures set forth above.
WITHDRAWAL OF TENDERS
Except as otherwise provided herein, tenders of Notes may be withdrawn at
any time prior to 5:00 p.m., New York City time, on the Expiration Date. To
withdraw a tender of Notes in the Exchange Offer, a telegram, telex, letter 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. Any such notice of withdrawal must (i) specify the name of
the person having deposited the Notes to be withdrawn (the "Depositor"), (ii)
identify the Notes to be withdrawn (including the certificate number(s) and
principal amount of such Notes, or, in the case of Notes transferred by
book-entry transfer, the name and number of the account at the Book-Entry
Transfer Facility to be credited), (iii) be signed by the holder in the same
manner as the original signature on the Letter of Transmittal by which such
Notes were tendered (including any required signature guarantees) or be
accompanied by documents of transfer sufficient to have the Trustee with respect
to the Notes register the transfer of such Notes into the name of the person
withdrawing the tender and (iv) specify the name in which any such 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 notices will
be determined by the Company, whose determination shall be final and binding on
all parties. Any Notes so withdrawn will be deemed not to have been validly
tendered for purposes of the Exchange Offer and no Exchange Notes will be issued
with respect thereto unless the Notes so withdrawn are validly retendered. Any
Notes which have been tendered but which are not accepted for exchange 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 Notes may be retendered by following one of the
procedures described above under "-- Procedures for Tendering" at any time prior
to the Expiration Date.
CONDITIONS
Notwithstanding any other term of the Exchange Offer, the Company shall not
be required to accept for exchange, or exchange Exchange Notes for, any Notes,
and may terminate or amend the Exchange Offer as provided herein before the
acceptance of such Notes, if:
(a) any action or proceeding is instituted or threatened in any court
or by or before any governmental agency 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 any material
adverse development has occurred in any existing action or proceeding with
respect to the Company or any of its subsidiaries; or
(b) any law, statute, rule, regulation or interpretation by the staff
of the Commission is proposed, adopted or enacted, 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) any governmental approval has not been obtained, which approval
the Company shall, in its sole discretion, deem necessary for the
consummation of the Exchange Offer as contemplated hereby.
If the Company determines in its sole discretion that any of the conditions
are not satisfied, the Company may (i) refuse to accept any Notes and return all
tendered Notes to the tendering holders, (ii) extend the Exchange Offer and
retain all Notes tendered prior to the expiration of the Exchange Offer,
subject, however, to the rights of holders to withdraw such Notes (see
"-- Withdrawal of Tenders") or (iii) waive such
93
<PAGE> 98
unsatisfied conditions with respect to the Exchange Offer and accept all
properly tendered Notes which have not been withdrawn.
EXCHANGE AGENT
United States Trust Company of New York has been appointed as Exchange
Agent for the Exchange Offer. Questions and requests for assistance, requests
for additional copies of this Prospectus or of the Letter of Transmittal and
requests for Notice of Guaranteed Delivery should be directed to the Exchange
Agent addressed as follows:
United States Trust Company of New York
114 West 47th Street
New York, New York 10036-1532
Delivery to an address other than as set forth above will not constitute a
valid delivery.
FEES AND EXPENSES
The expenses of soliciting tenders will be borne by the Company. The
principal solicitation is being made by mail; however, additional solicitation
may be made by telegraph, 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 cash expenses to be incurred in connection with the Exchange Offer will
be paid by the Company. Such expenses include fees and expenses of the Exchange
Agent and Trustee, accounting and legal fees and printing costs, among others.
ACCOUNTING TREATMENT
The Exchange Notes will be recorded at the same carrying value as the
Notes, which is face value, as reflected in the Company's accounting records on
the date of exchange. Accordingly, no gain or loss for accounting purposes will
be recognized by the Company. The expenses of the Exchange Offer will be
expensed over the term of the Exchange Notes.
CONSEQUENCES OF FAILURE TO EXCHANGE
The Notes that are not exchanged for Exchange Notes pursuant to the
Exchange Offer will remain restricted securities. Accordingly, such Notes may be
resold only: (i) to the Company (upon redemption thereof or otherwise); (ii) so
long as the Notes are eligible for resale pursuant to Rule 144A, to a person
inside the United States whom the seller reasonably believes is a qualified
institutional buyer within the meaning of Rule 144A under the Securities Act in
a transaction meeting the requirements of Rule 144A, in accordance with Rule 144
under the Securities Act, or pursuant to another exemption from the registration
requirements of the Securities Act (and based upon an opinion of counsel
reasonably acceptable to the Company); (iii) outside the United States to a
foreign person in a transaction meeting the requirements of Rule 904 under the
Securities Act; or (iv) pursuant to an effective registration statement under
the Securities Act, in each case in accordance with any applicable securities
laws of any state of the United States.
RESALES OF THE EXCHANGE NOTES
With respect to resales of Exchange Notes, based on interpretations by the
staff of the Commission set forth in no-action letters issued to third parties,
the Company believes that a holder or other person who receives Exchange Notes,
whether or not such person is the holder (other than a person that is an
"affiliate" of the Company within the meaning of Rule 405 under the Securities
Act) who receives Exchange Notes in
94
<PAGE> 99
exchange for Notes in the ordinary course of business and who is not
participating, does not intend to participate, and has no arrangement or
understanding with person to participate, in the distribution of the Exchange
Notes, will be allowed to resell the Exchange Notes to the public without
further registration under the Securities Act and without delivering to the
purchasers of the Exchange Notes a prospectus that satisfies the requirements of
Section 10 of the Securities Act. However, if any holder acquires Exchange Notes
in the Exchange Offer for the purpose of distributing or participating in a
distribution of the Exchange Notes, such holder cannot rely on the position of
the staff of the Commission enunciated in such no-action letters or any similar
interpretive letters, and must comply with the registration and prospectus
delivery requirements of the Securities Act in connection with any resale
transaction, unless an exemption from registration is otherwise available.
Further, each Participating Broker-Dealer that receives Exchange Notes for its
own account in exchange for Notes, where such Notes were acquired by such
Participating 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 Exchange Notes.
As contemplated by these no-action letters and the Registration Rights
Agreement, each holder accepting the Exchange Offer is required to represent to
the Company in the Letter of Transmittal that (a) it is not an "affiliate" of
the Company (within the meaning of Rule 405 of the Securities Act); (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 Exchange
Notes to be issued in the Exchange Offer; (c) it is acquiring the Exchange Notes
in its ordinary course of business; and (d) if it is a Participating
Broker-Dealer holding Notes acquired for its own account as a result of
market-making activities or other trading activities, it acknowledges that it
will deliver a prospectus meeting the requirements of the Securities Act in
connection with any resale of Exchange Notes received in respect of such
Exchange Notes pursuant to the Exchange Offer. As indicated above, each
Participating Broker-Dealer that receives an Exchange Note for its own account
in exchange for Notes must acknowledge that it will deliver a prospectus in
connection with any resale of such Exchange Notes. For a description of the
procedures for such resales by Participating Broker-Dealers, see "Plan of
Distribution."
CERTAIN FEDERAL INCOME TAX CONSEQUENCES
The following discussion (including the opinion of special counsel
described below) is based upon current provisions of the Internal Revenue Code
of 1986, as amended, applicable Treasury regulations, judicial authority and
administrative rulings and practice. There can be no assurance that the Internal
Revenue Service (the "Service") will not take a contrary view, and no ruling
from the Service has been or will be sought. Legislative, judicial or
administrative changes or interpretations may be forthcoming that could alter or
modify the statements and conditions set forth herein. Any such changes or
interpretations may or may not be retroactive and could affect the tax
consequences to holders. Certain holders (including insurance companies,
tax-exempt organizations, financial institutions, broker-dealers, foreign
corporations and persons who are not citizens or residents of the United States)
may be subject to special rules not discussed below. The Company recommends that
each holder consult such holder's own tax advisor as to the particular tax
consequences of exchanging such holder's Notes for Exchange Notes, including the
applicability and effect of any state, local or foreign tax laws.
Kirkland & Ellis, special counsel to the Company, has advised the Company
that in its opinion, the exchange of the Notes for Exchange Notes pursuant to
the Exchange Offer will not be treated as an "exchange" for federal income tax
purposes because the Exchange Notes will not be considered to differ materially
in kind or extent from the Notes. Rather, the Exchange Notes received by a
holder will be treated as a continuation of the Notes in the hands of such
holder. As a result, there will be no federal income tax consequences to holders
exchanging Notes for Exchange Notes pursuant to the Exchange Offer.
PLAN OF DISTRIBUTION
Each Participating Broker-Dealer that receives Exchange Notes for its own
account pursuant to the Exchange Offer must acknowledge that it will deliver a
prospectus meeting the requirements of the Securities
95
<PAGE> 100
Act in connection with any resale of Exchange Notes received in respect of such
Notes pursuant to the Exchange Offer. This Prospectus, as it may be amended or
supplemented from time to time, may be used by a Participating Broker-Dealer in
connection with resales of Exchange Notes received in exchange for Notes where
such Notes were acquired as a result of market-making activities or other
trading activities. The Company has agreed that for a period of up to one year
from the consummation of the Exchange Offer, it will make this Prospectus, as
amended or supplemented, available to any Participating Broker-Dealer for use in
connection with any such resale. In addition, until , 1998, all
dealers effecting transactions in the Exchange Notes may be required to deliver
a prospectus.
The Company will not receive any proceeds from any sales of the Exchange
Notes by Participating Broker-Dealers. Exchange Notes received by Participating
Broker-Dealers for their own account 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 Exchange Notes or
a combination of such methods of resale, at market prices prevailing at the time
of resale, at prices related to such prevailing market prices or negotiated
prices. Any such resale may be made directly to purchaser or to or through
brokers or dealers who may receive compensation in the form of commissions or
concessions from any such Participating Broker-Dealer and/or the purchasers of
any such Exchange Notes. Any Participating Broker-Dealer that resells the
Exchange 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 Exchange Notes may be deemed to be an "underwriter" within the meaning of
the Securities Act and any profit on any such resale of Exchange 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 Participating Broker-Dealer will not be deemed to admit that it is
an "underwriter" within the meaning of the Securities Act.
With respect to resales of Exchange Notes, based on interpretations by the
staff of the Commission set forth in no-action letters issued to third parties,
the Company believes that a holder or other person who receives Exchange Notes,
whether or not such person is the holder (other than a person that is an
"affiliate" of the Company within the meaning of Rule 405 under the Securities
Act) who receives Exchange Notes in exchange for Notes in the ordinary course of
business and who is not participating, does not intend to participate, and has
no arrangement or understanding with person to participate, in the distribution
of the Exchange Notes, will be allowed to resell the Exchange Notes to the
public without further registration under the Securities Act and without
delivering to the purchasers of the Exchange Notes a prospectus that satisfies
the requirements of Section 10 of the Securities Act. However, if any holder
acquires Exchange Notes in the Exchange Offer for the purpose of distributing or
participating in a distribution of the Exchange Notes, such holder cannot rely
on the position of the staff of the Commission enunciated in such no-action
letters or any similar interpretive letters, and must comply with the
registration and prospectus delivery requirements of the Securities Act in
connection with any resale transaction and 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 under the Securities Act, unless an exemption from registration
is otherwise available. Further, each Participating Broker-Dealer that receives
Exchange Notes for its own account in exchange for Notes, where such Notes were
acquired by such Participating 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 Exchange Notes. The Company has
agreed that, for a period of up to one year from the consummation of the
Exchange Offer, it will make this Prospectus available to any Participating
Broker-Dealer for use in connection with any such resale.
LEGAL MATTERS
Certain legal matters in connection with the issuance of the Exchange Notes
offered hereby will be passed upon for the Company by Kirkland & Ellis, New
York, New York.
96
<PAGE> 101
EXPERTS
The financial statements of the Specialty Paper Division as of December 29,
1996, June 16, 1997 and December 31, 1997, and for the year ended December 29,
1996, the period from December 30, 1996 through June 16, 1997, and the period
from June 17, 1997 through December 31, 1997, appearing in this Prospectus and
in the Registration Statement, and the financial statement schedule for the year
ended December 29, 1996, the period from December 30, 1996 through June 16,
1997, and the period from June 17, 1997 through December 31, 1997, included in
the Registration Statement have been audited by Ernst & Young LLP, independent
auditors, as set forth in their reports thereon appearing elsewhere herein and
in the Registration Statement, and are included herein in reliance upon such
reports given upon the authority of such firm as experts in accounting and
auditing.
The financial statements of the Consumer Products Division as of and for
the three years ended December 31, 1997, appearing in this Prospectus and in the
Registration Statement have been audited by Arthur Andersen LLP, independent
public accountants, as set forth in their report thereon appearing elsewhere
herein, and are included herein in reliance upon such report given upon the
authority of such firm as experts in accounting and auditing.
97
<PAGE> 102
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<S> <C>
CONSUMER PRODUCTS DIVISION (AN OPERATING DIVISION OF POPE &
TALBOT, INC.) FINANCIAL STATEMENTS
Report of Arthur Andersen LLP, Independent Public
Accountants............................................ F-2
Balance Sheets -- December 31, 1996 and 1997.............. F-3
Statements of Operations -- Years ended December 31, 1995,
1996 and 1997.......................................... F-4
Statements of Inter Company Accounts -- Years Ended
December 31, 1995, 1996 and 1997....................... F-5
Statements of Cash Flows -- Years ended December 31, 1995,
1996 and 1997.......................................... F-6
Notes to Financial Statements............................. F-7
PLAINWELL PAPER COMPANY
Report of Ernst & Young LLP, Independent Auditors......... F-15
Balance Sheets as of December 29, 1996 and June 16,
1997................................................... F-16
Statements of Operations for the year ended December 29,
1996 and for the period from December 30, 1996 through
June 16, 1997.......................................... F-17
Statements of Changes in Stockholder's Equity for the year
ended December 29, 1996 and for the period from
December 30, 1996 through June 16, 1997................ F-18
Statements of Cash Flows for the year ended December 29,
1996 and for the period from December 30, 1996 through
June 16, 1997.......................................... F-19
Notes to Financial Statements............................. F-20
PLAINWELL PAPER COMPANY
Report of Ernst & Young LLP, Independent Auditors......... F-27
Balance Sheet as of December 31, 1997..................... F-28
Statement of Operations for the period from June 17, 1997
through December 31, 1997.............................. F-29
Statement of Changes in Stockholder's Equity for the
period from June 17, 1997 through December 31, 1997.... F-30
Statement of Cash Flows for the period from June 17, 1997
through December 31, 1997.............................. F-31
Notes to Financial Statements............................. F-32
</TABLE>
F-1
<PAGE> 103
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Board of Directors and
Stockholders of Pope & Talbot, Inc.:
We have audited the accompanying balance sheets of the Consumer Products
Division (an operating division of Pope & Talbot, Inc.) as of December 31, 1996
and 1997, and the related statements of operations, intercompany account and
cash flows for each of the years ended December 31, 1995, 1996 and 1997. 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, the financial statements referred to above present fairly,
in all material respects, the financial position of the Consumer Products
Division (an operating division of Pope & Talbot, Inc.) as of December 31, 1996
and 1997, and the results of its operations and its cash flows for each of the
years ended December 31, 1995, 1996 and 1997, in conformity with generally
accepted accounting principles.
ARTHUR ANDERSEN LLP
Portland, Oregon,
April 6, 1998
F-2
<PAGE> 104
CONSUMER PRODUCTS DIVISION
BALANCE SHEETS
DECEMBER 31, 1996 AND 1997
(IN THOUSANDS)
<TABLE>
<CAPTION>
1996 1997
-------- --------
<S> <C> <C>
ASSETS
Current Assets:
Accounts receivable (net of allowance for doubtful
accounts of $1,019 and $639 at December 31, 1996 and
1997, respectively).................................... $ 12,380 $ 10,676
Inventories............................................... 17,976 17,669
Deferred income taxes..................................... 2,566 2,053
Prepaid expenses.......................................... 379 262
-------- --------
Total current assets................................... 33,301 30,660
Properties:
Plant and equipment....................................... 178,305 180,301
Accumulated depreciation.................................. (98,302) (107,856)
-------- --------
80,003 72,445
Land...................................................... 2,524 2,524
-------- --------
Total properties....................................... 82,527 74,969
Goodwill, net of amortization............................... 3,863 3,697
Deferred Income Tax Assets, net............................. 9,528 6,936
Other Assets................................................ 224 211
-------- --------
$129,443 $116,473
======== ========
LIABILITIES
Current Liabilities:
Accounts payable.......................................... $ 3,467 $ 5,712
Accrued payroll and related taxes......................... 4,990 4,625
Other accrued liabilities................................. 5,550 4,763
-------- --------
Total current liabilities.............................. 14,007 15,100
Postretirement Benefits..................................... 6,998 7,084
Long-Term Debt.............................................. 18,800 18,800
Commitments and Contingencies............................... -- --
Intercompany Account........................................ 89,638 75,489
-------- --------
$129,443 $116,473
======== ========
</TABLE>
The accompanying notes are an integral part of these balance sheets.
F-3
<PAGE> 105
CONSUMER PRODUCTS DIVISION
STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED DECEMBER 31, 1995, 1996 AND 1997
(IN THOUSANDS)
<TABLE>
<CAPTION>
1995 1996 1997
-------- -------- --------
<S> <C> <C> <C>
Net Revenues............................................... $107,013 $133,649 $136,176
Costs and Expenses:
Cost of sales............................................ 129,483 124,052 121,751
Selling, general and administrative...................... 3,228 3,351 2,919
Corporate overhead allocation............................ 1,509 1,962 2,057
Interest................................................. 881 812 846
-------- -------- --------
Total costs and expenses.............................. 135,101 130,177 127,573
-------- -------- --------
Income (Loss) Before Income Taxes.......................... (28,088) 3,472 8,603
Income Tax Provision (Benefit)............................. (10,533) 1,354 3,355
-------- -------- --------
Net Income (Loss).......................................... $(17,555) $ 2,118 $ 5,248
======== ======== ========
</TABLE>
The accompanying notes are an integral part of these statements.
F-4
<PAGE> 106
CONSUMER PRODUCTS DIVISION
STATEMENTS OF INTERCOMPANY ACCOUNTS
FOR THE YEARS ENDED DECEMBER 31, 1995, 1996 AND 1997
(IN THOUSANDS)
<TABLE>
<S> <C>
Balance at December 31, 1994................................ $ 94,951
1995 Activity:
Net loss............................................... (17,555)
Net distribution from Pope & Talbot, Inc............... 21,711
--------
Balance at December 31, 1995................................ 99,107
1996 Activity:
Net income............................................. 2,118
Net distribution to Pope & Talbot, Inc................. (11,587)
--------
Balance at December 31, 1996................................ 89,638
1997 Activity:
Net income............................................. 5,248
Net distribution to Pope & Talbot, Inc................. (19,397)
--------
Balance at December 31, 1997................................ $ 75,489
========
</TABLE>
The accompanying notes are an integral part of these statements.
F-5
<PAGE> 107
CONSUMER PRODUCTS DIVISION
STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1995, 1996 AND 1997
(IN THOUSANDS)
<TABLE>
<CAPTION>
1995 1996 1997
-------- -------- --------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss)........................................ $(17,555) $ 2,118 $ 5,248
Adjustments to reconcile net income (loss) to net cash
provided by (used for) operating activities --
Depreciation and amortization......................... 11,298 11,809 11,309
Gain on sale of properties............................ -- -- (32)
Changes in assets and liabilities:
Increase (decrease) in --
Accounts payable................................. (3,434) (3,516) 2,245
Accrued payroll and related taxes................ (88) 427 (365)
Other accrued liabilities........................ (752) 2,276 (787)
Postretirement benefits.......................... 75 55 86
Decrease (increase) in:
Accounts receivable.............................. 1,191 (2,963) 1,704
Inventories...................................... 3,423 2,869 307
Deferred income taxes............................ (10,533) 1,218 3,105
Prepaid expenses................................. 3 (86) 117
-------- -------- --------
Net cash provided by (used for) operating
activities..................................... (16,372) 14,207 22,937
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures..................................... (21,113) (1,922) (3,737)
Proceeds from sale of other properties................... 316 58 197
-------- -------- --------
Net cash used for investing activities........... (20,797) (1,864) (3,540)
CASH FLOW FROM FINANCING ACTIVITIES:
Net distribution (to) from Pope & Talbot, Inc............ 21,711 (12,343) (19,397)
Change in restricted bond funds.......................... 15,458 -- --
-------- -------- --------
Net cash provided by (used for) financing
activities..................................... 37,169 (12,343) (19,397)
Change in Cash............................................. -- -- --
Cash at Beginning of Period................................ -- -- --
-------- -------- --------
Cash at End of Period...................................... $ -- $ -- $ --
======== ======== ========
Noncash Investing Activities:
Transfer of property from Parent to CPD.................. $ -- $ 756 $ --
======== ======== ========
</TABLE>
The accompanying notes are an integral part of these statements.
F-6
<PAGE> 108
CONSUMER PRODUCTS DIVISION
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1995, 1996 AND 1997
1. BASIS OF PRESENTATION:
The Consumer Products Division (CPD) is an operating division of Pope &
Talbot, Inc. and Subsidiaries (Parent). The CPD owns and operates
fully-integrated tissue manufacturing and converting facilities located in Eau
Claire, Wisconsin, and Ransom, Pennsylvania, with converting and distributing
operations for the Ransom facility located in Pittston, Pennsylvania. Tissue
products manufactured by the CPD include towels, napkins, bathroom tissue and
facial tissue. These tissue products are sold under private and controlled
labels to supermarkets, drugstores, mass merchandisers, food and drug
distribution companies and warehouse club stores. The accompanying financial
statements reflect the assets and liabilities of the CPD at December 31, 1996
and 1997, and the statements of operations, changes in intercompany account and
cash flows for the years ended December 31, 1995, 1996 and 1997.
The financial statements are based on separate accounting records
maintained by Parent for the CPD. These accounting records reflect certain
charges by Parent for direct costs and expenses associated with the CPD
operations which were included in cost of goods sold or selling, general and
administrative expenses as appropriate. Additionally, Parent's administrative
costs not directly attributable to the CPD, which historically had not been
allocated, have been allocated to the CPD based on net sales. These indirect
Parent costs include such items as general corporate, tax services, certain
human resources and other administrative costs. The Parent's indirect
administrative overhead allocation, which is separately classified as corporate
overhead allocation in the statements of operations, amounted to $1.5 million,
$2.0 million and $2.1 million for the years ended December 31, 1995, 1996 and
1997, respectively.
Because the CPD results were included in the consolidated financial
statements of Parent, there are no separate historical equity accounts for the
CPD.
Throughout the period covered by these financial statements, the CPD
participated in Parent's cash disbursement system and, as such, its cash funding
requirements were met by Parent. Other than the City of Eau Claire note payable
(see Note 6) and related interest expense, there has been no allocation to the
CPD of the Parent's consolidated borrowings and related interest expense, except
for interest capitalized as a component of properties.
The financial information included herein may not necessarily be indicative
of the financial position, results of operations or cash flows of the CPD in the
future, nor does such information necessarily reflect the financial position,
results of operations or cash flows of the CPD had it been a separate,
stand-alone company during the periods presented.
2. ACCOUNTING POLICIES:
Inventories
Inventories are stated at the lower of average cost or market. Inventory
costs include the cost of materials, labor and plant overhead.
Properties
Properties are carried at cost and include expenditures for new facilities
and equipment and those expenditures which substantially increase the useful
lives of existing plant and equipment. Costs of maintenance and repairs are
charged to expense as incurred. Upon sale or retirement, the related cost and
accumulated depreciation are removed from the accounts, with the resultant gain
or loss included in income.
For financial reporting purposes, depreciation is computed using the
straight-line method over the useful lives of respective assets. The estimated
useful lives of the principal items of plant and equipment range from 3 to 20
years. For income tax purposes, depreciation is calculated primarily using
accelerated methods.
F-7
<PAGE> 109
CONSUMER PRODUCTS DIVISION
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
DECEMBER 31, 1995, 1996 AND 1997
Interest costs related to funds borrowed by Parent during the construction
period of major capital projects is capitalized. The interest capitalized is
determined by applying Parent's effective interest rate to the accumulated
capital costs during the construction period of a project. Interest capitalized
was $149,000 during 1995 and no interest was capitalized in 1996 or 1997.
Goodwill
The goodwill contained in the balance sheets relates to the 1980 purchase
of the Eau Claire, Wisconsin facilities. This amount is being amortized on a
straight-line basis over 40 years. The accumulated amortization related to this
goodwill was $2,927,000 and $3,093,000 at December 31, 1996 and 1997,
respectively.
Interest Expense
The interest expense reflected in the statements of operations represents
interest associated with the City of Eau Claire note payable, which is currently
an obligation of the Parent, but is directly related to the CPD. Consequently,
the interest expense reflected in the statements of operations and the amount of
debt reflected in the balance sheets are not intended to reflect interest
expense that the CPD may have incurred or the amount of debt which would have
been outstanding had the CPD been an independent company.
Income Taxes
Income taxes have been determined on a separate return basis. Deferred
income taxes are determined based on the estimated future tax effects of
differences between the financial statement and tax bases of assets and
liabilities given the provisions of the enacted tax laws. The principal
temporary differences are related to depreciation, net operating loss
carryforwards and postretirement benefits.
Intercompany Account
Parent maintains a cash disbursement system which is administered by its
corporate office. Cash collected from and distributed to the CPD is reflected in
the intercompany account balance. The intercompany account balance represents
the net accumulated transactions between Parent and the CPD.
Per Share Information
Earnings per common share information has been omitted in the financial
statements since the CPD was not a separate entity with its own capital
structure during the years presented.
Use of 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.
F-8
<PAGE> 110
CONSUMER PRODUCTS DIVISION
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
DECEMBER 31, 1995, 1996 AND 1997
3. INVENTORIES:
Inventory components at December 31, 1996 and 1997 are as follows (in
thousands):
<TABLE>
<CAPTION>
1996 1997
------- -------
<S> <C> <C>
Raw materials............................................ $ 4,776 $ 3,343
Finished goods........................................... 10,140 11,050
Chemicals and supplies................................... 3,060 3,276
------- -------
$17,976 $17,669
======= =======
</TABLE>
4. PLANT AND EQUIPMENT:
Plant and equipment components at December 31, 1996 and 1997 are as follows
(in thousands):
<TABLE>
<CAPTION>
1996 1997
-------- --------
<S> <C> <C>
Mills, plants and improvements......................... $ 31,356 $ 32,059
Equipment.............................................. 144,373 144,365
Mobile equipment....................................... 1,829 1,390
Construction in progress............................... 747 2,487
-------- --------
$178,305 $180,301
======== ========
</TABLE>
5. OTHER ACCRUED LIABILITIES:
Other accrued liabilities' components at December 31, 1996 and 1997 are as
follows (in thousands):
<TABLE>
<CAPTION>
1996 1997
------ ------
<S> <C> <C>
Customer incentive accrual................................. $2,206 $2,187
Accrued freight costs...................................... 984 811
Accrued utilities costs.................................... 1,120 881
Other accrued liabilities.................................. 1,240 884
------ ------
$5,550 $4,763
====== ======
</TABLE>
6. LONG-TERM DEBT:
During 1994, the City of Eau Claire, Wisconsin issued tax-exempt,
adjustable rate, solid waste disposal revenue bonds. The bonds were issued to
finance a wastepaper pulping improvement project at the CPD's Eau Claire,
Wisconsin tissue facility. Upon sale of the bonds, the City of Eau Claire loaned
$18.8 million to Parent and the related debt is reflected on the CPD balance
sheets. The note payable has a variable interest rate (4.3% at December 31,
1997) and is due in 2014. The carrying value of the note payable approximates
its fair value. In connection with the note payable, Parent maintains a
$19,552,000 letter of credit with a bank to collateralize the note payable for
which it pays a commitment fee. The commitment fee on the letter of credit
varies from 0.425% to 0.625% annually (.5% at December 31, 1997) based upon
Parent's leverage ratio.
7. PENSION AND OTHER POSTRETIREMENT PLANS:
Pension Plans
Substantially all of the CPD employees participate in noncontributory
defined-benefit pension plans. These include Parent administered plans and a
multi-employer plan administered by a union.
F-9
<PAGE> 111
CONSUMER PRODUCTS DIVISION
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
DECEMBER 31, 1995, 1996 AND 1997
The Eau Claire union CPD hourly employees are covered under a
multi-employer union pension plan. Contributions to this plan are based upon
negotiated hourly rates. Salaried CPD employees are covered by a noncontributory
defined-benefit pension plan administered by Parent which also includes other
salaried employees of Parent. It is not practical to determine the amount of
accumulated benefits or net assets available for benefits that apply solely to
CPD employees covered by these plans.
The Ransom union CPD hourly employees are covered by a noncontributory
defined benefit pension plan administered by Parent. Pension benefits for
employees covered under this plan are based on each employee's years of service.
Net periodic pension cost for the years ended December 31, 1995, 1996 and
1997 was composed of the following (in thousands):
<TABLE>
<CAPTION>
1995 1996 1997
------- ------- -------
<S> <C> <C> <C>
Ransom union hourly plan:
Service cost -- benefits earned during the
period................................... $ 328 $ 248 $ 244
Interest cost on projected benefit
obligation............................... 971 1,017 1,038
Actual earnings from plan assets............ (1,805) (2,047) (3,531)
Deferral of earnings from plan assets....... 864 975 2,330
Net amortization and deferral............... 136 136 136
------- ------- -------
Total Ransom union hourly plan...... 494 329 217
Allocations of salaried pension benefits from
Parent...................................... (96) (11) (152)
Contributions to multi-employer plan.......... 994 1,034 1,052
------- ------- -------
Total net periodic pension cost..... $ 1,392 $ 1,352 $ 1,117
======= ======= =======
</TABLE>
The following table sets forth the funded status of the Ransom union hourly
plan and the amount recognized as a prepaid (accrued) pension cost at December
31, 1996 and 1997 (in thousands):
<TABLE>
<CAPTION>
1996 1997
-------- --------
<S> <C> <C>
Accumulated benefit obligation:
Vested portion....................................... $(13,536) $(14,027)
Nonvested portion.................................... (884) (607)
-------- --------
Accumulated and projected benefit obligation...... (14,420) (14,634)
Plan assets at fair market value....................... 13,676 16,391
-------- --------
Plan assets greater (less) than projected benefit
obligation...................................... (744) 1,757
Unrecognized net gain.................................. (144) (2,597)
Unrecognized prior service............................. 942 811
Balance of unrecorded transition asset from initial
application of SFAS No. 87........................... 19 15
-------- --------
Prepaid (accrued) pension cost......................... $ 73 $ (14)
======== ========
</TABLE>
Substantially all of the pension plan's assets are invested in common
stock, fixed-income securities, cash and cash equivalents. The discount rate
used in determining the actuarial present value of the projected benefit
obligation was 7.5% for December 31, 1996 and 1997. The expected long-term rate
of return on plan assets was 9.0% for the 1996 and 1997 periods.
F-10
<PAGE> 112
CONSUMER PRODUCTS DIVISION
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
DECEMBER 31, 1995, 1996 AND 1997
The funding policy regarding all of the Parent administered plans is to
make contributions to the plans that are between the minimum amounts required by
the Employee Retirement Income Security Act (ERISA) and the maximum amounts
deductible under current income tax regulations.
Other Postretirement Plans
The Parent sponsors postretirement medical and life insurance plans for
certain salaried and nonsalaried CPD employees and eligible spouses and
dependents of the employees. The medical plans pay a stated percentage of
covered medical expenses incurred after deducting co-payments made once a stated
deductible has been met. The life insurance plans pay a defined benefit. The
Parent does not fund these plans prior to actual incurrence of costs under the
plans.
Net periodic other postretirement benefit cost for the years ended December
31, 1995, 1996 and 1997 for these plans was composed of the following (in
thousands):
<TABLE>
<CAPTION>
1995 1996 1997
---- ---- ----
<S> <C> <C> <C>
Nonsalaried CPD postretirement costs:
Service cost -- benefits attributed to service
during the period................................ $113 $116 $120
Interest cost on accumulated benefit obligation..... 330 405 411
Net amortization and deferral....................... (79) (53) (39)
---- ---- ----
Total nonsalaried........................... 364 468 492
Allocations of salaried postretirement costs from
Parent.............................................. (19) 144 169
---- ---- ----
Net periodic cost of other postretirement
benefit plans............................. $345 $612 $661
==== ==== ====
</TABLE>
The following table reconciles the plans' funded status to the accrued
postretirement medical and life insurance cost liability in the accompanying
balance sheets at December 31, 1996 and 1997 (in thousands):
<TABLE>
<CAPTION>
1996 1997
------ ------
<S> <C> <C>
Accumulated benefit obligation:
Retirees................................................. $2,597 $2,652
Other fully eligible participants........................ 1,470 1,492
Other active participants................................ 3,382 3,442
------ ------
7,449 7,586
Unrecognized actuarial gain................................ (622) (630)
Unrecognized prior service................................. 171 128
------ ------
Accrued postretirement benefit cost liability.............. $6,998 $7,084
====== ======
</TABLE>
For measurement purposes, 9.0% and 8.5% rates of increase were assumed for
health care costs for 1996 and 1997, respectively. The rate is assumed to
decline in .5% decrements every year until it reaches 5% in 2004 where it will
remain thereafter. A 1% increase in the assumed health care cost trend rates
would increase the accumulated postretirement benefit obligation by $873,000 at
December 31, 1997. The effect of this 1% increase on the service and interest
cost components of the net periodic cost of postretirement medical and life
insurance plans would be an increase of $98,000 for 1997. The discount rate used
in determining the accumulated benefit obligation was 7.5% in for both 1996 and
1997.
F-11
<PAGE> 113
CONSUMER PRODUCTS DIVISION
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
DECEMBER 31, 1995, 1996 AND 1997
8. INCOME TAXES:
The income tax provision (benefit) consists of the following components (in
thousands):
<TABLE>
<CAPTION>
CURRENT DEFERRED TOTAL
------- -------- --------
<S> <C> <C> <C>
Year Ended December 31, 1995
Federal.................................... $ -- $ (9,550) $ (9,550)
State...................................... -- (983) (983)
---- -------- --------
$ -- $(10,533) $(10,533)
==== ======== ========
Year Ended December 31, 1996
Federal.................................... $ -- $ 1,146 $ 1,146
State...................................... 134 74 208
---- -------- --------
$134 $ 1,220 $ 1,354
==== ======== ========
Year Ended December 31, 1997
Federal.................................... $ -- $ 2,839 $ 2,839
State...................................... 251 265 516
---- -------- --------
$251 $ 3,104 $ 3,355
==== ======== ========
</TABLE>
The difference in income tax provision (benefit) from the amount computed
by applying the United States statutory federal income tax rate for the years
ended December 31, 1995, 1996 and 1997 is reconciled below (in thousands):
<TABLE>
<CAPTION>
1995 1996 1997
-------- ------ ------
<S> <C> <C> <C>
Income (loss) before income taxes.............. $(28,088) $3,472 $8,603
======== ====== ======
United States statutory federal income tax
provision (benefit).......................... $ (9,831) $1,215 $3,011
State income and franchise taxes, net of
federal income tax benefit................... (702) 139 344
-------- ------ ------
$(10,533) $1,354 $3,355
======== ====== ======
</TABLE>
Deferred income taxes are determined based on the estimated future tax
effects of differences between the financial statement and tax bases of assets
and liabilities given the provisions of the enacted tax laws. The net deferred
tax assets at December 31, 1996 and 1997 are comprised of the following (in
thousands):
<TABLE>
<CAPTION>
1996 1997
------- -------
<S> <C> <C>
Current deferred taxes:
Gross assets........................................... $ 2,566 $ 2,053
Gross liabilities...................................... -- --
------- -------
Total current deferred taxes........................ 2,566 2,053
Noncurrent deferred taxes:
Gross assets........................................... 20,882 17,460
Gross liabilities...................................... (11,354) (10,524)
------- -------
Total noncurrent deferred taxes..................... 9,528 6,936
------- -------
Net deferred tax assets........................ $12,094 $ 8,989
======= =======
</TABLE>
F-12
<PAGE> 114
CONSUMER PRODUCTS DIVISION
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
DECEMBER 31, 1995, 1996 AND 1997
The tax effect of significant temporary differences representing deferred
tax assets (liabilities) at December 31, 1996 and 1997 are as follows (in
thousands):
<TABLE>
<CAPTION>
1996 1997
-------- --------
<S> <C> <C>
Depreciation........................................... $(11,125) $(10,397)
Net operating loss carryforwards....................... 18,153 14,697
Postretirement benefits................................ 2,729 2,763
Vacation pay........................................... 1,076 1,018
Reserves and allowances................................ 705 514
Inventories............................................ 468 236
Other, net............................................. 88 158
-------- --------
Net deferred tax assets................................ $ 12,094 $ 8,989
======== ========
</TABLE>
9. MAJOR CUSTOMERS:
In 1995, the CPD had sales to two customers of $14,727,000 and $12,198,000.
In 1996, the CPD had sales to three customers of $16,307,000, $14,430,000 and
$13,491,000. Also during 1996, the CPD had sales to two customers of $10,171,000
and $7,098,000, that became commonly owned in 1997. In 1997, the CPD had sales
to three customers of $20,715,000, $20,323,000 and $13,825,000. No other
customers represented more than 10% of revenues for any of the aforementioned
periods.
10. LITIGATION AND LEGAL MATTERS:
The CPD is a party to legal proceedings and environmental matters generally
incidental to the business. Although the final outcome of any legal proceeding
or environmental matter is subject to a great many variables and cannot be
predicted with any degree of certainty, management believes that the ultimate
outcome resulting from these proceedings and matters would not have a material
effect on CPD's current financial position, liquidity or results of operations;
however, in any given future reporting period such proceedings or matters could
have a material effect on results of operations.
F-13
<PAGE> 115
REPORT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
The Board of Directors
Plainwell Paper Company
We have audited the accompanying balance sheets of Plainwell Paper Company
(the "Company") as of December 29, 1996 and June 16, 1997, and the related
statements of operations, changes in stockholder's equity and cash flows for the
year ended December 29, 1996 and for the period from December 30, 1996 to June
16, 1997. 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, the financial statements referred to above present fairly,
in all material respects, the financial position of the Company at December 29,
1996 and June 16, 1997, and the results of its operations and its cash flows for
the year ended December 29, 1996 and for the period from December 30, 1996 to
June 16, 1997, in conformity with generally accepted accounting principles.
Milwaukee, Wisconsin ERNST & YOUNG LLP
December 29, 1997
F-14
<PAGE> 116
PLAINWELL PAPER COMPANY
BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 29, JUNE 16,
1996 1997
------------ --------
(DOLLARS IN THOUSANDS)
<S> <C> <C>
ASSETS:
Current assets:
Miscellaneous receivable.................................. $ 25 $ 43
Inventories............................................... 9,407 12,139
Deferred income taxes..................................... 839 534
Prepaid expenses.......................................... 846 626
------- -------
Total current assets................................... 11,117 13,342
Properties, net............................................. 26,906 25,847
Receivable from Simpson..................................... 5,795 5,876
Other assets................................................ 5,801 6,526
------- -------
TOTAL ASSETS...................................... $49,619 $51,591
======= =======
LIABILITIES AND STOCKHOLDER'S EQUITY:
Current liabilities:
Accounts payable.......................................... $ 5,771 $ 5,911
Accrued liabilities....................................... 2,087 1,670
------- -------
TOTAL CURRENT LIABILITIES.............................. 7,858 7,581
Long-term debt.............................................. 3,500 3,500
Other long-term liabilities................................. 4,241 3,979
Deferred income taxes....................................... 4,619 4,608
Commitments and contingencies (Note 6)
STOCKHOLDER'S EQUITY:
Common stock, par value $1 per share; authorized 1,000
shares; issued and outstanding 500 shares.............. 1 1
Paid-in capital........................................... 27,480 27,480
Retained earnings......................................... 1,920 4,442
------- -------
TOTAL STOCKHOLDER'S EQUITY............................. 29,401 31,923
------- -------
TOTAL LIABILITIES AND STOCKHOLDER'S EQUITY........ $49,619 $51,591
======= =======
</TABLE>
See accompanying notes.
F-15
<PAGE> 117
PLAINWELL PAPER COMPANY
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
PERIOD FROM
DECEMBER 30,
YEAR ENDED 1996 THROUGH
DECEMBER 29, JUNE 16,
1996 1997
------------ ------------
(DOLLARS IN THOUSANDS)
<S> <C> <C>
Net sales................................................... $85,230 $40,795
Costs and expenses:
Cost of sales............................................. 76,425 34,231
Selling, general and administrative....................... 4,434 1,539
Overhead allocation from Simpson.......................... 5,537 724
Interest.................................................. 144 124
------- -------
Total costs and expenses.......................... 86,540 36,618
------- -------
Income (loss) before income taxes........................... (1,310) 4,177
Income tax provision (benefit).............................. (335) 1,655
------- -------
Net income (loss)........................................... $ (975) $ 2,522
======= =======
</TABLE>
See accompanying notes.
F-16
<PAGE> 118
PLAINWELL PAPER COMPANY
STATEMENTS OF CHANGES IN STOCKHOLDER'S EQUITY
FOR THE YEAR ENDED DECEMBER 29, 1996
AND THE PERIOD FROM DECEMBER 30, 1996 THROUGH JUNE 16, 1997
(Dollars In thousands)
<TABLE>
<CAPTION>
COMMON PAID-IN RETAINED
STOCK CAPITAL EARNINGS TOTAL
------ ------- --------- -------
<S> <C> <C> <C> <C>
Balance at January 1, 1996.......................... $1 $27,480 $2,895 $30,376
Net loss.......................................... -- -- (975) (975)
-- ------- ------ -------
Balance at December 29, 1996........................ 1 27,480 1,920 29,401
Net income........................................ -- -- 2,522 2,522
-- ------- ------ -------
Balance at June 16, 1997............................ $1 $27,480 $4,442 $31,923
== ======= ====== =======
</TABLE>
See accompanying notes.
F-17
<PAGE> 119
PLAINWELL PAPER COMPANY
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
PERIOD FROM
DECEMBER 30,
YEAR ENDED 1996 THROUGH
DECEMBER 29, JUNE 16,
1996 1997
------------ -------------
(Dollars In thousands)
<S> <C> <C>
OPERATING ACTIVITIES:
Net income (loss)........................................... $ (975) $ 2,522
Adjustments to reconcile net income (loss) to net cash
provided by operating activities:
Provision for deferred income taxes....................... 628 294
Depreciation.............................................. 2,330 1,070
Changes in operating assets and liabilities:
Increase (decrease) in:
Accounts payable..................................... (662) 140
Accrued liabilities.................................. 373 (417)
Other long-term liabilities.......................... 2,345 (334)
Accrued pensions..................................... (1,507) (102)
Postretirement benefits.............................. 140 72
Decrease (increase) in:
Accounts receivable.................................. 41 (18)
Inventories.......................................... 5,773 (2,732)
Prepaid expenses..................................... 52 (623)
Other assets......................................... (2,255) 220
Receivable from Simpson.............................. (5,284) (81)
------- -------
NET CASH PROVIDED BY OPERATING ACTIVITIES......... 999 11
INVESTING ACTIVITIES:
Capital expenditures........................................ (1,220) (66)
Other....................................................... 154 55
------- -------
NET CASH USED IN INVESTING ACTIVITIES............. (1,066) (11)
------- -------
Decrease in cash............................................ (67) --
Cash at beginning of period................................. 67 --
------- -------
Cash at end of period....................................... $ -- $ --
======= =======
Supplemental disclosure of cash flow information -- Cash
paid for interest......................................... $ 144 $ 124
</TABLE>
See accompanying notes.
F-18
<PAGE> 120
PLAINWELL PAPER COMPANY
NOTES TO FINANCIAL STATEMENTS
JUNE 16, 1997
1. NATURE OF OPERATIONS AND SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation
Plainwell Paper Company (the "Company"), formerly doing business as Simpson
Plainwell Paper Company, is a wholly owned subsidiary of Simpson Paper Company,
which is a subsidiary of Simpson Investment (collectively, "Simpson").
Nature of Operations and Relationship With Simpson
The Company owns and operates a specialty coated paper mill in Plainwell,
Michigan, that produces and supplies premium coated printing papers and
technical specialty grades of paper.
Sales are generally to well-established companies in the United States.
Credit losses have not been significant. For the year ending December 29, 1996,
the Company has sales to two individual customers which comprised 14% and 11% of
sales for the year. For the period ending June 16, 1997, sales to one individual
customer comprised 16% of sales for the period. No other customers represented
more than 10% of revenues.
The Company purchases pulp from several vendors and believes that it has an
adequate supply. The price of pulp is a commodity and is subject to significant
fluctuations.
The financial statements are based on separate accounting records
maintained by Simpson for the Company. Throughout the period covered by these
financial statements, Simpson performed cash management on a centralized basis
and processed related accounts receivable and certain other transactions. The
systems utilized by Simpson did not provide detail for receivables and cash
receipts and payments on a business-specific basis. Accordingly, cash, trade
receivables and the related allowances for bad debts are recorded by the Company
and by Simpson through the intercompany receivable account. These accounting
records reflect certain charges by Simpson for direct costs and expenses
incurred by Simpson that were associated with the Company's selling, general and
administrative operations. Additionally, certain administrative costs incurred
by Simpson which benefit the Company but are not directly attributable to the
Company, which historically had not been allocated, have been allocated to the
Company in the accompanying financial statements. These costs include such items
as engineering, environmental, management information services, marketing and
other administrative costs. Such allocated costs are separately classified as
overhead allocation from Simpson in the statements of operations.
Throughout the period covered by these financial statements, the Company
participated in Simpson's cash disbursement system and, as such, its cash
funding requirements were met by Simpson. Other than the note payable (see Note
3) and related interest expense, there has been no allocation to the Company of
Simpson's consolidated borrowings and related interest expense. For the periods
in the accompanying financial statements, the Company was generally in a net
receivable position from Simpson.
The financial information included herein may not necessarily be indicative
of the financial position, results of operations or cash flows of the Company in
the future, nor does such information necessarily reflect the financial
position, results of operations or cash flows of the Company had it been a
separate, stand-alone company during the periods presented.
Fiscal Year
The Company's fiscal year ended on the Sunday closest to December 31.
F-19
<PAGE> 121
PLAINWELL PAPER COMPANY
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
JUNE 16, 1997
Inventories
Inventories are stated at the lower of cost or market, with cost determined
using the last-in, first-out (LIFO) method.
Properties
Properties are carried at cost. Costs of maintenance and repairs are
charged to expense as incurred. Upon sale or retirement, the related cost and
accumulated depreciation are removed from the accounts, with the resultant gain
or loss included in income.
For financial reporting purposes, depreciation is computed using the
straight-line method over the useful lives of respective assets. The estimated
useful lives of the principal items of plant and equipment range from 10 to 40
years. For income tax purposes, depreciation is calculated primarily using
accelerated methods.
Interest is capitalized in connection with construction of major projects.
No interest was capitalized in 1996 or 1997.
Intercompany Account
Cash collected from and distributed to the Company is reflected in the
intercompany account balance. The intercompany account balance represents the
net accumulated transactions between Simpson and the Company.
Income Taxes
The Company is included in the consolidated federal tax return of Simpson.
Income taxes have been provided as if the Company were a separate taxpayer. The
Company's allocated portion of current tax expense (benefit) has been charged to
the intercompany account.
Environmental Liabilities
Losses associated with environmental remediation obligations are accrued
when such losses are probable and reasonably estimable. Accruals for estimated
losses from environmental remediation obligations generally are recognized not
later than the completion of a remedial feasibility study. Such accruals are
adjusted as further information develops or circumstances change. Recoveries of
environmental remediation costs from other parties are recognized as assets when
their receipt is deemed probable.
Revenue Recognition
Sales are recognized when goods are shipped to the customer. In determining
net sales, sales are reduced by commissions, discounts and freight.
Interest Expense and Income
The interest expense reflected in the statements of operations represents
interest associated with the note payable related to an industrial revenue bond.
The Company was not allocated any interest income on the receivable from
Simpson.
Research and Development
Research and development costs are charged to expense as incurred and were
$181,000 in 1996 and $142,000 in 1997.
F-20
<PAGE> 122
PLAINWELL PAPER COMPANY
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
JUNE 16, 1997
Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
2. ADDITIONAL BALANCE SHEET INFORMATION
Components are as follows (dollars in thousands):
<TABLE>
<CAPTION>
DECEMBER 29, JUNE 16,
1996 1997
------------ --------
<S> <C> <C>
Inventories:
Paper mill fiber.......................................... $ 1,537 $ 1,883
Work in progress.......................................... 1,372 1,716
Finished goods............................................ 5,548 6,577
Chemicals and other....................................... 916 1,506
------- -------
9,373 11,682
Plus adjustment to state inventories at LIFO cost......... 34 457
------- -------
$ 9,407 $12,139
======= =======
Properties:
Land...................................................... $ 1,178 $ 1,178
Mills, plant and improvements............................. 9,586 9,638
Equipment................................................. 29,900 29,873
Furniture and fixtures.................................... 2,518 2,488
------- -------
43,182 43,177
Less accumulated depreciation............................. 16,276 17,330
------- -------
Net properties.............................................. $26,906 $25,847
======= =======
Other assets:
Due from prior owners for environmental remediation
costs.................................................. $ 2,000 $ 2,000
Intangible pension asset.................................. 1,144 1,246
Inventoriable stores...................................... 2,311 2,433
Other..................................................... 346 847
------- -------
$ 5,801 $ 6,526
======= =======
Accrued liabilities:
Workers' compensation claims.............................. $ 667 $ 654
Other..................................................... 1,420 1,016
------- -------
$ 2,087 $ 1,670
======= =======
Other long-term liabilities:
Postretirement obligation................................. $ 1,390 $ 1,462
Accrued environmental..................................... 2,000 2,000
Workers' compensation and other........................... 717 414
Other..................................................... 134 103
------- -------
$ 4,241 $ 3,979
======= =======
</TABLE>
F-21
<PAGE> 123
PLAINWELL PAPER COMPANY
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
JUNE 16, 1997
3. LONG-TERM DEBT
The $3,500,000 note payable relates to a tax-exempt bond issued by the City
of Plainwell for the benefit of the Company. The bond and related note payable
bear interest at a variable rate which was 4.45% at December 29, 1996 and June
16, 1997. Interest payments are due monthly and continue until the note matures
on October 1, 2007.
4. EMPLOYEE BENEFIT PLANS
Pension Plans
Substantially all of the Company's employees participate in noncontributory
defined-benefit pension plans. Salaried employees are covered by a
noncontributory defined-benefit pension plan administered by Simpson which also
includes other salaried employees of Simpson. The union hourly employees are
covered by a noncontributory defined-benefit pension plan administered by
Simpson. Pension benefits for employees covered under this plan are based on
each employee's years of service.
Net periodic pension cost for the year ended December 29, 1996 and the
period from December 30, 1996 through June 16, 1997, was composed of the
following (dollars in thousands):
<TABLE>
<CAPTION>
PERIOD FROM
DECEMBER 30,
YEAR ENDED 1996 THROUGH
DECEMBER 29, JUNE 16,
1996 1997
------------ ------------
<S> <C> <C>
Service cost -- benefits earned during the period.......... $ 524 $ 269
Interest cost on projected benefit obligation.............. 831 429
Actual earnings from plan assets........................... (2,258) (1,693)
Deferral of earnings from plan assets...................... 1,429 1,161
Net amortization and deferral.............................. 194 92
------- -------
Net periodic pension cost.................................. $ 720 $ 258
======= =======
</TABLE>
The following table sets forth the funded status and the amount recognized
as a prepaid pension cost at December 29, 1996 and June 16, 1997 (in thousands):
<TABLE>
<CAPTION>
DECEMBER 29, JUNE 16,
1996 1997
------------ --------
<S> <C> <C>
Accumulated benefit obligation:
Vested portion............................................ $(11,297) $(11,902)
Nonvested portion......................................... (402) (425)
-------- --------
Accumulated benefit obligation.............................. (11,699) (12,327)
Excess of projected benefit obligation over accumulated
benefit obligation........................................ (1,024) (1,108)
-------- --------
Projected benefit obligation................................ (12,723) (13,435)
Plan assets at fair market value............................ 11,975 13,799
-------- --------
Plan assets greater (less) than projected benefit
obligation................................................ (748) 364
Unrecognized net gain (loss)................................ 552 (390)
Unrecognized prior service.................................. 1,346 1,277
Balance of unrecorded transition asset...................... (6) (5)
-------- --------
Prepaid pension cost........................................ $ 1,144 $ 1,246
======== ========
</TABLE>
F-22
<PAGE> 124
PLAINWELL PAPER COMPANY
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
JUNE 16, 1997
Substantially all the pension plan's assets are invested in common stock,
fixed-income securities, cash and cash equivalents. The discount rate used in
determining the actuarial present value of the projected benefit obligation was
7.5% for December 29, 1996 and June 16, 1997. The expected long-term rate of
return on plan assets was 9.0% for the 1996 and 1997 periods.
The funding policy regarding all of the plans is to make contributions to
the plans that are between the minimum amounts required by the Employee
Retirement Income Security Act of 1974 (ERISA) and the maximum amounts
deductible under current income tax regulations.
Profit-Sharing and Savings Retirement Plan
The Company sponsors a 401(k) retirement plan covering substantially all
salaried and hourly employees. The Company matches a percentage of the
participants' contributions. Total Company contributions expense recorded for
the year ended December 29, 1996 and for the period from December 30, 1996
through June 16, 1997 was $198,000 and $87,000, respectively.
Other Postretirement Plans
Simpson sponsors postretirement medical and life insurance plans for
certain salaried and nonsalaried Company employees and eligible spouses and
dependents of the employees. The medical plans pay a stated percentage of
covered medical expenses incurred after deducting copayments made once a stated
deductible has been met. The life insurance plans pay a defined benefit. Simpson
does not prefund these plans prior to actual incurrence of costs under the
plans.
Net periodic other postretirement benefit cost for the year ended December
29, 1996 and for the period from December 30, 1996 through June 16, 1997, for
these plans was composed of the following (dollars in thousands):
<TABLE>
<CAPTION>
PERIOD FROM
DECEMBER 30,
YEAR ENDED 1996 THROUGH
DECEMBER 29, JUNE 16,
1996 1997
------------ ------------
<S> <C> <C>
Service cost -- benefits attributed to service during the
period................................................... $ 48 $25
Interest cost on accumulated benefit obligation............ 123 67
Net amortization and deferral.............................. 28 6
---- ---
Net periodic cost of other postretirement benefit plans.... $199 $98
==== ===
</TABLE>
The following table reconciles the plans' funded status to the accrued
postretirement medical and life insurance cost liability in the accompanying
balance sheets at December 29, 1996 and June 16, 1997 (in thousands):
<TABLE>
<CAPTION>
DECEMBER 29, JUNE 16,
1996 1997
------------ --------
<S> <C> <C>
Accumulated benefit obligation:
Retirees.................................................. $ 454 $ 451
Other fully eligible participants......................... 371 389
Other active participants................................. 899 807
------ ------
1,724 1,647
Unrecognized actuarial gain................................. (334) (185)
------ ------
Accrued postretirement benefit cost liability............... $1,390 $1,462
====== ======
</TABLE>
F-23
<PAGE> 125
PLAINWELL PAPER COMPANY
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
JUNE 16, 1997
For measurement purposes, 8.0% and 7.67% rates of increase were assumed for
health care costs for 1996 and 1997, respectively. The rate is assumed to
decline in 1/3% decrements every year until it reaches 5% in 2005 where it will
remain thereafter. A 1% increase in the assumed health care cost trend rates
would increase the accumulated postretirement benefit obligation by 7% at June
16, 1997. The effect of this 1% increase on the service and interest cost
components of the net periodic cost of postretirement medical and life insurance
plans would be an increase of 8% for 1997. The discount rate used in determining
the accumulated benefit obligation was 7.5% in both 1996 and 1997.
5. INCOME TAXES
The income tax provision (benefit) consists of the following components
(dollars in thousands):
<TABLE>
<CAPTION>
PERIOD FROM
DECEMBER 30,
YEAR ENDED 1996 THROUGH
DECEMBER 29, JUNE 16,
1996 1997
------------ ------------
<S> <C> <C>
Current:
Federal.......................................... $(1,133) $1,041
State............................................ 170 320
------- ------
(963) 1,361
Deferred........................................... 628 294
------- ------
$ (335) $1,655
======= ======
</TABLE>
The income tax provision (benefit) was different from the amount computed
by applying the United States statutory federal income tax rate as follows
(dollars in thousands):
<TABLE>
<CAPTION>
PERIOD FROM
DECEMBER 30,
YEAR ENDED 1996 THROUGH
DECEMBER 29, JUNE 16,
1996 1997
------------ ------------
<S> <C> <C>
Provision (benefit) at statutory rates............. $(445) $1,420
State income and franchise tax, net of federal
income tax benefit............................... 112 211
Other, net......................................... (2) 24
----- ------
$(335) $1,655
===== ======
</TABLE>
F-24
<PAGE> 126
PLAINWELL PAPER COMPANY
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
JUNE 16, 1997
Deferred income taxes are determined based on the estimated future tax
effects of differences between the financial statement and tax bases of assets
and liabilities given the provisions of the enacted tax laws. The net deferred
tax (liabilities) assets are composed of the following (dollars in thousands):
<TABLE>
<CAPTION>
DECEMBER 29, JUNE 16,
1996 1997
------------ --------
<S> <C> <C>
Deferred income tax liabilities:
Property and equipment.............................. $(4,710) $(4,688)
Environmental recoveries............................ (740) (740)
Pension............................................. (423) (461)
------- -------
(5,873) (5,889)
Deferred income tax assets:
Vacation and other employee benefits................ 817 505
Environmental liabilities........................... 740 740
Postretirement benefits............................. 514 541
Other............................................... 22 29
------- -------
2,093 1,815
------- -------
Net deferred tax liability............................ $(3,780) $(4,074)
======= =======
Included in the balance sheet as:
Current deferred income tax asset................... $ 839 $ 534
Noncurrent deferred income tax liability............ (4,619) (4,608)
------- -------
$(3,780) $(4,074)
======= =======
</TABLE>
6. ENVIRONMENTAL REMEDIATION
In 1990, the Company was named as one of several potentially responsible
parties ("PRP") at a Superfund site in Kalamazoo, Michigan which has five
distinct operable units. PRPs may be held jointly and severally liable for
cleanup plus related costs. One operable unit of the Kalamazoo River Site is the
12th Street Landfill, a property wholly owned by the Company. The Company
expects to pay for the entire cost of the investigation and remediation work at
this location. The Company has recorded a liability for the estimated cost to
remediate this unit. A receivable for remediation costs recoverable under an
indemnification agreement with Simpson has also been recorded. Investigations at
a second operable unit, which includes a portion of the Kalamazoo River,
continue and environmental remediation costs, if any, that may be incurred
cannot presently be estimated. Management believes the Company is not
responsible for environmental remediation costs at the other three units.
Accordingly, in the accompanying financial statements, the Company has not
recorded a liability for any remediation costs or recovery under the
indemnification agreement for the other three units.
Although the final outcome of these environmental matters is subject to a
great many variables and cannot be predicted with any degree of certainty,
management believes that the ultimate outcome will not have a material effect on
the current financial position, liquidity or results of operations of the
Company.
F-25
<PAGE> 127
REPORT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
To the Board of Directors
of Plainwell Paper Company
We have audited the accompanying balance sheet of Plainwell Paper Company
(the Company) as of December 31, 1997 and the related statements of operations,
changes in stockholder's equity and cash flows for the period from June 17, 1997
to December 31, 1997. 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 financial position of the Company as of December
31, 1997 and the results of its operations and its cash flows for the period
from June 17, 1997 to December 31, 1997, in conformity with generally accepted
accounting principles.
Milwaukee, Wisconsin ERNST & YOUNG LLP
March 19, 1998
F-26
<PAGE> 128
PLAINWELL PAPER COMPANY
BALANCE SHEET
DECEMBER 31, 1997
(DOLLARS IN THOUSANDS)
<TABLE>
<S> <C>
ASSETS:
Current assets:
Cash...................................................... $ 772
Accounts receivable, net of allowances of $344............ 6,473
Inventories............................................... 10,681
Refundable Income Taxes................................... 852
Deferred income taxes..................................... 674
Prepaid expenses.......................................... 718
-------
Total current assets........................................ 20,170
Properties, net............................................. 24,594
Other assets................................................ 7,128
-------
TOTAL ASSETS...................................... $51,892
=======
LIABILITIES AND STOCKHOLDER'S EQUITY:
Current liabilities:
Current portion of long-term debt......................... $ 3,000
Accounts payable.......................................... 7,857
Accrued liabilities....................................... 3,673
Income taxes.............................................. 203
-------
TOTAL CURRENT LIABILITIES.............................. 14,733
Long-term debt.............................................. 20,839
Other long-term liabilities................................. 3,360
Deferred income taxes....................................... 4,772
Commitments and contingencies (Note 6)
STOCKHOLDER'S EQUITY:
Common stock, par value $1 per share; authorized 1,000
shares; issued and outstanding 500 shares.............. 1
Paid-in capital........................................... 7,973
Retained earnings......................................... 214
-------
TOTAL STOCKHOLDER'S EQUITY............................. 8,188
-------
TOTAL LIABILITIES AND STOCKHOLDER'S EQUITY........ $51,892
=======
</TABLE>
See accompanying notes.
F-27
<PAGE> 129
PLAINWELL PAPER COMPANY
STATEMENT OF OPERATIONS
PERIOD FROM JUNE 17, 1997 THROUGH DECEMBER 31, 1997
(DOLLARS IN THOUSANDS)
<TABLE>
<S> <C>
Net sales................................................... $45,921
Costs and expenses:
Cost of sales............................................. 40,805
Selling, general and administrative....................... 3,302
Interest.................................................. 1,187
-------
Total costs and expenses.......................... 45,294
-------
Income before income taxes.................................. 627
Income tax provision........................................ 413
-------
Net income.................................................. $ 214
=======
</TABLE>
See accompanying notes.
F-28
<PAGE> 130
PLAINWELL PAPER COMPANY
STATEMENT OF CHANGES IN STOCKHOLDER'S EQUITY
PERIOD FROM JUNE 17, 1997 THROUGH DECEMBER 31, 1997
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
COMMON PAID-IN RETAINED
STOCK CAPITAL EARNINGS TOTAL
------ ------- -------- ------
<S> <C> <C> <C> <C>
Balance at June 17, 1997.............................. $1 $7,973 $ -- $7,974
Net income.......................................... -- -- 214 214
-- ------ ---- ------
Balance at December 31, 1997.......................... $1 $7,973 $214 $8,188
== ====== ==== ======
</TABLE>
See accompanying notes.
F-29
<PAGE> 131
PLAINWELL PAPER COMPANY
STATEMENT OF CASH FLOWS
PERIOD FROM JUNE 17, 1997 THROUGH DECEMBER 31, 1997
(DOLLARS IN THOUSANDS)
<TABLE>
<S> <C>
OPERATING ACTIVITIES:
Net income.................................................. $ 214
Adjustments to reconcile net income to net cash used in
operating activities:
Depreciation.............................................. 766
Amortization of deferred finance costs.................... 124
Deferred income taxes..................................... 68
Changes in operating assets and liabilities:
Increase (decrease) in:
Accounts payable..................................... 2,375
Accrued liabilities.................................. 1,100
Income taxes......................................... (812)
Accrued pensions..................................... (73)
Postretirement benefits.............................. 66
Decrease (increase) in:
Accounts receivable.................................. (6,473)
Inventories.......................................... (1,732)
Prepaid expenses..................................... (43)
Other assets......................................... 216
-------
NET CASH USED IN OPERATING ACTIVITIES............. (4,204)
INVESTING ACTIVITIES:
Capital expenditures........................................ (563)
-------
NET CASH USED IN INVESTING ACTIVITY............... (563)
FINANCING ACTIVITIES:
Payments of long-term debt.................................. (500)
Net borrowings on revolving line of credit.................. 6,039
-------
NET CASH PROVIDED BY FINANCING ACTIVITY........... 5,539
-------
Increase in cash............................................ 772
Cash at beginning of period................................. --
-------
Cash at end of period....................................... $ 772
=======
Supplemental disclosure of cash flow information:
Cash paid for interest.................................... $ 947
Cash paid for income taxes................................ $ 1,157
</TABLE>
See accompanying notes.
F-30
<PAGE> 132
PLAINWELL PAPER COMPANY
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1997
1. NATURE OF OPERATIONS AND SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation
Plainwell Paper Company (the "Company") is a wholly owned subsidiary of
Plainwell Holding Company ("Holdings"). On June 16, 1997, Holdings acquired from
Simpson Paper Company ("Simpson") in a series of transactions 100% of the common
stock of the Company and certain inventories for $16,638,000 in cash, the
assumption of $3,500,000 of indebtedness in the form of industrial revenue
bonds, the assumption of other liabilities of $6,572,000, the issuance by
Holdings of $4.0 million in Series A Preferred Stock and an estimated amount
payable to Simpson of $1,771,000. The total purchase price, including the costs
of the acquisition, was $33,467,000. The acquisition has been accounted for
using the purchase method of accounting and the allocation of the purchase price
has been pushed down to the Company by Holdings. The purchase price has been
allocated to the estimated fair values of the underlying assets acquired and
liabilities assumed. Such allocations were based on appraisals, evaluations and
other studies. The purchase cost was less than the estimated fair value of the
Company's net assets. For financial reporting purposes, current assets were
recorded at estimated fair value and the residual was allocated to noncurrent
assets.
Nature of Operations
The Company owns and operates, in Plainwell, Michigan, a specialty coated
paper mill. The plant has a flexible manufacturing system which produces premium
coated printing paper and technical special grades of paper.
Sales are generally to well-established companies in the United States.
Credit losses have not been significant. For the period ending December 31,
1997, sales to two customers comprised 36% and 15% of sales for the period. No
other customers represented more than 10% of sales.
The Company purchases pulp from several vendors and believes that it has an
adequate supply. The price of pulp is a commodity and is subject to significant
fluctuations.
Fiscal Year
The Company's fiscal period ends on December 31.
Inventories
Inventories are stated at the lower of cost or market with cost determined
using the first-in, first-out method.
Properties
Properties are carried at cost. Costs of maintenance and repairs are
charged to expense as incurred. Upon sale or retirement, the related cost and
accumulated depreciation are removed from the accounts, with the resultant gain
or loss included in income.
For financial reporting purposes, depreciation is computed using the
straight-line method over the useful lives of respective assets.
<TABLE>
<CAPTION>
ESTIMATED LIFE
IN YEARS
--------------
<S> <C>
Mills, plant and improvements.......................... 20 - 40
Equipment.............................................. 6 - 15
Furniture and fixtures................................. 6 - 10
</TABLE>
F-31
<PAGE> 133
PLAINWELL PAPER COMPANY
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
DECEMBER 31, 1997
For income tax purposes, depreciation is calculated primarily using
accelerated methods.
Interest is capitalized in connection with construction of major projects.
No interest was capitalized in 1997.
Deferred Finance Costs
Deferred finance costs are amortized using the interest method over the
terms of the related debt.
Environmental
Losses associated with environmental remediation obligations are accrued
when such losses are probable and reasonably estimable. Accruals for estimated
losses from environmental remediation obligations generally are recognized no
later than the completion of a remedial feasibility study. Such accruals are
adjusted as further information develops or circumstances change. Recoveries of
environmental remediation costs from other parties are recognized as assets when
their receipt is deemed probable.
Revenue Recognition
Revenues are recognized when goods are shipped to the customer. In
determining net sales, revenues are reduced by freight, discounts and returns.
Research and Development
Research and development costs are charged to expense as incurred and were
$92,000 in 1997.
Use of 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.
F-32
<PAGE> 134
PLAINWELL PAPER COMPANY
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
DECEMBER 31, 1997
2. ADDITIONAL BALANCE SHEET INFORMATION
Components are as follows (dollars in thousands):
<TABLE>
<S> <C>
Accounts receivable:
Trade receivables......................................... $ 6,509
Miscellaneous receivable.................................. 308
Less:
Sales returns.......................................... (321)
Allowance for doubtful accounts........................ (23)
-------
$ 6,473
=======
Inventories:
Paper mill fiber.......................................... $ 1,985
Work in progress.......................................... 1,916
Finished goods............................................ 5,650
Chemicals and other....................................... 1,130
-------
$10,681
=======
Properties:
Land...................................................... $ 566
Mills, plant and improvements............................. 4,787
Equipment................................................. 19,532
Furniture and fixtures.................................... 475
-------
25,360
Less accumulated depreciation............................. (766)
-------
Net properties.............................................. $24,594
=======
Other assets:
Deferred finance costs, net of accumulated amortization of
$124................................................... $ 1,148
Due from prior owners for environmental remediation
costs.................................................. 2,000
Intangible pension asset.................................. 991
Inventoriable stores...................................... 1,833
Other..................................................... 1,156
-------
$ 7,128
=======
Accrued liabilities:
Payable to Simpson........................................ $ 1,852
Other..................................................... 1,821
-------
$ 3,673
=======
Other long-term liabilities:
Accrued pension cost...................................... $ 126
Postretirement obligation................................. 1,234
Accrued environmental..................................... 2,000
-------
$ 3,360
=======
</TABLE>
F-33
<PAGE> 135
PLAINWELL PAPER COMPANY
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
DECEMBER 31, 1997
3. LONG-TERM DEBT
Long-term debt consists of the following (dollars in thousands):
<TABLE>
<S> <C>
Term note.................................................. $13,500
Note payable............................................... 3,500
Revolving line of credit................................... 6,839
-------
23,839
Less current portion....................................... 3,000
-------
Long-term debt............................................. $20,839
=======
</TABLE>
Under the terms of a bank Loan and Security Agreement ("LSA"), the
Company's credit facility consists of a term note ("Term Note") in the amount of
$13,500,000 and a revolving line of credit ("Revolver") up to a maximum of
$10,000,000. Borrowings on the Revolver are limited to an amount equal to the
sum of 85% of eligible accounts receivable and 60% of eligible inventories. At
December 31, 1997, unused available borrowings on the Revolver were $3,161,000.
The Revolver and Term Note bear interest at either a base rate (as defined) or a
LIBOR rate (as defined) which is payable monthly. The average rate charged at
December 31, 1997 was 9.2% and 9.3%, respectively. A fee of .375% per annum is
charged on the average daily unused portion of the Revolver.
The Revolver is due on June 1, 2002. Monthly principal of $250,000 is due
on the Term Note beginning November 1, 1997 with a final payment due June 1,
2002.
The LSA is secured by substantially all of the Company's assets other than
land and buildings.
The LSA contains various restrictive covenants which limit the amount of
capital expenditures and management fees that can be paid and have required
fixed charged coverage and liabilities to net worth ratios. The Company was in
compliance with or obtained waivers for all restrictive covenants.
The $3,500,000 note payable relates to a tax-exempt bond issued by the City
of Plainwell for the benefit of the Company. The bond and related note payable
bear interest at a variable rate which was 4.65% at December 31, 1997. Interest
payments are due monthly and continue until the note matures on October 1, 2007.
Maturities of long-term debt are as follows (in thousands): 1998 -- $3,000;
1999 -- $3,000; 2000 -- $3,000; 2001 -- $3,000; and 2002 -- $8,339.
4. EMPLOYEE BENEFIT PLANS
Pension Plans
Substantially all of the Company's employees participate in noncontributory
defined-benefit pension plans. These include a Company-administered salary plan
and union plan.
Net periodic pension costs at December 31, 1997 are as follows (dollars in
thousands):
<TABLE>
<S> <C>
Salary and union hourly plan:
Service cost -- benefits earned during the period......... $ 270
Interest cost on projected benefit obligation............. 340
Actual earnings from plan assets.......................... (482)
-----
Total net periodic pension cost................... $ 128
=====
</TABLE>
F-34
<PAGE> 136
PLAINWELL PAPER COMPANY
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
DECEMBER 31, 1997
The following table sets forth the funded status of the plans and the
amount recognized as a prepaid (accrued) pension cost at December 31, 1997
(dollars in thousands):
<TABLE>
<CAPTION>
PLANS IN WHICH:
-----------------------------------
ASSETS ACCUMULATED
EXCEED BENEFITS
ACCUMULATED EXCEED
BENEFITS ASSETS TOTAL
----------- ----------- -------
<S> <C> <C> <C>
Accumulated benefit obligation:
Vested portion.................................... $(9,722) $ -- $(9,722)
Nonvested portion................................. (294) (88) (382)
------- ----- -------
Accumulated benefit obligation...................... (10,016) (88) (10,104)
Excess of projected benefit obligation over
accumulated benefit obligation.................... -- (38) (38)
------- ----- -------
Projected benefit obligation........................ (10,016) (126) (10,142)
Plan assets at fair market value.................... 11,007 -- 11,007
------- ----- -------
Prepaid (accrued) pension cost...................... $ 991 $(126) $ 865
======= ===== =======
</TABLE>
Substantially all of the pension plans' assets are invested in common
stock, fixed-income securities, cash and cash equivalents. The discount rate
used in determining the actuarial present value of the projected benefit
obligation was 7.5%. The expected long-term rate of return on plan assets was
9.0%.
The funding policy regarding all of the plans is to make contributions to
the plan that are between the minimum amounts required by the Employee
Retirement Income Security Act and the maximum amounts deductible under current
income tax regulations.
Defined Contribution Retirement Plans
The Company sponsors defined contribution 401(k) retirement plans covering
substantially all salaried and hourly employees. The Company matches a
percentage of the participants' contributions. Total Company contribution
expense was $157,000 in 1997.
Other Postretirement Plans
The Company sponsors postretirement medical and life insurance plans for
certain salaried and nonsalaried employees and eligible spouses and dependents
of the employees. The medical plans pay a stated percentage of covered medical
expenses incurred after deducting co-payments made once a stated deductible has
been met. The life insurance plans pay a defined benefit. The Company does not
fund these plans prior to actual incurrence of costs under the plans.
Net periodic other postretirement benefit cost for these plans was composed
of the following (dollars in thousands):
<TABLE>
<S> <C>
Postretirement costs:
Service cost -- benefits attributed to service during the
period................................................. $24
Interest cost on accumulated benefit obligation........... 42
---
Net periodic cost of other postretirement benefit plans..... $66
===
</TABLE>
F-35
<PAGE> 137
PLAINWELL PAPER COMPANY
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
DECEMBER 31, 1997
The following table reconciles the plans' funded status to the accrued
postretirement medical and life insurance cost liability in the accompanying
balance sheet at December 31, 1997 (dollars in thousands):
<TABLE>
<S> <C>
Accumulated benefit obligation:
Retirees.................................................. $ 97
Other fully eligible participants......................... 282
Other active participants................................. 855
------
$1,234
======
</TABLE>
For measurement purposes, 7.67% was assumed for health care costs for 1997.
The rate is assumed to decline in decrements of 0.33% every year until it
reaches 5.0% in 2005 where it will remain thereafter. A 1% increase in the
assumed health care cost trend rates would increase the accumulated
postretirement benefit obligation by 9% at December 31, 1997. The effect of this
1% increase on the service and interest cost components of the net periodic cost
of postretirement medical and life insurance plans would be an increase of 10%.
The discount rate used in determining the accumulated benefit obligation was
7.5% in 1997.
5. INCOME TAXES
The income tax provision (benefit) consists of the following components
(dollars in thousands):
<TABLE>
<S> <C>
Current:
Federal................................................... $ 48
State..................................................... 297
----
345
Deferred.................................................... 68
----
$413
====
</TABLE>
The income tax provision was different from the amount computed by applying
the United States statutory federal income tax rate as follows (dollars in
thousands):
<TABLE>
<S> <C>
Provision at statutory rates................................ $213
State income and franchise tax, net of federal income tax
benefit................................................... 196
Other....................................................... 4
----
$413
====
</TABLE>
F-36
<PAGE> 138
PLAINWELL PAPER COMPANY
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
DECEMBER 31, 1997
Deferred income taxes are determined based on the estimated future tax
effects of differences between the financial statement and tax bases of assets
and liabilities given the provisions of the enacted tax laws. The net deferred
tax (liabilities) assets are composed of the following (dollars in thousands):
<TABLE>
<S> <C>
Deferred income tax liabilities:
Property and equipment................................... $(5,119)
Environmental recoveries................................. (740)
Pension.................................................. (368)
-------
(6,227)
Deferred income tax assets:
Receivables.............................................. 88
Inventories.............................................. 162
Vacation and other employee benefits..................... 339
Inventoriable stores..................................... 219
Environmental liabilities................................ 740
Postretirement benefits.................................. 457
Health insurance accrual................................. 85
Other.................................................... 39
-------
2,129
-------
Net deferred tax liability................................. $(4,098)
=======
Included in the balance sheet as:
Current deferred income tax asset........................ $ 674
Noncurrent deferred income tax liability................. (4,772)
-------
$(4,098)
=======
</TABLE>
6. ENVIRONMENTAL REMEDIATION
In 1990, the Company was named as one of several potentially responsible
parties ("PRP") at a Superfund site in Kalamazoo, Michigan which has five
distinct operable units. PRPs may be held jointly and severally liable for
cleanup plus related costs. One operable unit of the Kalamazoo River Site is the
12th Street Landfill, a property wholly owned by the Company. The Company
expects to pay for the entire cost of the investigation and remediation work at
this location. The Company has recorded a liability for the estimated cost to
remediate this unit. A receivable for remediation costs recoverable under an
indemnification agreement with Simpson has also been recorded. Investigations at
a second operable unit, which includes a portion of the Kalamazoo River,
continue and environmental remediation costs, if any, that may be incurred
cannot presently be estimated. Management believes the Company is not
responsible for environmental remediation costs at the other three units.
Accordingly, in the accompanying financial statements, the Company has not
recorded a liability for any remediation costs or recovery under the
indemnification agreement for the other three units.
Although the final outcome of these environmental matters is subject to a
great many variables and cannot be predicted with any degree of certainty,
management believes that the ultimate outcome will not have a material effect on
the current financial position, liquidity or results of operations of the
Company.
F-37
<PAGE> 139
PLAINWELL PAPER COMPANY
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
DECEMBER 31, 1997
7. SUBSEQUENT EVENT
Effective March 6, 1998, the Company merged with PLAINWELL INC. PLAINWELL
INC. is also a wholly owned subsidiary of Plainwell Holding Company. The Company
will operate as the Specialty Paper Division of PLAINWELL INC. Also effective
March 6, 1998, PLAINWELL INC. purchased substantially all of the assets,
properties and rights and assumed certain related liabilities of the tissue
business of Pope & Talbot. This unit will operate as the Consumers Products
Division of PLAINWELL INC.
F-38
<PAGE> 140
============================================================
NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATIONS IN CONNECTION WITH THIS PROSPECTUS, AND, IF GIVEN OR MADE, SUCH
INFORMATION AND 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>
Prospectus Summary......................... 1
Risk Factors............................... 17
Use of Proceeds............................ 24
Capitalization............................. 25
Unaudited Pro Forma Consolidated Financial
Information.............................. 26
Selected Historical Financial and Other
Data..................................... 33
Management's Discussion and Analysis of
Financial Condition and Results of
Operations............................... 36
Industry Overview.......................... 43
Business................................... 47
Management................................. 57
Principal Stockholders..................... 59
Description of Holdings' Capital Stock..... 59
Certain Transactions....................... 60
Description of Certain Indebtedness........ 61
Description of Exchange Notes.............. 64
The Exchange Offer......................... 87
Certain U.S. Federal Income Tax
Considerations........................... 95
Plan of Distribution....................... 95
Legal Matters.............................. 96
Experts.................................... 97
Index to Financial Statements.............. F-1
</TABLE>
============================================================
============================================================
[PLAINWELL INC. LOGO]
PLAINWELL INC.
OFFER TO EXCHANGE ITS SERIES B
11% SENIOR SUBORDINATED
NOTES DUE 2008 FOR SERIES A
11% SENIOR SUBORDINATED NOTES DUE 2008
---------------------
PROSPECTUS
---------------------
BEAR, STEARNS & CO. INC.
SALOMON SMITH BARNEY
, 1998
============================================================
<PAGE> 141
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 20. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
The Company is incorporated under the laws of the State of Delaware.
Section 145 of the General Corporation Law of the State of Delaware, inter alia,
("Section 145") provides that a Delaware corporation may indemnify any persons
who were, are or are threatened to be made, parties to any threatened, pending
or completed action, suit or proceeding, whether civil, criminal, administrative
or investigative (other than an action by or in the right of such corporation),
by reason of the fact that such person is or was an officer, director, employee
or agent of such corporation, or is or was serving at the request of such
corporation as a director, officer employee or agent of another corporation or
enterprise. The indemnity may include expenses (including attorneys' fees),
judgments, fines and amounts paid in settlement actually and reasonably incurred
by such person in connection with such action, suit or proceeding, provided such
person acted in good faith and in a manner he reasonably believed to be in or
not opposed to the corporation's best interests and, with respect to any
criminal action or proceeding, had no reasonable cause to believe that his
conduct was illegal. A Delaware corporation may indemnify any persons who are,
were or are threatened to be made, a party to any threatened, pending or
completed action or suit by or in the right of the corporation by reason of the
fact that such person was a director, officer, employee or agent of such
corporation, or is or was serving at the request of such corporation as a
director, officer, employee or agent of another corporation or enterprise. The
indemnity may include expenses (including attorneys' fees) actually and
reasonably incurred by such person in connection with the defense or settlement
of such action or suit, provided such person acted in good faith and in a manner
he reasonably believed to be in or not opposed to the corporation's best
interests, provided that no indemnification is permitted without judicial
approval if the officer, director, employee or agent is adjudged to be liable to
the corporation. Where an officer, director, employee or agent is successful on
the merits or otherwise in the defense of any action referred to above, the
corporation must indemnify him against the expenses which such officer or
director has actually and reasonably incurred.
The Company's Certificate of Incorporation provides for the indemnification
of directors and officers of the Company to the fullest extent permitted by the
General Corporation Law of the State of Delaware, as it currently exists or may
hereafter be amended.
Section 145 further authorizes a corporation to purchase and maintain
insurance on behalf of any person who is or was a director, officer, employee or
agent of the corporation, or is or was serving at the request of the corporation
as a director, officer, employee or agent of another corporation or enterprise,
against any liability asserted against him and incurred by him in any such
capacity, arising out of his status as such, whether or not the corporation
would otherwise have the power to indemnify him under Section 145.
The Company maintains and has in effect insurance policies covering all of
the Company's directors and officers against certain liabilities for actions
taken in such capacities, including liabilities under the Securities Act of
1933.
II-1
<PAGE> 142
ITEM 21. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.
(a) EXHIBITS.
<TABLE>
<C> <S>
3.1 Certificate of Incorporation of PLAINWELL INC.
3.2 By-laws of PLAINWELL INC.
4.1 Indenture dated as of March 6, 1998 between PLAINWELL INC.
and United States Trust Company of New York.
4.2 Purchase Agreement dated as of March 3, 1998 among PLAINWELL
INC., Bear, Stearns & Co. Inc. and Salomon Brothers Inc
4.3 Exchange and Registration Rights Agreement dated as of March
6, 1998 among PLAINWELL INC., Bear, Stearns & Co. Inc. and
Salomon Brothers Inc
5.1 Opinion and consent of Kirkland & Ellis.
10.1 Amended and Restated Loan and Security Agreement dated as of
March 6, 1998 by and between PLAINWELL INC. and Sanwa
Business Credit Corporation as Agent for the Lenders.
10.2 Agreement of Purchase and Sale dated as of January 22, 1998,
by and among Pope & Talbot, Inc., Pope & Talbot, Wis., Inc.,
Plainwell Holding Company and PLAINWELL INC.
10.3 Transition Services Agreement dated as of March 6, 1998 by
and between PLAINWELL INC. and Pope & Talbot, Inc.
+10.4 Transition Services Agreement dated as of June 16, 1997 by
and between Plainwell Paper Company and Simpson Paper
Company.
10.5 CVC Securities Purchase Agreement dated as of June 16, 1997
by and between Plainwell Holding Company and Citicorp
Venture Capital, Ltd.
10.6 Securities Transfer Agreement made and entered into as of
January 31, 1998 between 399 Venture Partners, Inc. and
Citicorp Venture Capital, Ltd.
10.7 Stockholders Agreement dated as of June 16, 1997, by and
among Plainwell Holding Company, Citicorp Venture Capital,
Brenton Halsey, Larkspur Capital Corporation, William L. New
and any executives of the Company and its Subsidiaries
acquiring Common Stock after the date thereof and executing
a joinder thereto, and the persons set forth on the
Individual Purchaser Signature Page attached thereto.
10.8 Joinder to Stockholders Agreement dated as of June 16, 1997
by and among Plainwell Holding Company (the "Company") and
certain securityholders of the Company made and entered into
as of January 31, 1998 by and between the Company and 399
Venture Partners, Inc.
10.9 Registration Rights Agreement dated as of June 16, 1997 by
and among Plainwell Holding Company, Citicorp Venture
Capital, Ltd., CCT II Partners, L.P., Brenton Halsey,
Larkspur Capital Corporation, William L. New and each other
executive of the Company or its subsidiaries who acquires
Common Stock from the Company and executes a joinder thereto
and the persons set forth on the Individual Purchaser
Signature Page attached thereto.
10.10 Joinder to Registration Rights Agreement dated as of June
16, 1997 by and among Plainwell Holding Company (the
"Company") and certain securityholders of the Company made
and entered into as of January 31, 1998 by and between the
Company and 399 Venture Partners, Inc.
+10.11 Inventory Purchase Agreement dated June 12, 1997 by and
between Simpson Paper Company and Plainwell Paper Company.
+10.12 Collective Bargaining Agreement dated November 29, 1995 by
and between Pope & Talbot, Inc., CPD - Ranson/Pittston
Township and United Paperworkers International Union AFL-CIO
and Ranson/Pittston Township, Local Number 1448.
+10.13 Collective Bargaining Agreement dated April 1, 1997 by and
between Pope & Talbot, Wis., Inc., Eau Claire, Wisconsin and
the United Paperworkers International Union and its
affiliated Local No. 42.
+10.14 Loan Agreement dated November 1, 1983 by and between
Economic Development Corporation of the City of Plainwell
and Plainwell Paper Company.
+10.15 Indenture of Trust dated November 1, 1983 by and among
Economic Development Corporation of the City of Plainwell
and First & Merchants National Bank.
</TABLE>
II-2
<PAGE> 143
<TABLE>
<C> <S>
10.16 Executive Employment and Stock Purchase Agreement dated as
of June 16, 1997 by and among Plainwell Paper Company,
Plainwell Holding Company and William New.
12.1 Statement of Computation of Ratios.
23.1 Consent of Ernst & Young LLP.
23.2 Consent of Arthur Andersen LLP.
23.3 Consent of Kirkland & Ellis (included in Exhibit 5.1).
24.1 Powers of Attorney (included in signature page).
25.1 Statement of Eligibility of Trustee on Form T-1.
27.1 Financial Data Schedule.
99.1 Form of Letter of Transmittal.
99.2 Form of Notice of Guaranteed Delivery.
99.3 Form of Tender Instructions.
</TABLE>
- ---------------
+ To be filed by amendment.
ITEM 22. UNDERTAKINGS.
The undersigned registrant hereby undertakes:
(1) To file, during any period in which offers or sales are being made, a
post-effective amendment to this registration statement;
(i) To include any prospectus required by Section 10(a)(3) of the
Securities Act of 1933;
(ii) To reflect in the prospectus any facts or events arising after
the effective date of the registration statement (or the most recent
post-effective amendment thereof) which individually or in the aggregate,
represent a fundamental change in the information set forth in the
registration statement;
(iii) To include any material information with respect to the plan of
distribution not previously disclosed in the registration statement or any
material change to such information in the registration statement;
(2) That, for the purpose of determining any liability under the Securities
Act of 1933, each such post-effective amendment shall be deemed to be a new
registration statement relating to the securities offered therein, and the
offering of such securities at the time shall be deemed to be the initial bona
fide offering thereof;
(3) To remove from registration by means of a post-effective amendment any
of the securities being registered which remain unsold at the termination of the
offering; and
(4) If the registrant is a foreign private issuer, to file a post-effective
amendment to the registration statement to include any financial statements
required by Rule 3-19 of the chapter at the start of any delayed offering or
throughout a continuous offering. Financial statements and information otherwise
required by Section 10(a)(3) of the Act need not be furnished, provided, that
the registrant includes in the prospectus, by means of a post-effective
amendment, financial statements required pursuant to this paragraph (a)(4) and
other information necessary to ensure that all other information in the
prospectus is at least as current as the date of those financial statements.
Notwithstanding the foregoing, with respect to registration statements on Form
F-3, a post-effective amendment need not be filed to include financial
statements and information required by Section 10(a)(3) of the Act or Rule 3-19
of this chapter if such financial statements and information are contained in
periodic reports filed with or furnished to the Commission by the registrant
pursuant to section 13 or section 15(d) of the Securities Exchange Act of 1934
that are incorporated by reference in the Form F-3.
(1) The undersigned registrant hereby undertakes as follows: that
prior to any public reoffering of the securities registered hereunder
through use of a prospectus which is a part of this registration statement,
by any person or party who is deemed to be an underwriter within the
meaning of Rule 145(c), the issuer undertakes that such reoffering
prospectus will contain the information called for by
II-3
<PAGE> 144
the applicable registration form with respect to reofferings by persons who
may be deemed underwriters, in addition to the information called for by
the other items of the applicable form.
(2) The registrant undertakes that every prospectus: (i) that is filed
pursuant to paragraph (1) immediately preceding, or (ii) that purports to
meet the requirements of Section 10(a)(3) of the Act and is used in
connection with an offering of securities subject to Rule 415, will be
filed as a part of an amendment to the registration statement and will not
be used until such amendment is effective, and that, for purposes of
determining any liability under the Securities Act of 1933, each such
post-effective amendment shall be deemed to be a new registration statement
relating to the securities offered therein, and the offering of such
securities at that time shall be deemed to be the initial bona fide
offering thereof.
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 provisions described under
Item 20 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, 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.
The undersigned registrant hereby undertakes that:
(1) For purposes of determining any liability under the Securities Act
of 1933, the information omitted from the form of prospectus filed as part
of this registration statement in reliance upon Rule 430A and contained in
a form of prospectus filed by the registrant pursuant to Rule 424(b)(1) or
(4) or 497(h) under the Securities Act shall be deemed to be part of this
registration statement as of the time it was declared effective.
(2) For the purpose of determining any liability under the Securities
Act of 1933, each post-effective amendment that contains a form of
prospectus shall be deemed to be a new registration statement relating to
the securities offered therein, and the offering of such securities at that
time shall be deemed to be the initial bona fide offering thereof.
The undersigned registrant hereby undertakes to respond to requests for
information that is incorporated by reference into the prospectus pursuant to
Item 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 registration statement through the
date of responding to the request.
The undersigned registrant hereby undertakes to supply by means of 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 registration statement when it became effective.
II-4
<PAGE> 145
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
has duly caused this Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of Plainwell, State of
Michigan, on May 5, 1998.
PLAINWELL INC.
By: /s/ WILLIAM L. NEW
------------------------------------
Name: William L. New
Title: Chairman, Chief Executive
Officer and
President
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears
below constitutes and appoints any of William L. New or George E. Mangarelli,
his true and lawful attorney-in-fact and agent, with full power of substitution
and resubstitution, for him and in his name, place and stead, in any and all
capacities (including his capacity as a director and/or officer of PLAINWELL
INC.), to sign any or all amendments (including post-effective amendments) to
this registration statement and any subsequent registration statement filed
pursuant to Rule 462(b) under the Securities Act of 1933, and to file the same,
with all exhibits thereto, and other documents in connection therewith, with the
Securities and Exchange Commission, granting unto said attorney-in-fact and
agent 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 to all
intents and purposes as he might or could do in person, hereby ratifying and
confirming all that said attorney-in-fact and agent 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 and power of attorney have been signed by the following
persons in the capacities and on the dates indicated on May 5, 1998:
<TABLE>
<CAPTION>
SIGNATURE CAPACITY
--------- --------
<C> <S>
/s/ WILLIAM L. NEW Chairman, Chief Executive Officer and
- -------------------------------------------------------- President (principal executive officer)
William L. New
/s/ GEORGE E. MANGARELLI Executive Vice President, Chief Financial
- -------------------------------------------------------- Officer -- Specialty Paper Division,
George E. Mangarelli Secretary, Treasurer (principal financial
officer and accounting officer) and
Director
/s/ BRENTON S. HALSEY Director
- --------------------------------------------------------
Brenton S. Halsey
/s/ DAVE F. THOMAS Director
- --------------------------------------------------------
Dave F. Thomas
/s/ JOHN D. WEBER Director
- --------------------------------------------------------
John D. Weber
</TABLE>
II-5
<PAGE> 146
EXHIBITS INDEX
<TABLE>
<CAPTION>
SEQUENTIALLY
EXHIBIT NUMBERED
NUMBER DESCRIPTION PAGE
- ------- ----------- ------------
<C> <S> <C>
3.1 Certificate of Incorporation of PLAINWELL INC. .............
3.2 By-laws of PLAINWELL INC. ..................................
4.1 Indenture dated as of March 6, 1998 between PLAINWELL INC.
and United States Trust Company of New York.................
4.2 Purchase Agreement dated as of March 3, 1998 among PLAINWELL
INC., Bear, Stearns & Co. Inc. and Salomon Brothers Inc. ...
4.3 Exchange and Registration Rights Agreement dated as of March
6, 1998 among PLAINWELL INC., Bear, Stearns & Co. Inc. and
Salomon Brothers Inc. ......................................
5.1 Opinion and consent of Kirkland & Ellis.....................
10.1 Amended and Restated Loan and Security Agreement dated as of
March 6, 1998 by and between PLAINWELL INC. and Sanwa
Business Credit Corporation as Agent for the Lenders........
10.2 Agreement of Purchase and Sale dated as of January 22, 1998,
by and among Pope & Talbot, Inc., Pope & Talbot, Wis., Inc.,
Plainwell Holding Company and PLAINWELL INC. ...............
10.3 Transition Services Agreement dated as of March 6, 1998 by
and between PLAINWELL INC. and Pope & Talbot, Inc. .........
+10.4 Transition Services Agreement dated as of June 16, 1997 by
and between Plainwell Paper Company and Simpson Paper
Company.....................................................
10.5 CVC Securities Purchase Agreement dated as of June 16, 1997
by and between Plainwell Holding Company and Citicorp
Venture Capital, Ltd. ......................................
10.6 Securities Transfer Agreement made and entered into as of
January 31, 1998 between 399 Venture Partners, Inc. and
Citicorp Venture Capital, Ltd. .............................
10.7 Stockholders Agreement dated as of June 16, 1997, by and
among Plainwell Holding Company, Citicorp Venture Capital,
Brenton Halsey, Larkspur Capital Corporation, William L. New
and any executives of the Company and its Subsidiaries
acquiring Common Stock after the date thereof and executing
a joinder thereto, and the persons set forth on the
Individual Purchaser Signature Page attached thereto........
10.8 Joinder to Stockholders Agreement dated as of June 16, 1997
by and among Plainwell Holding Company (the "Company") and
certain securityholders of the Company made and entered into
as of January 31, 1998 by and between the Company and 399
Venture Partners, Inc. .....................................
10.9 Registration Rights Agreement dated as of June 16, 1997 by
and among Plainwell Holding Company, Citicorp Venture
Capital, Ltd., CCT II Partners, L.P., Brenton Halsey,
Larkspur Capital Corporation, William L. New and each other
executive of the Company or its subsidiaries who acquires
Common Stock from the Company and executes a joinder thereto
and the persons set forth on the Individual Purchaser
Signature Page attached thereto.............................
10.10 Joinder to Registration Rights Agreement dated as of June
16, 1997 by and among Plainwell Holding Company (the
"Company") and certain securityholders of the Company made
and entered into as of January 31, 1998 by and between the
Company and 399 Venture Partners, Inc. .....................
+10.11 Inventory Purchase Agreement dated June 12, 1997 by and
between Simpson Paper Company and Plainwell Paper Company...
+10.12 Collective Bargaining Agreement dated November 29, 1995 by
and between Pope & Talbot, Inc., CPD - Ranson/Pittston
Township and United Paperworkers International Union AFL-CIO
and Ranson/Pittston Township, Local Number 1448.............
</TABLE>
<PAGE> 147
<TABLE>
<CAPTION>
SEQUENTIALLY
EXHIBIT NUMBERED
NUMBER DESCRIPTION PAGE
- ------- ----------- ------------
<C> <S> <C>
+10.13 Collective Bargaining Agreement dated April 1, 1997 by and
between Pope & Talbot, Wis., Inc., Eau Claire, Wisconsin and
the United Paperworkers International Union and its
affiliated Local No. 42.....................................
+10.14 Loan Agreement dated November 1, 1983 by and between
Economic Development Corporation of the City of Plainwell
and Plainwell Paper Company.................................
+10.15 Indenture of Trust dated November 1, 1983 by and among
Economic Development Corporation of the City of Plainwell
and First & Merchants National Bank.........................
12.1 Statement of Computation of Ratios..........................
23.1 Consent of Ernst & Young LLP................................
23.2 Consent of Arthur Andersen LLP..............................
23.3 Consent of Kirkland & Ellis (included in Exhibit 5.1).......
24.1 Powers of Attorney (included in signature page).............
25.1 Statement of Eligibility of Trustee on Form T-1.............
27.1 Financial Data Schedule.....................................
99.1 Form of Letter of Transmittal...............................
99.2 Form of Notice of Guaranteed Delivery.......................
99.3 Form of Tender Instructions.................................
</TABLE>
- ---------------
+ To be filed by amendment.
<PAGE> 1
Exhibit 3.1
CERTIFICATE OF INCORPORATION
OF
PLAINWELL INC.
ARTICLE ONE
The name of the corporation is PLAINWELL INC. (hereinafter called
the "Corporation").
ARTICLE TWO
The address of the Corporation's registered office in the state of
Delaware is 1013 Centre Road, Wilmington, Delaware 19805, in the City of
Wilmington, County of New Castle. The name of its registered agent at such
address is Corporation Service Company.
ARTICLE THREE
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.
ARTICLE FOUR
The total number of shares which the Corporation shall have the
authority to issue is One Thousand (1,000) shares, all of which shall be shares
of Common Stock, with a par value of $0.01 (One Cent) per share.
ARTICLE FIVE
The name and mailing address of the incorporator is as follows:
Name Address
---- -------
David N. Britsch c/o Kirkland & Ellis
153 East 53rd Street
39th Floor
New York, NY 10022
<PAGE> 2
ARTICLE SIX
The directors shall have the power to adopt, amend or repeal
By-Laws, except as may be otherwise be provided in the By-Laws.
ARTICLE SEVEN
The Corporation expressly elects not to be governed by Section 203
of the General Corporation Law of the State of Delaware.
ARTICLE EIGHT
Section 1. Nature of Indemnity. Each person who was or is made a
party or is threatened to be made a party to or is involved in any action, suit
or proceeding, whether civil, criminal, administrative or investigative
(hereinafter a "proceeding"), by reason of the fact that he (or a person of whom
he is the legal representative), is or was a director or officer of the
Corporation or is or was serving at the request of the Corporation as a
director, officer, employee, fiduciary, or agent of another corporation or of a
partnership, joint venture, trust or other enterprise, including service with
respect to employee benefit plans, whether the basis of such proceeding is
alleged action in an official capacity as a director, officer, employee,
fiduciary or agent or in any other capacity while serving as a director,
officer, employee, fiduciary or agent, shall be indemnified and held harmless by
the Corporation to the fullest extent which it is empowered to do so by the
General Corporation Law of the State of Delaware, as the same exists or may
hereafter be amended (but, in the case of any such amendment, only to the extent
that such amendment permits the Corporation to provide broader indemnification
rights than said law permitted the Corporation to provide prior to such
amendment) against all expense, liability and loss (including attorneys' fees
actually and reasonably incurred by such person in connection with such
proceeding and such indemnification shall inure to the benefit of his or her
heirs, executors and administrators; provided, however, that, except as provided
in Section 2 of this Article Eight, the Corporation shall indemnify any such
person seeking indemnification in connection with a proceeding initiated by such
person only if such proceeding was authorized by the Board of Directors of the
Corporation. The right to indemnification conferred in this Article Eight shall
be a contract right and, subject to Sections 2 and 5 of this Article Eight,
shall include the right to payment by the Corporation of the expenses incurred
in defending any such proceeding in advance of its final disposition. The
Corporation may, by action of the Board of Directors, provide indemnification to
employees and agents of the Corporation with the same scope and effect as the
foregoing indemnification of directors and officers.
Section 2. Procedure for Indemnification of Directors and Officers.
Any indemnification of a director or officer of the Corporation under Section 1
of this Article Eight or advance of expenses under Section 5 of this Article
Eight shall be made promptly, and in any event
2
<PAGE> 3
within 30 days, upon the written request of the director or officer. If a
determination by the Corporation that the director or officer is entitled to
indemnification pursuant to this Article Eight is required, and the Corporation
fails to respond within sixty days to a written request for indemnity, the
Corporation shall be deemed to have approved the request. If the Corporation
denies a written request for indemnification or advancing of expenses, in whole
or in part, or if payment in full pursuant to such request is not made within 30
days, the right to indemnification or advances as granted by this Article Eight
shall be enforceable by the director or officer in any court of competent
jurisdiction. Such person's costs and expenses incurred in connection with
successfully establishing his right to indemnification, in whole or in part, in
any such action shall also be indemnified by the Corporation. It shall be a
defense to any such action (other than an action brought to enforce a claim for
expenses incurred in defending any proceeding in advance of its final
disposition where the required undertaking, if any, has been tendered to the
Corporation) that the claimant has not met the standards of conduct which make
it permissible under the General Corporation Law of the State of Delaware for
the Corporation to indemnify the claimant for the amount claimed, but the burden
of such defense shall be on the Corporation. Neither the failure of the
Corporation (including the Board of Directors, independent legal counsel, or its
stockholders) to have made a determination prior to the commencement of such
action that indemnification of the claimant is proper in the circumstances
because he or she has met the applicable standard of conduct set forth in the
General Corporation Law of the State of Delaware, nor an actual determination by
the Corporation (including its Board of Directors, independent legal counsel, or
its stockholders) that the claimant has not met such applicable standard of
conduct, shall be a defense to the action or create a presumption that the
claimant has not met the applicable standard of conduct.
Section 3. Nonexclusivity of Article Eight. The rights to
indemnification and the payment of expenses incurred in defending a proceeding
in advance of its final disposition conferred in this Article Eight shall not be
exclusive of any other right which any person may have or hereafter acquire
under any statute, provision of the certificate of incorporation, by-law,
agreement, vote of stockholders or disinterested directors or otherwise.
Section 4. Insurance. The Corporation may purchase and maintain
insurance on its own behalf and on behalf of any person who is or was a
director, officer, employee, fiduciary, or agent of the Corporation or was
serving at the request of the Corporation as a director, officer, employee or
agent of another corporation, partnership, joint venture, trust or other
enterprise against any liability asserted against him or her and incurred by him
or her in any such capacity, whether or not the Corporation would have the power
to indemnify such person against such liability under this Article Eight.
Section 5. Expenses. Expenses incurred by any person described in
Section 1 of this Article Eight in defending a proceeding shall be paid by the
Corporation in advance of such proceed ing's final disposition unless otherwise
determined by the Board of Directors in the specific case upon receipt of an
undertaking by or on behalf of the director or officer to repay such amount if
it shall
3
<PAGE> 4
ultimately be determined that he is not entitled to be indemnified by the
Corporation. Such expenses incurred by other employees and agents may be so paid
upon such terms and conditions, if any, as the Board of Directors deems
appropriate.
Section 6. Employees and Agents. Persons who are not covered by the
foregoing provisions of this Article Eight and who are or were employees or
agents of the Corporation, or who are or were serving at the request of the
Corporation as employees or agents of another corporation, partnership, joint
venture, trust or other enterprise, may be indemnified to the extent authorized
at any time or from time to time by the Board of Directors.
Section 7. Contract Rights. The provisions of this Article Eight
shall be deemed to be a contract right between the Corporation and each director
or officer who serves in any such capacity at any time while this Article Eight
and the relevant provisions of the General Corporation Law of the State of
Delaware or other applicable law are in effect, and any repeal or modification
of this Article Eight or any such law shall not affect any rights or obligations
then existing with respect to any state of facts or proceeding then existing.
Section 8. Merger or Consolidation. For purposes of this Article
Eight, references to "the Corporation" shall include, in addition to the
resulting corporation, any constituent corpora tion (including any constituent
of a constituent) absorbed in a consolidation or merger which, if its separate
existence had continued, would have had power and authority to indemnify its
directors, officers, and employees or agents, so that any person who is or was a
director, officer, employee or agent of such constituent corporation, or is or
was serving at the request of such constituent corporation as a director,
officer, employee or agent of another corporation, partnership, joint venture,
trust or other enterprise, shall stand in the same position under this Article
Eight with respect to the resulting or surviving corporation as he or she would
have with respect to such constituent corporation if its separate existence had
continued.
ARTICLE NINE
The Corporation reserves the right to amend or repeal any provisions
contained in this Certificate of Incorporation from time to time and at any time
in the manner now or hereafter prescribed by the laws of the State of Delaware,
and all rights conferred upon stockholders and directors are granted subject to
such reservation.
* * * *
4
<PAGE> 5
I, the undersigned, being the sole incorporator hereinbefore named,
for the purpose of forming a corporation in pursuance of the General Corporation
Law of the State of Delaware, do make and file this Certificate, hereby
declaring and certifying that the facts herein stated are true, and accordingly
have hereunto set my hand this 18th day of December, 1997.
------------------------------
David N. Britsch
Sole Incorporator
5
<PAGE> 6
CERTIFICATE OF MERGER
OF
PLAINWELL PAPER COMPANY
(A Michigan corporation)
with and into
PLAINWELL INC.
(A Delaware corporation)
****************************************
In accordance with the Provisions
of Section 252 of the General Corporation Law
of the State of Delaware
****************************************
PLAINWELL INC., a corporation duly organized and existing under and
by virtue of the laws of the State of Delaware (the "Corporation"), desiring to
merge PLAINWELL PAPER COMPANY, a corporation duly organized and existing under
and by virtue of the laws of the State of Michigan ("Plainwell Paper"), with and
into itself (the "Merger"), pursuant to the provisions of Section 252 of the
General Corporation Law of the State of Delaware, as amended (the "DGCL"), DOES
HEREBY CERTIFY as follows:
FIRST: That the names and states of formation and organization of
each constituent entity of the Merger are as follows:
<PAGE> 7
<TABLE>
<CAPTION>
STATE OF FORMATION
NAME AND ORGANIZATION
---- ----------------
<S> <C>
PLAINWELL INC. Delaware
Plainwell Paper Company Michigan
</TABLE>
SECOND: That an Agreement and Plan of Merger (the "Merger
Agreement") has been approved, adopted, certified, executed and acknowledged by
each constituent entity in accordance with the requirements of subsection (c) of
Section 252 of the DGCL.
THIRD: That the name of the surviving entity is:
PLAINWELL INC.
FOURTH: That the Certificate of Incorporation of the Corporation
shall be the Certificate of Incorporation of the surviving corporation.
FIFTH: That the Certificate of Incorporation of the Corporation
shall be amended to amend Article Four to read as follows:
ARTICLE FOUR
The total number of shares which the Corporation shall have the
authority to issue is One Thousand Five Hundred (1,500) shares, all of which
shall be shares of Common Stock, with a par value of $0.01 (One Cent) per share.
SIXTH: That anything herein or elsewhere to the contrary
notwithstanding, the Merger may be amended or terminated and abandoned by the
Board of Directors of the Corporation or Plainwell at any time prior to the date
of filing this Certificate of Merger with the Secretary of the State of
Delaware.
<PAGE> 8
SEVENTH: That an executed copy of the Merger Agreement is on file at
the principal place of business of the Corporation, 200 Allegan Street,
Plainwell, Michigan 47080 and that a copy of such agreement will be furnished by
the Corporation, upon request and without cost, to any stockholder or partner,
as the case may be, of either constituent entity.
EIGHTH: That the authorized capital stock of each foreign
corporation which is a party to the Merger is as follows:
<TABLE>
<CAPTION>
CORPORATION CLASS NO. OF SHARES PAR VALUE PER SHARE
- ----------- ----- ------------- -------------------
<S> <C> <C> <C>
Plainwell Paper
Company Common 500 $1.00 par value per share
</TABLE>
NINTH: That the effective date of the Merger is March 6, 1998.
* * * *
- 3 -
<PAGE> 9
IN WITNESS WHEREOF, the undersigned, for the purpose of effectuating
the Merger of the constituent entities, pursuant to the DGCL, under penalties of
perjury does hereby declare and certify that this is the act and deed of the
Corporation and the facts stated herein are true and accordingly has hereunto
signed this Certificate of Merger this 5th day of March, 1998.
PLAINWELL INC.
By:
----------------------
Name:
--------------------
Title:
--------------------
- 4 -
<PAGE> 1
Exhibit 3.2
BY-LAWS
OF
PLAINWELL INC.
A Delaware Corporation
ARTICLE I
OFFICES
Section 1. Registered Office. The registered office of the corporation in
the State of Delaware shall be located at 1013 Centre Road, in the City of
Wilmington, County of New Castle. The name of the corporation's registered agent
at such address shall be Corporation Service Company. The registered office
and/or registered agent of the corporation may be changed from time to time by
action of the board of directors.
Section 2. Other Offices. The corporation may also have offices at such
other places, both within and without the State of Delaware, as the board of
directors may from time to time determine or the business of the corporation may
require.
ARTICLE II
MEETINGS OF STOCKHOLDERS
Section 1. Place and Time of Meetings. An annual meeting of the
stockholders shall be held each year for the purpose of electing directors and
conducting such other proper business as may come before the meeting. The date,
time and place of the annual meeting may be determined by resolution of the
board of directors or as set by the president of the corporation.
Section 2. Special Meetings. Special meetings of stockholders may be
called for any purpose (including, without limitation, the filling of board
vacancies and newly created directorships), and may be held at such time and
place, within or without the State of Delaware, as shall be stated in a notice
of meeting or in a duly executed waiver of notice thereof. Such meetings may be
called at any time by two or more members of the board of directors or the
president and shall be called by the president upon the written request of
holders of shares entitled to cast not less than fifty percent (50%) of the
outstanding shares of any series or class of the corporation's Capital Stock.
<PAGE> 2
Section 3. Place of Meetings. The board of directors may designate any
place, either within or without the State of Delaware, as the place of meeting
for any annual meeting or for any special meeting called by the board of
directors. If no designation is made, or if a special meeting be otherwise
called, the place of meeting shall be the principal executive office of the
corporation.
Section 4. Notice. Whenever stockholders are required or permitted to take
action at a meeting, written or printed notice stating the place, date, time,
and, in the case of special meetings, the purpose or purposes, of such meeting,
shall be given to each stockholder entitled to vote at such meeting not less
than 10 nor more than 60 days before the date of the meeting. All such notices
shall be delivered, either personally or by mail, by or at the direction of the
board of directors, the president or the secretary, and if mailed, such notice
shall be deemed to be delivered when deposited in the United States mail,
postage prepaid, addressed to the stockholder at his, her or its address as the
same appears on the records of the corporation. Attendance of a person at a
meeting shall consti tute a waiver of notice of such meeting, except when the
person attends for the express purpose of objecting at the beginning of the
meeting to the transaction of any business because the meeting is not lawfully
called or convened.
Section 5. Stockholders List. The officer having charge of the stock
ledger of the corporation shall make, at least 10 days before every meeting of
the stockholders, a complete list of the stockholders entitled to vote at such
meeting arranged in alphabetical order, showing the address of each stockholder
and the number of shares registered in the name of each stockholder. Such list
shall be open to the examination of any stockholder, for any purpose germane to
the meeting, during ordinary business hours, for a period of at least 10 days
prior to the meeting, either at a place within the city where the meeting is to
be held, which place shall be specified in the notice of the meeting or, if not
so specified, at the place where the meeting is to be held. The list shall also
be produced and kept at the time and place of the meeting during the whole time
thereof, and may be inspected by any stockholder who is present.
Section 6. Quorum. Except as otherwise provided by applicable law or by
the Certificate of Incorporation, a majority of the outstanding shares of the
corporation entitled to vote, represented in person or by proxy, shall
constitute a quorum at a meeting of stockholders. If less than a majority of the
outstanding shares are represented at a meeting, a majority of the shares so
represented may adjourn the meeting from time to time in accordance with Section
7 of this Article, until a quorum shall be present or represented.
Section 7. Adjourned Meetings. When a meeting is adjourned to another time
and place, notice need not be given of the adjourned meeting if the time and
place thereof are announced at the meeting at which the adjournment is taken. At
the adjourned meeting the corporation may transact any business which might have
been transacted at the original meeting. If the adjournment is for more than
thirty days, or if after the adjournment a new record date is fixed for the
adjourned meeting, a notice of the adjourned meeting shall be given to each
stockholder of record entitled to vote at the meeting.
2
<PAGE> 3
Section 8. Vote Required. When a quorum is present, the affirmative vote
of the majority of shares present in person or represented by proxy at the
meeting and entitled to vote on the subject matter shall be the act of the
stockholders, unless the question is one upon which by express provisions of an
applicable law or of the certificate of incorporation a different vote is
required, in which case such express provision shall govern and control the
decision of such question. Where a separate vote by class is required, the
affirmative vote of the majority of shares of such class present in person or
represented by proxy at the meeting shall be the act of such class.
Section 9. Voting Rights. Except as otherwise provided by the General
Corporation Law of the State of Delaware or by the certificate of incorporation
of the corporation or any amendments thereto and subject to Section 3 of Article
VI hereof, every stockholder shall at every meeting of the stockholders be
entitled to one vote in person or by proxy for each share of common stock held
by such stockholder.
Section 10. Proxies. Each stockholder entitled to vote at a meeting of
stockholders or to express consent or dissent to corporate action in writing
without a meeting may authorize another person or persons to act for him, her or
it by proxy. Every proxy must be signed by the stockholder granting the proxy or
by his, her or its attorney-in-fact. No proxy shall be voted or acted upon after
three years from its date, unless the proxy provides for a longer period. A duly
executed proxy shall be irrevocable if it states that it is irrevocable and if,
and only as long as, it is coupled with an interest sufficient in law to support
an irrevocable power. A proxy may be made irrevocable regardless of whether the
interest with which it is coupled is an interest in the stock itself or an
interest in the Corporation generally.
Section 11. Action by Written Consent. Unless otherwise provided in the
certificate of incorporation, any action required to be taken at any annual or
special meeting of stockholders of the corporation, or any action which may be
taken at any annual or special meeting of such stockholders, may be taken
without a meeting, without prior notice and without a vote, if a consent or
consents in writing, setting forth the action so taken and bearing the dates of
signature of the stockholders who signed the consent or consents, shall be
signed by the holders of outstanding stock having not less than a majority of
the shares entitled to vote, or, if greater, not less than the minimum number of
votes that would be necessary to authorize or take such action at a meeting at
which all shares entitled to vote thereon were present and voted and shall be
delivered to the corporation by delivery to its registered office in the state
of Delaware, or the corporation's principal place of business, or an officer or
agent of the corporation having custody of the book or books in which
proceedings of meetings of the stockholders are recorded. Delivery made to the
corporation's registered office shall be by hand or by certified or registered
mail, return receipt requested provided, however, that no consent or consents
delivered by certified or registered mail shall be deemed delivered until such
consent or consents are actually received at the registered office. All consents
properly delivered in accordance with this section shall be deemed to be
recorded when so delivered. No written consent shall be effective to take the
corporate action referred to therein unless, within sixty days of the earliest
dated consent delivered to the corporation as required by this section, written
consents signed by the holders of a sufficient number of shares to take such
corporate action are so recorded. Prompt notice of the taking of the corporate
action without a meeting by less than unanimous written consent
3
<PAGE> 4
shall be given to those stockholders who have not consented in writing. Any
action taken pursuant to such written consent or consents of the stockholders
shall have the same force and effect as if taken by the stockholders at a
meeting thereof.
ARTICLE III
DIRECTORS
Section 1. General Powers. The business and affairs of the corporation
shall be managed by or under the direction of the board of directors.
Section 2. Number, Election and Term of Office. The number of directors
which shall constitute the first board shall be five (5). Thereafter, the number
of directors shall be established from time to time by resolution of the board.
The directors shall be elected by a plurality of the votes of the shares present
in person or represented by proxy at the meeting and entitled to vote in the
election of directors. The directors shall be elected in this manner at the
annual meeting of the stockholders, except as provided in Section 4 of this
Article III. Each director elected shall hold office until a successor is duly
elected and qualified or until his or her earlier death, resignation or removal
as hereinafter provided.
Section 3. Removal and Resignation. Any director or the entire board of
directors may be removed at any time, with or without cause, by the holders of a
majority of the shares then entitled to vote at an election of directors.
Whenever the holders of any class or series are entitled to elect one or more
directors by the provisions of the corporation's certificate of incorporation,
the provisions of this section shall apply, in respect to the removal without
cause or a director or directors so elected, to the vote of the holders of the
outstanding shares of that class or series and not to the vote of the
outstanding shares as a whole. Any director may resign at any time upon written
notice to the corporation.
Section 4. Vacancies. Except as otherwise provided by the Certificate of
Incorporation of the corporation or any amendments thereto, vacancies and newly
created directorships resulting from any increase in the authorized number of
directors may be filled by a majority of the directors then in office, though
less than a quorum, or by a sole remaining director. Each director so chosen
shall hold office until a successor is duly elected and qualified or until his
or her earlier death, resignation or removal as herein provided.
Section 5. Annual Meetings. The annual meeting of each newly elected board
of directors shall be held without other notice than this by-law immediately
after, and at the same place as, the annual meeting of stockholders.
Section 6. Other Meetings and Notice. Regular meetings, other than the
annual meeting, of the board of directors may be held without notice at such
time and at such place as shall from time to time be determined by resolution of
the board. Special meetings of the board of directors may be called by or at the
request of the president or vice president on at least 24 hours notice to each
4
<PAGE> 5
director, either personally, by telephone, by mail, or by telegraph; in like
manner and on like notice the president must call a special meeting on the
written request of at least a majority of the directors.
Section 7. Quorum, Required Vote and Adjournment. Provided that such
majority includes at least one director nominated by Citicorp Venture Capital,
Ltd. (so long as Citicorp Venture Capital, Ltd. has the right, through contract
or otherwise, to designate a director), a majority of the total number of
directors shall constitute a quorum for the transaction of business. The vote of
a majority of directors present at a meeting at which a quorum is present shall
be the act of the board of directors. If a quorum shall not be present at any
meeting of the board of directors, the directors present thereat may adjourn the
meeting from time to time, without notice other than announcement at the
meeting, until a quorum shall be present.
Section 8. Committees. The board of directors may, by resolution passed by
a majority of the whole board, designate one or more committees, each committee
to consist of one or more of the directors of the corporation, which to the
extent provided in such resolution or these by-laws shall have and may exercise
the powers of the board of directors in the management and affairs of the
corporation except as otherwise limited by law. The board of directors may
designate one or more directors as alternate members of any committee, who may
replace any absent or disqualified member at any meeting of the committee. Such
committee or committees shall have such name or names as may be determined from
time to time by resolution adopted by the board of directors. Each committee
shall keep regular minutes of its meetings and report the same to the board of
directors when required.
Section 9. Committee Rules. Each committee of the board of directors may
fix its own rules of procedure and shall hold its meetings as provided by such
rules, except as may otherwise be provided by a resolution of the board of
directors designating such committee. Unless otherwise provided in such a
resolution, the presence of at least a majority of the members of the committee
shall be necessary to constitute a quorum. In the event that a member and that
member's alternate, if alternates are designated by the board of directors as
provided in Section 8 of this Article III, of such committee is or are absent or
disqualified, the member or members thereof present at any meeting and not
disqualified from voting, whether or not such member or members constitute a
quorum, may unanimously appoint another member of the board of directors to act
at the meeting in place of any such absent or disqualified member.
Section 10. Communications Equipment. Members of the board of directors or
any committee thereof may participate in and act at any meeting of such board or
committee through the use of a conference telephone or other communications
equipment by means of which all persons participating in the meeting can hear
each other, and participation in the meeting pursuant to this section shall
constitute presence in person at the meeting.
Section 11. Waiver of Notice and Presumption of Assent. Any member of the
board of directors or any committee thereof who is present at a meeting shall be
conclusively presumed to have waived notice of such meeting except when such
member attends for the express purpose of objecting at the beginning of the
meeting to the transaction of any business because the meeting is not lawfully
5
<PAGE> 6
called or convened. Such member shall be conclusively presumed to have assented
to any action taken unless his or her dissent shall be entered in the minutes of
the meeting or unless his or her written dissent to such action shall be filed
with the person acting as the secretary of the meeting before the adjournment
thereof or shall be forwarded by registered mail to the secretary of the
corporation immediately after the adjournment of the meeting. Such right to
dissent shall not apply to any member who voted in favor of such action.
Section 12. Action by Written Consent. Unless otherwise restricted by the
certificate of incorporation, any action required or permitted to be taken at
any meeting of the board of directors, or of any committee thereof, may be taken
without a meeting if all members of the board or committee, as the case may be,
consent thereto in writing, and the writing or writings are filed with the
minutes of proceedings of the board or committee.
ARTICLE IV
OFFICERS
Section 1. Number. The officers of the corporation shall be elected by the
board of directors and shall consist of a chairman, if any is elected, a
president, one or more vice presidents, a secretary, a treasurer, and such other
officers and assistant officers as may be deemed necessary or desirable by the
board of directors. Any number of offices may be held by the same person. In its
discretion, the board of directors may choose not to fill any office for any
period as it may deem advisable.
Section 2. Election and Term of Office. The officers of the corporation
shall be elected annually by the board of directors at its first meeting held
after each annual meeting of stockholders or as soon thereafter as conveniently
may be. The president shall appoint other officers to serve for such terms as he
or she deems desirable. Vacancies may be filled or new offices created and
filled at any meeting of the board of directors. Each officer shall hold office
until a successor is duly elected and qualified or until his or her earlier
death, resignation or removal as hereinafter provided.
Section 3. Removal. Any officer or agent elected by the board of directors
may be removed by the board of directors whenever in its judgment the best
interests of the corporation would be served thereby, but such removal shall be
without prejudice to the contract rights, if any, of the person so removed.
Section 4. Vacancies. Any vacancy occurring in any office because of
death, resignation, removal, disqualification or otherwise, may be filled by the
board of directors for the unexpired portion of the term by the board of
directors then in office.
Section 5. Compensation. Compensation of all officers shall be fixed by
the board of directors, and no officer shall be prevented from receiving such
compensation by virtue of his or her also being a director of the corporation.
6
<PAGE> 7
Section 6. The Chairman of the Board. The Chairman of the Board, if one
shall have been elected, shall be a member of the board, an officer of the
Corporation, and, if present, shall preside at each meeting of the board of
directors or shareholders. The Chairman of the Board shall, in the absence or
disability of the president, act with all of the powers and be subject to all
the restrictions of the president. He shall advise the president, and in the
president's absence, other officers of the Corporation, and shall perform such
other duties as may from time to time be assigned to him by the board of
directors.
Section 7. The President. The president shall be the chief executive
officer of the corporation. In the absence of the Chairman of the Board or if a
Chairman of the Board shall have not been elected, the president shall preside
at all meetings of the stockholders and board of directors at which he or she is
present; subject to the powers of the board of directors, shall have general
charge of the business, affairs and property of the corporation, and control
over its officers, agents and employees; and shall see that all orders and
resolutions of the board of directors are carried into effect. The president
shall have such other powers and perform such other duties as may be prescribed
by the board of directors or as may be provided in these by-laws.
Section 8. Vice-presidents. The vice-president, if any, or if there shall
be more than one, the vice-presidents in the order determined by the board of
directors shall, in the absence or disability of the president, act with all of
the powers and be subject to all the restrictions of the president. The
vice-presidents shall also perform such other duties and have such other powers
as the board of directors, the president or these by-laws may, from time to
time, prescribe.
Section 9. The Secretary and Assistant Secretaries. The secretary shall
attend all meetings of the board of directors, all meetings of the committees
thereof and all meetings of the stockholders and record all the proceedings of
the meetings in a book or books to be kept for that purpose. Under the
president's supervision, the secretary shall give, or cause to be given, all
notices required to be given by these by-laws or by law; shall have such powers
and perform such duties as the board of directors, the president or these
by-laws may, from time to time, prescribe; and shall have custody of the
corporate seal of the corporation. The secretary, or an assistant secretary,
shall have authority to affix the corporate seal to any instrument requiring it
and when so affixed, it may be attested by his or her signature or by the
signature of such assistant secretary. The board of directors may give general
authority to any other officer to affix the seal of the corporation and to
attest the affixing by his or her signature. The assistant secretary, or if
there be more than one, the assistant secretaries in the order determined by the
board of directors, shall, in the absence or disability of the secretary,
perform the duties and exercise the powers of the secretary and shall perform
such other duties and have such other powers as the board of directors, the
president, or secretary may, from time to time, prescribe.
Section 10. The Treasurer and Assistant Treasurer. The treasurer shall
have the custody of the corporate funds and securities; shall keep full and
accurate accounts of receipts and disbursements in books belonging to the
corporation; shall deposit all monies and other valuable effects in the name and
to the credit of the corporation as may be ordered by the board of directors;
shall cause the funds of the corporation to be disbursed when such disbursements
have been duly authorized, taking proper
7
<PAGE> 8
vouchers for such disbursements; and shall render to the president and the board
of directors, at its regular meeting or when the board of directors so requires,
an account of the corporation; shall have such powers and perform such duties as
the board of directors, the presi dent or these by-laws may, from time to time,
prescribe. If required by the board of directors, the treasurer shall give the
corporation a bond (which shall be rendered every six years) in such sums and
with such surety or sureties as shall be satisfactory to the board of directors
for the faithful performance of the duties of the office of treasurer and for
the restoration to the corporation, in case of death, resignation, retirement,
or removal from office, of all books, papers, vouchers, money, and other
property of whatever kind in the possession or under the control of the
treasurer belonging to the corporation. The assistant treasurer, if any, or if
there shall be more than one, the assistant treasurers in the order determined
by the board of directors, shall in the absence or disability of the treasurer,
perform the duties and exercise the powers of the treasurer. The assistant
treasurers shall perform such other duties and have such other powers as the
board of directors, the president or treasurer may, from time to time,
prescribe.
Section 11. Other Officers, Assistant Officers and Agents. Officers,
assistant officers and agents, if any, other than those whose duties are
provided for in these by-laws, shall have such authority and perform such duties
as may from time to time be prescribed by resolution of the board of directors.
Section 12. Absence or Disability of Officers. In the case of the absence
or disability of any officer of the corporation and of any person hereby
authorized to act in such officer's place during such officer's absence or
disability, the board of directors may by resolution delegate the powers and
duties of such officer to any other officer or to any director, or to any other
person whom it may select.
ARTICLE V
INDEMNIFICATION OF OFFICERS, DIRECTORS AND OTHERS
Section 1. Nature of Indemnity. Each person who was or is made a party or
is threatened to be made a party to or is involved in any action, suit or
proceeding, whether civil, criminal, administrative or investigative
(hereinafter a "proceeding"), by reason of the fact that he or a person of whom
he is the legal representative, is or was a director or officer, of the
corporation or is or was serving at the request of the corporation as a
director, officer, employee, fiduciary, or agent of another corporation or of a
partnership, joint venture, trust or other enterprise, including service with
respect to employee benefit plans, whether the basis of such proceeding is
alleged action in an official capacity as a director, officer, employee,
fiduciary or agent or in any other capacity while serving as a director,
officer, employee, fiduciary or agent, shall be indemnified and held harmless by
the corporation to the fullest extent which it is empowered to do so by the
General Corporation Law of the State of Delaware, as the same exists or may
hereafter be amended (but, in the case of any such amendment, only to the extent
that such amendment permits the corporation to provide broader indemnification
rights than said law permitted the corporation to provide prior to such
amendment) against all expense, liability and loss (including attorneys' fees
actually and reasonably incurred by such person in connection with such
proceeding and such indemnification shall inure to the benefit
8
<PAGE> 9
of his or her heirs, executors and administrators; provided, however, that,
except as provided in Section 2 hereof, the corporation shall indemnify any such
person seeking indemnification in connection with a proceeding initiated by such
person only if such proceeding was authorized by the board of directors of the
corporation. The right to indemnification conferred in this Article V shall be a
contract right and, subject to Sections 2 and 5 hereof, shall include the right
to be paid by the corporation the expenses incurred in defending any such
proceeding in advance of its final disposition. The corporation may, by action
of its board of directors, provide indemnification to employees and agents of
the corporation with the same scope and effect as the foregoing indemnification
of directors and officers.
Section 2. Procedure for Indemnification of Directors and Officers. Any
indemnification of a director or officer of the corporation under Section 1 of
this Article V or advance of expenses under Section 5 of this Article V shall be
made promptly, and in any event within 30 days, upon the written request of the
director or officer. If a determination by the corporation that the director or
officer is entitled to indemnification pursuant to this Article V is required,
and the corporation fails to respond within sixty days to a written request for
indemnity, the corporation shall be deemed to have approved the request. If the
corporation denies a written request for indemnification or advancing of
expenses, in whole or in part, or if payment in full pursuant to such request is
not made within 30 days, the right to indemnification or advances as granted by
this Article V shall be enforceable by the director or officer in any court of
competent jurisdiction. Such person's costs and expenses incurred in connection
with successfully establishing his or her right to indemnification, in whole or
in part, in any such action shall also be indemnified by the corporation. It
shall be a defense to any such action (other than an action brought to enforce a
claim for expenses incurred in defending any proceeding in advance of its final
disposition where the required undertaking, if any, has been tendered to the
corporation) that the claimant has not met the standards of conduct which make
it permissible under the General Corporation Law of the State of Delaware for
the corporation to indemnify the claimant for the amount claimed, but the burden
of such defense shall be on the corporation. Neither the failure of the
corporation (including its board of directors, independent legal counsel, or its
stockholders) to have made a determination prior to the commencement of such
action that indemnification of the claimant is proper in the circumstances
because he or she has met the applicable standard of conduct set forth in the
General Corporation Law of the State of Delaware, nor an actual determination by
the corporation (including its board of directors, independent legal counsel, or
its stockholders) that the claimant has not met such applicable standard of
conduct, shall be a defense to the action or create a presumption that the
claimant has not met the applicable standard of conduct.
Section 3. Nonexclusivity of Article V. The rights to indemnification and
the payment of expenses incurred in defending a proceeding in advance of its
final disposition conferred in this Article V shall not be exclusive of any
other right which any person may have or hereafter acquire under any statute,
provision of the certificate of incorporation, by-law, agreement, vote of
stockholders or disinterested directors or otherwise.
Section 4. Insurance. The corporation may purchase and maintain insurance
on its own behalf and on behalf of any person who is or was a director, officer,
employee, fiduciary, or agent of
9
<PAGE> 10
the corporation or was serving at the request of the corporation as a director,
officer, employee or agent of another corporation, partnership, joint venture,
trust or other enterprise against any liability asserted against him or her and
incurred by him or her in any such capacity, whether or not the corporation
would have the power to indemnify such person against such liability under this
Article V.
Section 5. Expenses. Expenses incurred by any person described in Section
1 of this Article V in defending a proceeding shall be paid by the corporation
in advance of such proceeding's final disposition unless otherwise determined by
the board of directors in the specific case upon receipt of an undertaking by or
on behalf of the director or officer to repay such amount if it shall ultimately
be determined that he or she is not entitled to be indemnified by the
corporation. Such expenses incurred by other employees and agents may be so paid
upon such terms and conditions, if any, as the board of directors deems
appropriate.
Section 6. Employees and Agents. Persons who are not covered by the
foregoing provisions of this Article V and who are or were employees or agents
of the corporation, or who are or were serving at the request of the corporation
as employees or agents of another corporation, partnership, joint venture, trust
or other enterprise, may be indemnified to the extent authorized at any time or
from time to time by the board of directors.
Section 7. Contract Rights. The provisions of this Article V shall be
deemed to be a contract right between the corporation and each director or
officer who serves in any such capacity at any time while this Article V and the
relevant provisions of the General Corporation Law of the State of Delaware or
other applicable law are in effect, and any repeal or modification of this
Article V or any such law shall not affect any rights or obligations then
existing with respect to any state of facts or proceeding then existing.
Section 8. Merger or Consolidation. For purposes of this Article V,
references to "the corporation" shall include, in addition to the resulting
corporation, any constituent corporation (including any constituent of a
constituent) absorbed in a consolidation or merger which, if its separate
existence had continued, would have had power and authority to indemnify its
directors, officers, and employees or agents, so that any person who is or was a
director, officer, employee or agent of such constituent corporation, or is or
was serving at the request of such constituent corporation as a director,
officer, employee or agent of another corporation, partnership, joint venture,
trust or other enterprise, shall stand in the same position under this Article V
with respect to the resulting or surviving corporation as he or she would have
with respect to such constituent corporation if its separate existence had
continued.
10
<PAGE> 11
ARTICLE VI
CERTIFICATES OF STOCK
Section 1. Form. Every holder of stock in the corporation shall be
entitled to have a certificate, signed by, or in the name of the corporation by
the chairman of the board, the president or a vice-president and the secretary
or an assistant secretary of the corporation, certifying the number of shares
owned by such holder in the corporation. If such a certificate is countersigned
(1) by a transfer agent or an assistant transfer agent other than the
corporation or its employee or (2) by a registrar, other than the corporation or
its employee, the signature of any such chairman of the board, president,
vice-president, secretary, or assistant secretary may be facsimiles. In case any
officer or officers who have signed, or whose facsimile signature or signatures
have been used on, any such certificate or certificates shall cease to be such
officer or officers of the corporation whether because of death, resignation or
otherwise before such certificate or certificates have been delivered by the
corporation, such certificate or certificates may nevertheless be issued and
delivered as though the person or persons who signed such certificate or
certificates or whose facsimile signature or signatures have been used thereon
had not ceased to be such officer or officers of the corporation. All
certificates for shares shall be consecutively numbered or otherwise identified.
The name of the person to whom the shares represented thereby are issued, with
the number of shares and date of issue, shall be entered on the books of the
corporation. Shares of stock of the corporation shall only be transferred on the
books of the corporation by the holder of record thereof or by such holder's
attorney duly authorized in writing, upon surrender to the corporation of the
certificate or certificates for such shares endorsed by the appropriate person
or persons, with such evidence of the authenticity of such endorsement,
transfer, authorization, and other matters as the corporation may reasonably
require, and accompanied by all necessary stock transfer stamps. In that event,
it shall be the duty of the corporation to issue a new certificate to the person
entitled thereto, cancel the old certificate or certificates, and record the
transaction on its books. The board of directors may appoint a bank or trust
company organized under the laws of the United States or any state thereof to
act as its transfer agent or registrar, or both in connection with the transfer
of any class or series of securities of the corporation.
Section 2. Lost Certificates. The board of directors may direct a new
certificate or certificates to be issued in place of any certificate or
certificates previously issued by the corporation alleged to have been lost,
stolen, or destroyed, upon the making of an affidavit of that fact by the person
claiming the certificate of stock to be lost, stolen, or destroyed. When
authorizing such issue of a new certificate or certificates, the board of
directors may, in its discretion and as a condition precedent to the issuance
thereof, require the owner of such lost, stolen, or destroyed certificate or
certificates, or his or her legal representative, to give the corporation a bond
sufficient to indemnify the corporation against any claim that may be made
against the corporation on account of the loss, theft or destruction of any such
certificate or the issuance of such new certificate.
Section 3. Fixing a Record Date for Stockholder Meetings. In order that
the corporation may determine the stockholders entitled to notice of or to vote
at any meeting of stockholders or any adjournment thereof, the board of
directors may fix a record date, which record date shall not precede
11
<PAGE> 12
the date upon which the resolution fixing the record date is adopted by the
board of directors, and which record date shall not be more than sixty nor less
than ten days before the date of such meeting. If no record date is fixed by the
board of directors, the record date for determining stockholders entitled to
notice of or to vote at a meeting of stockholders shall be the close of business
on the next day preceding the day on which notice is given, or if notice is
waived, at the close of business on the day next preceding the day on which the
meeting is held. A determination of stockholders of record entitled to notice of
or to vote at a meeting of stockholders shall apply to any adjournment of the
meeting; provided, however, that the board of directors may fix a new record
date for the adjourned meeting.
Section 4. Fixing a Record Date for Action by Written Consent. In order
that the corporation may determine the stockholders entitled to consent to
corporate action in writing without a meeting, the board of directors may fix a
record date, which record date shall not precede the date upon which the
resolution fixing the record date is adopted by the board of directors, and
which date shall not be more than ten days after the date upon which the
resolution fixing the record date is adopted by the board of directors. If no
record date has been fixed by the board of directors, the record date for
determining stockholders entitled to consent to corporate action in writing
without a meeting, when no prior action by the board of directors is required by
statute, shall be the first date on which a signed written consent setting forth
the action taken or proposed to be taken is delivered to the corporation by
delivery to its registered office in the State of Delaware, its principal place
of business, or an officer or agent of the corporation having custody of the
book in which proceedings of meetings of stockholders are recorded. Delivery
made to the corporation's registered office shall be by hand or by certified or
registered mail, return receipt requested. If no record date has been fixed by
the board of directors and prior action by the board of directors is required by
statute, the record date for determining stockholders entitled to consent to
corporate action in writing without a meeting shall be at the close of business
on the day on which the board of directors adopts the resolution taking such
prior action.
Section 5. Fixing a Record Date for Other Purposes. In order that the
corporation may determine the stockholders entitled to receive payment of any
dividend or other distribution or allotment or any rights or the stockholders
entitled to exercise any rights in respect of any change, conversion or exchange
of stock, or for the purposes of any other lawful action, the board of directors
may fix a record date, which record date shall not precede the date upon which
the resolution fixing the record date is adopted, and which record date shall be
not more than sixty days prior to such action. If no record date is fixed, the
record date for determining stockholders for any such purpose shall be at the
close of business on the day on which the board of directors adopts the
resolution relating thereto.
Section 6. Subscriptions for Stock. Unless otherwise provided for in the
subscription agreement, subscriptions for shares shall be paid in full at such
time, or in such installments and at such times, as shall be determined by the
board of directors. Any call made by the board of directors for payment on
subscriptions shall be uniform as to all shares of the same class or as to all
shares of the same series. In case of default in the payment of any installment
or call when such payment is
12
<PAGE> 13
due, the corporation may proceed to collect the amount due in the same manner as
any debt due the corporation.
ARTICLE VII
GENERAL PROVISIONS
Section 1. Dividends. Dividends upon the capital stock of the corporation,
subject to the provisions of the certificate of incorporation, if any, may be
declared by the board of directors at any regular or special meeting, pursuant
to law. Dividends may be paid in cash, in property, or in shares of the capital
stock, subject to the provisions of the certificate of incorporation. Before
payment of any dividend, there may be set aside out of any funds of the
corporation available for dividends such sum or sums as the directors from time
to time, in their absolute discretion, think proper as a reserve or reserves to
meet contingencies, or for equalizing dividends, or for repairing or maintaining
any property of the corporation, or any other purpose and the directors may
modify or abolish any such reserve in the manner in which it was created.
Section 2. Checks, Drafts or Orders. All checks, drafts, or other orders
for the payment of money by or to the corporation and all notes and other
evidences of indebtedness issued in the name of the corporation shall be signed
by such officer or officers, agent or agents of the corporation, and in such
manner, as shall be determined by resolution of the board of directors or a duly
authorized committee thereof.
Section 3. Contracts. The board of directors may authorize any officer or
officers, or any agent or agents, of the corporation to enter into any contract
or to execute and deliver any instrument in the name of and on behalf of the
corporation, and such authority may be general or confined to specific
instances.
Section 4. Loans. The corporation may lend money to, or guarantee any
obligation of, or otherwise assist any officer or other employee of the
corporation or of its subsidiary, including any officer or employee who is a
director of the corporation or its subsidiary, whenever, in the judgment of the
directors, such loan, guaranty or assistance may reasonably be expected to
benefit the corporation. The loan, guaranty or other assistance may be with or
without interest, and may be unsecured, or secured in such manner as the board
of directors shall approve, including, without limitation, a pledge of shares of
stock of the corporation. Nothing in this section contained shall be deemed to
deny, limit or restrict the powers of guaranty or warranty of the corporation at
common law or under any statute.
Section 5. Fiscal Year. The fiscal year of the corporation shall be fixed
by resolution of the board of directors.
Section 6. Corporate Seal. The board of directors may provide a corporate
seal which shall be in the form of a circle and shall have inscribed thereon the
name of the corporation and the words
13
<PAGE> 14
"Corporate Seal, Delaware". The seal may be used by causing it or a facsimile
thereof to be impressed or affixed or reproduced or otherwise.
Section 7. Voting Securities Owned By Corporation. Voting securities in
any other corporation held by the corporation shall be voted by the president,
unless the board of directors specifically confers authority to vote with
respect thereto, which authority may be general or confined to specific
instances, upon some other person or officer. Any person authorized to vote
securities shall have the power to appoint proxies, with general power of
substitution.
Section 8. Inspection of Books and Records. Any stockholder of record, in
person or by attorney or other agent, shall, upon written demand under oath
stating the purpose thereof, have the right during the usual hours for business
to inspect for any proper purpose the corporation's stock ledger, a list of its
stockholders, and its other books and records, and to make copies or extracts
therefrom. A proper purpose shall mean any purpose reasonably related to such
person's interest as a stockholder. In every instance where an attorney or other
agent shall be the person who seeks the right to inspection, the demand under
oath shall be accompanied by a power of attorney or such other writing which
authorizes the attorney or other agent to so act on behalf of the stockholder.
The demand under oath shall be directed to the corporation at its registered
office in the State of Delaware or at its principal place of business.
Section 9. Section Headings. Section headings in these by-laws are for
convenience of reference only and shall not be given any substantive effect in
limiting or otherwise construing any provision herein.
Section 10. Inconsistent Provisions. In the event that any provision of
these by-laws is or becomes inconsistent with any provision of the certificate
of incorporation, the General Corporation Law of the State of Delaware or any
other applicable law, the provision of these by-laws shall not be given any
effect to the extent of such inconsistency but shall otherwise be given full
force and effect.
ARTICLE VIII
AMENDMENTS
These by-laws may be amended, altered, or repealed and new by-laws adopted
at any meeting of the board of directors by a majority vote. The fact that the
power to adopt, amend, alter, or repeal the by-laws has been conferred upon the
board of directors shall not divest the stockholders of the same powers.
14
<PAGE> 1
Exhibit 4.1
================================================================================
PLAINWELL INC.
----------------------------------
SERIES A AND SERIES B
SENIOR SUBORDINATED NOTES DUE 2008
----------------------------------
INDENTURE
Dated as of March 6, 1998
----------------------------------
UNITED STATES TRUST COMPANY OF NEW YORK
Trustee
================================================================================
<PAGE> 2
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
(a)......................... 4.03
314 (a)(4)...................... 11.05
(b) N.A.
(c)(1) N.A.
(c)(2) N.A.
(c)(3) N.A.
(d) N.A.
(e) 11.05
(f) N.A.
315 (a)......................... N.A.
(b) N.A.
(c) N.A.
(d) N.A.
(e) N.A.
316 (a)(last sentence).......... N.A.
(a)(1)(A) N.A.
(a)(1)(B) N.A.
(a)(2) N.A.
(b) N.A.
(c) 2.13
317 (a)(1)...................... N.A.
(a)(2) N.A.
(b) N.A.
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> 3
INDENTURE, dated as of March 6, 1998, between PLAINWELL INC., a Delaware
corporation (the "Company"), and United States Trust Company of New York, a New
York banking corporation, not in its individual capacity but solely 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 (each a "Holder") of
the 11% Series A Senior Subordinated Notes due 2008 (the "Series A Senior
Subordinated Notes") and the 11% Series B Senior Subordinated Notes due 2008
(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 1.1 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 became a 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.
"Agent" means any Registrar or Paying Agent.
"Asset Sale" means (i) the sale, lease, conveyance or other
disposition of any assets or rights (including, without limitation, by way of a
sale and leaseback), excluding sales of inventory in the ordinary course of
business (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 Sections
4.14 and 5.10 and not by the provisions of Section 4.10), and (ii) the issue or
sale by the Company or any of its Subsidiaries of Equity Interests of any of the
Company's Subsidiaries, in the case of either clause (i) or (ii), 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, (ii)
an issuance of Equity Interests by a Wholly Owned Restricted Subsidiary to the
Company or to another Wholly Owned Restricted Subsidiary, (iii) a Restricted
Payment that is permitted by Section 4.07 (iv) the grant in the ordinary course
of business of a non-exclusive license of patents, trademarks, registrations
therefor and other similar intellectual property for fair value as determined in
good faith by the
1
<PAGE> 4
Company evidenced by a resolution of the Board of Directors set forth in an
Officers' Certificate delivered to the Trustee and (v) any Lien (or foreclosure
thereon) securing Indebtedness to the extent that such Lien is granted in
compliance with Section 4.12 will not be deemed to be Asset Sales.
"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.
"Borrowing Base" means, as of any date, an amount equal to the sum
of (i) 85% of the book value of accounts receivable, net of allowances for
doubtful accounts, owned by the Company and its Restricted Subsidiaries as of
such date, plus (ii) 60% of the book value of inventory owned by the Company and
its Restricted Subsidiaries as of such date, minus (iii) the principal amount of
borrowings outstanding as of such date under the Revolver to the extent that the
amount of such borrowings exceeds the sum of clauses (i) and (ii) above, all of
the foregoing calculated on a consolidated basis in accordance with GAAP.
"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 or limited
liability company, partnership or membership 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 one year or less from the date
of acquisition, banker's 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 $500.0 million and a Thompson 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 Corporation 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, to any "person" or "group" (as such terms are used in Section
13(d)(3) and
2
<PAGE> 5
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 50% or more of the voting power of the voting stock of the
Company; 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.
"Closing Date" means the date of the closing of the sale of the
Notes.
"Consolidated Cash Flow" means, with respect to any Person for any
period, the Consolidated Net Income of such Person for such period plus, to the
extent deducted in computing such 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, (iii) consolidated
interest expense whether paid or accrued and whether or not capitalized
(including, without limitation, amortization of debt issuance costs and 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) in each case, on a consolidated basis and determined in
accordance with GAAP. Notwithstanding the foregoing, the provision for taxes
based on the income or profits of, and the depreciation and amortization of, a
Restricted Subsidiary of a Person shall be added to Consolidated Net Income to
compute Consolidated Cash Flow only to the extent (and in the same proportion)
that the Net Income of such Restricted 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 to the Company
by such Restricted Subsidiary without prior approval (that has not been
obtained) pursuant to the terms of its charter and all agreements, instruments,
judgments, decrees, orders, statutes, rules and governmental regulations
applicable to such Restricted 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 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
Restricted 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 that 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
3
<PAGE> 6
in accounting principles shall be excluded and (v) the Net Income (but not loss)
of any Unrestricted Subsidiary shall be excluded, whether or not distributed to
the Company or one of its Restricted Subsidiaries; provided that for purposes of
Section 4.07, "Consolidated Net Income" means with respect to the Company for
any period, the Company's Consolidated Net Income for such period plus the
portion of the Company's non-cash charges for such period for amortization of
goodwill or other intangibles recorded in connection with acquisitions as a
result of the application of the purchase method of accounting in accordance
with Accounting Principles Board Opinion Nos. 16 and 17, provided, that such
adjustments shall not be made in respect of any subsidiary of the Company or
portion of the Company's business which the Company received as a contribution,
the fair market value of which contribution was included in clause (c)(iii) of
the first paragraph of Section 4.07.
"Consolidated Net Worth" means, with respect to any Person as of any
date, the sum of (a) the consolidated equity of the common stockholders of such
Person and its consolidated Restricted Subsidiaries as of such date, plus (b)
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 (i) all
write-ups (other than write-ups resulting from foreign currency translations and
write-ups of tangible assets off 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 Restricted
Subsidiary of such Person, (ii) all investments as of such date in
unconsolidated Subsidiaries and in Persons that are not Restricted Subsidiaries
and (iii) all unamortized debt discount and expense and unamortized deferred
charges as of such date, in each case 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 such
Board of Directors on the date of the Indenture, (ii) was nominated for election
or elected to such Board of Directors with the approval of a majority of the
Continuing Directors who were members of such Board at the time of such
nomination or election (which approval may be specific or by approval of a proxy
statement which contains the name of such nominees for election) or (iii) is an
employee of and was nominated in good faith by 399 Venture Partners, Inc.
pursuant to the Stockholders Agreement, for 399 Venture Partners, Inc.'s own
benefit and not pursuant to any arrangement, agreement or understanding with any
third party (other than the Stockholders Agreement).
"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.
"Credit Agreement" means that certain credit agreement, dated as of
the Closing Date, by and among the Company, the lenders party thereto, including
the Revolver and the LC Facility, as amended, restated, modified, renewed,
refunded, replaced or refinanced in whole or in part from time to time.
"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.
4
<PAGE> 7
"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" means (i) any Indebtedness outstanding
under the Credit Agreement and (ii) any other Senior Debt permitted under this
Indenture the principal amount of which is $10.0 million or more and that has
been designated by the Company 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 (other than pursuant to an offer to repurchase such Capital Stock due
to a change of control provision substantially similar to Section 4.14, which
offer may not be completed until 60 days after completion of the Change of
Control Offer), 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 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 $50 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.
"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).
"Eau Claire IRBs" means the Industrial Revenue Bonds issued by the
city of Eau Claire, Wisconsin on November 1, 1994 the proceeds of which were
loaned to Pope & Talbot, Wis., Inc.
"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 in existence on the date
of this Indenture, until such Indebtedness is 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 debt issuance costs and 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
5
<PAGE> 8
or bankers' acceptance financings, and net payments (if any) pursuant to Hedging
Obligations), (ii) the consolidated interest expense of such Person and its
Restricted Subsidiaries that was capitalized during such period, (iii) any
interest expenses 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,
whether or not in cash, on any series of preferred stock of such Person or any
of its Restricted Subsidiaries, other than dividend payments on Equity Interests
payable solely in Equity Interests of the Company, 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 and its Restricted Subsidiaries 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 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, (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 from time to time.
"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.
6
<PAGE> 9
"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.
"Guarantor" means each of the Company's Restricted Subsidiaries
existing on the Closing Date, and each other Restricted Subsidiary that executes
a Subsidiary Guarantee.
"Hedging Obligations" means, with respect to any Person, the
obligations of such Person under (i) interest rate, currency or commodity swap
agreements, cap agreements and collar agreements and (ii) other agreements or
arrangements designed to protect such Person against fluctuations in interest
rates, currency exchange or commodity prices.
"Holdings" means Plainwell Holding Company, a Delaware corporation.
"IAI" means an institutional "accredited investor" as defined in
Rule 501(A)(1), (2), (3) or (7) of Regulation D under the Securities Act.
"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 banker's
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 deferred 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,
including without limitation, accrued interest, premiums, fees and expenses,
(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), (iii) Disqualified
Stock of such Person and (iv) to the extent otherwise included, the Guarantee by
such person of any indebtedness of any other Person.
"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.
If the Company or any Restricted Subsidiary of the Company sells or otherwise
disposes of any Equity Interests of any direct or indirect Restricted Subsidiary
of the Company such that, after giving effect to any such sale or disposition,
such Person is no longer a Restricted Subsidiary of the Company, the Company
shall be deemed to have made an Investment
7
<PAGE> 10
on the date of any such sale or disposition equal to the value of the Equity
Interests of such Restricted Subsidiary not sold or disposed of.
"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.
"LC Facility" means the letter of credit guaranty under the Credit
Agreement providing for a maximum amount of $20.0 million to support certain
obligations of the Company as specified therein, as amended, restated, modified,
renewed, refunded, replaced or refinanced in whole or in part from time to time.
"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 8 of the Registration Rights Agreement.
"Net Income" means, with respect to any Person, the net income
(loss) of such Person, 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) and any
relocation expenses incurred as a result thereof, taxes paid or payable 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
8
<PAGE> 11
a guarantor or otherwise) and (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 Series A Senior Subordinated Notes) 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 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 March 3, 1998, 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 restricted
Subsidiary of the Company in a Person, if as a result of such Investment (a)
such Person becomes a Wholly Owned Restricted Subsidiary of the Company and a
Guarantor 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 Restricted 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; and (v) any acquisition of assets solely in
exchange for the issuance of Equity Interests (other than Disqualified Stock) of
the Company.
"Permitted Junior Securities" means Equity Interests in the Company
or debt securities that are subordinated to all Senior Debt (and any debt
securities issued in exchange for
9
<PAGE> 12
Senior Debt) to substantially the same extent as, or to a greater extent than,
the Senior Subordinated Notes are subordinated to Senior Debt pursuant to
Article 10 of this Indenture.
"Permitted Liens" means (i) Liens securing Senior Debt of the
Company and its Restricted Subsidiaries which Senior Debt was permitted by the
terms of this Indenture to be incurred; (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
Restricted Subsidiary of the Company; provided that such Liens were not created
in 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;
(iv) Liens on property existing at the time of acquisition thereof by the
Company or any Restricted Subsidiary of the Company, provided that such Liens
were not created in 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; (v) Liens existing on the date of this Indenture; (vi) 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 therefore; and (vii) Liens incurred in the ordinary course of business
of the Company or any Restricted Subsidiary of the Company with respect to
obligations that do not exceed $5.0 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 such Restricted Subsidiary; (viii) Liens to secure
Indebtedness (including Capital Lease Obligations) permitted by clause (iv) of
the second paragraph of Section 4.09 covering only the assets acquired with the
proceeds of such Indebtedness; (ix) Liens to secure Permitted Refinancing
Indebtedness so long as such Liens do not extend to any property not subject to
the Liens securing the Indebtedness exchanged for, or extended, refinanced,
renewed, replaced, defeased by, or refunded from the net proceeds of, such
Permitted Refinancing Indebtedness and (x) Liens in favor of the Trustee as
provided for in the Indenture on money or property held or collected by the
Trustee in its capacity as Trustee.
"Permitted Refinancing Indebtedness" 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 of its Restricted Subsidiaries;
provided that: (i) the principal amount (or accredit value, if applicable) of
such Permitted Refinancing Indebtedness does not exceed the principal amount of
(or accredit value, if applicable), plus accrued interest on, the Indebtedness
so extended, refinanced, renewed, replaced, defeased or refunded (plus the
amount of reasonable expenses incurred in connection therewith); (ii) such
Permitted Refinancing Indebtedness has a final maturity date later than the
final maturity date of, and has 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 Indebtedness 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
10
<PAGE> 13
incurred either 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, trust, unincorporated organization,
government or any agency or political subdivision thereof, or any other entity.
"Principals" means 399 Venture Partners, Inc., CCT Partners IV, L.P.
and William L. New and their respective Affiliates.
"Public Offering" means an underwritten public offering of 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 $35.0 million to the Company.
"Purchase Agreement" means the Purchase Agreement, dated as of March
3, 1998, 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 Exchange and 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 Security"means Senior Subordinated Notes that bear the
legends set forth in Exhibit A hereto.
"Restricted Subsidiary" of a Person means any Subsidiary of the
referent Person that is not an Unrestricted Subsidiary.
"Revolver" means the revolving line of credit under the Credit
Agreement providing up to $35.0 million of availability, as amended, restated,
modified, renewed, refunded, replaced or refinanced in whole or in part from
time to time.
"Rule 144A" means Rule 144A under the Securities Act, as such Rule
may be amended from time to time, or any similar rule or regulation hereafter
adopted by the SEC.
"SEC" means the Securities and Exchange Commission.
11
<PAGE> 14
"Securities Act" means the Securities Act of 1933, as amended.
"Senior Debt" of a Person means (i) all Indebtedness of such Person
outstanding under the Credit Agreement and all Hedging Obligations with respect
thereto, (ii) any other Indebtedness of such Person permitted to be incurred
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 and (iii) all Obligations of such
Person with respect to the foregoing including interest accruing at the contract
rate or rates therefor from and after the initiation of a bankruptcy proceeding
with respect to any such Person regardless of whether such interest is allowed
as a claim in such bankruptcy proceeding. Notwithstanding anything to the
contrary in the foregoing, Senior Debt of a Person 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 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.
"Stated Maturity" means, with respect to any installment of interest
or principal on any series of Indebtedness, the date on which such payment of
interest or principal was scheduled to be paid in the original documentation
governing such Indebtedness, and shall not include any contingent obligations to
repay, redeem or repurchase any such interest or principal prior to the date
originally scheduled for the payment thereof.
"Stockholders Agreement" means that certain Stockholders Agreement,
dated as of June 16, 1997, by and among Holdings, 399 Venture Partners, Inc.,
CCT Partners IV, L.P., Brenton Halsey, Larkspur Capital Corporation, William L.
New (and any other executives of the Company executing a joinder thereto) and
the Individual Purchasers (as defined in the Stockholders Agreement), as
amended, in whole or in part from time to time.
"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. Sections
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.
12
<PAGE> 15
"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 (i) 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 Restricted Subsidiary of the Company 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 of its Restricted Subsidiaries has
any direct or indirect obligation (1) to subscribe for additional Equity
Interests or (2) 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 director on its board of directors that is not a director or
executive officer of the Company or any of its Restricted Subsidiaries and has
at least one executive officer that is not a director or executive officer of
the Company or any of its Restricted Subsidiaries.
"Voting Stock" of any Person as of any date means the Capital Stock
of such Person that is at the time entitled to vote in the election of the Board
of Directors of such Person.
"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 or by one or more Wholly Owned
Restricted Subsidiaries of such Person and one or more Wholly Owned Restricted
Subsidiaries of such Person.
Section 1.2 Other Definitions
Defined
Term in 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
13
<PAGE> 16
"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
"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 1.3 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 1.4 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;
14
<PAGE> 17
(4) words in the singular include the plural, and in the plural
include the singular;
(5) provisions apply to successive events and transactions; and
(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 2.1 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 in fully registered form, without coupons, 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 written instructions given by the Holder thereof as required
by Section 2.06 hereof in such form as is reasonably satisfactory to the
Trustee.
Section 2.2 Execution and Authentication
Two Officers of the Company 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.
15
<PAGE> 18
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 two
Officers (a "Company Order") and delivered to the Trustee at the Corporate Trust
Office of the Trustee, authenticate Senior Subordinated Notes for original issue
up to the aggregate principal 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. Unless limited by the terms
of such appointment, an authenticating agent may authenticate Senior
Subordinated Notes whenever the Trustee may do so and according to the same
terms and conditions. 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 2.3 Registrar, Paying Agent and Depositary
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, upon prior written notice to the
Trustee, 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.
16
<PAGE> 19
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 2.4 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
in writing 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 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 2.5 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).
17
<PAGE> 20
Section 2.6 Transfer and Exchange
(a) Transfer and Exchange of Definitive Notes. When Definitive Notes
are presented by a Holder to the Registrar with a request (1) to register the
transfer of the Definitive Notes or (2) 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 that any Definitive
Notes presented or surrendered for registration of transfer or exchange (A)
shall be duly endorsed or accompanied by a written instruction of transfer in
form satisfactory to the Registrar duly executed by the Holder there of or by
his attorney duly authorized in writing; (B) unless the Global Note has
previously been exchanged in whole for Definitive Notes, shall only be exchanged
for an interest in the Global Note in accordance with Section 2.06(b) if such
Definitive Notes are being transferred (i) pursuant to an effective registration
statement under the Securities Act; (ii) to a QIB in reliance on Rule 144A; or
(iii) outside the United States to a non-U.S. person in reliance on Regulation
S; and (C) in the case of a Restricted Security, such request shall be
accompanied by the following additional documents: (i) if such 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 (in
substantially the form of Exhibit E attached hereto); or (ii) if such Restricted
Security is being transferred to an IAI in reliance on an exemption from the
registration requirements of the Securities Act, other than to a QIB in reliance
on Rule 144A or outside the United States to a non-U.S. person in reliance on
Regulation S, a certification to that effect (in substantially the form of
Exhibit B attached hereto), and a letter containing certain representations and
agreements (in substantially the form of Exhibit E attached hereto) and, if
requested by the Company or the Trustee, an opinion of counsel in a form
acceptable to the Company and the Trustee to the effect that such transfer is in
compliance with the Securities Act.
(b) Transfer of a Definitive Note for a beneficial interest in the Global
Note. A Definitive Note may be exchanged for a beneficial interest in the Global
Note only 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) written instructions directing the Trustee to make
an endorsement on the Global Note to reflect an increase in the aggregate
principal amount of the Notes represented by the Global Note, and (ii) if such
Definitive Note is a Restricted Security, a certification (in substantially the
form of Exhibit B attached hereto) to the effect that such Definitive Note is
either being transferred to a QIB in reliance on Rule 144A or outside the United
States to a non-U.S. person in reliance on Regulation S; in which case the
Trustee shall cancel such Definitive Note and cause the aggregate principal
amount of Notes represented by the Global Note to be increased accordingly. If
no Global Note is then outstanding, the Company shall issue and the Trustee
shall authenticate a new Global Note in the appropriate principal amount.
(c) Transfer of a Beneficial Interest in a Global Note for a Definitive
Note. A beneficial interest in the Global Note may be exchanged for a Definitive
Note only in the case of a Restricted Security, and upon receipt by the Trustee
of written transfer 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 that such Restricted
Security is being transferred to an IAI in reliance on an exemption from the
registration requirements of the Securities Act, other than to a QIB in reliance
on Rule 144A or outside the United States to a non-U.S. person in reliance on
Regulation S, provided however that such request is accompanied by a
certification to that effect (in substantially the form of Exhibit B attached
hereto) and a letter
18
<PAGE> 21
containing certain representations and agreements (in substantially the form of
Exhibit E attached hereto) and, if requested by the Company or the Trustee, an
opinion of counsel in a form reasonably acceptable to the Company and the
Trustee to the effect that such transfer is in compliance with the Securities
Act, in which case the Trustee shall, in accordance with the standing
instructions and procedures existing between the Depositary and the Trustee,
cause the aggregate principal amount of the Global Note to be reduced
accordingly and, following such reduction, the Company shall execute and the
Trustee shall authenticate and make available for delivery to the transferee a
Definitive Note in the appropriate principal amount.
Definitive Notes issued in exchange for a beneficial interest in a
Global Note shall be registered in such names and in such authorized
denominations as the Depositary shall instruct the Trustee.
(d) Transfer and Exchange of beneficial interests in the Global
Note. The transfer and exchange of beneficial interests in the Global Note 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.
When a Global Note is presented to the Registrar with a request (1)
to register the transfer of the Global Note or (2) to exchange such Global Notes
for an equal principal amount of Notes of other denominations, the Registrar
shall register the transfer or make the exchange if its requirements for such
transactions are met; provided, however, that any Note presented or surrendered
for registration of transfer or exchange (A) shall be duly endorsed or
accompanied by a written instruction of transfer in form satisfactory to the
Registrar and the Trustee duly executed by the Holder thereof or by his attorney
duly authorized in writing and (B) in the case of a Restricted Security, such
request shall be accompanied by the following additional documents: (i) if such
Restricted Security is being transferred to the Person designated by the
Depositary as being the beneficial owner, a certification to that effect (in
substantially the form of Exhibit B attached hereto), (ii) if such Restricted
Security is being transferred to a QIB in accordance with Rule 144A or pursuant
to an effective registration statement under the Securities Act, a certification
to that effect (in substantially the form of Exhibit B attached hereto), or
(iii) if such Restricted Security is being transferred in reliance on another
exemption from the registration requirements of the Securities Act, a
certification to that effect (in substantially the form of Exhibit D attached
hereto) and, if requested by the Company or the Trustee, an opinion of counsel
in a form reasonably acceptable to the Company and to the Trustee to the effect
that such transfer is in compliance with the Securities Act. To permit
registrations of transfer and exchanges, the Company shall issue and the Trustee
shall authenticate Notes at the Registrar's request, subject to such rules as
the Trustee may reasonably require.
(e) Cancellation and/or Adjustment of the Global Note. At such time
as all beneficial interests in the Global Note have either been exchanged for
Definitive Notes, redeemed, repurchased or canceled, the Global Note shall be
returned to or retained and canceled by the Trustee. At any time prior to such
cancellation, if any beneficial interest in the Global Note is exchanged for
Definitive Notes, redeemed, repurchased or canceled, the aggregate principal
amount of Notes represented by such Global Note shall be reduced accordingly and
an endorsement shall be made on such Global Note by the Trustee to reflect such
reduction.
19
<PAGE> 22
(f) General Provisions Relating to Transfers and Exchanges. To
permit registrations of transfers and exchanges effected in accordance with this
Indenture, the Company shall execute and the Trustee shall authenticate the
Global Note and any Definitive Notes at the Registrar's request. The Global Note
and any Definitive Notes issued upon any registration of transfer or exchange of
beneficial interests in the Global Note or the Definitive Notes shall be legal,
valid and binding 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.
Neither the Company nor the Registrar shall be required to (a)
issue, register the transfer of or exchange Senior Subordinated Notes during a
period beginning at the opening of business on a Business Day 15 days before the
day of mailing of any notice of redemption of Senior Subordinated Notes under
Section 3.03 hereof and ending at the close of business on the day of such
mailing or (b) register the transfer of or 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.
No service fee shall be charged to any Holder of a Senior
Subordinated Note for any registration of transfer or exchange (except as
otherwise expressly permitted herein), 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 such transfer tax or similar governmental
charge payable upon exchanges pursuant to Sections 2.10, 3.06 or 9.05 hereof,
which shall be paid by the Company).
Prior to due presentment to the Trustee for registration of the
transfer of any Senior Subordinated Note, the Trustee, any Agent, the Company
and each Guarantor 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, premium,
if any, and interest on such Senior Subordinated Note and for all other purposes
whatsoever, whether or not such Senior Subordinated Note is overdue, and none of
the Trustee, any Agent, the Company or any Guarantor shall be affected by notice
to the contrary.
(g) General Provisions Relating to the Global Note. Notwithstanding
any other provision in this Indenture, no Global Note may be transferred to, or
registered or exchanged for Notes registered in the name of, any Person other
than the Depositary for such Global Note or any nominee thereof, and no such
transfer may be registered, unless (i) such Depositary (A) notifies the Company
that it is unwilling or unable to continue as Depositary for such Global Note or
(B) ceases to be a clearing agency registered under the Exchange Act, (ii) the
Company delivers to the Trustee an Officers' Certificate stating that such
Global Note shall be so transferable, registrable, and exchangeable, and such
transfers shall be registrable, or (iii) there shall have occurred and be
continuing an Event of Default with respect to the Notes evidenced by such
Global Note. Notwithstanding any other provision in this Indenture, a Global
Note to which the restriction set forth in the preceding sentence shall have
ceased to apply may be transferred only to, and may be registered and exchanged
for Notes registered only in the name or names of, such Person or Persons as the
Depositary for such Global Note shall have directed and no transfer thereof
other than such a transfer may be registered. Every Note authenticated and
delivered upon registration of transfer of, or in exchange for or in lieu of, a
Global Note to which the restriction
20
<PAGE> 23
set forth in the first sentence of this paragraph shall apply, whether pursuant
to this Section 2.06 or otherwise, shall be authenticated and delivered in the
form of, and shall be, a Global Note.
(h) Exchange of Series Senior A Subordinated Notes for Series B
Senior Subordinated Notes. The Series A Senior Subordinated Notes may be
exchanged for Series B Senior Subordinated Notes pursuant to the terms of the
Exchange Offer in accordance with the procedures set out under Section 2.16
hereof.
Section 2.07. Replacement Notes
If any mutilated Senior Subordinated Note is surrendered to the
Trustee, or the Company and the Trustee each receive evidence to their
reasonable 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 (accompanied by a notation of the
Subsidiary Guarantees duly endorsed by each Guarantor, if any) if the Trustee's
requirements for replacements of Senior Subordinated Notes are met. An indemnity
bond must be supplied by the Holder that is sufficient in the judgment of the
Trustee, the Company and the Guarantors to protect the Company, the Guarantors,
the Trustee, any Agent or any authenticating agent from any loss which any of
them may suffer if a Senior Subordinated Note is replaced. Each of the Company,
the Guarantors and the Trustee may charge for its expenses in replacing a Senior
Subordinated Note.
Every replacement Senior Subordinated Note is an additional
obligation of the Company and the Guarantors and shall be entitled to all of the
benefits of this Indenture equally and ratably 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 canceled
by it, those delivered to it for cancellation and those described in this
Section 2.08 as not outstanding. 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. Subject to Section 2.09 hereof,
a Senior Subordinated Note does not cease to be outstanding because the Company,
a Guarantor, a Subsidiary of the Company or a Guarantor or an Affiliate of the
Company or a Guarantor holds the Senior Subordinated Note.
21
<PAGE> 24
Section 2.09. Treasury 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, any Guarantor, any of their
respective Subsidiaries or any Affiliate of the Company or any Guarantor shall
be considered as though not outstanding, except that for purposes of determining
whether the Trustee shall be protected in relying on any such direction, waiver
or consent, only Senior Subordinated Notes which a Responsible Officer of the
Trustee actually knows to be so owned shall be so considered. Notwithstanding
the foregoing, Senior Subordinated Notes that are to be acquired by the Company,
any Guarantor, any Subsidiary of the Company or any Guarantor or an Affiliate of
the Company or any Guarantor pursuant to an exchange offer, tender offer or
other agreement shall not be deemed to be owned by the Company, such Guarantor,
a Subsidiary of the Company or such Guarantor or an Affiliate of the Company or
such Guarantor until legal title to such Senior Subordinated Notes passes to the
Company, such Guarantor, such Subsidiary or such Affiliate, as the case may be.
The Company shall notify the Trustee in writing, when it, any Subsidiary, any
Guarantor or an Affiliate repurchases or otherwise acquires Notes, of the
aggregate principal amount of such Notes so repurchased or acquired and such
other information as the Trustee may reasonably request and the Trustee shall be
entitled to rely thereon.
Section 2.10. Temporary Notes
Until Definitive Notes are ready for delivery, the Company may
prepare and the Trustee shall authenticate temporary Senior Subordinated Notes
(accompanied by a notation of the Subsidiary Guarantees duly endorsed by each
Guarantor, if any). Temporary Notes shall be substantially in the form of
Definitive Notes but may have variations that the Company and the Trustee
consider appropriate for temporary Senior Subordinated Notes. Without
unreasonable delay, the Company shall prepare and the Trustee, upon receipt of
the written order of the Company signed by two Officers of the Company, shall
authenticate Definitive Notes (accompanied by a notation of the Subsidiary
Guarantees duly endorsed by each Guarantor, if any) in exchange for temporary
Senior Subordinated Notes. Until such exchange, temporary Senior Subordinated
Notes shall be entitled to the same rights, benefits and privileges as
Definitive Notes.
Section 2.11. Cancellation
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 shall cancel all Senior Subordinated
Notes surrendered for registration of transfer, exchange, payment, replacement
or cancellation and shall return canceled Senior Subordinated Notes to the
Company. The Company may not issue new Senior Subordinated Notes to replace
Senior Subordinated Notes that it has redeemed or paid or that have been
delivered to the Trustee for cancellation.
Section 2.12. Defaulted Interest
22
<PAGE> 25
If the Company and the Guarantors default in a payment of interest
on the Senior Subordinated Notes, the Company or any such Guarantor (to the
extent of its obligations under its Subsidiary Guarantee) shall pay the
defaulted interest in any lawful manner plus, to the extent lawful, interest
payable on the defaulted interest, to the Persons who are Holders of the Senior
Subordinated Notes on a subsequent special record date, which date shall be at
the earliest practicable date but in all events at least five Business Days
prior to the payment date, in each case at the rate provided in the Senior
Subordinated Notes and in Section 4.01 hereof. The Company shall fix or cause to
be fixed each such special record date and payment date, and shall, promptly
thereafter, notify the Trustee of any such date. At least 15 days before the
special record date, the Company (or the Trustee, in the name of and at the
expense of the Company) shall mail to Holders of the Senior Subordinated Notes a
notice that states the special record date, the related payment date and the
amount of such interest to be paid.
Section 2.13. Record Date
The record date for purposes of determining the identity of Holders
of the Senior Subordinated Notes entitled to vote or consent to any action by
vote or consent authorized or permitted under this Indenture shall be determined
as provided for in TIA Section 316(c).
Section 2.14. CUSIP Number
The Company in issuing the Senior Subordinated Notes may use a
"CUSIP" number and, if it does so, the Trustee shall use the CUSIP number in
notices of redemption or exchange as a convenience to Holders; provided that any
such notice may state that no representation is made as to the correctness or
accuracy of the CUSIP number printed in the notice or on the Senior Subordinated
Notes and that reliance may be placed only on the other identification numbers
printed on the Senior Subordinated Notes. The Company will promptly notify the
Trustee of any change in the CUSIP number.
Section 2.15. Computation of Interest
Interest will be computed on the basis of a 360-day year consisting
of twelve 30-day months.
Section 2.16. Exchange of Series A Senior Subordinated Notes for Series B Senior
Subordinated Notes
The Series A Senior Subordinated Notes may be exchanged for Series B
Senior Subordinated Notes pursuant to the terms of the Exchange Offer. The
Trustee and Registrar shall make the exchange as follows:
The Company shall present the Trustee with an Officers' Certificate
certifying the following:
(a) upon issuance of the Series B Senior Subordinated Notes, the
transactions contemplated by the Exchange Offer have been
consummated;
(b) the principal amount of Series A Senior Subordinated Notes
properly tendered in the Exchange Offer that are represented
by a Global Note for
23
<PAGE> 26
Series B Senior Subordinated Notes shall be registered and
sent for each such Holder; and
(c) the principal amount of Series A Senior Subordinated Notes
properly tendered in the Exchange Offer that are represented
by Definitive Notes, the name of each Holder of such
Definitive Notes, the principal amount at maturity properly
tendered in the Exchange Offer by each such Holder, and the
name and address to which Definitive Notes for Series B Senior
Subordinated Notes shall be registered and sent for each such
Holder.
The Trustee, upon receipt of (i) such Officers' Certificate, (ii) an
Opinion of Counsel to the effect that the Series B Senior Subordinated Notes
have been registered under Section 5 of the Securities Act and this Indenture
has been qualified under the TIA and (iii) a Company Order, shall authenticate
(A) a Global Note for Series B Senior Subordinated Notes in an aggregate
principal amount equal to the aggregate principal amount of Series A Senior
Subordinated Notes represented by a Global Note indicated in such Officers'
Certificate as having been properly tendered and (B) Definitive Notes for Series
B Senior Subordinated Notes in an aggregate principal amount equal to the
aggregate principal amount of Series A Senior Subordinated Notes registered in
the names of the Holders and represented by the Definitive Notes indicated in
such Officers' Certificate as having been properly tendered.
If the principal amount at maturity of the Global Note for the
Series B Senior Subordinated Notes is less than the principal amount at maturity
of the Global Note for the Series A Senior Subordinated Notes, the Trustee shall
make an endorsement on such Global Note for Series A Senior Subordinated Notes
indicating a reduction in the principal amount at maturity represented thereby.
The Trustee shall deliver such Definitive Notes for Series B Senior
Subordinated Notes to the Holders thereof as indicated in such Officers'
Certificate.
Section 2.17. Legends
(a) Except as permitted by subsections (b) or (c) hereof, each
Senior Subordinated Note shall bear legends relating to restrictions on transfer
pursuant to the securities laws in substantially the form set forth on Exhibit A
attached hereto.
(b) Upon any sale or transfer of a Restricted Security (including
any 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: (i) in the case of any Restricted Security that is a Definitive
Note, the Registrar shall permit the Holder thereof to exchange such Restricted
Security for a Definitive Note that does not bear the legends required by
subsection (a) above; and (ii) in the case of any Restricted Security
represented by a Global Note, such Restricted Security shall not be required to
bear the legends required by subsection (a) above, but shall continue to be
subject to the provisions of Section 2.06(d) hereof; provided however, that with
respect to any request for an exchange of a Restricted Security that is
represented by a Global Note for a Definitive Note that does not bear the
legends required by subsection (a) 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.
24
<PAGE> 27
(c) The Company (and the Restricted Subsidiaries) shall issue and
the Trustee shall authenticate Series B Senior Subordinated Notes in exchange
for Series A Senior Subordinated Notes accepted for exchange in the Exchange
Offer. The Series B Senior Subordinated Notes shall not bear the legends
required by subsection (a) above unless the Holder of such Series A Senior
Subordinated Notes is either (i) 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, (ii) a Person
participating in the distribution of the Series A Senior Subordinated Notes or
(iii) a Person who is an affiliate (as defined in Rule 144A) of the Company.
ARTICLE 3
REDEMPTION AND PREPAYMENT
Section 3.1 Notices to Trustee
If the Company elects to redeem the Senior Subordinated Notes
pursuant to the provision of Section 3.07 hereof, it shall furnish to the
Trustee at least 45 days but not more than 75 days before a redemption 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 redeemed together with CUSIP
numbers and (iv) the redemption price.
Section 3.2 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 in its sole discretion 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 and Liquidation
Damages, if any, shall cease to accrue on Senior Subordinated Notes or portions
thereof called for redemption.
Section 3.3 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.
25
<PAGE> 28
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.
At the Company's request, the Trustee shall give the notice of
redemption in the Company's name and at the Company's expense; provided,
however, that the Company shall have delivered to the Trustee, at least 30 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 3.4 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.
26
<PAGE> 29
Section 3.5 Deposit of Redemption Price
On or prior to 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 and Liquidated Damages, if any, on
all Senior Subordinated Notes to be redeemed on that date. The Trustee or the
Paying Agent shall within a reasonable time period 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 and
Liquidated Damages, 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 and Liquidated Damages,
if any, 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 and
Liquidated Damages, 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 and Liquidated Damages, 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 3.6 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 3.7 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, 2003. Thereafter, the Notes will be subject to redemption at
any time 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:
<TABLE>
<CAPTION>
Year Percentage
- ---- ----------
<S> <C>
2003 105.500%
2004 103.666
2005 101.833
2006 and thereafter 100.000%
</TABLE>
(b) Notwithstanding the foregoing, prior to March 1, 2001, the
Company may redeem up to an aggregate of $45,500,000 in principal amount of
Notes at a redemption price of
27
<PAGE> 30
111% of the principal amount thereof, plus accrued and unpaid interest and
Liquidated Damages, if any, thereon to the redemption date, with the net cash
proceeds of a Public Offering of common stock of the Company; provided that (i)
at least 65% in aggregate principal amount of the Notes originally issued under
the Indenture remain outstanding immediately after the occurrence of such
redemption and (ii) such redemption shall occur within 60 days of the date of
the consummation of each such Public Offering.
(c) Any redemption pursuant to this Section 3.07 shall be made
pursuant to the provisions of Section 3.01 through 3.06 hereof.
Section 3.8 Mandatory Redemption
The Company shall not be required to make mandatory redemption or
sinking fund payments with respect to the Senior Subordinated Notes.
Section 3.9 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 earlier than 30 days and not
later than 60 days from the date a Repurchase Offer Notice (as defined below) is
mailed and shall remain open for a period of at least 20 Business Days following
its commencement and no more than 30 Business Days, except to the extent that a
longer period is required by applicable law (the "Offer Period"). No later than
five 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.
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 and
Liquidated Damages, if any, 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.
Within 30 days following a Change of Control or an Excess Proceeds
Triggering Event (as defined below), 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 the case may be and shall state:
28
<PAGE> 31
(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
(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 prior to each Purchase Date, the Company shall irrevocably
deposit with the Trustee or Paying Agent in immediately available funds the
aggregate Purchase Price with respect to a principal amount of Notes equal to
the Offer Amount, together with accrued interest and Liquidated Damages, if any,
thereon, to be held for payment in accordance with the terms of this Section
3.09. 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
29
<PAGE> 32
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 five Business
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 canceled 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 five 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 4.1 Payment of Senior Subordinated Notes
The Company shall pay or cause to be paid the principal of, interest
on, and other Liquidated Damages, 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 12:00 p.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.
Section 4.2 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.
30
<PAGE> 33
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 4.3 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 consolidated subsidiaries (showing in
reasonable detail, either on the face of the financial statements or in the
footnotes thereto and in Management's Discussion and Analysis of Financial
Condition and Results of Operations, the financial condition and results of
operations of the Company and its Restricted Subsidiaries separate from the
financial information and results of operations of the Unrestricted Subsidiaries
of the Company) 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 and its Restricted Subsidiaries 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 4.4 Compliance Certificate
31
<PAGE> 34
(a The Company shall deliver to the Trustee, within 105 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 the preceding fiscal
year has been made under the supervision of the signing Officers with a view to
determining whether the Company and each Restricted Subsidiary has kept,
observed, performed and fulfilled its obligations under this Indenture
(including with respect to any Restricted Payments made during such year, the
basis upon which the calculations required by Section 4.07 hereof were computed,
which calculations may be based on the Company's latest available financial
statements), and further stating, as to each such Officer signing such
certificate, whether to the best of his or her knowledge the Company and each
Restricted Subsidiary 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 4.5 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.
32
<PAGE> 35
Section 4.6 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.
Section 4.7 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
any of its Restricted Subsidiaries) or to any direct or indirect holders of the
Company's or any of its Restricted Subsidiaries Equity Interests in their
capacity as such (other than dividends or distributions (a) payable in Equity
Interests (other than Disqualified Stock) of the Company, (b) to the Company or
any Wholly Owned Restricted Subsidiary of the Company or (c) paid by a
Restricted Subsidiary pro rata to the holders of its common stock); (ii)
purchase, redeem or otherwise acquire or retire for value (including without
limitation, in connection with any merger or consolidation involving the
Company) any Equity Interests of the Company or any direct or indirect parent 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 payment on or
with respect to, or purchase, redeem defease or otherwise acquire or retire for
value any Indebtedness of the Company or any Restricted Subsidiary that is
subordinated to the Notes or any Guarantee thereof, except a payment of interest
or principal at Stated Maturity; 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 consequence thereof; and
(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
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; and
(c such Restricted Payment, together with the aggregate amount of
all other Restricted Payments made by the Company and its Restricted
Subsidiaries after the Closing Date, is less than the sum of (i) 50% of the
Consolidated Net Income of the Company for the period (taken as one accounting
period) from the beginning of the first fiscal quarter commencing after the
Closing Date to the end of the Company's most recently ended fiscal quarter for
which internal 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 (ii) 100% of the aggregate net cash proceeds
received by the Company from the issue or sale since the Closing Date of, or
equity
33
<PAGE> 36
contributions with respect to, Equity Interests of the Company (other than
Disqualified Stock) or of Disqualified Stock or debt securities of the Company
that have been converted into such Equity Interests (other than Equity Interests
(or Disqualified Stock or convertible debt securities) sold to a Subsidiary of
the Company and other than Disqualified Stock or convertible debt securities
that have been converted into Disqualified Stock), plus (iii) 100% of the fair
market value of non-cash property contributed as equity contributions to the
Company, provided that (a) such property is related, ancillary or complementary
to a business of the Company conducted on the Closing Date, (b) such fair market
value is determined by the Company in good faith evidenced by a resolution of
the Board of Directors set forth in an Officer's Certificate delivered to the
Trustee and, if the fair market value of such contribution or series of related
contributions is in excess of $5.0 million, an opinion as to the value thereof
issued by an investment banking firm of national standing shall simultaneously
be delivered to the Trustee (which opinion shall provide a specific value, or a
range of values the lowest point of which, is not lower than the value set forth
in the related resolution of the Board of Directors) and (c) the Fixed Charge
Coverage Ratio for the Company's most recently ended four full fiscal quarters
for which internal financial statements are available immediately preceding the
date of such non-cash contribution (or the dates of each non-cash contribution
in the case of a series of related contributions) determined on a pro forma
basis as if such contribution (or series of related contributions) had been made
at the beginning of such four quarter period (or periods) shall be greater than
the Company's historical Fixed Charge Coverage Ratio for such period (or
periods) plus (iv) 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 (i) of this clause (c)).
The foregoing provisions will not prohibit (i) the payment of any
dividend within 60 days after the date of declaration thereof, if at the date of
declaration such payment would have complied with the provisions of the
Indenture; (ii) the redemption, repurchase, retirement, defeasance or other
acquisition of any subordinated Indebtedness or Equity Interests of the Company
or any Restricted Subsidiary in exchange for, or out of the net cash 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, defeasance or other acquisition shall
be excluded from the calculation of the amount available for Restricted Payments
pursuant to clause (c) of the preceding paragraph; (iii) the defeasance,
redemption, repurchase or other acquisition of Subordinated Indebtedness with
the net cash proceeds from an incurrence of Permitted Refinancing Indebtedness;
provided that the amount of any such net cash proceeds that are utilized for any
such defeasance, redemption, repurchase or other acquisition shall be excluded
from the calculation of the amount available for Restricted Payments pursuant to
clause (c) of the preceding paragraph; (iv) payments to, which are promptly used
by, Holdings for the repurchase, redemption or other acquisition or retirement
for value of any Equity Interests of Holdings held by any of the Company's (or
any of its Restricted Subsidiaries') directors, officers or employees who have
died or whose employment has been terminated; provided that the aggregate price
paid for all such repurchased, redeemed, acquired or retired Equity Interests
shall not exceed $500,000 in any twelve-month period or $2,000,000 in the
aggregate and no Default or Event of Default shall have occurred and be
continuing immediately after such transaction; (v) payments of up to $4.2
million (from the net proceeds of the Offering) to, which are promptly used by,
Holdings for the repurchase of up to $4.0 million in liquidation value of
Holdings' Series A Preferred Stock, par value $0.01 per share, held by Simpson
and accrued but unpaid dividends thereon provided such shares are
34
<PAGE> 37
permanently retired; and (vi) other Restricted Payments in an aggregate amount
not to exceed $5.0 million.
The amount of all Restricted Payments (other than cash) shall be the
fair market value on the date of the Restricted Payment of the asset(s) or
securities proposed to be transferred or issued by the Company or such
Restricted Subsidiary, as the case may be, pursuant to the Restricted Payment.
The fair market value of any non-cash Restricted Payment shall be determined in
good faith by the Board of Directors whose resolution with respect thereto shall
be set forth in an Officers' Certificate and delivered to the Trustee. 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 were computed.
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.
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. If, at any time, any Unrestricted Subsidiary would fail to meet the
definition of 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 4.9 hereof, the Company shall be in
default of such covenant). The Board of Directors of the Company 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, calculated on a pro forma
basis as if such designation had occurred at the beginning of the four-quarter
reference period, and (ii) no Default or Event of Default would be in existence
following such designation.
35
<PAGE> 38
Section 4.8 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 Company or any of its Restricted Subsidiaries (1) on its Capital Stock or
(2) with respect to any other interest or participation in, or measured by, its
profits, or (b) pay any indebtedness owned 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 Closing Date, (b) the Credit Agreement as in effect as of the
Closing Date, and any amendments, modifications, restatements, renewals,
increases, supplements, refundings, replacements or refinancings thereof,
provided that such amendments, modifications, restatements, renewals, increases,
supplements, refundings, replacement or refinancings are no more restrictive
with respect to such dividend and other payment restrictions than those
contained in the Credit Agreement as in effect on the Closing Date, (c) the
Indenture and the 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, provided that, in the case of
Indebtedness, such Indebtedness was permitted by the terms of the Indenture to
be incurred, (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, or (h) Permitted Refinancing
Indebtedness, provided that the restrictions contained in the agreements
governing such Permitted Refinancing Indebtedness are no more restrictive than
those contained in the agreements governing the Indebtedness being refinanced.
Section 4.9 Incurrence of Indebtedness
The Company shall not, and shall not permit any of its Restricted
Subsidiaries to, directly or indirectly, create, incur, issue, assume, guarantee
or otherwise become directly or indirectly liable contingently or otherwise,
with respect to (collectively, "incur") any Indebtedness (including Acquired
Debt); provided, however, that 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
internal 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 provisions of the first paragraph of this covenant will not
apply to the incurrence of any of the following (collectively, "Permitted
Debt"):
(i the incurrence by the Company or its Restricted Subsidiaries of
Indebtedness under the Revolver under the Credit Agreement in an aggregate
amount not to exceed the greater of $35.0 million at any time outstanding
and the Borrowing Base as of such date, less
36
<PAGE> 39
the aggregate amount of all Net Proceeds of Asset Sales applied to repay
any such Indebtedness pursuant to clause (i) of the second paragraph of
Section 4.10;
(ii the incurrence by the Company of reimbursement or term loan
obligations of up to $20.0 million arising with respect to the LC Facility
under the Credit Agreement to the extent such reimbursement or term loan
obligations arise as a result of actual cash payments having been made
under such facility for the benefit of the Company in connection with the
Eau Claire IRBs or the incurrence of Indebtedness to cash collateralize
the LC Facility if Indebtedness under the Credit Agreement has been
accelerated;
(iii the incurrence by the Company of Indebtedness represented by
the Notes;
(iv the incurrence by the Company and its Restricted Subsidiaries of
the Existing Indebtedness;
(v 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 (or purchase of the
outstanding Capital Stock of a Person that owns such property, plant or
equipment), in an aggregate principal amount not to exceed at any one time
outstanding the greater of $5.0 million or 5% of the Company's net
tangible assets (determined in accordance with GAAP applied on a
consistent basis) as of the most recent quarterly balance sheet date;
(vi 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 (vi), does not exceed $5.0
million;
(vii the incurrence by the Company or any of its Restricted
Subsidiaries of Permitted Refinancing Indebtedness in exchange for, or the
net proceeds of which are used to refund, refinance or replace
Indebtedness that was permitted to be incurred by the first paragraph, or
by clauses (iii) through (vii) of the second paragraph of this covenant;
(viii the incurrence of Indebtedness between or among the Company
and any of its Wholly Owned Restricted Subsidiaries; provided, however,
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, and any sale or other transfer of
any such Indebtedness to a Person that is not either the Company or a
Wholly Owned Restricted Subsidiary, shall be deemed, in each case, to
constitute an incurrence of such Indebtedness by the Company or such
Restricted Subsidiary, as the case may be;
37
<PAGE> 40
(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;
(x the guarantee by the Company or any of its Restricted
Subsidiaries of Indebtedness that was permitted to be incurred by another
provision of this covenant;
(xi Indebtedness incurred pursuant to commodity agreements of the
Company or any of its Restricted Subsidiaries to the extent entered into
in the ordinary course of the Company's business and not for speculative
purposes to protect the Company and its Restricted Subsidiaries from
fluctuations in the prices of raw materials used in their businesses in
amounts reasonably related to the Company's business;
(xii Indebtedness incurred pursuant to exchange rate agreements of
the Company or any of its Restricted Subsidiaries to the extent entered
into in the ordinary course of the Company's business and not for
speculative purposes to protect the Company and its Restricted
Subsidiaries from fluctuations in exchange rates relating to sales of
inventory in the ordinary course of business in a currency other than U.S.
dollars in amounts reasonably related to such sales;
(xiii Indebtedness incurred by the Company or any of its Restricted
Subsidiaries constituting reimbursement obligations with respect to
letters of credit issued in the ordinary course of business, including,
without limitation, letters of credit in respect of workers' compensation
claims or self-insurance, or other Indebtedness with respect to
reimbursement type obligations regarding workers' compensation claims or
self-insurance, and obligations in respect of performance and surety bonds
and completion guarantees provided by the Company or any Restricted
Subsidiary of the Company in the ordinary course of business; provided,
however, that upon the drawing of such letters of credit or the incurrence
of such Indebtedness, such obligations are reimbursed within 30 days
following such drawing or incurrence; and
(xiv the incurrence by the Company and its Restricted Subsidiaries
of additional Indebtedness in an aggregate amount not to exceed $10
million at any one time outstanding, which Indebtedness may be incurred
under the Credit Agreement or otherwise.
For purposes of determining compliance with this covenant, in the
event that an item of Indebtedness meets the criteria of more than one of the
categories of Permitted Debt described in clauses (i) through (xiv) above or is
entitled to be incurred pursuant to the first paragraph of this covenant, the
Company shall, in its sole discretion, classify such item of Indebtedness in any
manner that complies with this covenant and such item of Indebtedness will be
treated as having been incurred pursuant to only one of such clauses or pursuant
to the first paragraph hereof. Accrual of interest, the accretion of accreted
value and the payment of interest in the form of additional Indebtedness will
not be deemed to be an incurrence of Indebtedness for purposes of this covenant.
38
<PAGE> 41
Section 4.10 Asset Sales
The Company shall not, and shall not permit any of its Restricted
Subsidiaries to, consummate 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 75% 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 such
Restricted Subsidiary (other than contingent liabilities and liabilities that
are by their terms subordinated to the Notes or any guarantee thereof) 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 securities, 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 360 days of the receipt of any Net Proceeds from an Asset
Sale, the Company may apply such Net Proceeds, at its option, (i) to repay
Senior Debt (and to correspondingly permanently reduce commitments with respect
thereto in the case of revolving borrowings) or (ii) to fulfill reimbursement
obligations arising under the LC Facility to the extent such reimbursement
obligations arose as a result of actual cash payments having been made under
such facility for the benefit of the Company in connection with the Eau Claire
IRBs (and to correspondingly permanently reduce reimbursement obligations with
respect thereto) or to cash collateralize the LC Facility if the Indebtedness
under the Credit Agreement has been accelerated or (iii) the making of a capital
expenditure or the acquisition of other long-term assets (including the
acquisition of Capital Stock of a Person) in the same line of business as the
Company immediately prior to such acquisition. 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 (an "Excess Proceeds Triggering Event"), the Company will be required to
make an offer to all Holders of Notes (an "Asset Sale Offer") to purchase the
maximum principal amount of 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, pursuant to the provisions of Section 3.09
hereof. To the extent that the aggregate amount of 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. If the aggregate
principal amount of Notes surrendered by Holders thereof exceeds the amount of
Excess Proceeds, the Trustee shall select the Notes to be purchased on a pro
rata basis. Upon completion of an Asset Sale Offer, the amount of Excess
Proceeds shall be reset at zero.
39
<PAGE> 42
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 transaction,
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 Restricted Subsidiary than those that would have been
obtained in a comparable transaction by the Company or such Restricted
Subsidiary 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 Officer's 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 Eligible Institution.
The foregoing provisions will not prohibit (i) any employment
agreement entered into by 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 or other agreements which provide for
reasonable and customary indemnities provided on behalf of, officers, directors
and employees of the Company and its Restricted Subsidiaries, in each case as
determined in good faith by the Company evidenced by a resolution of the Board
of Directors set forth in an Officers' Certificate delivered to the Trustee,
(ii) transactions between or among the Company and/or its Restricted
Subsidiaries; and (iii) any Restricted Payment that is permitted by the
provisions of Section 4.07 hereof.
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 securing Indebtedness or trade payables 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 unless all payments of
principal of, and premium, interest and Liquidated Damages, if any, on the Notes
or otherwise under the Indenture are equally and ratably secured with (or prior
to) such Indebtedness.
Section 4.13 Corporate Existence
40
<PAGE> 43
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
obligated to make a Change of Control Offer to each Holder of Notes to
repurchase all or any part (equal to $1,000 or an integral multiple thereof) of
the principal amount of such Holder's Notes at an offer price in cash equal to
101% of the principal amount thereof, plus accrued and unpaid interest and
Liquidated Damages, if any, thereon to the date of purchase (the "Change of
Control Payment") pursuant to the procedures set forth in Section 3.09. 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 Notes as
a result of a Change of Control.
(b The Change of Control provisions described above will be
applicable whether or not any other provisions of this Indenture are applicable.
(c The Company will not be required to make a Change of Control
Offer following 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 this Indenture applicable to a Change of Control Offer
made by the Company and purchases all 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 will 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 continuing directors' qualifying shares) to any Person other
than to the Company or a Wholly Owned Restricted Subsidiary of the Company.
41
<PAGE> 44
Section 4.16 Other Senior Subordinated Debt
Neither the Company nor any of its Restricted Subsidiaries shall
incur 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 thereof.
Section 4.17 Subsidiary Guarantees
If the Company or any of its Restricted Subsidiaries shall acquire
or create after the date of this Indenture a Subsidiary substantially all of
whose assets are located in the United States or that conducts substantially all
of its business in the United States, 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 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.
42
<PAGE> 45
ARTICLE 5
SUCCESSORS
Section 5.1 Merger, Consolidation, or Sale of Assets
The Company shall not consolidate or merge with or into (whether or
not the Company is the surviving corporation), 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 corporation 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 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, after giving pro forma effect to such transaction 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. The Company shall deliver to the Trustee an Officers'
Certificate and an Opinion of Counsel, each stating that such consolidation,
merger, sale, assignment, transfer, lease conveyance or other disposition, and
if a supplemental indenture is required in connection with such transaction such
supplemental indenture, comply with the applicable provisions of this Indenture
and that all conditions precedent in this Indenture relating to such transaction
have been satisfied.
Section 5.2 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.
43
<PAGE> 46
ARTICLE 6
DEFAULTS AND REMEDIES
Section 6.1 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,
or Liquidated Damages, if any, with respect to, 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,
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 4.10, 4.14
or 5.01;
(d failure by the Company for 30 days after written notice by
the Trustee or the Holders of at least 25% in principal amount of
the then outstanding Senior Subordinated Notes 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 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, fully bonded (by a financially responsible institution
regularly engaged in the issuance of security bonds) discharged or
stayed for a period of 45 days;
(g except as permitted by this Indenture, any guarantee of the
Senior Subordinated Notes shall be held in any judicial proceeding
to unenforceable or invalid or shall cease for any reason to be in
full force and effect or any Restricted Subsidiary, or any Person
acting on behalf of any Restricted Subsidiary, shall deny or
disaffirm its obligations under its guarantee; and
44
<PAGE> 47
(h the Company or any of its Significant Subsidiaries or any
group of Restricted Subsidiaries that, taken as a whole, would
constitute a Significant Subsidiary:
(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;
in each case, pursuant to or within the meaning of any Bankruptcy
Law; or
(i 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 Restricted
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 Restricted
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 Restricted 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 Restricted
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.
45
<PAGE> 48
Section 6.2 Acceleration
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 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 arising from certain events of bankruptcy or insolvency, with respect to
the Company, any Significant Subsidiary or any group of Restricted Subsidiaries
that, taken together, would constitute a Significant Subsidiary, all outstanding
Senior Subordinated Notes will become due and payable without further action or
notice. Holders of the Senior Subordinated Notes may not enforce the Indenture
or the Senior Subordinated Notes except as provided in the Indenture. Subject to
certain limitations, Holders of a majority in principal amount of the then
outstanding Senior Subordinated Notes may direct the Trustee in its exercise of
any trust or power. 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 should
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, 2003 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 the premium specified in
the Indenture with respect to the year 2003 shall also become immediately due
and payable to the extent permitted by law upon the acceleration of the Senior
Subordinated Notes.
Section 6.3 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.
Section 6.4 Waiver of Past Defaults
46
<PAGE> 49
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 6.5 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, in its reasonable discretion, determines may be unduly prejudicial to
the rights of other Holders of Senior Subordinated Notes or that may involve the
Trustee in personal liability for which adequate indemnity against such
liability is not reasonably assured to it. The Trustee may take any other action
deemed proper by the Trustee that is not inconsistent with such direction or
this Indenture.
Section 6.6 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 a majority in aggregate 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.
47
<PAGE> 50
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.
Section 6.7 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 6.8 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 6.9 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.
48
<PAGE> 51
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:
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.
Section 6.12 Restoration of Rights and Remedies.
If the Trustee or any Holder has instituted any proceeding to
enforce any right or remedy under this Indenture or any Note and such proceeding
has been discontinued or abandoned for any reason, or has been determined
adversely to the Trustee or to such Holder, then and in every such case the
Company, the Trustee and the Holders shall, subject to any determination in such
proceeding, be restored severally and respectively to their former positions
hereunder, and thereafter all rights and remedies of the Trustee and the Holders
shall continue as though no such proceeding had been instituted.
49
<PAGE> 52
ARTICLE 7
TRUSTEE
Section 7.1 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.
(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 6.02, 6.04 or 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.
50
<PAGE> 53
(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 7.2 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 of its selection 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 made in an
Officer's Certificate 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 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 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.
(h) 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.
(i) 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
51
<PAGE> 54
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 7.3 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 7.4 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.
Section 7.5 Notice of Defaults
If a Default or Event of Default occurs and is continuing and if it
is known to the Trustee in accordance with the provisions of Section 7.02(j),
the Trustee shall mail to Holders of Senior Subordinated Notes at each Holder's
registered address a notice of the Default or Event of Default within 90 days
after the Trustee received knowledge of such Default or Event of Default. 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 7.6 Reports by Trustee to Holders of The Senior Subordinated Notes
Within 60 days after each September 1 beginning with the September 1
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 at each Holder's registered address 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)(2). The Trustee shall also transmit by mail all
reports as required by TIA Section 313(c).
52
<PAGE> 55
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 7.7 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 (including reasonable fees and expenses of counsel)
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 provided, however, that any
settlement of a claim shall be approved in writing by the Trustee if such
settlement would not be accompanied by a full release of the Trustee for all
liability arising out of the events giving rise to such claim. 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.
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.
53
<PAGE> 56
The Trustee shall comply with the provisions of TIA Section
313(b)(2) to the extent applicable.
Section 7.8 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 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
54
<PAGE> 57
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 7.9 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 $50 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 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.
55
<PAGE> 58
ARTICLE 8
LEGAL DEFEASANCE AND COVENANT DEFEASANCE
Section 8.1 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 8.2 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 8. Subject to compliance with this Article 8, the Company
may exercise its option under this Section 8.02 notwithstanding the prior
exercise of its option under Section 8.03 hereof.
56
<PAGE> 59
Section 8.3 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 4.05, 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
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 8.4 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 in
form 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
57
<PAGE> 60
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 in
form 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;
(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, except that the Opinion of
Counsel need not speak as to the conditions precedent stated in clauses
(d) and (f) of this section..
58
<PAGE> 61
Section 8.5 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.
Section 8.6 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 Trustee's sole discretion and 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 8.7 Reinstatement
59
<PAGE> 62
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 9.1 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;
(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.
In formulating its opinion on such matters, the Trustee will be
entitled to rely on such evidence as it deems appropriate, including, without
limitation, solely on an Opinion of Counsel.
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
60
<PAGE> 63
supplemental Indenture that affects its own rights, duties or immunities under
this Indenture or otherwise.
Section 9.2 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 9.02
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 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);
61
<PAGE> 64
(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 9.3 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 9.4 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 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.
62
<PAGE> 65
Section 9.5 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 9.6 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 or an Opinion of
Counsel stating that no Event of Default shall occur as a result of such amended
or supplemental indenture and that the execution of such amended or supplemental
indenture is authorized or permitted by this Indenture.
ARTICLE 10
SUBORDINATION
Section 10.1 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 of the Company.
Section 10.2 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 marshaling 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 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.
63
<PAGE> 66
"Representative" means, with respect to any Senior Debt, the agent
or other representative(s), if any, of holders of such 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 10.3 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 Permitted Junior
Securities and payments made from any defeasance trust created
pursuant to Article 8 hereof).
Section 10.4 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 Permitted Junior 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 to
accelerate its maturity and the Trustee receives a notice of such
default (a "Payment Blockage Notice") from the Company or 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 360 days
64
<PAGE> 67
shall have elapsed since the first day of the effectiveness of the immediately
prior Payment Blockage Notice issued as a result of Section 10.04(a)(ii) hereof.
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 unless the same has been cured
for a period of at least 181 consecutive days, provided that 360 days have
elapsed since the effectiveness of the immediately prior 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(a)(i) hereof, the date upon which such default is cured or
waived, and
(ii) in the case of a default referred to in Section
10.04(a)(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 10.5 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 10.6 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 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, upon and as set forth in (i) a writing provided to the Trustee
and consented to by all Representatives of the holders of Senior Debt of the
Company or (ii) in a final, non-appealable order of a court of competent
jurisdiction, 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.
65
<PAGE> 68
Section 10.7 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 10.8 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 10.9 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.
66
<PAGE> 69
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 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.
67
<PAGE> 70
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 at its
Corporate Trust Office a Payment Blockage Notice; 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 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 Representatives of the Senior
Debt are hereby authorized to file an appropriate claim for and on behalf of the
Holders of such Senior Subordinated Notes.
68
<PAGE> 71
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 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 holders of all Senior Debt of the Company.
69
<PAGE> 72
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, notwithstanding any provision of applicable law to the contrary, 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 .ebt; 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.
ARTICLE 11
MISCELLANEOUS
Section 11.1 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 11.2 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:
PLAINWELL INC.
200 Allegan Street
Plainwell, Michigan 49080
Telecopier No.: (616) 685-2708
Attention: William L. New
70
<PAGE> 73
With a copy to:
Kirkland & Ellis
Citicorp Center
153 East 53rd Street
New York, New York 10022
Telecopier No.: (212) 446-4900
Attention: Lance C. Balk, Esq.
If to the Trustee:
United States Trust Company of New York
114 West 47th Street
25th Floor
New York, New York 10036
Telecopier No.: (212) 852-1625
Attention: Ms. Patricia Stermer
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.
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 11.3 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).
71
<PAGE> 74
Section 11.4 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 11.5 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
(d) a statement as to whether or not, in the opinion of such Person,
such condition or covenant has been satisfied.
Section 11.6 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.
72
<PAGE> 75
Section 11.7 "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 11.8 No Personal Liability of Directors, Officers, Employees and
Stockholders
No director, officer, employee, incorporator or stockholder of the
Company of any Restricted Subsidiary, as such, shall have any liability for any
Obligations of the Company or such Restricted Subsidiary under the Senior
Subordinated Notes, any Guarantee thereto 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 11.9 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.
73
<PAGE> 76
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 12.1 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 12.2 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.
74
<PAGE> 77
(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 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 and written notice of such sale or
disposition is provided to the Trustee.
(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 and
further provided the Trustee is given notice in writing of such designation.
[Signatures on following page]
75
<PAGE> 78
SIGNATURES
Dated as of March 6, 1998 PLAINWELL INC.
By:_________________________________
Name:
Title:
Dated as of March 6, 1998 UNITED STATES TRUST COMPANY
OF NEW YORK
By:_________________________________
Name:
Title:
76
<PAGE> 79
Exhibit A
================================================================================
(Face of Senior Subordinated Note)
11% Series A Senior Subordinated Notes due 2008
No.
CUSIP No.
$_________
PLAINWELL INC.
promises to pay to the order of Cede & Co.
or registered assigns,
the principal sum of $130,000,000
on March 1, 2008.
Interest Payment Dates: March 1 and September 1
Record Dates: February 15 and August 15
PLAINWELL INC.
By:_____________________________
Name:
Title:
By:_____________________________
Name:
Title:
TRUSTEE'S AUTHENTICATION:
This is one of the Senior Subordinated
Notes referred to in the within-mentioned
Indenture:
UNITED STATES TRUST COMPANY
OF NEW YORK, as Trustee
By:_____________________________
Name:
Title:
Dated: March __, 1998
================================================================================
A-1
<PAGE> 80
(Legend)
THESE SECURITIES HAVE NOT BEEN REGISTERED UNDER THE UNITED STATES SECURITIES ACT
OF 1933, AS AMENDED (THE "SECURITIES ACT"), AND THESE SECURITIES MAY NOT BE
OFFERED, SOLD, PLEDGED OR OTHERWISE TRANSFERRED EXCEPT PURSUANT TO AN EXEMPTION
FROM THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT AND, IN EACH CASE, IN
ACCORDANCE WITH ANY APPLICABLE SECURITIES LAWS OF ANY STATE OF THE UNITED STATES
OR ANY OTHER JURISDICTION.
EACH HOLDER OF THIS SECURITY BY ITS ACCEPTANCE HEREOF AGREES TO (A) OFFER, SELL,
PLEDGE OR OTHERWISE TRANSFER THIS SECURITY ONLY (1) TO THE COMPANY, (2) PURSUANT
TO A REGISTRATION STATEMENT WHICH HAS BEEN DECLARED EFFECTIVE UNDER THE
SECURITIES ACT, (3) TO A PERSON IT REASONABLY BELIEVES IS A "QUALIFIED
INSTITUTIONAL BUYER" AS DEFINED IN RULE 144A IN A TRANSACTION MEETING THE
REQUIREMENTS OF RULE 144A, (4) PURSUANT TO OFFERS AND SALES TO NON-U.S. PERSONS
THAT OCCUR OUTSIDE THE UNITED STATES IN A TRANSACTION MEETING THE REQUIREMENTS
OF RULE 904 OF REGULATION S UNDER THE SECURITIES ACT, (5) TO AN INSTITUTIONAL
"ACCREDITED INVESTOR" (AS DEFINED IN RULE 501(A)(1), (2), (3) OR (7) OF
REGULATION D UNDER THE SECURITIES ACT (AN "IAI") THAT, PRIOR TO SUCH TRANSFER,
EXECUTES AND DELIVERS TO THE COMPANY AND THE TRUSTEE A LETTER CONTAINING CERTAIN
REPRESENTATIONS AND AGREEMENTS RELATING TO THE TRANSFER OF THIS SECURITY (THE
FORM OF WHICH LETTER CAN BE OBTAINED FROM THE TRUSTEE) AND AN OPINION OF
COUNSEL, IF THE COMPANY OR THE TRUSTEE SO REQUESTS OR (6) PURSUANT TO ANY OTHER
AVAILABLE EXEMPTION FROM THE REGISTRATION REQUIREMENTS UNDER THE SECURITIES ACT
(AND BASED ON AN OPINION OF COUNSEL IF THE COMPANY SO REQUESTS), SUBJECT IN EACH
OF THE FOREGOING CASES TO APPLICABLE SECURITIES LAWS OF ANY STATE OF THE UNITED
STATES OR ANY OTHER APPLICABLE JURISDICTION AND (B) THAT IT WILL, AND EACH
SUBSEQUENT HOLDER IS REQUIRED TO, NOTIFY ANY PURCHASER FROM IT OF THIS SECURITY
OF THE RESALE RESTRICTIONS SET FORTH IN (A) ABOVE.
A-2
<PAGE> 81
(Back of Senior Subordinated Note)
11% Series A Senior Subordinated Notes due 2008
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.
- ----------
1. This paragraph should be included only if the Senior Subordinated Note is
issued in global form.
A-3
<PAGE> 82
1. INTEREST. Interest on the Senior Subordinated Notes will accrue
at the rate of 11% per annum and will be payable semi-annually in arrears on
March 1 and September 1 of each year, commencing on _____, 1998 (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 and
premium, interest, Liquidated Damages, 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 of
principal, premium, interest and Liquidated Damages 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 canceled 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
Definitive 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, UNITED STATES TRUST
COMPANY OF NEW YORK, as Trustee, 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 March 6, 1998 ("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 Sections 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 $130.0
million in aggregate principal amount and will mature on March 1, 2008.
A-4
<PAGE> 83
5. OPTIONAL REDEMPTION.
(a) Except as set forth in clauses (b) and (c) below, the Senior
Subordinated Notes will not be redeemable at the Company's option prior to March
1, 2003. Thereafter, the Notes will be subject to redemption at any time 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 of the years indicated below:
<TABLE>
<CAPTION>
Year Percentage
- ---- ----------
<S> <C>
2003 105.500%
2004 103.666
2005 101.833
2006 and thereafter 100.000%
</TABLE>
(b) Notwithstanding the foregoing, prior to March 1, 2001, the
Company may redeem up to an aggregate of $45,500,000 in principal amount of
Notes at a redemption price of 111% of the principal amount thereof, plus
accrued and unpaid interest and Liquidated Damages, if any, thereon to the
redemption date, with the net cash proceeds of a Public Offering of common stock
of the Company; provided that (i) at least $84,500,000 in aggregate principal
amount of the Notes originally issued under the Indenture remain outstanding
immediately after the occurrence of such redemption and (ii) such redemption
shall occur within 60 days of the date of the consummation of each such Public
Offering.
(c) Any redemption pursuant to this Section shall be made pursuant
to the provisions of Section 3.01 through 3.06 of the Indenture.
6. MANDATORY REDEMPTION.
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
obligated 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 the principal
amount 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") in accordance with the provisions set forth in
Sections 3.09 and 4.14 of 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.
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
A-5
<PAGE> 84
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 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 the 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 fully 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.
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
A-6
<PAGE> 85
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, or Liquidated Damages, if
any, with respect to, the 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 Notes (whether or not prohibited by the
subordination provisions of the Indenture); (iii) failure by the Company to
comply with Sections 4.10, 4.14 and 5.01 of the Indenture; (iv) failure by the
Company for 30 days after written notice by the Trustee or the Holders of at
least 25% in principal amount of the then outstanding Notes to comply with any
of its other agreements in the Indenture or the 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 guaranteed or exists or is created after the Closing Date, 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 such Indebtedness on the date of such default (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, fully bonded (by a
financially responsible institution regularly engaged in the issuance of
security bonds) discharged or stayed within a period of 45 days; (vii) except as
permitted by the Indenture, any guarantee of the Notes shall be held in any
judicial proceeding to be unenforceable or invalid or shall cease for any reason
to be in full force and effect or any Restricted Subsidiary, or any Person
acting on behalf of any Restricted Subsidiary, shall deny or disaffirm its
obligations under its guarantee; and (viii) certain events of bankruptcy or
insolvency with respect to the Company ro 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 Notes may
declare all the 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 or any group of Restricted Subsidiaries that, taken together, would
constitute a Significant Subsidiary, all outstanding Notes will become due and
payable without further action or notice. Holders of the Notes may not enforce
the Indenture or the Notes except as provided in the Indenture. Subject to
certain limitations, Holders of a majority in principal amount of the then
outstanding Notes may direct the Trustee in its exercise of any trust or power.
The Trustee may withhold from Holders of the Notes notice of any continuing
Default or Event of Default (except a Default or Event
A-7
<PAGE> 86
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 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 Notes. If an Event of Default occurs prior to March
1, 2003 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 Notes prior to such date, then the premium specified in the
Indenture with respect to the year 2003 shall also become immediately due and
payable to the extent permitted by law upon the acceleration of the Notes.
The Holders of a majority in aggregate principal amount of the Notes
then outstanding by notice to the Trustee on behalf of the Holders of all of the
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
Notes.
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 or any Subsidiary, as such, shall
not have any liability for any obligations of the Company or such Subsidiary
under the Senior Subordinated Notes, any Guarantee thereto 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), TENANT (=
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
A-8
<PAGE> 87
Exchange and Registration Rights Agreement dated as of March 6, 1998 between the
Company and the parties named on the signature pages thereof.
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 Exchange and Registration
Rights Agreement. Requests may be made to:
PLAINWELL INC.
200 Allegan Street
Plainwell, MI 49080
Attention: Chief Executive Officer
A-9
<PAGE> 88
ASSIGNMENT FORM
To assign this Note, fill in the form below: (I) or (we) assign and
transfer this 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 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 Note)
Signature Guarantee:
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> 89
OPTION OF HOLDER TO ELECT PURCHASE
If you want to elect to have this 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 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 face of this Note)
Tax Identification No.:_____________________
Signature Guarantee:
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-11
<PAGE> 90
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>
Amount of Principal
Amount of increase in Amount of this
decrease in Principal Global Note Signature of
Principal Amount of following such authorized
Amount of this this Global decrease (or signatory of
Date of Exchange Global Note Note increase) Trustee
- ---------------- -------------- ----------- -------------- ------------
<S> <C> <C> <C> <C>
</TABLE>
- ----------
(2) This should be included only if the Senior Subordinated Note is issued in
global form.
A-12
<PAGE> 91
EXHIBIT B
CERTIFICATE TO BE DELIVERED UPON EXCHANGE OR REGISTRATION OF TRANSFER OF NOTES
Re: [Series A] [Series B] ___% Senior Subordinated Notes due 2008 (the "Notes")
of PLAINWELL INC.
This Certificate relates to $_________ principal amount of Notes held in
*|_| book-entry or *|_| definitive form by ___________________________ (the
"Transferor").
The Transferor, by written order, has requested the Trustee to exchange or
register the transfer of a Note or Notes. In connection with such request and in
respect of each such Note, the Transferor does hereby certify that Transferor is
familiar with the Indenture relating to the above captioned Notes and the
transfer of this Note does not require registration under the Securities Act of
1933, as amended (the "Securities Act") because such Note:
|_| is being acquired for the Transferor's own account, without transfer;
|_| is being transferred pursuant to an effective registration statement;
|_| is being transferred to a "qualified institutional buyer" (as defined in
Rule 144A under the Securities Act), in reli-ance on such Rule 144A;
|_| is being transferred pursuant to an exemption from registration in
accordance with Rule 904 under the Securities Act;**
|_| is being transferred pursuant to Rule 144 under the Securities Act;** or
|_| is being transferred pursuant to another exemption from the registration
requirements of the Securities Act (explain:
__________________________________________________________________________
_______________________________________________________________________)**
[INSERT NAME OF TRANSFEROR]
By:___________________________
Date:_____________________
* check applicable box.
** If this box is checked, this certificate must be accompanied by an opinion of
counsel to the effect that such transfer is in compliance with the Securities
Act.
B-1
<PAGE> 92
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 this Subsidiary Guarantee,
and any such release will be effective whether or not noted hereon.
C-1
<PAGE> 93
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:
C-2
<PAGE> 94
EXHIBIT D
- --------------------------------------------------------------------------------
PLAINWELL INC.
and
the Guarantors named herein
and
United States Trust Company of New York
Trustee
---------------------------------------
FORM OF SUPPLEMENTAL INDENTURE
AND AMENDMENT -- SUBSIDIARY GUARANTEE
Dated as of _____,
---------------------------------------
$130,000,000
11% Senior Subordinated Notes
due 2008
- --------------------------------------------------------------------------------
D-1
<PAGE> 95
This SUPPLEMENTAL INDENTURE dated as of _______, ____, among
PLAINWELL INC., a Delaware corporation (the "Company"), each party identified
under the caption "Guarantor" on the signature pages hereto (the "Guarantor")
and United States Trust Company 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 March 6, 1998 (the "Indenture"), pursuant to
which the Company issued $130,000,000 in principal amount of 11% Senior
Subordinated Notes due 2008 (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.
D-2
<PAGE> 96
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.
D-3
<PAGE> 97
SIGNATURES
IN WITNESS WHEREOF, the parties hereto have caused this Supplemental
Indenture to be duly executed, all as of the date first written above.
PLAINWELL INC.
By:
------------------------------------
Name:
----------------------------------
Title:
---------------------------------
GUARANTOR
[ ]
By:
------------------------------------
Name:
----------------------------------
Title:
---------------------------------
TRUSTEE
UNITED STATES TRUST COMPANY
OF NEW YORK, as Trustee
By:
------------------------------------
Name:
----------------------------------
Title:
---------------------------------
D-4
<PAGE> 98
EXHIBIT E
FORM OF PURCHASER LETTER
[DATE]
UNITED STATES TRUST COMPANY OF NEW YORK, as Trustee
114 W. 47th Street
New York, New York 10036
PLAINWELL INC.
200 Allegan Street
Plainwell, Michigan, 49080
[NAME OF SELLER]
Re: PLAINWELL INC.'S 11% Senior Subordinated Notes due 2008
We are delivering this letter in connection with our proposed purchase of
$__________ aggregate principal amount of 11% Senior Subordinated Notes due 2008
(the "Notes") of PLAINWELL INC. (the "Company").
We hereby confirm that:
1. We have received all information relating to the Notes as we deem
necessary in order to make our investment decision.
2. We are an institutional "accredited investor" (as defined in Rule
501(a)(1), (2) (3) or (7) under the Securities Act of 1933, as amended
(the "Securities Act")) purchasing for our own account or for the account
of such an institutional "accredited investor," and we are acquiring the
Notes for investment purposes and not with a view to, or for offer or sale
in connection with, any distribution in violation of the Securities Act or
the laws of any state or other jurisdiction, and we have such knowledge
and experience in financial and business matters as to be capable of
evaluating the merits and risks of our investment in the Notes, and we and
any accounts for which we are acting are each able to bear the economic
risk of our or its investment.
3. We understand that any subsequent transfer of the Notes is
subject to certain restrictions and conditions set forth in the Indenture
relating to the Notes (the "Indenture") and the undersigned agrees to be
bound by, and not to resell, pledge or otherwise transfer the Notes except
in compliance with, such restrictions and conditions of the Securities
Act.
4. We understand that the offer and sale of the Notes have not been
registered under the Securities Act, and that the Notes may not be offered
or sold except as described below. We agree, on our own behalf and on
behalf of any account for which we are purchasing the Notes, and each
subsequent holder of the Notes by its acceptance thereof will agree, not
to offer, sell or otherwise transfer such Notes prior to the date which is
two years (or such shorter period as may be promulgated by the Securities
and Exchange commission pursuant to Rule 144 under the Securities Act)
after the later of the date of original issue of such Notes and the last
date on which the Company or any affiliate of the company was the owner of
such Notes (the "Resale Restriction Termination Date"), except (1) to the
Company, (2) pursuant to a registration statement which has been declared
effective under the Securities Act, (3) to a person we reasonably believe
is a "qualified institutional buyer" as defined in Rule 144A in a
transaction meeting the requirements of Rule 144A, (4) pursuant to offers
and sales to non-U.S. persons that occur outside the United States in a
transaction meeting the requirements of Rule 904 of Regulation S under the
Securities Act, (5) to an institutional "accredited investor" (as defined
above) that prior to such transfer, executes and delivers to the Company
and the Trustee (as defined in the Indenture) a signed letter,
substantially identical to this letter, containing certain
E-1
<PAGE> 99
representations and agreements relating to the transfer of the Notes (the
form of which letter can be obtained from the Trustee), and, if requested
by the Company or the Trustee, an opinion of counsel (6) pursuant to the
exemption from registration provided by Rule 144 under the Securities Act
if available, or (7) pursuant to any other available exemption from the
registration requirements of the Securities Act (based upon an opinion of
counsel reasonably acceptable to the Company if the Company so requests),
subject in each of the foregoing cases, to any requirement of law that the
disposition of our property or the property of such investor account or
accounts be at all times within our or their control and to compliance
with applicable securities laws of any state or other jurisdiction. The
foregoing restrictions on resale will not apply subsequent to the Resale
Restriction Termination Date, and we further agree to provide to any
person purchasing any of the Notes from us a notice advising such
purchaser that resales of the Notes are restricted as stated herein. We
understand that any Notes acquired by us (other than pursuant to Rule
144A) will be in the form of definitive physical certificates and that
such certificates will bear a legend reflecting the substance of this
paragraph.
5. We understand that, on any proposed offer, sale or other transfer
of any Notes prior to the resale Restriction Termination Date, we will be
required to furnish to the Trustee and the Company such certifications,
legal opinions, and other information as either of them may reasonably
require to confirm that the proposed transaction complies with the
foregoing restrictions. We further understand that the Notes purchased by
us will bear a legend reflecting the substance of this and the preceding
paragraph.
We acknowledge that you, the Trustee and others are entitled to rely upon
this letter and are irrevocably authorized to produce this letter or a copy
hereof to any interested party in any administrative or legal proceedings or
official inquiry with respect to the matters covered hereby. We agree to notify
you promptly in writing if any of our representations or warranties herein
ceases to be accurate and complete.
THIS LETTER SHALL BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH THE
LAWS OF THE STATE OF NEW YORK
----------------------------------------
(Name of Purchaser)
By:
-------------------------------------
Name:
Title:
Address:
E-2
<PAGE> 100
TABLE OF CONTENTS
Page
ARTICLE 1 DEFINITIONS AND INCORPORATION BY REFERENCE...........................1
Section 1.01 Definitions..............................................1
Section 1.02 Other Definitions.......................................13
Section 1.03 Incorporation by Reference of Trust Indenture Act.......13
Section 1.04 Rules of Construction...................................14
ARTICLE 2 THE SENIOR SUBORDINATED NOTES.......................................14
Section 2.01 Form and Dating.........................................14
Section 2.02 Execution and Authentication............................15
Section 2.03 Registrar, Paying Agent and Depositary..................16
Section 2.04 Paying Agent to Hold Money in Trust.....................16
Section 2.05 Holder Lists............................................16
Section 2.06 Transfer and Exchange...................................17
Section 2.07. Replacement Notes.......................................20
Section 2.08. Outstanding Senior Subordinated Notes...................20
Section 2.09. Treasury Notes..........................................20
Section 2.10. Temporary Notes.........................................21
Section 2.11. Cancellation............................................21
Section 2.12. Defaulted Interest......................................21
Section 2.13. Record Date.............................................22
Section 2.14. CUSIP Number............................................22
Section 2.15. Computation of Interest.................................22
Section 2.16. Exchange of Series A Senior Subordinated Notes
for Series B Senior Subordinated Notes..................22
Section 2.17. Legends.................................................23
ARTICLE 3 REDEMPTION AND PREPAYMENT...........................................24
Section 3.01 Notices to Trustee......................................24
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..............26
Section 3.07 Optional Redemption.....................................26
Section 3.08 Mandatory Redemption....................................26
ARTICLE 4 COVENANTS...........................................................29
Section 4.01 Payment of Senior Subordinated Notes....................29
Section 4.02 Maintenance of Office or Agency.........................29
Section 4.03 Reports.................................................30
Section 4.04 Compliance Certificate..................................30
Section 4.05 Taxes...................................................31
Section 4.06 Stay, Extension and Usury Laws..........................31
i
<PAGE> 101
Section 4.07 Restricted Payments.....................................31
Section 4.08 Dividend and Other Payment Restrictions Affecting
Subsidiaries............................................34
Section 4.09 Incurrence of Indebtedness..............................34
Section 4.10 Asset Sales.............................................37
Section 4.11 Transactions With Affiliates............................38
Section 4.12 Liens...................................................38
Section 4.13 Corporate Existence.....................................38
Section 4.14 Offer to Repurchase Upon Change of Control..............39
Section 4.15 Issuances and Sales of Capital Stock of Restricted
Subsidiaries............................................39
Section 4.16 Other Senior Subordinated Debt..........................39
Section 4.17 Subsidiary Guarantees...................................39
ARTICLE 5 SUCCESSORS..........................................................40
Section 5.01 Merger, Consolidation, or Sale of Assets................40
Section 5.02 Successor Corporation Substituted.......................40
ARTICLE 6 DEFAULTS AND REMEDIES...............................................41
Section 6.01 Events of Default.......................................41
Section 6.02 Acceleration............................................42
Section 6.03 Other Remedies..........................................43
Section 6.04 Waiver of Past Defaults.................................43
Section 6.05 Control by Majority.....................................43
Section 6.06 Limitation on Suits.....................................44
Section 6.07 Rights of Holders of Senior Subordinated Notes
to Receive Payment......................................44
Section 6.08 Collection Suit by Trustee..............................44
Section 6.09 Trustee May File Proofs of Claim........................45
Section 6.10 Priorities..............................................45
Section 6.11 Undertaking for Costs...................................46
ARTICLE 7 TRUSTEE.............................................................46
Section 7.01 Duties of Trustee.......................................46
Section 7.02 Rights of Trustee.......................................47
Section 7.03 Individual Rights of Trustee............................48
Section 7.04 Trustee's Disclaimer....................................48
Section 7.05 Notice of Defaults......................................48
Section 7.06 Reports by Trustee to Holders of The Senior
Subordinated Notes......................................49
Section 7.07 Compensation and Indemnity..............................49
Section 7.08 Replacement of Trustee..................................50
Section 7.09 Successor Trustee by Merger, Etc........................51
Section 7.10 Eligibility; Disqualification...........................51
Section 7.11 Preferential Collection of Claims Against the Company...51
Section 7.12 May Hold Senior Subordinated Notes......................51
Section 7.13 Trustee's Application for Instructions from the
Company.................................................51
ARTICLE 8 LEGAL DEFEASANCE AND COVENANT DEFEASANCE ...........................52
Section 8.01 Option to Effect Legal Defeasance or Covenant
Defeasance..............................................52
Section 8.02 Legal Defeasance and Discharge..........................52
ii
<PAGE> 102
Section 8.03 Covenant Defeasance.....................................52
Section 8.04 Conditions to Legal or Covenant Defeasance..............53
Section 8.05 Deposited Money and Government Securities to be
Held in Trust; Other Miscellaneous Provisions...........54
Section 8.06 Repayment to Company....................................55
Section 8.07 Reinstatement...........................................55
ARTICLE 9 AMENDMENT, SUPPLEMENT AND WAIVER....................................55
Section 9.01 Without Consent of Holders of Senior Subordinated
Notes...................................................55
Section 9.02 With Consent of Holders of Senior Subordinated Notes....56
Section 9.03 Compliance with Trust Indenture Act.....................58
Section 9.04 Revocation and Effect of Consents.......................58
Section 9.05 Notation on or Exchange of Senior Subordinated Notes....58
Section 9.06 Trustee to Sign Amendments, Etc.........................58
ARTICLE 10 SUBORDINATION......................................................59
Section 10.01 Agreement to Subordinate................................59
Section 10.02 Certain Definitions.....................................59
Section 10.03 Liquidation; Dissolution; Bankruptcy....................59
Section 10.04 Default on Senior Debt..................................60
Section 10.05 Acceleration of Senior Subordinated Notes...............60
Section 10.06 When Distribution Must Be Paid Over.....................61
Section 10.07 Notice..................................................61
Section 10.08 Subrogation.............................................61
Section 10.09 Relative Rights.........................................61
Section 10.10 Subordination May Not Be Impaired by Company............62
Section 10.11 Distribution or Notice to Representative................63
Section 10.12 Rights of Trustee and Paying Agent......................63
Section 10.13 Authorization to Effect Subordination...................63
Section 10.14 Payment.................................................64
Section 10.15 Defeasance of this Article 10...........................64
Section 10.16 No Claims Against Subsidiaries..........................64
Section 10.17 Amendments..............................................65
Section 10.18 Trustee Not Fiduciary for Holders of Senior Debt........65
Section 10.19 Rights of Trustee as Holder of Senior Debt;
Preservation of Trustee's Rights .......................65
ARTICLE 11 MISCELLANEOUS......................................................65
Section 11.01 Trust Indenture Act Controls............................65
Section 11.02 Notices.................................................65
Section 11.03 Communication by Holders of Senior Subordinated
Notes with Other Holders of Senior Subordinated
Notes...................................................67
Section 11.04 Certificate and Opinion as to Conditions Precedent......67
Section 11.05 Statements Required in Certificate or Opinion...........67
Section 11.06 Rules by Trustee and Agents.............................67
Section 11.07 "Trustee" to Include Paying Agent.......................68
Section 11.08 No Personal Liability of Directors, Officers,
Employees and Stockholders .............................68
Section 11.09 Governing Law...........................................68
iii
<PAGE> 103
Section 11.10 No Adverse Interpretation of Other Agreements...........68
Section 11.11 Successors..............................................68
Section 11.12 Severability............................................68
Section 11.13 Counterpart Originals...................................68
Section 11.14 Table of Contents, Headings, Etc........................69
ARTICLE 12 GUARANTEE OF SENIOR SUBORDINATED NOTES.............................69
Section 12.01 Execution and Delivery of Subsidiary Guarantee..........69
Section 12.02 Subordination of Guarantee; Guarantors May
Consolidate, Etc., On Certain Terms.....................69
SIGNATURES....................................................................71
iv
<PAGE> 104
EXHIBITS
Exhibit A - 11% Series A Senior Subordinated Notes due 2008
Exhibit B - Certificate to be Delivered upon Exchange or Registration of
Transfer of Notes
Exhibit C - Form of Subsidiary Guarantee
Exhibit D - Form of Supplemental Indenture and Amendment -- Subsidiary Guarantee
Exhibit E - Form of Purchaser Letter
vii
<PAGE> 1
Exhibit 4.2
PLAINWELL INC.
$130,000,000
11% Senior Subordinated Notes
Due 2008
Purchase Agreement
March 3, 1998
BEAR, STEARNS & CO. INC.
SALOMON BROTHERS INC
c/o Bear, Stearns & Co. Inc.
245 Park Avenue
New York, New York 10167
Dear Sirs:
PLAINWELL INC. (the "Company"), a Delaware corporation, proposes,
subject to the terms and conditions stated herein, to issue and sell to Bear,
Stearns & Co. Inc. and Salomon Brothers Inc (the "Initial Purchasers"), an
aggregate of $130 million principal amount of the Company's 11% Senior
Subordinated Notes Due 2008 (the "Notes"). The Notes will be issued pursuant to
an Indenture (the "Indenture") to be dated as of the Closing Date (as defined)
between the Company and United States Trust Company of New York, as trustee (in
such capacity, the "Trustee").
The Company has prepared a preliminary offering memorandum dated
February 13, 1998 (the "Preliminary Offering Memorandum") and a final offering
memorandum dated March 3, 1998 (the "Offering Memorandum") relating to and
summarizing the terms of the Notes. The Company hereby confirms that it has
authorized the use of the Preliminary Offering Memorandum and the Offering
Memorandum in connection with the offer and sale of the Notes by the Initial
Purchasers in the manner and to the persons contemplated herein and therein (the
"Offering"). Unless stated to the contrary, all references herein to the
Offering Memorandum are to the Offering Memorandum at the date hereof and are
not meant to include any amendment or supplement thereto subsequent to the date
hereof.
<PAGE> 2
The Notes are being issued and sold in connection with a series of
transactions, including (i) the purchase by the Company, pursuant to an
Agreement of Purchase and Sale dated as of January 22, 1998 by and among Pope &
Talbot, Inc., Pope & Talbot, WIS., Inc. (collectively, "Pope & Talbot"),
Plainwell Holding Company ("Holdings") and the Company (the "Tissue Business
Purchase Agreement"), of the Tissue Business (as defined in the Tissue Business
Purchase Agreement) from Pope & Talbot (the "Tissue Business Acquisition"), (ii)
an equity contribution of approximately $25 million from Holdings to the Company
(the "Equity Contribution") and (iii) the establishment of a revolving line of
credit pursuant to a Credit Agreement to be dated as of the Closing Date between
the Company and Sanwa Business Credit Corporation ("Sanwa") (the "New Credit
Facility").
As used in this agreement, (i) "Tissue Business Acquisition
Documents" shall mean, collectively, the Tissue Business Purchase Agreement and
all documentation relating to the Tissue Business Acquisition, (ii) "Equity
Contribution Documents" shall mean, collectively, all documents related to the
Equity Contribution and (iii) "Transaction Documents" shall mean, collectively,
this Agreement, the Indenture, the Exchange and Registration Rights Agreement
(as defined), the Tissue Business Acquisition Documents, the Equity Documents
and the New Credit Facility.
None of the Notes have been registered under the Securities Act of
1933, as amended (the "Securities Act"), and the Notes are being offered and
sold in reliance on exemptions from or in transactions not subject to the
registration requirements of the Securities Act, including sales by the Initial
Purchaser made outside the United States in reliance on Regulation S under the
Securities Act ("Regulation S") and in the United States to "qualified
institutional buyers" ("QIBs") as defined in, and in reliance on, Rule 144A
under the Securities Act ("Rule 144A").
The Initial Purchasers and other holders of the Notes will have,
with respect to the Notes, the registration rights set forth in the Exchange and
Registration Rights Agreement, dated as of the Closing Date, in substantially
the form of Exhibit A hereto (the "Exchange and Registration Rights Agreement").
Pursuant to the Exchange and Registration Rights Agreement, the Company will
agree, among other things, to file with the Securities and Exchange Commission
(the "Commission") under the circumstances set forth therein (i) a registration
statement under the Securities Act with respect to which Notes (the "Registered
Notes") issued under the Indenture will be offered in exchange for the then
outstanding Notes and to cause such registration statement to be declared
effective and (ii) under certain circumstances, a shelf registration statement
pursuant to Rule 415 under the Securities Act relating to the resale of the
Notes by holders thereof and to cause such shelf registration statement to be
declared effective.
For purposes of this Agreement, all references to the "Company"
shall mean the Company after giving effect to the Tissue Business Acquisition
and the Equity Contribution.
<PAGE> 3
1. Representations and Warranties of the Company. The Company represents and
warrants to the Initial Purchasers that:
a. The Preliminary Offering Memorandum as of its date did not and the
Offering Memorandum as of the date hereof and as of the Closing Date
does not contain and will not contain any untrue statement of a
material fact or omit to state a material fact (except, in the case
of the Preliminary Offering Memorandum, for pricing terms and other
pricing related terms intentionally left blank) necessary to make
the statements therein, in the light of the circumstances under
which they were made, not misleading, except that the
representations and warranties set forth in this paragraph (a) do
not apply to statements or omissions in the Offering Memorandum
based upon the information referred to in Section 7(b) furnished to
the Company in writing by, or on behalf of, the Initial Purchasers
expressly for use therein.
b. The Company has been duly incorporated, is validly existing as a
corporation in good standing under the laws of the State of Delaware
with full corporate power and authority to carry on its business as
it is currently being conducted and to own, lease and operate its
properties, and is duly qualified and is in good standing as a
foreign corporation authorized to do business in each jurisdiction
in which the nature of its business or its ownership or leasing of
property requires such qualification, except where the failure to be
so qualified would not, individually or in the aggregate, have a
material adverse effect (financial or otherwise) on the condition,
results of operations, business or prospects of the Company.
Plainwell Paper Company ("Plainwell"), a --------- Michigan
corporation and a subsidiary of Holdings, has been duly incorporated
and is, and immediately prior to its merger with and into the
Company (the "Merger") on the Closing Date will be, validly existing
as a corporation in good standing under the laws of the State of
Michigan with full corporate power and authority to carry on its
business and to own, lease and operate its properties and is, and
immediately prior to the Merger will be, duly qualified and in good
standing as a foreign corporation authorized to do business in each
jurisdiction in which the nature of its business or its ownership or
leasing of property required such qualification, except where the
failure to be so qualified would not, individually or in the
aggregate, have a material adverse effect (financial or otherwise)
on the condition, results of operations, business or prospects of
Plainwell. The business of the Company is, and immediately prior to
the Merger will be, conducted only through Plainwell.
c. The Merger has been duly authorized by all necessary corporate
action on the part of the Company and Plainwell, including, to the
extent required by applicable law, all action by their respective
boards of directors and stockholders.
3
<PAGE> 4
The Merger will not (i) conflict with or result in a breach or
violation of any of the terms or provisions of, or constitute a
default (or an event which, with notice or lapse of time or both,
would constitute such a default) under, any indenture, mortgage,
deed or trust, loan agreement or other agreement or instrument to
which the Company or Plainwell is a party or by which either of them
is bound or to which any of the property or assets of either of them
is subject, (ii) result in any violation of the provisions of the
certificate of incorporation, bylaws or other governing documents of
the Company or Plainwell, (iii) result in the violation of any law
or statute or any order, rule or regulation of any court or
governmental agency or body having jurisdiction over the Company or
Plainwell or any of their properties or assets or (iv) result in the
creation or imposition of any lien, charge, claim or encumbrance
upon any property or asset of the Company or Plainwell.
d. The Notes have been duly authorized by the Company for issuance and
sale pursuant to this Agreement and, when executed and authenticated
in accordance with the provisions of the Indenture and delivered to
the Initial Purchaser against payment therefor as provided by this
Agreement, the Notes will be entitled to the benefits of the
Indenture, and will be valid and binding obligations of the Company
enforceable in accordance with their terms except as (i) the
enforceability thereof may be limited by bankruptcy, insolvency,
fraudulent conveyance or similar laws affecting creditors' rights
generally and (ii) rights of acceleration and the availability of
equitable remedies may be limited by equitable principles of general
applicability.
e. The Registered Notes have been duly authorized by the Company for
issuance and sale pursuant to this Agreement and the Exchange and
Registration Rights Agreement and, when executed and authenticated
in accordance with the provisions of the Indenture and delivered to
the holders of the Notes being exchanged therefor, the Registered
Notes will be entitled to the benefits of the Indenture, and will be
valid and binding obligations of the Company enforceable in
accordance with their terms except as (i) the enforceability thereof
may be limited by bankruptcy, insolvency, fraudulent conveyance or
similar laws affecting creditors' rights generally and (ii) rights
of acceleration and the availability of equitable remedies may be
limited by equitable principles of general applicability.
f. This Agreement has been duly authorized, executed and delivered by
the Company and is a valid and binding agreement of the Company
enforceable in accordance with its terms except as (i) rights to
indemnity and contribution hereunder may be limited by applicable
law, (ii) the enforceability thereof may be limited by bankruptcy,
insolvency, fraudulent conveyance or similar laws affecting
creditors' rights generally and (iii) rights of acceleration and the
4
<PAGE> 5
availability of equitable remedies may be limited by equitable
principles of general applicability.
g. Each of the Indenture, the Exchange and Registration Rights
Agreement and the Credit Agreement has been duly authorized by the
Company and, when executed and delivered by the Company on the
Closing Date, will be a valid and binding agreement of the Company,
enforceable in accordance with its terms except as (i) the
enforceability thereof may be limited by bankruptcy, insolvency,
fraudulent conveyance or similar laws affecting creditors' rights
generally and (ii) rights of acceleration and the availability of
equitable remedies may be limited by equitable principles of general
applicability.
h. Each of the Tissue Business Acquisition Documents and the Equity
Contribution Documents has been duly authorized and executed by the
Company and are valid and binding agreements of the Company
enforceable in accordance with its terms. The execution, delivery
and performance of the Tissue Business Acquisition Documents and the
Equity Contribution Documents and compliance by the Company with all
the provisions thereof and the consummation of the transactions
contemplated thereby will not require any consent, approval,
authorization or other order of any court, regulatory body,
administrative agency or other governmental body which consent has
not been received and will not conflict with or constitute a breach
of any of the terms or provisions of, or a default under, the
certificate of incorporation or by-laws of the Company or any
agreement, indenture or other instrument to which it is a party or
by which it or its property is bound, or violate or conflict with
any laws, administrative regulations or rulings or court decrees
applicable to the Company or its property.
i. The Notes conform as to legal matters to the description thereof
contained in the Offering Memorandum.
j. The Company is not in violation of its certificate of incorporation
or by-laws or in default (and no condition exists which, with
notice or lapse of time or both, would constitute a default) in the
performance of any obligation, agreement or condition contained in
any bond, debenture, note or any other evidence of indebtedness or
in any other agreement, indenture or instrument material to the
conduct of the business of the Company to which the Company is a
party or by which it or its property is bound, in each case other
than such violation or default as would not have a material adverse
effect (financial or otherwise) on the condition, results of
operations, business or prospects of the Company.
k. The execution, delivery and performance of this Agreement, the
Indenture and the Notes and compliance by the Company with all the
provisions hereof and
5
<PAGE> 6
thereof, as the case may be, and the consummation of the
transactions contemplated hereby and thereby will not require any
consent, approval, authorization or other order of any court,
regulatory body, administrative agency or other governmental body
which consent has not been received (except as such may be required
under the securities or Blue Sky laws of the various states or
jurisdictions outside the United States), and will not conflict with
or constitute a breach of any of the terms or provisions of, or a
default under, the certificate of incorporation or by-laws of the
Company or any agreement, indenture or other instrument to which it
is a party or by which it or its property is bound, or violate or
conflict with any laws, administrative regulations or rulings or
court decrees applicable to the Company or its property.
l. The execution, delivery and performance of the Exchange and
Registration Rights Agreement and the Registered Notes and
compliance by the Company with all the provisions thereof and the
consummation of the transactions contemplated thereby will not
require any consent, approval, authorization or other order of any
court, regulatory body, administrative agency or other governmental
body (except as such may be required under the Securities Act, the
Trust Indenture Act of 1939, as amended (the "Trust Indenture Act")
or the securities or Blue Sky laws of the various states or
jurisdictions outside the United States), and will not conflict with
or constitute a breach of any of the terms or provisions of, or a
default under, the certificate of incorporation or by-laws of the
Company or any agreement, indenture or other instrument to which it
is a party or by which it or its property is bound, or violate or
conflict with any laws, administrative regulations or rulings or
court decrees applicable to the Company or its property.
m. Except as set forth in the Offering Memorandum, there are no legal
or governmental proceedings pending to which the Company is a party
or to which its property is the subject that would be required to be
disclosed by Item 103 of Regulation S-K promulgated by the
Commission or otherwise, and, to the best of the Company's
knowledge, no such proceedings are threatened or contemplated.
n. Except as would not have a material adverse effect (financial or
otherwise) on the condition, results of operations, business or
prospects of the Company or otherwise be required to be disclosed in
a registration statement under the Securities Act, or as disclosed
in the Offering Memorandum, (i) the Company is not in violation of
any federal, state or local laws and regulations relating to
pollution or protection of human health or the environment or the
use, treatment, storage, disposal, transport or handling, emission,
discharge, release or threatened release or toxic or hazardous
substances, materials or wastes, or petroleum and petroleum products
("Materials of Environmental Concern") (collectively,
6
<PAGE> 7
"Environmental Laws"), including, without limitation, noncompliance
with or lack of any permits or other environmental authorizations,
and (ii) (A) the Company has not received any communication from any
person or entity alleging any violation of or noncompliance with any
Environmental Laws, and there are no past or present circumstances
that may lead to any such violation in the future, (B) there is no
pending or threatened claim, action, investigation or notice by any
person or entity against the Company or against any person or entity
for whose acts or omissions the Company is liable, either
contractually or by operation of law, alleging liability for
investigatory, cleanup, or governmental response costs, or natural
resources or property damages, or personal injuries, attorney's fees
or penalties relating to any Materials of Environmental Concern or
any violation or potential violation, of any Environmental Law
(collectively, "Environmental Claims"), and C) there are no existing
actions, activities, circumstances, conditions, events or incidents
that could form the basis of any such Environmental Claim.
o. Except as disclosed in the Offering Memorandum, the Company has such
permits, licenses, franchises and authorizations of governmental or
regulatory authorities ("Permits"), including, without limitation,
under any applicable Environmental Laws, as are necessary to own,
lease and operate its properties and to conduct its business; the
Company has fulfilled and performed all of its obligations with
respect to such Permits and no event has occurred which allows, or
after notice or lapse of time would allow, revocation or termination
thereof which might have a material adverse effect (financial or
otherwise) on the condition, results of operations, business or
prospects of the Company and such Permits contain no restrictions
that materially interfere with the business or operations of the
Company as currently conducted.
p. Except as otherwise set forth in the Offering Memorandum or such as
are not material (financial or otherwise) to the condition, results
of operations, business or prospects of the Company, the Company has
good and marketable title, free and clear of all liens, claims,
encumbrances and zoning, use and other restrictions, except liens
for taxes not yet due and payable, to all real and other property
and assets described in the Offering Memorandum as being owned by it
and the Company enjoys peaceful and undisturbed possession of all
such real and other property and other assets with such liens,
claims, encumbrances and restrictions as do not materially interfere
or threaten to materially interfere with the use made or proposed to
be made by the Company. All leases to which the Company is a party
are valid and binding and no default by the Company, or to the
knowledge of the Company, by any other party, has occurred or is
continuing thereunder, which might result in any material adverse
effect (financial or otherwise) on the condition, results of
operations, business or prospects of the
7
<PAGE> 8
Company and the Company enjoys peaceful and undisturbed possession
under all such leases with such exceptions as do not materially
interfere with the use made or proposed to be made by the Company.
q. The Company maintains, with insurers of recognized standing,
reasonably adequate insurance against property and casualty loss,
general liability, business interruption and such other losses and
risks, in each case, in such amounts as are prudent and customary in
the business in which it is engaged.
r. Each of Ernst & Young LLP and Arthur Andersen LLP are independent
public accountants with respect to the Company within the meaning of
the Securities Act.
s. Each of (i) the financial statements of the Consumer Products
Division (as defined in the Offering Memorandum), including the
notes thereto, contained in the Offering Memorandum and (ii) the
financial statements of Plainwell, including the notes thereto,
contained in the Offering Memorandum present fairly the respective
financial positions, results of operations and cash flows of the
Consumer Products Division and Plainwell, as of the respective dates
and for the respective periods to which they apply, and have been
prepared in accordance with GAAP and the requirements of Regulation
S-X promulgated by the Commission that would be applicable if the
Offering Memorandum were a prospectus included in a registration
statement on Form S- 1 filed under the Securities Act. The summary
and selected historical financial data included in the Offering
Memorandum are accurately presented and have been derived from, and
prepared on a basis consistent with, the respective financial
statements and the books and records of the Consumer Products
Division and Plainwell. The unaudited pro forma consolidated
financial information, including the notes thereto, contained in the
Offering Memorandum (i) comply with the rules and guidelines of the
Commission with respect to pro forma financial statements, (ii) have
been prepared on a basis consistent with the respective financial
statements of the Consumer Products Division and Plainwell, except
for the pro forma adjustments specified therein and (iii) are based
on good faith, reasonable estimates and assumptions of the Company.
The summary unaudited pro forma consolidated financial data included
in the Offering Memorandum are accurately presented and have been
derived from, and prepared on a basis consistent with, such
unaudited pro forma consolidated financial information. All other
financial and statistical data relating to the Company, Plainwell
and the Consumer Products Division included in the Offering
Memorandum are accurately presented and are derived from, and
prepared on a basis consistent with, the respective financial
statements and the books and records of the Consumer Products
Division and Plainwell.
8
<PAGE> 9
t. Each of the Company and Holdings has an authorized, issued and
outstanding capitalization as set forth in the Offering Memorandum.
All of the outstanding shares of capital stock of each of the
Company and Plainwell have been duly authorized and validly issued,
are fully paid and nonassessable and are owned of record and
beneficially by Holdings.
u. There are no outstanding subscriptions, rights, warrants, options,
calls, convertible securities, commitments of sale or liens related
to or entitling any person to purchase or otherwise to acquire any
shares of the capital stock of, or other ownership interest in, the
Company, Plainwell or Holdings except as disclosed in the Offering
Memorandum.
v. Except as disclosed in the Offering Memorandum, there are no
business relationships or related party transactions that would be
required to be disclosed therein by Item 404 of Regulation S-K
promulgated by the Commission.
w. There is (i) no unfair labor practice complaint pending against the
Company or, to the best knowledge of the Company, threatened against
it, before the National Labor Relations Board or any state or local
labor relations board, and no grievance or arbitration proceeding
arising out of or under any collective bargaining agreement is
pending against the Company or, to the best knowledge of the
Company, threatened against it, and (ii) no strike, labor dispute,
work rule or other slowdown, job action or stoppage pending against
the Company or, to the best knowledge of the Company, threatened
against it except for such matters specified in clause (i) or (ii)
above, which, singly or in the aggregate, would not have a material
adverse effect (financial or otherwise) on the condition, results of
operations, business or prospects of the Company.
x. The Company maintains a system of internal accounting controls
sufficient to provide reasonable assurance that (i) transactions are
executed in accordance with management's general or specific
authorizations, (ii) transactions are recorded as necessary to
permit preparation of financial statements in conformity with
generally accepted accounting principles and to maintain asset
accountability, (iii) access to assets is permitted only in
accordance with management's general or specific authorization and
(iv) the recorded accountability for assets is compared with the
existing assets at reasonable intervals and appropriate action is
taken with respect to any differences.
y. All tax returns required to be filed by the Company in any
jurisdiction have been filed, other than those filings being
contested in good faith, and all taxes, including withholding taxes,
penalties and interest, assessments, fees and
9
<PAGE> 10
other charges due pursuant to such returns or pursuant to any
assessment received by the Company have been paid, other than those
being contested in good faith and for which adequate reserves,
trademarks, service marks, trade names, licenses, copyrights and
proprietary or other confidential information currently employed by
them in connection with its business, and the Company has not
received any notice of infringement of or conflict with asserted
rights of any third party with respect to any of the foregoing
which, singly or in the aggregate, if the subject of an unfavorable
decision, ruling or finding, would result in any material adverse
effect (financial or otherwise) on the condition, results of
operations, business or prospects of the Company except as described
in the Offering Memorandum.
z. The Company does not intend to incur debts beyond its ability to pay
such debts as they mature, taking into account the timing and the
amounts of cash to be received by the Company and the timing and the
amounts of cash to be payable on or in respect of the Company's
indebtedness.
aa. The Notes are eligible for resale pursuant to Rule 144A and, when
issued, will not be of the same class (within the meaning of Rule
144A(d)(3)) as any securities (i) listed on a national securities
exchange registered under Section 6 of the United States Securities
Exchange Act of 1934, as amended (the "Exchange Act"), or (ii)
quoted on any United States "automated inter-dealer quotation
system" (as such term is used in the Exchange Act) in the United
States.
bb. Neither the Company, any of its affiliates (as used in this
Agreement, such term shall have the meaning set forth in Rule 501(b)
under the Securities Act) nor any person authorized to act on behalf
of any such person (it being understood that no representation is
given as to the Initial Purchasers and their respective affiliates)
has, directly or indirectly, (i) sold, offered for sale, solicited
offers to buy or otherwise negotiated in respect of, any security
(as defined in the Securities Act) which is or could be integrated
with the sale of the Notes in a manner that would require the
registration of any of the Notes under the Securities Act or (ii)
engaged in any form of general solicitation or general advertising
(as such terms are defined in Rule 502(c) under the Securities Act)
in connection with the Offering.
cc. None of the Company, any of its affiliates or any person acting on
its behalf (it being understood that no representation is given as
to the Initial Purchasers and their respective affiliates) has
engaged in any directed selling efforts within the meaning of Rule
902 under the Securities Act with respect to any Notes to be sold in
reliance on Regulation S, and each of the Company, its affiliates
and persons acting on its behalf (it being understood that no
representation is given as to the Initial Purchasers and their
respective affiliates)
10
<PAGE> 11
has complied with Rule 903 under the Securities Act with respect to
any Notes to be sold in reliance on Regulation S.
dd. Subject to compliance by the Initial Purchasers with the
representations, warranties and covenants set forth in Section 2 and
the procedures set forth in Section 3 hereof, it is not necessary in
connection with the offer, sale and delivery of the Notes to the
Initial Purchasers in the manner contemplated by this Agreement and
the Offering Memorandum to register the Notes under the Securities
Act or to qualify the Indenture under the Trust Indenture Act.
ee. The Company is not, or upon consummation of the transactions
contemplated under this Agreement, the Exchange and Registration
Rights Agreement and the Indenture will be, an "investment company"
or a company "controlled" by an "investment company" within the
meaning of the Investment Company Act of 1940, as amended (the
"Investment Company Act") or be subject to registration under the
Investment Company Act.
ff. All of the representations and warranties of the Company contained
in the Tissue Business Purchase Agreement and the Equity
Contribution Documents were true and correct on the date thereof and
are true and correct on the hereof, except where the inaccuracy of
such statements on the date hereof has been addressed in and
corrected by information disclosed in the Offering Memorandum and
would not reasonably be expected to have a material adverse effect
(financial or otherwise) on the condition, results of operations,
business or prospects of the Company.
gg. The execution and delivery of this Agreement, the Exchange and
Registration Rights Agreement and the Indenture and the sale of the
Notes to the Initial Purchasers or by the Initial Purchasers to
other purchasers of the Notes will not involve any prohibited
transaction within the meaning of Section 406 of the employee
Retirement Income Security Act of 1974, as amended, or the rules and
regulations promulgated thereunder ("ERISA") or Section 4975 of the
Internal Revenue Code of 1986, as amended, or the rules and
regulations promulgated thereunder (the "Code"). The representation
made by the Company in the preceding sentence is made in reliance
upon and subject to the accuracy of, and compliance with, the
representations and covenants made or deemed made by purchasers of
the Notes (other than the Initial Purchasers) as set forth in the
Offering Memorandum under the section entitled "Notice to
Investors."
hh. The Company has no equity or similar interest in any corporation,
partnership, limited liability company, joint venture or other
entity.
11
<PAGE> 12
2. Purchase, Sale and Delivery of the Notes. (a) Subject to the terms and
conditions herein set forth and on the basis of the representations,
warranties, covenants and agreements herein contained, the Company agrees
to sell to the Initial Purchasers, and the Initial Purchasers agree to
purchase, severally and not jointly, from the Company, the aggregate
principal amount of Notes set forth opposite such Initial Purchasers'
names in Schedule I hereto at a purchase price equal to 97.000% of the
principal amount thereof.
(b) Subject to the terms and conditions herein set forth, payment of
the purchase price for, and delivery of, the Notes shall be made at the
offices of Kirkland & Ellis, 153 East 53rd Street, New York, New York, at
9:00 a.m. (New York time), unless postponed as a result of the failure of
the Company to satisfy any of the conditions set forth in Section 6
hereof, on March 6, 1998 or at such other time or on such other date as
shall be mutually agreed in writing between the Company and the Initial
Purchasers (the time and date of such payment and delivery being herein
called the "Closing Date"). At least 24 hours prior to the Closing Date,
the Company shall execute and deliver the Notes for authentication in
definitive form and in such denominations and registered in such names as
the Initial Purchasers may request in writing not less than 36 hours prior
to the Closing Date. The Notes shall be represented by one permanent
global note, which may be subdivided ("Global Notes"), in definitive form,
registered in the name of Cede & Co., as nominee of The Depository Trust
Company ("DTC"), for the account or accounts of participants in the DTC
system (including Morgan Guaranty Trust Company of New York, Brussels
office, as operator of the Euroclear System ("Euroclear") and Cedel Bank,
Societe Anonyme ("Cedel Bank"), as the case may be) having an aggregate
principal amount corresponding to the aggregate principal amount of the
Notes purchased by the Initial Purchasers hereunder, which will be
deposited by or on behalf of the Company with DTC or its designated
custodian. Against delivery of the Notes to the Initial Purchasers, which
will be accomplished by causing DTC to credit the account of the Initial
Purchaser, the Initial Purchasers shall pay or cause to be paid to the
Company the purchase price for the Notes, which payment shall be made to
the Company by wire transfer or certified or official bank check or checks
drawn in Federal funds or similar immediately available funds to the order
of the Company.
3. Subsequent Offers and Resales of the Notes. The Initial Purchasers and the
Company hereby establish and agree to observe the following procedures in
connection with the offer and sale of the Notes:
(a) Each Initial Purchaser has advised the Company that it proposes
to offer the Notes for resale upon the terms and conditions set forth in
this Agreement and the Offering Memorandum. Each Initial Purchaser
understands that the Notes have not been and, other than pursuant to the
Company's obligations under the Exchange and Registration Rights
Agreement, will not be registered under the Securities Act. Each Initial
Purchaser agrees that it will not take, and acknowledges that the Company
has not
12
<PAGE> 13
taken, any action that would permit a public offering of the Notes in any
jurisdiction and further agrees that, with respect to the offer or sale of
any Notes or the delivery or distribution of any Offering Memorandum, it
will comply with applicable laws and regulations in any jurisdiction in
which it acquires, offers, sells or delivers the Notes or distributes the
Offering Memorandum to which it is otherwise subject.
(b) Each Initial Purchaser represents and warrants that (i) it is a
"qualified institutional buyer" within the meaning of Rule 144A and (ii)
that neither it nor any of its affiliates nor any person acting on behalf
of any such person has engaged or will engage in any general solicitation
or general advertising, as such terms are defined in Rule 502(c) under the
Securities Act, in connection with the offer or sale of the Notes.
(c) Each Initial Purchaser confirms that neither it nor its
affiliates nor any person acting on behalf of any such person has engaged
or will engage in any "directed selling efforts" (as such term is defined
in Regulation S) with respect to the Notes and that it has complied and
will comply with the offering restrictions requirements of Regulation S
with respect to the Notes.
4. Agreements of the Company. The Company covenants and agrees with the
Initial Purchasers that:
(a) The Company will make no further amendment or supplement to the
Offering Memorandum except as permitted herein; and if at any time prior
to the earlier of (i) the completion of the distribution of the Notes by
the Initial Purchasers or (ii) 120 days after the Closing Date any event
shall have occurred as a result of which the Offering Memorandum, as then
amended or supplemented, would, in the judgment of the Initial Purchasers
or the Company, include 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,
each Initial Purchaser or the Company, as the case may be, will promptly
notify the other and the Company will promptly prepare and deliver to the
Initial Purchasers an amendment or supplement that will correct such
untrue statement or omission.
(b) The Company shall advise the Initial Purchasers promptly and, if
requested, will confirm such advice in writing, (i) of any proposal to
amend or supplement the Offering Memorandum and will afford the Initial
Purchasers a reasonable opportunity to comment on any such proposed
amendment or supplement, (ii) of receipt by the Company of any
notification with respect to the suspension of the qualification of the
Notes for sale in any jurisdiction or the initiation or threat of any
proceeding for that purpose and (iii) of any downgrading in the rating
accorded the Notes by any "nationally recognized statistical rating
organization" (as defined for purposes of Rule 436(g) under the Securities
Act, an "NRSRO"), or any public announcement that any such organization
13
<PAGE> 14
has under surveillance or review its rating of the Notes (other than an
announcement with positive implications of a possible upgrading, and no
implication of a possible downgrading of such rating) as soon as the
Company learns of any such downgrading or public announcement.
(c) The Company will promptly deliver to the Initial Purchasers,
without charge, such number of copies of the Offering Memorandum and all
amendments of and supplements thereto as the Initial Purchasers may
reasonably request.
(d) Whether or not required by the rules and regulations of the
Commission, so long as any Notes are outstanding and so long as the
Indenture so requires, the Company will (i) furnish holders of the Notes
(A) all quarterly and annual financial information that would 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"
and, with respect to the annual information only, a report thereon by the
Company's certified independent accountants, and (B) all financial
information that would be required to be included in a Form 8-K filed with
the Commission if the Company were required to file such reports, and (ii)
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 to make such information available to investors or potential investors
in the Company's debt securities who request it in writing.
(e) During the period referred to in paragraph (d), the Company will
furnish to the Initial Purchasers as soon as available a copy of each
report or other publicly available information of the Company mailed to
the security holders of the Company or filed with the Commission and such
other publicly available information concerning the Company as the Initial
Purchasers may reasonably request.
(f) Without the prior consent of the Bear, Stearns & Co. Inc., prior
to the expiration of 180 days after the date of the Offering Memorandum
the Company will not offer, sell, contract to sell or otherwise dispose of
any note or debenture similar to the Notes having a maturity of more than
one year (other than the Registered Notes).
(g) The Company shall do and perform, or cause to be done or
performed, all things required or necessary to be done and performed under
this Agreement by the Company prior to the Closing Date and to satisfy all
conditions precedent to the delivery of the Notes.
(h) The Company shall use its best efforts in cooperation with the
Initial Purchasers to (i) permit the Notes to be eligible for clearance
and settlement through the facilities of DTC, Euroclear and Cedel Bank and
(ii) include quotation of the Notes on the
14
<PAGE> 15
Private Offerings, Resales and Trading through Automated Linkages
("PORTAL") Market of the National Association of Securities Dealers, Inc.
(i) The Company will use its best efforts to take such actions as
are necessary to enable Standard & Poor's Corporation ("S&P") and Moody's
Investors Service, Inc. ("Moody's") to provide their respective initial
credit ratings on the Notes.
(j) None of the Company, any of its affiliates or any person acting
on behalf of any of them (it being understood that no representation is
given as to the conduct of the Initial Purchasers and their respective
affiliates) will solicit any offer to buy or offer or sell the Notes by
means of any form of general solicitation or general advertising (as those
terms are used in Regulation D under the Securities Act) or in any manner
involving a public offering within the meaning of Section 4(2) of the
Securities Act, except in either case as contemplated by the Exchange and
Registration Rights Agreement.
(k) None of the Company, any of its affiliates or any person acting
on behalf of any of them (it being understood that no representation is
given as to the conduct of the Initial Purchasers and their respective
affiliates) will, directly or indirectly, offer, sell, solicit offers to
buy or sell or otherwise negotiate in respect of any security (as defined
in the Securities Act) which will be integrated with the sale of any of
the Notes in a manner that would require the registration of any of the
Notes under the Securities Act.
(l) During the period of two years after the Closing Date (or such
other period as the Notes in general constitute "restricted securities"
within the meaning of Rule 144 under the Securities Act) it will, upon
request, furnish to the Initial Purchasers and any holder of Notes a copy
of the restrictions on transfer applicable to the Notes.
(m) The Company will not, and will not permit any of its affiliates
to, resell any of the Notes that have been acquired by any of them and
that constitute "restricted securities" within the meaning of Rule 144 of
the Securities Act, except outside the United States in accordance with
Regulation S, pursuant to an exemption from the registration requirements
of the Securities Act or in a transaction registered under the Securities
Act.
(n) None of the Company or any of its affiliates or any person
acting on its or their behalf (it being understood that no representation
is given as to the conduct of the Initial Purchasers and their respective
affiliates) will engage in any directed selling efforts with respect to
any Notes to be sold in reliance on Regulation S, and the Company, each of
its affiliates and each person acting on its or their behalf (it being
understood that no representation is given as to the conduct of the
Initial Purchasers and their respective
15
<PAGE> 16
affiliates) will comply with the Rule 903 of the Securities Act with
respect to any Notes to be sold in reliance on Regulation S.
(o) Neither the Company nor any of its affiliates has or will,
either alone or with one or more other persons, bid for or purchase for
any account in which it or any of its affiliates has a beneficial interest
any Notes or attempt to induce any person to purchase any Notes, and
neither the Company nor any of its affiliates will make bids or purchase
Notes for the purpose of creating actual, or apparent, active trading in,
or of raising the price of, the Notes.
(p) Each of the Notes will bear a legend substantially in the form
contained in the section captioned "Notice to Investors" in the Offering
Memorandum for the time period and upon the other terms stated therein;
provided, however, that such legend will be removed upon request to the
Trustee or the security registrar under the Indenture after such Notes are
resold pursuant to a registration statement that has been declared
effective by the Commission under the Securities Act.
(q) For so long as any of the Notes constitute "restricted
securities" within the meaning of Rule 144(a)(3) under the Securities Act,
the Company will make available to any holder of the Notes or to any
prospective purchaser of the Notes designated by any holder, upon request
of such holder or prospective purchaser, information required to be
provided by Rule 144A(d)(4) under the Securities Act if at the time of
such request the Company is not subject to the reporting requirements
under Section 13 or 15(d) of the Exchange Act.
(r) The Company will use the proceeds from the sale of the Notes in
the manner described in the Offering Memorandum under the caption "Use of
Proceeds."
(s) The Company will comply with the agreements in the Transaction
Documents to which it is a party.
5. Expenses. The Company will pay all costs and expenses incident to the
performance of its obligations under this Agreement, whether or not the
transactions contemplated herein are consummated or this Agreement is
terminated pursuant to Section 10 hereof, including all costs and expenses
incident to (a) the printing or other production of documents with respect
to the transactions, including all costs of printing any Preliminary
Offering Memorandum and the Offering Memorandum, (b) all arrangements
relating to the delivery to the Initial Purchasers of copies of the
foregoing documents, (c) the fees and disbursements of the counsel, the
accountants and any other experts or advisors retained by the Company, (d)
preparation, issuance and delivery to the Initial Purchasers of any
certificates evidencing the Notes, (e) the qualification of the Notes
under state or foreign securities or Blue Sky laws, including filing fees
and
16
<PAGE> 17
reasonable fees and disbursements of counsel for the Initial Purchaser
relating thereto, (f) the fees paid to rating agencies in connection with
the Notes, (g) the quotation of the Notes on PORTAL, (h) "roadshow" travel
and other expenses incurred in connection with the marketing and sale of
the Notes, (i) the fees and expenses of the Trustee and any agent of the
Trustee and the fees and disbursements of counsel for the Trustee and (j)
the costs and charges of DTC, Euroclear and Cedel Bank.
6. Conditions to Initial Purchasers' Obligations. The obligation of the
Initial Purchasers to purchase the Notes under this Agreement is subject
to the satisfaction of each of the following conditions:
a. All the representations and warranties of the Company contained in
this Agreement shall be true and correct on the Closing Date with
the same force and effect as if made on and as of the Closing Date.
b. Subsequent to the execution and delivery of this Agreement and prior
to the Closing Date, there shall not have been any downgrading, nor
shall any notice have been given of any intended or potential
downgrading in the rating accorded any of the Company's securities
by any NRSRO, or any public announcement that any such organization
has under surveillance or review its rating of any such securities
(other than an announcement with positive implications of a possible
upgrading, and no implication of a possible downgrading of such
rating).
c. (i) Since the date of the latest balance sheet included in the
Offering Memorandum, there shall not have been any material adverse
change, or any development involving a prospective material adverse
effect (financial or otherwise) on the condition, results of
operations, business or prospects of the Company, whether or not
arising in the ordinary course of business, except as otherwise
described in the Offering Memorandum, (ii) since the date of the
latest balance sheet included in the Offering Memorandum there shall
not have been any material change, or any development involving a
prospective material adverse change, in the capital stock or in the
long-term debt of the Company from that set forth in the Offering
Memorandum, except as otherwise described in the Offering
Memorandum, (iii) the Company shall have no liability or obligation,
direct or contingent, which is material to the Company, other than
those set forth in the Offering Memorandum and (iv) on the Closing
Date the Initial Purchaser shall have received a certificate dated
the Closing Date, signed by William L. New, in his capacity as
President and Chief Executive Officer of the Company, and by Roy
Fuchs, in his capacity as Executive Vice President and Chief
Financial Officer of the Company, confirming the matters set forth
in paragraphs (a), (b) and (c) of this Section 6.
17
<PAGE> 18
d. The Initial Purchasers shall have received on the Closing Date an
opinion (in the form and substance satisfactory to the Initial
Purchasers and counsel for the Initial Purchasers), dated the
Closing Date, of Kirkland & Ellis, counsel for the Company, to the
effect set forth in Exhibit B hereto.
e. The opinion of Kirkland & Ellis, counsel for the Company, described
in paragraph (d) above shall be rendered to the Initial Purchasers
at the request of the Company and shall so state therein.
f. The Initial Purchasers shall have received the opinion of Fried
Frank Harris Shriver & Jacobson, counsel for Pope & Talbot,
delivered to the Company pursuant to the Tissue Business Purchase
Agreement together with a letter from such firm confirming that the
Initial Purchasers may rely on such opinion as if they were the
addressees thereof.
g. The Initial Purchasers shall have received on the Closing Date an
opinion, dated the Closing Date, of Jones, Day, Reavis & Pogue,
counsel for the Initial Purchasers, as to such matters as the
Initial Purchasers shall reasonably request.
h. The Initial Purchasers shall have received a letter or letters on
and as of the date of this Agreement (each, an "Initial Letter"), in
form and substance satisfactory to the Initial Purchasers, from
Arthur Andersen LLP and Ernst & Young LLP, each independent public
accountants, with respect to the financial statements and certain
financial information contained in the Offering Memorandum and a
letter or letters on and as of the Closing Date, in form and
substance satisfactory to the Initial Purchasers from Arthur
Andersen LLP and Ernst & Young LLP confirming the information
contained in the Initial Letter provided by such accountants.
i. The Company shall not have failed at or prior to the Closing Date to
perform or comply with any of the agreements herein contained and
required to be performed or complied with by the Company at or prior
to the Closing Date.
j. On or prior to the Closing Date, each of DTC, Euroclear and Cedel
Bank shall have accepted the Global Notes for clearance.
k. On or prior to the Closing Date, the Notes shall have been approved
for quotation on PORTAL.
l. The Company and the Trustee shall have entered into the Indenture
and the Initial Purchasers shall have received executed counterparts
thereof.
18
<PAGE> 19
m. The Company shall have entered into the Exchange and Registration
Rights Agreement and the Initial Purchasers shall have received
executed counterparts thereof.
n. The Tissue Business Acquisition and the Equity Contribution shall be
consummated prior to, or simultaneously with, the Closing of the
Offering on substantially the terms described in the Offering
Memorandum and the Initial Purchasers shall have received executed
counterparts of the Tissue Business Acquisition Documents and Equity
Contribution Documents and such other documentation as they deem
necessary to evidence the consummation thereof.
o. The Merger shall be consummated and become effective in accordance
with applicable law, including the laws of the States of Delaware
and Michigan, prior to, or simultaneously with, the Closing of the
Offering on substantially the terms described in the Offering
Memorandum and the Initial Purchasers shall have received such
documentation as they deem necessary to evidence the consummation
and effectiveness thereof.
p. The Company and Sanwa shall have entered into the New Credit
Facility and the Initial Purchasers shall have received executed
counterparts thereof.
7. Indemnification. (a) The Company agrees to indemnify and hold harmless
each Initial Purchaser and each person, if any, who controls any Initial
Purchaser within the meaning of Section 15 of the Securities Act or
Section 20(a) of the Exchange Act, against any and all losses,
liabilities, claims, damages and expenses whatsoever as incurred
(including, but not limited to, reasonable attorneys' fees and any and all
reasonable expenses whatsoever incurred in investigating, preparing or
defending against any litigation, commenced or threatened, or any claim
whatsoever, and any and all amounts paid in settlement of any claim or
litigation), jointly or severally, to which they or any of them may become
subject under the Securities 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 Offering
Memorandum or in any amendment thereof or supplement thereto, or arise out
of or are based upon the omission or alleged omission to state therein a
material fact necessary to make the statements therein, in the light of
the circumstances in which they were made, 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 arises out of or is based upon any such untrue statement
or omission, or alleged untrue statement or omission, made therein in
reliance upon and in conformity with written information referred to in
Section 7(b) furnished to the Company by, or on behalf of, any Initial
Purchaser expressly for use
19
<PAGE> 20
therein. This indemnity obligation will be in addition to any liability
which the Company may otherwise have, including under this Agreement.
(b) Each Initial Purchaser agrees to indemnify and hold harmless the
Company, each of the directors of the Company, each of the officers of the
Company, and each other person, if any, who controls the Company within the
meaning of Section 15 of the Securities Act or Section 20(a) of the Exchange
Act, against any losses, liabilities, claims, damages and expenses whatsoever as
incurred (including but not limited to attorneys' fees and any and all
reasonable expenses whatsoever incurred in investigating, preparing or defending
against any litigation, commenced or threatened, or any claim whatsoever, and
any and all amounts paid in settlement of any claim or litigation), jointly or
severally, to which they or any of them may become subject under the Securities
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 Offering Memorandum or in any amendment thereof or supplement
thereto, or arise out of or are based upon the omission or alleged omission to
state therein a material fact necessary to make the statements therein, in the
light of the circumstances in 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 such untrue statement or
omission, or alleged untrue statement or omission, made therein in reliance upon
and in conformity with written information furnished to the Company by, or on
behalf of, any Initial Purchaser expressly for use therein; provided, however,
that in no case shall any Initial Purchaser be liable or responsible for any
amount in excess of the discount of the purchase price of the Notes granted to
such Initial Purchaser hereunder. The Company acknowledges that (i) the
statements set forth in the last paragraph of page iii of the Offering
Memorandum and (ii) the names of the Initial Purchasers as set forth in, and the
last paragraph of, the section captioned "Plan of Distribution" in the Offering
Memorandum constitute the only information furnished to the Company in writing
by, or on behalf of, any Initial Purchaser expressly for use in the Offering
Memorandum or in any amendment thereof or supplement thereto.
(c) Promptly after receipt by an indemnified party under subsection
(a) or (b) above of notice of the commencement of any claim or 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 7 or otherwise). In case any such
claim or action is brought against any indemnified party, and such indemnified
party notifies an indemnifying party of the commencement thereof, the
indemnifying party will be entitled to participate in the defense thereof, and
to the extent such indemnifying party 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 satisfactory to
such indemnified party. Notwithstanding the foregoing, the indemnified party or
parties shall have the right to employ its or their own
20
<PAGE> 21
counsel in any such case, but the fees and 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 one of the indemnifying
parties in connection with the defense thereof, (ii) the indemnifying parties
shall not have employed counsel to have charge of the defense thereof within a
reasonable time after notice of the commencement, 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 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 shall be borne by the indemnifying parties (it being
understood, however, that the indemnifying party shall not be liable in any one
claim or action or separate but substantially similar or related claims or
actions in the same jurisdiction for the expenses of more than one separate
counsel and one additional local counsel). 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 written consent (which
consent may not be unreasonably withheld). No indemnifying party shall, without
the prior written consent of the indemnified party, effect any settlement of any
pending or threatened proceeding in respect of which any indemnified party is or
could have been a party and indemnity could have been sought hereunder by such
indemnified party, unless such settlement includes an unconditional release of
such indemnified party from all liability or claims that are the subject matter
of such proceeding.
8. Contribution. In order to provide for contribution in circumstances in
which the indemnification provided for in Section 7 hereof is for any
reason held to be unavailable from any indemnifying party or is
insufficient to hold harmless a party indemnified thereunder, the Company
and the Initial Purchasers 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 any contribution received from persons who may also be
liable for contribution, including officers and directors of the Company
and persons who control the Company within the meaning of Section 15 of
the Securities Act or Section 20(a) of the Exchange Act) to which the
Company, on the one hand, and one or both of the Initial Purchasers, on
the other hand, may be subject as incurred in such proportions as is
appropriate to reflect the relative benefits received by the Company, on
the one hand, and one or both of the Initial Purchasers, on the other
hand, from the offering of the Notes 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
Section 7 hereof, in such proportion as is appropriate to reflect not only
the relative benefits referred to above but also the relative fault of the
Company, on the one hand, and one or more of the Initial Purchasers, 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
21
<PAGE> 22
benefits received by the Company, on the one hand, and the Initial
Purchasers, on the other hand, shall be deemed to be in the same
proportion as (x) the total proceeds from the offering of the Notes (net
of discounts to the Initial Purchasers but before deducting expenses)
received by the Company and (y) the total discounts received by the
Initial Purchasers. The relative fault of the Company, on the one hand,
and of the Initial Purchasers, 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 on the one
hand, and the Initial Purchasers, on the other hand, and the parties'
relative intent, knowledge, access to information and opportunity to
correct or prevent such statement or omission. The Company and the Initial
Purchasers 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 account of the
equitable considerations referred to above. Notwithstanding the provisions
of this Section 8, no person guilty of fraudulent misrepresentation
(within the meaning of Section 11(f) of the Securities Act) shall be
entitled to contribution from any person who was not guilty of such
fraudulent misrepresentation. Notwithstanding the provisions of this
Section 8, no Initial Purchaser shall be required to contribute any amount
in excess of the amount by which the total price at which the Notes
purchased by it were offered to investors exceeds the amount of any
damages that such Initial Purchaser has otherwise been required to pay by
reason of such untrue or alleged untrue statement or omission or alleged
omission. For purposes of this Section 8, each person, if any, who
controls any Initial Purchaser within the meaning of Section 15 of the
Securities Act or Section 20(a) of the Exchange Act shall have the same
rights to contribution as such Initial Purchaser, and each person, if any,
who controls the Company within the meaning of Section 15 of the
Securities Act or Section 20(a) of the Exchange Act and each officer and
each director of the Company shall have the same right to contribution as
the Company. 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, notify each party or parties from
whom contribution may be sought, but the omission 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, except to the extent that it has been prejudiced in any
material respect by the omission to so notify. No party shall be liable
for contribution with respect to any action or claim settled without its
consent (which consent may not be unreasonably withheld).
9. Default by an Initial Purchaser.
a. If one of the Initial Purchasers shall fail at the Closing Date to
purchase the Notes which it is obligated to purchase under this
Agreement (the "Defaulted Notes") and such Defaulted Notes do not
exceed in the aggregate 10% of the
22
<PAGE> 23
aggregate principal amount of the Notes, then the non-defaulting
Initial Purchaser shall purchase the Defaulted Notes.
b. Notwithstanding the foregoing, if the Defaulted Notes equal or
exceed in the aggregate 10% of the aggregate principal amount of the
Notes, then the non-defaulting Initial Purchaser shall have the
right, but shall not be obligated, within 48 hours after the Closing
Date to purchase all, but not less than all, of the Defaulted Notes
upon the terms herein set forth; provided that if the non-defaulting
Initial Purchaser shall not have elected to purchase the Defaulted
Notes within such 48-hour period then the Company shall be entitled
to a further 48-hour period within which to procure another party or
parties satisfactory to the non-defaulting Initial Purchaser to
purchase the Defaulted Notes on such terms.
No action taken pursuant to this Section 9 shall relieve the
defaulting Initial Purchaser from liability in respect of its default.
In the event of any such default which does not result in a
termination of this Agreement, the non-defaulting Initial Purchaser or the
Company shall have the right to postpone the Closing Date for a period not
exceeding seven days in order to effect any required changes in the Offering
Memorandum or in any other documents or arrangements.
10. Survival of Representations and Agreements. All representations and
warranties, covenants and agreements of the Initial Purchasers and the
Company contained in this Agreement, including, without limitation, the
agreements contained in Sections 4 and 5, the indemnity agreements
contained in Section 7 and the contribution agreements contained in
Section 8, shall remain operative and in full force and effect regardless
of any investigation made by or on behalf of the Initial Purchasers or any
controlling person thereof or by or on behalf of the Company, any of its
officers and directors or any controlling person thereof, and shall
survive delivery of and payment for the Notes to and by the Initial
Purchasers. The representations contained in Section 1 and the agreements
contained in Sections 2, 3, 5, 7 and 8 and this Section 10 shall survive
the termination of this Agreement, including termination pursuant to
Section 11.
11. Termination. (a) Bear, Stearns & Co. Inc. shall have the right to
terminate this Agreement at any time prior to the Closing Date:
(i) if any domestic or international event or act or occurrence has
materially disrupted, or in the Initial Purchasers' sole opinion will in
the immediate future materially disrupt, the United States, or
international securities markets;
23
<PAGE> 24
(ii) if trading on the New York Stock Exchange, the American Stock
Exchange or the National Association of Securities Dealers Automated
Quotation System shall have been suspended or materially limited;
(iii) if a banking moratorium has been declared by any United States
federal or New York State authority or if any new restriction materially
adversely affecting the distribution of the Notes shall have become
effective;
(iv) if the United States becomes engaged in hostilities or there is
an escalation of hostilities involving the United States or there is a
declaration of a national emergency or war by the United States; or
(v) if there shall have been any other change in political,
financial or economic conditions, if the effect of such event in the sole
judgment of the Initial Purchaser is to make it impracticable or
inadvisable to proceed with the offering, sale and delivery of the Notes
on the terms contemplated by the Offering Memorandum.
(b) Any notice of termination pursuant to this Section 11 shall be
made to the Company by telephone, telecopy or telex confirmed in writing by
letter.
(c) If this Agreement shall be terminated pursuant to any of the
provisions hereof, or if the sale of the Notes provided for herein is not
consummated because any condition to the obligations of the Initial Purchasers
set forth herein is not satisfied or because of any refusal, inability or
failure on the part of the Company to perform any agreement herein or comply
with the provision hereof, the Company will, subject to demand by the Initial
Purchasers, reimburse the Initial Purchasers for all out-of-pocket expenses
(including the fees and expenses of their counsel), incurred by the Initial
Purchasers in connection herewith.
12. Notice. All communications hereunder, except as may be otherwise
specifically provided herein, shall be in writing and, if sent to any
Initial Purchaser, shall be mailed, delivered, telecopied, telexed or
telegraphed and confirmed in writing, to such Initial Purchaser, c/o Bear,
Stearns & Co. Inc., 245 Park Avenue, New York, New York 10167, Attention:
Gerald Dorros; with a copy to Jones, Day, Reavis & Pogue, 599 Lexington
Avenue, New York, New York 10022, Attention: Robert A. Zuccaro; if sent to
the Company, shall be mailed, delivered, telecopied, telexed or
telegraphed and confirmed in writing to PLAINWELL INC., 200 Allegan
Street, Plainwell, Michigan 49080, Attention: Chief Executive Officer;
with a copy to Kirkland & Ellis, Citicorp Center, 153 East 53rd Street,
New York, New York 10022, Attention: Lance C. Balk.
13. Consent to Jurisdiction; Waiver of Immunities. (a) The Company:
24
<PAGE> 25
(i) irrevocably submits to the jurisdiction of any New York State or
federal court sitting in New York City and any appellate court from any
thereof in any action or proceeding arising out of or relating to this
Agreement or any other document delivered hereunder;
(ii) irrevocably agrees that all claims in respect of any such
action or proceeding may be heard and determined in such New York State
court or in such federal court; and
(iii) irrevocably waives, to the fullest extent permitted by law,
the defense of an inconvenient forum to the maintenance of such action or
proceeding and irrevocably consents, to the fullest extent permitted by
law, to service of process of any of the aforementioned courts in any such
action or proceeding by the mailing of copies thereof by registered or
certified mail, postage prepaid, to the Company at its address as provided
in Section 11 hereof such service to become effective five days after such
mailing.
(b) Nothing in this Section 13 shall affect the right of any person
to serve legal process in any other manner permitted by law or affect the right
of any person to bring any action or proceeding against the Company or its
properties in the courts of other jurisdictions.
14. Parties. This Agreement shall inure solely to the benefit of, and shall be
binding upon, the Initial Purchasers, the Company and the controlling
persons, directors, officers, employees and agents referred to in Sections
7 and 8, and their respective successors and assigns, and no other person
shall have or be construed to have any legal or equitable right, remedy or
claim under or in respect of or by virtue of this Agreement or any
provision herein contained. The term "successors and assigns" shall not
include a purchaser, in its capacity as such, of Notes from the Initial
Purchasers.
15. Governing Law. This Agreement shall be governed by and construed in
accordance with the laws of the State of New York for contracts made and
to be fully performed in such state without regard to the conflict of law
principles thereof.
16. Counterparts. This Agreement may be executed and delivered (including by
facsimile transmission) in one or more counterparts, and by the different
parties hereto in separate counterparts, each of which when executed and
delivered shall be deemed to be an original but all of which taken
together shall constitute one and the same agreement.
If the foregoing is in accordance with your understanding of our
agreement, please sign and return to the Company a counterpart hereof, whereupon
this instrument, along with all counterparts, will become a binding agreement
between the Initial Purchasers and the Company in accordance with its terms.
25
<PAGE> 26
Very truly yours,
PLAINWELL INC.
By:
-------------------------------
Name:
Title:
Accepted as of the date first above written:
BEAR, STEARNS & CO. INC.
By:
-----------------------------
Name:
Title:
SALOMON BROTHERS INC
By:
-----------------------------
Name:
Title:
26
<PAGE> 27
SCHEDULE I
<TABLE>
<CAPTION>
Aggregate Principal Amount
Name of Initial Purchaser Of Notes To Be Purchased
- ------------------------- ------------------------
<S> <C>
Bear, Stearns & Co. Inc. $104,000,000
Salomon Brothers Inc $ 26,000,000
========================
$130,000,000
</TABLE>
27
<PAGE> 28
EXHIBIT A
[Form of Exchange and Registration Rights Agreement to be Attached]
<PAGE> 29
EXHIBIT B
[Form of Kirkland & Ellis Opinion]
<PAGE> 30
AGREEMENT AND PLAN OF MERGER
This Agreement and Plan of Merger dated as of March 2, 1998,
by and between PLAINWELL INC., a Delaware corporation ("PLAINWELL"), and
Plainwell Paper Company, a Michigan corporation ("Plainwell Paper") (PLAINWELL
and Plainwell Paper collectively shall be the "Constituent Corporations").
WHEREAS, PLAINWELL is a corporation duly organized and existing
under the laws of the State of Delaware with an authorized capital stock of
1,000 shares of common stock, with a par value of $0.01 per share (the
"PLAINWELL Common Stock"), of which 1,000 shares of the PLAINWELL Common Stock
are issued and outstanding as of the date of this Agreement;
WHEREAS, Plainwell Paper is a corporation duly organized and
existing under the laws of the State of Michigan with an authorized capital
stock of 1,000 shares of common stock, with a par value of $1.00 per share (the
"Plainwell Paper Common Stock"), of which 500 shares of the Plainwell Paper
Common Stock are issued and outstanding as of the date of this Agreement;
WHEREAS, the board of directors of each of the Constituent
Corporations has determined that it is in each of their best interests to effect
certain exchanges and other transactions described in this Agreement, that
Plainwell Paper merge with and into PLAINWELL with PLAINWELL being the surviving
corporation, and that the directors and stockholders of each of the Constituent
Corporations have approved the merger on the terms and conditions set forth
herein in accordance with the applicable provisions of the laws of the States of
Delaware and Michigan;
NOW THEREFORE, in consideration of the mutual covenants and
agreements herein contained, the parties hereby agree that, in accordance with
the applicable statutes of the States of Delaware and Michigan, Plainwell Paper
shall be merged into PLAINWELL, with PLAINWELL being the surviving corporation,
and that the terms and conditions of such merger (the "Merger"), the mode of
carrying it into effect and the manner and basis of converting the shares
effected by the Merger shall be as follows:
1. The Merger. Upon the terms and conditions hereinafter set forth and in
accordance with the General Corporation Law of Delaware and the Michigan
Business Corporation Act, on the day of the Effective Time, Plainwell
Paper shall be merged with and into PLAINWELL and thereupon the separate
existence of Plainwell Paper shall cease, and PLAINWELL, as the surviving
corporation (the "Surviving Corporation"), shall continue to exist under
and be governed by the General Corporation Law of the State of Delaware.
2. Filing. Plainwell Paper and PLAINWELL will cause a Certificate of
Merger, in compliance with the provisions of applicable law, to be
executed and filed with the Secretary of State of Delaware (the
"Certificate of Merger").
<PAGE> 31
3. Effective Date of Merger. The Merger shall become effective upon the
later of (a) filing and (b) immediately following the acquisition by
PLAINWELL of the tissue business of Pope & Talbot, Inc. and Pope & Talbot,
Wis., Inc. (the "Effective Time").
4. Certificate of Incorporation and By-laws. At the Effective Time, the
Certificate of Incorporation of PLAINWELL shall be the Certificate of
Incorporation of the Surviving Corporation. The by-laws of PLAINWELL shall
be the by-laws of the Surviving Corporation.
5. Directors and Officers. The persons who are directors of PLAINWELL
immediately prior to the Effective Time shall, after the Effective Time,
serve as the directors of the Surviving Corporation, and the officers of
PLAINWELL immediately prior to the Effective Time shall, after the
Effective Time, serve as the officers of the Surviving Corporation; in
each case, such directors and officers to serve until their successors
have been duly elected and qualified in accordance with the Certificate of
Incorporation and the by-laws of the Surviving Corporation, respectively.
6. Conversion. At the Effective Time, by virtue of the Merger and without
any action on the part of the holders of the Plainwell Paper Common Stock,
each share of the Plainwell Paper Common Stock which is issued and
outstanding immediately prior to the Effective Time shall be converted
into one share of PLAINWELL.
7. Effect of Merger. On and after the Effective Time, the Surviving
Corporation shall possess all the assets of every description, and every
interest in the assets, wherever located, and the rights, privileges,
immunities, powers, franchises and authority, of a public as well as a
private nature, of each of Plainwell Paper and PLAINWELL and all
obligations belonging to or due to each of Plainwell Paper and PLAINWELL,
all of which vested in the Surviving Corporation without further act or
deed. The Surviving Corporation shall be liable for all the obligations of
Plainwell Paper and PLAINWELL; any claim existing, or action or proceeding
pending, by or against Plainwell Paper or PLAINWELL may be prosecuted to
judgment, with right of appeal, as if the Merger had not taken place, or
the Surviving Corporation may be substituted in its place; and all the
rights of creditors of each of Plainwell Paper and PLAINWELL shall be
preserved unimpaired.
* * * * *
<PAGE> 32
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to
be executed as of the date first written above.
PLAINWELL INC. PLAINWELL PAPER COMPANY
By: ___________________ By: ___________________
Its: ___________________ Its: ___________________
<PAGE> 1
Exhibit 4.3
Exchange and Registration Rights Agreement
Exchange and Registration Rights Agreement (this "Agreement") dated as of
March 6, 1998 among PLAINWELL INC., a Delaware corporation (the "Company"),
Bear, Stearns & Co. Inc. and Salomon Brothers Inc (with Bear, Stearns & Co. Inc.
and Salomon Brothers Inc being referred to collectively as, the "Initial
Purchasers").
This Agreement is made pursuant to the Purchase Agreement, dated as of
March 3, 1998 (the "Purchase Agreement"), among the Company and the Initial
Purchasers, pursuant to which the Initial Purchasers have agreed, severally and
not jointly, to purchase from the Company $125,000,000 aggregate principal
amount of the Company's 11% Senior Subordinated Notes due 2008 (the "Notes").
The Notes will be issued pursuant to an Indenture (the "Indenture") to be dated
as of the date hereof between the Company and U.S. Trust Company of New York, as
trustee (the "Trustee"). As an inducement to the Initial Purchasers to purchase
the Notes, the Company agrees with the Initial Purchasers, for the benefit of
the holders of the Notes and the Registered Notes (as defined), as follows:
Section 1. Certain Defined Terms.
(a) As used in this Agreement, the following capitalized terms shall
have the following meanings:
"Broker-Dealer" means any broker or dealer registered under the
Exchange Act.
"Business Day" means any day other than a Saturday, a Sunday or a
day on which the banking institutions in the State of New York are
authorized or obligated by law or executive order to close.
"Commission" means the United States Securities and Exchange
Commission.
"Consummate" means, with respect to a Registered Exchange Offer: (i)
the filing and declaration of effectiveness under the Securities Act of
the Exchange Offer Registration Statement relating to the Registered Notes
to be issued in the Registered Exchange Offer; (ii) maintaining the
continuous effectiveness of such Exchange Offer Registration Statement and
keeping the Registered Exchange Offer open for a period of not less than
20 Business Days after the date of the mailing of the Prospectus pursuant
to Section 2(d)(i) hereof; and (iii) the delivery by the Company to the
Registrar under the Indenture of the Registered Notes in the same
aggregate principal amount as the aggregate principal amount of the Notes
that were duly tendered by Holders thereof pursuant to the Registered
Exchange Offer, and "Consummated" or "Consummation" shall have a
correlative meaning.
<PAGE> 2
"Exchange Act" means the United States Securities Exchange Act of
1934, as amended, and the rules and regulations promulgated thereunder.
"Exchange Offer Registration Statement" means a registration
statement (together with the Prospectus included therein, all amendments
and supplements thereto (including post-effective amendments) and all
exhibits and materials incorporated by reference therein) with respect to
the Registered Exchange Offer.
"Holder" means any Person who is the registered or beneficial owner
of the Notes or the Registered Notes, as the case may be.
"Person" means an individual, partnership, corporation, joint stock
company, joint venture, trust, unincorporated organization or a
government, agency or political subdivision thereof, firm or other entity.
"Prospectus" means the prospectus included in any Registration
Statement, as amended or supplemented, including, without limitation, by
any post-effective amendments thereto, and all material incorporated by
reference into such prospectus.
"Registration Statement" means the Exchange Offer Registration
Statement or the Shelf Registration Statement, as the context requires.
"Securities Act" means the United States Securities Act of 1933, as
amended, and the rules and regulations promulgated thereunder.
"Shelf Registration Statement" means a registration statement filed
for a delayed or continuous period pursuant to Rule 415 or any similar
rule that may be adopted by the Commission under the Securities Act
(together with the Prospectus included therein, all amendments and
supplements thereto (including post-effective amendments) and all exhibits
and materials incorporated by reference therein) with respect to a Shelf
Registration.
"TIA" means the United States Trust Indenture Act of 1939, as
amended, in effect on the date of the Indenture.
"Transfer Restricted Securities" means each Note and each Registered
Note, the Holder of which is subject to prospectus delivery requirements
of the Securities Act in order to sell such Note or Registered Note, until
the occurrence of any of the following events:
(i) the first date on which such Note may be exchanged for a
Registered Note in the Registered Exchange Offer, if following such
exchange such Holder would be entitled to resell such Registered
Note to the public without complying with the prospectus delivery
requirements of the Securities Act;
2
<PAGE> 3
(ii) the date on which such Note has been registered pursuant
to an effective Shelf Registration Statement under the Securities
Act and disposed of in accordance with the "Plan of Distribution"
section of the Prospectus contained in such Shelf Registration
Statement;
(iii) the date on which such Note is sold to the public
pursuant to Rule 144 under the Securities 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); or
(iv) such Note or Registered Note, as the case may be, shall
have ceased to be outstanding.
(b) Each of the following terms is defined in the Section set forth
opposite such term:
<TABLE>
<CAPTION>
Term Section
---- -------
<S> <C>
Agreement Preamble
Company Preamble
Indemnified Holder 7(a)
Indenture Preamble
Initial Purchasers Preamble
Issue Date 2(a)(i)
Liquidated Damages 8
Losses 7(a)
Notes Preamble
Participating Broker-Dealer 4(a)
Purchase Agreement Preamble
Registered Exchange Offer 2(a)
Registered Notes 2(a)
Registration Default 8
Shelf Registration 3(a)
Trustee Preamble
</TABLE>
Section 2. Registered Exchange Offer.
(a) The Company shall:
(i) prepare and, not later than 60 calendar days after the
Issue Date (as defined in the Indenture), file with the Commission
an Exchange Offer Registration Statement on an appropriate form
under the Securities Act with respect to a proposed offer to
exchange (the "Registered Exchange Offer") any and all of the
outstanding Notes (including, if permitted by the then prevailing
interpretations of the staff of the Commission, any Notes held by
the Initial
3
<PAGE> 4
Purchasers having the status of an unsold allotment in the initial
distribution) for a like aggregate principal amount of the Company's
11% Senior Subordinated Notes due 2008 (the "Registered Notes");
(ii) use its best efforts to cause the Exchange Offer
Registration Statement to become effective under the Securities Act
as soon as practicable thereafter, but in no event later than 150
calendar days after the Issue Date;
(iii) in connection with the foregoing, to file (A) all
pre-effective amendments to such Exchange Offer Registration
Statement as may be necessary in order to cause such Exchange Offer
Registration Statement to become effective and (B) cause all
necessary filings, if any, in connection with the registration and
qualification of the Registered Notes to be made under the Blue Sky
laws of such jurisdictions as are necessary to permit Consummation
of the Registered Exchange Offer except that in no event shall the
Company be obligated in connection therewith to qualify as a foreign
corporation or to execute a general consent to service of process or
to take any other action that would subject it to service of process
in suits in any jurisdiction other than those arising out of the
offering or sale of the Notes in such jurisdiction pursuant to such
Exchange Offer Registration Statement; and
(iv) upon the effectiveness of the Exchange Offer Registration
Statement, unless it would not be permitted by applicable law or
Commission policy, promptly commence the Registered Exchange Offer
to enable each Holder of the Notes (other than Holders who are
affiliates (within the meaning of the Securities Act) of the Company
or underwriters (as defined in the Securities Act) with respect to
the Registered Notes) to exchange the Notes for Registered Notes.
The Company shall cause the Exchange Offer Registration Statement and the
related Prospectus, as of the effective date of such Exchange Offer
Registration Statement, (i) to comply with the applicable requirements of
the Securities Act and (ii) not to contain any untrue statement of a
material fact or omit to state a material fact required to be stated
therein or necessary in order to make the statements therein, in light of
the circumstances under which they were made, not misleading.
(b) The Company shall cause the Registered Exchange Offer to be
Consummated in compliance with the Securities Act, the Exchange Act and
all other applicable laws and regulations. No securities other than the
Registered Notes shall be included in the Exchange Offer Registration
Statement. The Company shall use its best efforts to cause the Registered
Exchange Offer to be Consummated 20, but in any event, not later than 30
Business Days after the effective date of the Exchange Offer Registration
Statement. The Registered Exchange Offer shall be on an appropriate form
under the Securities Act as to permit resales of Registered Notes by
delivering the Prospectus contained in the Exchange Offer Registration
Statement.
4
<PAGE> 5
(c) To the extent necessary to ensure that the Exchange Offer
Registration Statement is available for sales of Registered Notes by
Broker-Dealers, the Company shall use its best efforts to keep the
Exchange Offer Registration Statement continuously effective and to amend
and supplement the Prospectus contained therein in order to permit such
Prospectus to be lawfully delivered by all persons subject to the
prospectus delivery requirements of the Securities Act for a period of up
to one year after the Consummation of the Registered Exchange Offer (or
such longer period if extended pursuant to Section 4(c)(ix)).
(d) In connection with the Registered Exchange Offer, the Company
shall:
(i) mail, or cause to be mailed, to each Holder of the Notes a
copy of the Prospectus forming a part of the Exchange Offer
Registration Statement, together with an appropriate letter of
transmittal and related documents;
(ii) keep the Registered Exchange Offer open for a period of
not less than 20 Business Days after the date notice thereof is
mailed to the Holders of the Notes (or longer if required by
applicable law);
(iii) utilize the services of a depositary for the Registered
Exchange Offer with an address in the Borough of Manhattan, The City
of New York; and
(iv) permit Holders of the Notes to withdraw tendered Notes at
any time prior to the close of business, New York time, on the last
Business Day on which the Registered Exchange Offer shall remain
open (the "Exchange Date").
(e) As soon as practicable after the Exchange Date, the Company
shall:
(i) accept for exchange all Notes duly tendered and not
validly withdrawn pursuant to the Registered Exchange Offer;
(ii) deliver or cause to be delivered to the Trustee for
cancellation all Notes or portions thereof so accepted for exchange
by the Company;
(iii) execute and deliver to, or cause to be delivered to, the
Trustee for authentication and delivery, Registered Notes in an
aggregate principal amount equal to the aggregate principal amount
of the Notes so accepted for exchange; and
(iv) cause the Trustee to authenticate and deliver promptly to
each Holder of the Notes accepted for exchange, Registered Notes
having an aggregate principal amount at maturity equal to the
aggregate principal amount at maturity of the Notes surrendered by
such Holder and accepted for exchange.
5
<PAGE> 6
Section 3. Shelf Registration.
(a) If:
(i) the Company is not required to file the Exchange Offer
Registration Statement or permitted to Consummate the Registered
Exchange Offer because the Registered Exchange Offer is not
permitted by applicable law or Commission policy; or
(ii) any Holder of Transfer Restricted Securities notifies the
Company prior to the 20th day following commencement of the Exchange
Offer that (a) it is prohibited by law or Commission policy from
participating in the Registered Exchange Offer or (b) that it may
not resell the Registered Notes acquired by it in the Registered
Exchange Offer to the public without delivering a prospectus and the
prospectus contained in the Exchange Offer Registration Statement is
not appropriate or available for such resales or (c) that it is a
Broker-Dealer and owns Notes acquired directly form the Company or
an affiliate of the Company,
then the Company shall take the following actions:
(A) After the occurrence of one of the events described in
3(a)(i) or (ii), the Company shall prepare and file with the
Commission as promptly as practicable but in no event later than 60
days after the occurrence of one of the events described in 3(a)(i)
or (ii) and in any event within 150 days of the Issue Date, a Shelf
Registration Statement on an appropriate form under the Securities
Act relating to the offer and sale by the Holders of the Notes in
accordance with the methods of distribution set forth in the Shelf
Registration Statement and Rule 415 under the Securities Act (a
"Shelf Registration") and cause such Shelf Registration Statement to
be declared effective as promptly as practicable after such filing
but in no event later than 90 calendar days after the occurrence of
one of the events described in 3(a)(i) or (ii); and
(B) The Company shall keep the Shelf Registration Statement
continuously effective, and agrees to amend or supplement the
prospectus contained therein (and use its best efforts to cause any
such amendment to become and remain effective) in order to permit
the prospectus included therein to be available for resales of, and
lawfully delivered by the Holders of, the Notes covered thereby,
until the earlier of (x) the second anniversary of the Issue Date
(or for such longer period if extended pursuant to Section
4(i)(ix)), (y) such time as all the Notes covered by such Shelf
Registration Statement have been sold pursuant thereto or (z) the
date on which all persons that are not affiliates may resell the
Notes pursuant to Rule 144(k) under the Securities Act or the date
on which the Notes otherwise cease to be Transfer Restricted
Securities.
6
<PAGE> 7
(b) The Company shall cause any Shelf Registration Statement and the
related prospectus and any amendment or supplement thereto, as of the
effective date of such Shelf Registration Statement, amendment or
supplement, (i) to comply with the applicable requirements of the
Securities Act and (ii) not to contain any untrue statement of a material
fact or omit to state a material fact required to be stated therein or
necessary in order to make the statements therein, in the light of the
circumstances under which they were made, not misleading.
Section 4. Registration Procedures.
(a) Registered Exchange Offer. In connection with the Registered
Exchange Offer:
(i) the Company shall comply with all of the provisions of
Section 4(c) below (other than those that are not applicable);
(ii) prior to effectiveness of the Exchange Offer Registration
Statement, if the Commission so requests, the Company shall make the
following representations (in substantially the form set forth
below) to the staff of the Commission:
(A) that the Company is registering the Registered Notes
and the Registered Exchange Offer in reliance on the position
of the staff of the Commission enunciated in the Exxon Capital
Holdings Corporation Commission no-action letter (available
May 13, 1988) and the Morgan Stanley and Co., Inc. Commission
no-action letter (available June 5, 1991), as interpreted in
the Shearman & Sterling Commission no-action letter (available
July 2, 1993); and
(B) that the Company has not entered into any
arrangement or understanding with any person to distribute the
Registered Notes to be received in the Registered Exchange
Offer and that, to the best of the Company's information and
belief, each Person participating in the Registered Exchange
Offer is acquiring the Registered Notes in its ordinary course
of business and has no arrangement or understanding with any
person to participate in the distribution of the Registered
Notes to be received in the Registered Exchange Offer. In this
regard, the Company will make each person participating in the
Registered Exchange Offer aware (through the Prospectus
included in the Exchange Offer Registration Statement or
otherwise) that, if the Registered Notes and the Registered
Exchange Offer are being registered for the purpose of
secondary resales of the Registered Notes, any Holder using
the Registered Exchange Offer to participate in a distribution
of the Registered Notes (1) could not rely on the staff
position enunciated in such Exxon Capital Holdings Corporation
letter or similar letters and (2)
7
<PAGE> 8
must comply with registration and prospectus delivery
requirements of the Securities Act in connection with any
secondary resale transaction of the Registered Notes. The
Company acknowledges that such a secondary resale transaction
should be covered by an effective registration statement
containing the selling security holder information required by
Item 507 of Regulation S-K;
(iii) the Company will require each Holder that is a
Broker-Dealer and that is the beneficial owner (as defined in Rule
13d-3 under the Exchange Act) of Notes acquired for its own account
as a result of market-making activities or other trading activities
(a "Participating Broker-Dealer"), to include a representation in
such Participating Broker-Dealer's letter of transmittal with
respect to the Registered Exchange Offer that such Participating
Broker-Dealer has not entered into any arrangement or understanding
with the Company or any affiliate of the Company to distribute the
Registered Notes;
(iv) the Company (1) will make each Person participating in
the Registered Exchange Offer aware (through the Prospectus included
in the Exchange Offer Registration Statement or otherwise) that any
Broker-Dealer who holds Notes acquired for its own account as a
result of market-making activities or other trading activities, and
who receives Registered Notes in exchange for such Notes pursuant to
the Registered Exchange Offer, may be a statutory underwriter and in
connection with any resale of such Registered Notes must deliver a
Prospectus meeting the requirements of the Securities Act and
describing the methods by which Participating Broker-Dealers may
resell such Registered Notes, and (2) will include in the
transmittal letter or similar documentation to be executed by an
exchange offeree in order to participate in the Registered Exchange
Offer the following additional provision:
"If the undersigned is a broker-dealer holding Notes acquired
for its own account as a result of market-making activities or
other trading activities, the undersigned hereby acknowledges
that it will deliver a prospectus meeting the requirements of
the Securities Act in connection with any resale of Registered
Notes received in respect of such Notes pursuant to the
Registered Exchange Offer"
and the transmittal letter or similar documentation may also include
a statement to the effect 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;
(v) as a condition to its participation in the Registered
Exchange Offer pursuant to the terms of this Agreement, each Holder
of the Notes who tenders such Notes pursuant to the Registered
Exchange Offer shall furnish a
8
<PAGE> 9
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 by accepting the
Registered Exchange Offer, such Holder represents to the Company
that:
(A) it is not an affiliate of the Company (within the
meaning of the Securities Act);
(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 Registered Notes to be
issued in the Registered Exchange Offer;
(C) it is acquiring the Registered Notes in its ordinary
course of business; and
(D) if it is a Participating Broker-Dealer holding Notes
acquired for its own account as a result of market-making
activities or other trading activities, it acknowledges that
it will deliver a Prospectus meeting the requirements of the
Securities Act in connection with any resale of Registered
Notes received in respect of such Notes pursuant to the
Registered Exchange Offer;
and the transmittal letter or similar documentation may also include
a statement to the effect 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; and
(vi) the Company shall include within the Prospectus contained
in the Exchange Offer Registration Statement a section entitled
"Plan of Distribution," which shall contain:
(A) a statement substantially to the effect that any
Broker-Dealer and any Holder using the Registered Exchange
Offer to participate in a distribution of the Registered Notes
to be acquired in the Registered Exchange Offer:
(I) could not under Commission policy as in effect
on the date of this Agreement rely on the position of
the Commission enunciated in the Morgan Stanley and Co.,
Inc. Commission no-action letter (available June 5,
1991) and the Exxon Capital Holdings Corporation
Commission no-action letter (available May 13, 1988), as
interpreted in the to Shearman & Sterling Commission
no-action letter (available July 2, 1993), and similar
no-action letters, and
9
<PAGE> 10
(II) must comply with the registration and
prospectus delivery requirements of the Securities Act
in connection with a secondary resale transaction of the
Registered Notes 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 under the Securities Act;
and
(B) a summary statement of the positions taken or
policies made by the staff of the Commission with respect to
the potential "underwriter" status of any Participating
Broker-Dealer.
Such "Plan of Distribution" section shall also allow the use of the
Prospectus by Participating Broker-Dealers for a period of one year from the
Consummation of the Exchange Offer, or such shorter period as will terminate
when all the Notes acquired by Participating Broker-Dealers have been exchanged
for the Registered Notes and resold by such Broker-Dealers, and include a
statement to the effect that any Broker-Dealer who holds Notes acquired for its
own account as a result of market-making activities or other trading activities,
and who receives Registered Notes in exchange for such Notes pursuant to the
Registered Exchange Offer, may be a statutory underwriter and must deliver a
Prospectus meeting the requirements of the Securities Act in connection with any
resale of such Registered Notes and that any profit or commissions received by
such Broker-Dealer may be deemed to be underwriting compensation under the
Securities Act, and describing the means by which Participating Broker-Dealers
may resell the Registered Notes. The "Plan of Distribution" section in the
Prospectus contained in the Exchange Offer Registration Statement shall not name
any such Participating Broker-Dealer or disclose the amount of Notes held by any
such Participating Broker-Dealer except to the extent required by Commission
policy.
(b) Shelf Registration Statement. In connection with any Shelf
Registration Statement, the Company shall comply with all the provisions
of Section 4(c) below (other than those that are not applicable) and shall
effect such registration to permit the resale of Notes being sold in
accordance with the intended method or methods of distribution set forth
in the Shelf Registration Statement.
(c) Registration Procedures. In connection with any Registration
Statement and any Prospectus required by this Agreement, the Company
shall:
(i) prepare and file with the Commission a Registration
Statement on the appropriate form under the Securities Act, which
form: (x) shall be selected by the Company; (y) shall, in the case
of a Shelf Registration Statement, be available for the sale of
Notes by the selling Holders thereof; and (z) shall comply as to
form with the requirements of the Securities Act, and include all
financial statements required by the Commission to be filed
therewith, and to cause such Registration Statement to become
effective and to keep such Registration Statement continuously
effective for the period provided for in
10
<PAGE> 11
Section 2, in the case of an Exchange Offer Registration Statement,
and for the period provided for in Section 3, in the case of a Shelf
Registration Statement;
(ii) (A) prepare and file with the Commission such amendments
and post-effective amendments to such Registration Statement as may
be necessary to keep such Registration Statement effective for the
applicable period set forth in Section 2 or Section 3, as the case
may be; and (B) cause each Prospectus to be supplemented by any
required prospectus supplement, and, as so supplemented, cause the
Prospectus to be filed pursuant to Rule 424 under the Securities Act
and to comply in all material respects with the applicable
provisions of Rules 424 and 430A under the Securities Act in a
timely manner;
(iii) advise the Initial Purchasers, each Holder of the Notes
included in the Shelf Registration Statement and, with respect to
the Exchange Offer Registration Statement, any Participating
Broker-Dealer from whom the Company has received prior written
notice that it will be a Participating Broker-Dealer in the
Registered Exchange Offer:
(A) when each Registration Statement or any amendment
thereto has been filed with the Commission and when each such
Registration Statement or any post-effective amendment thereto
has been declared effective;
(B) of any request by the Commission for amendments or
supplements to a Registration Statement or the Prospectus
included therein or for additional information;
(C) of the issuance by the Commission of any stop order
suspending the effectiveness of a Registration Statement or
the initiation or threatening of any proceedings for that
purpose;
(D) of the receipt by either of the Company or its legal
counsel of any notification with respect to the suspension of
the qualification of the Notes or the Registered Notes for
sale in any jurisdiction or the initiation or threatening of
any proceeding for such purpose;
11
<PAGE> 12
(E) when the prospectus contained in any Registration
Statement may not be used for offers or sales of the
Registered Notes because (x) of the existence of any fact or
the happening of any event (including any material non-public
information) that makes untrue 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, 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 or (y) such prospectus shall not contain the
current information required by the Securities Act; it being
understood that any notice delivered pursuant to this
subparagraph need not specifically recite the reasons for its
delivery, provided that the Company consults with the Initial
Purchasers prior to such notice's delivery as to the reasons
underlying such notice need;
(iv) use its efforts to prevent the issuance of any order of
the Commission suspending the effectiveness of a Registration
Statement; and 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 Notes or the Registered Notes under state
securities or Blue Sky laws, the Company shall use its best efforts
to obtain the withdrawal of such order at the earliest possible
time, and provide prompt notice of the withdrawal of any such order
to each Holder of any Notes included in the Shelf Registration
Statement, and, with respect to the Exchange Offer Registration
Statement, to any Participating Broker-Dealer participating in the
Registered Exchange Offer;
(v) furnish to each of the Initial Purchasers, upon request,
and, in the case of a Shelf Registration, to each Holder of any
Notes included in the Shelf Registration Statement, and counsel to
the Initial Purchasers referred to in Section 6, a reasonable time
prior to filing with the Commission, copies of any Registration
Statement or any Prospectus included therein and any amendments or
supplements thereto (including all documents incorporated by
reference prior to the effectiveness of such Registration
Statement), which documents, other than documents incorporated by
reference, will be subject to the review of the Initial Purchasers
for a period of at least five Business Days, and the Company may, in
its reasonable discretion, reflect in each such document when so
filed with the Commission, such comments as the Initial Purchasers
or such Holders reasonably may propose within five Business Days
after the receipt thereof;
12
<PAGE> 13
(vi) promptly prior to the filing of any document that is to
be incorporated by reference into a Registration Statement or
Prospectus subsequent to the effectiveness thereof (A) if requested,
provide copies of such document to any Holder of any Notes included
in such Registration Statement, to the Initial Purchasers and (B)
make representatives of the Company available for discussion of such
document and other customary due diligence matters, and (C) the
Company may, in its reasonable discretion, include such information
in such document prior to the filing thereof as Holders or the
Initial Purchasers may reasonably request;
(vii) (A) make available at reasonable times for inspection by
the Initial Purchasers and, in the case of a Shelf Registration,
Holders of any Notes included in such Registration Statement, and
any attorney or accountant retained by such Holder or the Initial
Purchasers, or any underwriter participating in any disposition
pursuant to a Shelf Registration Statement, all relevant financial
and other records, pertinent corporate documents and properties of
the Company and (B) cause the officers, directors and employees of
the Company to supply all information reasonably requested by any
such Holder, Initial Purchaser, attorney, accountant or underwriter
in connection with such Registration Statement subsequent to the
filing thereof and prior to its effectiveness, in each case, as is
customary for similar due diligence examinations;
(viii) if requested by any selling Holders in connection with
a Shelf Registration Statement or the Initial Purchasers in
connection with market making activities, (A) promptly incorporate
in any Registration Statement or Prospectus, pursuant to a
supplement or post-effective amendment if necessary, such
information as such Holders or the Initial Purchasers may reasonably
request, and to which the Company does not reasonably object, to
have included therein, including, without limitation, information
relating to the "Plan of Distribution" of the Notes, the purchase
price being paid therefor and any other terms of the offering of the
Notes to be sold in such offering, and (B) make all required filings
of any such Prospectus supplement or post-effective amendment as
promptly as practicable after the Company is notified of the matters
to be incorporated in such Prospectus supplement or post-effective
amendment;
13
<PAGE> 14
(ix) upon the occurrence of any event of the kind described in
Section 4(c)(iii)(E) or any other event that would cause such
Registration Statement or the Prospectus contained therein not to be
effective and usable for resales of Notes or Registered Notes during
the period required by this Agreement, promptly (except as
contemplated by Section 2(c) or 3(a)(ii)(B) hereof) prepare a
post-effective amendment to the applicable Registration Statement or
a supplement to the related Prospectus and use its best efforts to
cause such amendment to be declared effective, or file any other
required document so that the Registration Statement and the
Prospectus, as thereafter delivered to Holders of the Transfer
Restricted Securities or the purchasers of Transfer Restricted
Securities, (A) will not contain an untrue statement of a material
fact or omit to state any material fact necessary to make the
statements therein, in light of the circumstances under which they
were made, not misleading and (B) will contain all current
information required by the Securities Act. If any of the Initial
Purchasers, the Holders of any Notes or Registered Notes covered by
a Registration Statement or any known Participating Broker-Dealer is
required by the terms of this Agreement to suspend the use of a
Prospectus until the requisite changes to such Prospectus have been
made, then the period of effectiveness of the applicable Shelf
Registration Statement provided for in Section 3 and the Exchange
Offer Registration Statement provided for in Section 2 shall each be
extended by the number of days during the period from and including
the date such notice is required to be given under this Agreement to
and including the date when the Initial Purchasers, each selling
Holder covered by such Registration Statement, and any known
Participating Broker-Dealer shall have received an amended or
supplemented Prospectus contemplated by this clause (ix) or shall
have received Advice (as defined below) from the Company;
(x) in the case of a Registered Exchange Offer, deliver to
each of the Initial Purchasers one manually signed copy of the
Exchange Offer Registration Statement without charge and with any
post-effective amendment thereto, including financial statements and
schedules, and, if the Initial Purchasers request, all exhibits
(including those, if any, incorporated by reference);
(xi) in the case of a Registered Exchange Offer, deliver to
each of the Initial Purchasers, any Participating Broker-Dealer and
such other persons required to deliver a Prospectus in connection
with the offering and sale of the Registered Notes following the
Registered Exchange Offer, without charge, as many copies of the
final Prospectus included in the Exchange Offer Registration
Statement and any amendment or supplement thereto as such persons
may reasonably request, and, in connection therewith, the Company
hereby consents, subject to any notice by the Company in accordance
with this Section 4(c) of the existence of any fact or event of the
kind described in Section 4(c)(iii)(E), to the use of the Prospectus
or any amendment or supplement thereto by the Initial Purchasers, if
necessary, any Participating Broker-Dealer
14
<PAGE> 15
and such other persons as are required to deliver a Prospectus
following the Registered Exchange Offer in connection with the
offering and sale of the Registered Notes covered by the Prospectus,
or any amendment or supplement thereto, included in such Exchange
Offer Registration Statement;
(xii) in the case of a Shelf Registration, furnish to each of
the Initial Purchasers, without charge, one manually signed copy of
the Shelf Registration Statement and any post-effective amendment
thereto, including financial statements and schedules, and, if the
recipient Holder so requests, all exhibits (including those, if any,
incorporated by reference);
(xiii) in the case of a Shelf Registration, deliver, without
charge, to each of the Initial Purchasers and each Holder of the
Notes included within the coverage of a Shelf Registration Statement
which was declared effective by the Commission as many copies of the
Prospectus (including each preliminary prospectus) included in such
Shelf Registration Statement and any amendment or supplement thereto
as such person may reasonably request, and, in connection therewith,
the Company hereby consents, subject to any notice by the Company in
accordance with this Section 4(c) of the existence of any fact or
event of the kind described in Section 4(c)(iii)(E), to the use of
the Prospectus or any amendment or supplement thereto by each of the
selling Holders of the Notes in connection with the offering and
sale of the Notes covered by the Prospectus, or any amendment or
supplement thereto, included in such Shelf Registration Statement;
(xiv) in the case of a Shelf Registration, (A) enter into such
customary agreements and take all such other actions in connection
therewith in order to expedite or facilitate the offering or
disposition of the Notes included in the Shelf Registration
Statement, including, but not limited to, furnishing to the Initial
Purchasers and each Holder of any Notes included in the Shelf
Registration Statement, 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 effectiveness
of the Shelf Registration Statement:
(1) a certificate, dated the date of effectiveness
of the Shelf Registration Statement, signed by (x) the
president or chief executive officer of the Company and
(y) the chief financial officer or the principal
financial or accounting officer of the Company,
confirming, as of the date thereof, that the Shelf
Registration Statement and the related Prospectus do not
contain any untrue statement of a material fact or omit
to state a material fact required to be stated therein
or necessary to make the statements therein not
misleading and as to such other matters as such parties
may reasonably request;
15
<PAGE> 16
(2) opinions, dated the date of effectiveness of
the Shelf Registration Statement, of outside counsel for
the Company, covering such matters as are customarily
included in opinions to underwriters in primary
underwritten offerings and as are reasonably requested
by such parties; and
(3) a customary comfort letter, dated as of the
date of effectiveness of the Shelf Registration
Statement, from the independent certified public
accountants of the Company, in customary form and
covering matters of the type customarily covered in
comfort letters by underwriters in connection with
primary underwritten offerings, and addressing, to the
extent relevant, the matters set forth in the Initial
Letters (as defined in the Purchase Agreement) delivered
pursuant to the Purchase Agreement;
(B) in the case of an underwriting agreement entered
into in connection with a Shelf Registration, set forth in
full indemnification provisions and procedures substantially
in the form of those set forth in Section 7 hereof with
respect to all parties required to be indemnified pursuant to
such Section 7; and
(C) deliver such other documents and certificates as may
be reasonably requested by such parties to evidence compliance
with clause (A) above.
(xv) prior to any public offering of any Notes pursuant to a
Shelf Registration Statement, (A) cooperate with the selling Holders
participating in a Shelf Registration, and their respective counsel,
in connection with the registration and qualification of the Notes
under the securities or Blue Sky laws of such jurisdictions as the
selling Holders may request, and (B) do any and all other acts or
things necessary or advisable to enable the offering or disposition
in such jurisdictions of the Notes, as the case may be, covered by
the Shelf Registration Statement; except that in no event shall the
Company be obligated in connection therewith to qualify as a foreign
corporation or to execute a general consent to service of process or
to take any other action that would subject it to service of process
in suits in any jurisdiction other than those arising out of the
offering or sale of Notes in such jurisdiction pursuant to such
Registration Statement;
(xvi) to the extent that any Notes are held in certificated
form and are not represented by global certificates, cooperate with
the holders of such Notes, in connection with the Registered
Exchange Offer, to include an aggregate principal amount of such
Notes in a global certificate representing the Registered Notes,
and, to the extent that any Notes or Registered Notes are not
16
<PAGE> 17
eligible to be held in book-entry form, prepare and deliver Notes or
Registered Notes in certificated form as the Holders may request;
provided, in either case, that the Company will cooperate with
participating Broker Dealers (in the case of a Registered Exchange
Offer) and any Holders selling Notes pursuant to a Shelf
Registration Statement, to facilitate the timely delivery of such
certificates (whether in book-entry or certificated form as provided
above) representing such Registered Notes or Notes, as the case may
be, to be sold which do not bear any restrictive legends (other than
any customary legend required by the applicable depository or any
legend that would be required by a Note or Registered Note held by
an affiliate of the Company);
(xvii) use its best efforts to cause the Notes or Registered
Notes covered by the Registration Statement to be registered with or
approved by such other governmental agencies or authorities (except
as may be required solely as consequence of a Holder's business) as
may be necessary to enable the Consummation of the Registered
Exchange Offer or, in the case of a Shelf Registration, as may be
applicable to the Company with respect to filing and having declared
effective the Shelf Registration Statement;
(xviii) obtain appropriate CUSIP numbers for each series of
Registered Notes not later than the effective date of the
Registration Statement and provide the Trustee with printed
certificates for the Notes or Registered Notes, as the case may be,
in a form eligible for deposit with The Depository Trust Company, or
with Morgan Guaranty Trust Company of New York, Brussels Office, as
operator of the Euroclear System and Cedel Bank, societe anonyme;
(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,
an earnings statement meeting the requirements of Rule 158 (which
need not be audited) covering a period of at least 12 months
beginning after the effective date of a Registration Statement; and
(xx) cause the Indenture to be qualified under the TIA not
later than the effective date of the first Registration Statement
required to be filed by this Agreement, and, in connection
therewith: (A) cooperate with the Trustee and the Holders of 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 (B) execute, and use all reasonable 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.
The Initial Purchasers, each Holder of Notes included in a Shelf
Registration Statement and each Participating Broker-Dealer using the Prospectus
included in the Exchange Offer Registration Statement for the resale of
Registered Notes, by its acquisition of a Note or
17
<PAGE> 18
a Registered Note, agrees that, upon receipt of any notice from the Company of
the existence of any fact or event of the kind described in Section
4(c)(iii)(E), the Initial Purchasers, Holder or Participating Broker-Dealer will
forthwith discontinue disposition of the Notes or the Registered Notes, as
applicable, and suspend the use of the Prospectus until the Initial Purchasers,
Holder or Participating Broker-Dealer have received copies of a supplemented or
amended Prospectus as contemplated by Section 4(c)(ix), or until it 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
by reference in the Prospectus. If so directed by the Company, the Initial
Purchasers, each such selling Holder of Notes or each such Participating
Broker-Dealer, as the case may be, will deliver to the Company (at the expense
of the Company) all copies, other than permanent file copies then in such
Holder's, Initial Purchaser's or Participating Broker-Dealer's possession, of
the Prospectus covering such Notes or Registered Notes, as applicable, that was
current at the time of receipt of such notice.
Section 5. Hold-Back Agreements.
The Company agrees, without the prior written consent of Bear,
Stearns & Co. Inc., not to effect any public or private sale or distribution
(including a sale pursuant to Regulation D under the Securities Act) of any
securities the same as or similar to those covered by a Registration Statement
filed pursuant to Section 2 or 3 hereof, or any securities convertible into or
exchangeable or exercisable for such securities, from the date of this Agreement
at any time within 180 calendar days after the Issue Date.
Section 6. Registration Expenses.
All expenses incident to the Company's performance of or compliance
with its obligations under Sections 2, 3 and 4 of this Agreement will be borne
by the Company regardless of whether a Registration Statement becomes effective,
and, in the case of a Shelf Registration Statement, the Company will reimburse
the Holders covered thereby for the reasonable fees and disbursements of one
counsel, who shall be Jones, Day, Reavis & Pogue, unless another firm shall be
designated by the Holders of a majority of the principal amount of the Notes or
such Registered Notes included in any such Registration Statement.
Section 7. Indemnification and Contribution.
18
<PAGE> 19
(a) In connection with any Registration Statement, the Company
agrees to indemnify and hold harmless (i) each of the Initial Purchasers,
each Participating Broker-Dealer and each Holder of Notes to be included
in such Registration Statement, (ii) each person, if any, who controls
(within the meaning of Section 15 of the Securities Act or Section 20 of
the Exchange Act) such Initial Purchaser, Participating Broker-Dealer or
Holder (any of the persons referred to in this clause (ii) being
hereinafter referred to as a "controlling person") and (iii) the
respective officers, directors, partners, employees, representatives and
agents of any such Initial Purchaser, Participating Broker-Dealer or
Holder or controlling person (any person referred to in clause (i), (ii)
or (iii) may hereinafter be referred to as an "Indemnified Holder") from
and against any and all losses, liabilities, claims, damages and expenses
whatsoever as incurred (including, but not limited to, reasonable
attorneys' fees and any and all reasonable expenses whatsoever incurred in
investigating, preparing or defending against any litigation, commenced or
threatened, or any claim whatsoever, and, subject to Section 7(c), any and
all amounts paid in settlement of any claim or litigation), jointly or
severally, to which any such Indemnified Holder may become subject under
the Securities Act, the Exchange Act or otherwise (collectively,
"Losses"), insofar as such Losses (or actions or proceedings in respect
thereof) arise out of or are based upon any untrue statement or alleged
untrue statement of a material fact contained in any Registration
Statement or Prospectus, or any amendment or supplement thereto, or any
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;
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 (or action or
proceeding in respect thereof) arises out of or is based upon an untrue
statement or alleged untrue statement in or omission or alleged omission
from the Registration Statement or Prospectus contained therein made in
reliance upon and in conformity with written information furnished to the
Company by or on behalf of such Indemnified Holder expressly for use
therein. This indemnity obligation will be in addition to any liability
which the Company may otherwise have to such Indemnified Holder, including
under this Agreement.
(b) The Company hereby also agrees that in connection with any
underwritten offering of Transfer Restricted Securities pursuant to
Section 3, the Company will also indemnify any underwriters, selling
brokers, dealers and similar securities industry professionals
participating in the distribution, their officers, directors, employees,
agents, advisors and representatives, and each controlling person thereof,
substantially to the same extent as provided in Section 7(a) with respect
to the indemnification of the Initial Purchasers and Holder of Transfer
Restricted Securities (and such Persons will indemnify the Company and
each controlling person thereof to the same extent as provided in Section
7(c)).
(c) Each Initial Purchaser will, severally and not jointly,
indemnify and hold harmless the Company, each of the directors of the
Company, each of the officers of the Company and each other person, if
any, who controls the Company (within the
19
<PAGE> 20
meaning of Section 15 of the Securities Act or Section 20 of the Exchange
Act) against any Losses to which they or any of them may become subject
under the Securities Act, the Exchange Act or otherwise, from and against
any Losses insofar as such Losses (or actions or proceedings in respect
thereof) arise out of or are based upon any untrue statement or alleged
untrue statement of a material fact contained in any Registration
Statement or Prospectus contained therein or any amendment or supplement
thereto or the omission or alleged omission to state therein a material
fact required to be stated therein or necessary to make the statements
therein, in light of the circumstances under which they were made, not
misleading, but in each case only to the extent that the untrue statement
or alleged untrue statement or omission or alleged omission was made in
reliance upon and in conformity with written information furnished to the
Company by or on behalf of such Initial Purchaser specifically for use
therein, and shall reimburse the Company for any legal or other expenses
reasonably incurred by the Company in connection with investigating or
preparing to defend or defending against or appearing as third party
witness in connection with any such Loss as such expenses are incurred.
(d) Promptly after receipt by an indemnified party under subsection
(a) or (c) of this Section 7 of notice of the commencement of any claim or
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 7 or otherwise). In case any claim or such action is brought
against any indemnified party, and such indemnified party notifies an
indemnifying party of the commencement thereof, the indemnifying party
will be entitled to participate in the defense thereof, and to the extent
such indemnifying party 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 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 expenses of such counsel shall be at
the expense of such indemnified party or parties unless (a) the employment
of such counsel shall have been authorized in writing by one of the
indemnifying parties in connection with the defense thereof, (b) the
indemnifying parties shall not have employed counsel to have charge of the
defense thereof within a reasonable time after notice of commencement of
the action, or (c) 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 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 shall be borne by the indemnifying parties (it being understood,
however, that the indemnifying party shall not be liable for the expenses
of more than one separate counsel and one additional local counsel for
each relevant jurisdiction). Anything in this subsection to the contrary
notwithstanding, an indemnifying party shall not be liable for any
20
<PAGE> 21
settlement of any claim or action effected without its written consent
(which consent may not be unreasonably withheld). No indemnifying party
shall, without the prior written consent of the indemnified party, effect
any settlement of any pending or threatened proceeding in respect of which
any indemnified party is or could have been a party and indemnity could
have been sought hereunder by such indemnified party, unless such
settlement includes an unconditional release of such indemnified party
from all liability or claims that are the subject matter of such
proceeding.
(e) If the foregoing indemnification is unavailable or insufficient
to an indemnified party for any reason in respect to any Losses or
reimbursable expenses referred to therein, then in lieu of
indemnification, each indemnifying party shall contribute to the amount
paid or payable, including expenses, by such indemnified party in such
proportion as is appropriate to reflect the relative benefits received (or
anticipated to be received) by the indemnifying party or parties on the
one hand and the indemnified party on the other from the offering of the
Notes or Registered Notes, as the case may be, or, if such allocation is
not permitted by applicable law, then in such proportion as is appropriate
to reflect not only the relative benefits received (or anticipated to be
received) but also the relative fault of each of the parties in connection
with the statements or omissions or alleged statements or omissions that
resulted in such Losses, as well as any other relevant equitable
considerations. The relative fault of the parties shall be determined by
reference to, among other things: (i) whether any losses, claims, damages
or liabilities relate to information supplied by the Company or such
Holder of Notes or such other indemnified person, as the case may be; (ii)
the parties' relative intent, knowledge, access to information and
opportunity to correct or prevent such statement or omission; and (iii)
any other equitable considerations appropriate in the circumstances. The
Company and each indemnified party agrees that it would not be just and
equitable if the amount of such contribution were determined by pro rata
allocation or by any other method of allocation that does not take into
account the equitable considerations referred to in the first sentence of
this paragraph (e). Notwithstanding any other provision of this paragraph
(e), the Holders of the Notes or Registered Notes shall not be obligated
to make contributions hereunder in any amount in excess of the amount by
which the net proceeds received by such Holders from the sale of the Notes
exceeds the amount of damages which such Holders have otherwise been
required to pay in respect of the same or any substantially similar claim,
and no person guilty of fraudulent misrepresentation (within the meaning
of Section 11(f) of the Securities Act) shall be entitled to contribution
from any person who was not guilty of such fraudulent misrepresentation.
The obligations of the Holders to contribute pursuant to this Section 7(e)
are several in proportion to the respective principal amount of Notes or
Registered Notes held by each of the Holders hereunder and not joint. For
purposes of this Section 7(e), each director, officer, employee and agent
of any indemnified party and each person, if any, who controls such
indemnified party (within the meaning of Section 15 of the Securities Act
21
<PAGE> 22
or Section 20 of the Exchange Act) shall have the same rights to
contribution as such indemnified party and each director and officer of
the Company, and each person, if any, who controls the Company (within the
meaning of Section 15 of the Securities Act or Section 20 of the Exchange
Act) shall have the same rights to contribution as the Company.
(f) The foregoing provisions are in addition to any rights that an
indemnified party may have at common law or otherwise. The agreements
contained in this Section 7 shall survive the sale of the Notes or the
Registered Notes pursuant to a Registration Statement and shall remain in
full force and effect, regardless of any termination or cancellation of
this Agreement or any investigation made by or on behalf of any
indemnified party.
Section 8. Liquidated Damages.
The Company and the Initial Purchasers agree that the Holders of
Transfer Restricted Securities will suffer damages if the Company fails to
fulfill its obligations under this Agreement and that it would not be feasible
to ascertain the extent of such damages with precision. Accordingly, in the
event that, for any reason whatsoever: (a) the Company fails to file any of the
Registration Statements required by this Agreement on or before the date
specified for such filing; (b) any of such Registration Statements is not
declared effective by the Commission on or prior to the date specified for such
effectiveness (the "Effectiveness Target Date"); (c) the Company fails to
consummate the Exchange Offer within 30 Business Days of the Effectiveness
Target Date with respect to the Exchange Offer Registration Statement; or (d)
the Shelf Registration Statement or the Exchange Offer Registration Statement is
declared effective but thereafter ceases to be effective or usable in connection
with resales of Transfer Restricted Securities during the periods specified in
this Agreement (each such event referred to in clauses (a) through (d) above a
"Registration Default"), then the Company will pay liquidated damages
("Liquidated Damages") to each Holder of Notes, with respect to the first 90
calendar day period, or any portion thereof, immediately following the
occurrence of a Registration Default, in an amount equal to 50 basis points per
annum of the principal amount of 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 Notes with respect to each subsequent 90 calendar day
period, or any portion thereof, until all Registration Defaults have been cured,
up to a maximum amount of Liquidated Damages of 200 basis points per annum of
the principal amount of Notes. At such time as no Registration Default is
continuing, the accrual of Liquidated Damages will cease. In the event of any
Registration Default, the Company will provide notice to the Trustee of such
Registration Default, and will cause the Trustee to provide appropriate notice
thereof and of the imposition of the related Liquidated Damages to the Holders
of the Notes.
22
<PAGE> 23
Section 9. Rule 144.
The Company agrees that to the extent it shall be required to do so
under the Exchange Act, the Company shall timely file the reports required to be
filed by it under the Exchange Act or the Securities Act (including, but not
limited to, the reports under Section 13 and 15(d) of the Exchange Act referred
to in subparagraph (c)(1) of Rule 144 under the Securities Act), and shall take
such further action as any Holder of Transfer Restricted Securities may
reasonably request, all to the extent required from time to time to enable such
Holder to sell Transfer Restricted Securities without registration under the
Securities Act within the limitations of the exemptions provided by Rule 144, as
such Rule may be amended from time to time, or any similar or successor rule or
regulation hereafter adopted by the Commission. Upon the request of any Holder
of Transfer Restricted Securities in connection with the Holder's sale pursuant
to Rule 144, the Company shall deliver to such Holder a written statement as to
whether it has complied with such requirements.
Section 10. Miscellaneous.
(a) Amendments and Waivers. The provisions of this Agreement may not
be amended, modified or supplemented, and waivers or consents to
departures from the provisions hereof may not be given, unless the Company
has obtained the written consent of Holders of a majority in aggregate
principal amount of Transfer Restricted Securities; provided that the
provisions of Section 7 of this Agreement may not be amended, modified or
supplemented, and waivers or consents to departures from the provisions
thereof may not be given, unless the Company has obtained the written
consent of each Indemnified Holder adversely affected thereby.
(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
rights granted to the Holders hereunder 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) 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), or 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 Initial Purchasers or the Company, at their
respective addresses set forth in the Purchase Agreement.
23
<PAGE> 24
All such notices and communications shall be deemed to have been duly
given: at the time delivered by hand, if personally delivered; three
Business Days after being deposited in the mail, postage prepaid, if
mailed; and on the day delivered, if sent by overnight air courier
guaranteeing next day 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.
(d) 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.
(e) 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.
(f) Headings. The headings in this Agreement are for convenience of
reference only and shall not limit or otherwise affect the meaning hereof.
(g) Governing Law. THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED
IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK FOR CONTRACTS MADE
AND TO BE FULLY PERFORMED IN SUCH STATE AND WITHOUT REGARD TO THE
PRINCIPLES OF CONFLICT OF LAWS THEREOF.
(h) Submission to Jurisdiction. (i) The Company:
(x) irrevocably submits to the jurisdiction of any New York
State or federal court sitting in New York City and any appellate
court from any thereof in any action or proceeding arising out of or
relating to this Agreement or any other document delivered
hereunder;
(y) irrevocably agrees that all claims in respect of any such
action or proceeding may be heard and determined in such New York
State court or in such federal court; and
(z) irrevocably waives, to the fullest extent permitted by
law, the defense of an inconvenient forum to the maintenance of such
action or proceeding and irrevocably consents, to the fullest extent
permitted by law, to service of process of any of the aforementioned
courts in any such action or proceeding by the mailing of copies
thereof by registered or certified mail,
24
<PAGE> 25
postage prepaid, to the Company at its address as provided in
Section 10(c) of this Agreement, such service to become effective
five days after such mailing;
(ii) Nothing in this Section shall affect the right of any
person to serve legal process in any other manner permitted by law or
affect the right of any person to bring any action or proceeding against
the Company or their properties in the courts of other jurisdictions.
(i) 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 the remaining provisions contained herein shall not, to the fullest
extent permitted by law, be affected or impaired thereby.
(j) Third Party Beneficiaries. Holders of the Notes and Registered
Notes and each Indemnified Holder are intended third party beneficiaries
of this Agreement and this Agreement may be enforced by such persons.
(k) Joinder. If any entity shall become a Restricted Subsidiary (as
defined in the Indenture) after the date of this Agreement, then such
Restricted Subsidiary shall become a party to this Agreement by the
execution of a joinder to this Agreement pursuant to which such Restricted
Subsidiary shall be obligated to the same extent as the Company hereunder.
(l) Entire Agreement. This Agreement, together with the Purchase
Agreement, is intended by the parties as a final expression of their
agreement and is 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.
25
<PAGE> 26
IN WITNESS WHEREOF, the parties have executed this Agreement as of the
date first written above.
PLAINWELL INC.
By:__________________________________
Name:
Title:
BEAR, STEARNS & CO. INC.
By:__________________________________
Name:
Title:
SALOMON BROTHERS INC
By:__________________________________
Name:
Title:
<PAGE> 1
Exhibit 5.1
[LETTERHEAD OF KIRKLAND & ELLIS]
To Call Writer Direct:
212 446-4800
May 5, 1998
PLAINWELL INC.
200 Allegan Street
Plainwell, Michigan 49080
Re: Series B 11% Senior Subordinated Notes due 2008
Ladies and Gentlemen:
We are acting as special counsel to PLAINWELL INC., a Delaware
corporation (the "Company"), in connection with the proposed registration by the
Company of up to $130,000,000 in aggregate principal amount of the Company's
Series B 11% Senior Subordinated Notes due 2008 (the "Exchange Notes"), pursuant
to a Registration Statement on Form S-4 filed with the Securities and Exchange
Commission (the "Commission") on May 5, 1998 under the Securities Act of 1933,
as amended (the "Securities Act") (such Registration Statement, as amended or
supplemented, is hereinafter referred to as the "Registration Statement"), for
the purpose of effecting an exchange offer (the "Exchange Offer") for the
Company's 11% Senior Subordinated Notes due 2008 (the "Old Notes"). The Exchange
Notes are to be issued pursuant to the Indenture (the "Indenture"), dated as of
March 6, 1998, between the Company and United States Trust Company of New York,
as Trustee, in exchange for and in replacement of the Company's outstanding Old
Notes, of which $130,000,000 in aggregate principal amount is outstanding.
In that connection, we have examined originals, or copies certified or
otherwise identified to our satisfaction, of such documents, corporate records
and other instruments as we have deemed necessary for the purposes of this
opinion, including (i) the corporate and organizational documents of the
Company, (ii) minutes and records of the corporate proceedings of the Company
with respect to the issuance of the Exchange Notes, (iii) the Registration
Statement and exhibits thereto and (iv) the Exchange and Registration Rights
Agreement, dated as of March 6, 1998, among the Company, Bear, Stearns & Co.
Inc. and Salomon Brothers Inc
For purposes of this opinion, we have assumed the authenticity of all
documents submitted to us as originals, the conformity to the originals of all
documents submitted to us as copies and the authenticity of the originals of all
documents submitted to us as copies. We have also assumed the
<PAGE> 2
PLAINWELL INC.
May 5, 1998
Page 2
genuineness of the signatures of persons signing all documents in connection
with which this opinion is rendered, the authority of such persons signing on
behalf of the parties thereto other than the Company, and the due authorization,
execution and delivery of all documents by the parties thereto other than the
Company. As to any facts material to the opinions expressed herein which we have
not independently established or verified, we have relied upon statements and
representations of officers and other representatives of the Company and others.
Based upon and subject to the foregoing qualifications, assumptions and
limitations and the further limitations set forth below, we are of the opinion
that:
(1) The Company is a corporation existing and in good standing under
the General Corporation Law of the State of Delaware.
(2) The sale and issuance of the Exchange Notes has been validly
authorized by the Company.
(3) When, as and if (i) the Registration Statement shall have become
effective pursuant to the provisions of the Securities Act, (ii) the Indenture
shall have been qualified pursuant to the provisions of the Trust Indenture Act
of 1939, as amended, (iii) the Old Notes shall have been validly tendered to the
Company and (iv) the Exchange Notes shall have been issued in the form and
containing the terms described in the Registration Statement, the Indenture, the
resolutions of the Company's Board of Directors (or authorized committee
thereof) authorizing the foregoing and any legally required consents, approvals,
authorizations and other order of the Commission and any other regulatory
authorities to be obtained, the Exchange Notes when issued pursuant to the
Exchange Offer will be legally issued, fully paid and nonassessable and will
constitute valid and binding obligations of the Company.
Our opinions expressed above are subject to the qualifications that we
express no opinion as to the applicability of, compliance with, or effect of (i)
any bankruptcy, insolvency, reorganization, fraudulent transfer, fraudulent
conveyance, moratorium or other similar law affecting the enforcement of
creditors' rights generally, (ii) general principles of equity (regardless of
whether enforcement is considered in a proceeding in equity or at law), (iii)
public policy considerations which may limit the rights of parties to obtain
certain remedies and (iv) any laws except the laws of
<PAGE> 3
PLAINWELL INC.
May 5, 1998
Page 3
the State of New York and the General Corporation Law of the State of Delaware.
For purposes of the opinion in paragraph 1, we have relied exclusively upon
recent certificates issued by the Delaware Secretary of State and such opinion
is not intended to provide any conclusion or assurance beyond that conveyed by
such certificates. We have assumed without investigation that there has been no
relevant change or development between the respective dates of such certificates
and the date of this letter.
We hereby consent to the filing of this opinion as Exhibit 5.1 to the
Registration Statement. We also consent to the reference to our firm under the
heading "Legal Matters" in the Registration Statement. In giving this consent,
we do not thereby admit that we are in the category of persons whose consent is
required under Section 7 of the Securities Act or the rules and regulations of
the Commission.
We do not find it necessary for the purposes of this opinion, and
accordingly we do not purport to cover herein, the application of the securities
or "Blue Sky" laws of the various states to the issuance of the Exchange Notes.
This opinion is limited to the specific issues addressed herein, and no
opinion may be inferred or implied beyond that expressly stated herein. We
assume no obligation to revise or supplement this opinion should the present
laws of the States of Delaware or New York be changed by legislative action,
judicial decision or otherwise.
This opinion is furnished to you in connection with the filing of the
Registration Statement, and is not to be used, circulated, quoted or otherwise
relied upon for any other purposes.
Yours very truly,
/s/ Kirkland & Ellis
KIRKLAND & ELLIS
<PAGE> 1
Exhibit 10.1
AMENDED AND RESTATED
LOAN AND SECURITY AGREEMENT
BY AND AMONG
PLAINWELL INC.,
as Borrower,
THE LENDERS NAMED HEREIN
as Lenders,
AND
SANWA BUSINESS CREDIT CORPORATION,
as Agent and Lender
March 6, 1998
<PAGE> 2
TABLE OF CONTENTS
Page
----
1. DEFINITIONS.................................................................1
1.1. General Terms.......................................................1
1.2. Accounting Terms...................................................26
1.3. Other Terms Defined in Illinois Uniform Commercial Code............26
1.4. Effective Date.....................................................26
1.5. References.........................................................26
2. CREDIT.....................................................................26
2.1. Revolving Credit Facility, Revolving Loan and Lender Guaranties....26
2.2. Maximum Principal Balance of Revolving Loan........................30
2.3. Evidence of Revolving Loan Indebtedness............................30
2.4. Eau Claire L/C Facility............................................30
2.5. Interest...........................................................33
2.6. Method of Borrowing; Manner and Method of Making Interest and
Other Payments......................................................37
2.7. Term of this Agreement and Prepayments.............................39
2.8. Audit Fee..........................................................41
2.9. Fee Letter.........................................................41
2.10. Prepayment Fee....................................................41
2.11. [Intentionally Omitted.]..........................................41
2.12. Unused Line Fee...................................................41
2.13. Other Fees, Costs and Expenses....................................42
2.14. Loan Account......................................................42
2.15. Statements........................................................43
2.16. Payment Dates.....................................................43
2.17. Lender Guaranty Fees..............................................43
2.18. Other Lender Guaranty and Eau Claire L/C Provisions...............44
2.19. Taxes; Changes in Law.............................................46
2.20. Notification of Advances, Interest Rates and Prepayment...........47
2.21. Special Provisions Governing LIBOR Rate Loans.....................47
2.22. Replacement of Certain Lenders....................................49
3. REPORTING AND ELIGIBILITY REQUIREMENTS.....................................50
3.1. Monthly Reports and Borrowing Base Certificates....................50
3.2. Eligible Accounts..................................................51
3.3. Account Warranties.................................................52
3.4. Verification of Accounts...........................................53
i
<PAGE> 3
3.5. Collection of Accounts and Payments................................53
3.6. Appointment of the Agent as Borrower's Attorney-in-Fact............54
3.7. Account Records....................................................55
3.8. Instruments and Chattel Paper......................................55
3.9. Notice to Account Debtors..........................................55
3.10. Eligible Inventory................................................56
3.11. Inventory Warranties..............................................56
3.12. Inventory Records.................................................56
3.13. Safekeeping of Inventory and Inventory Covenants..................57
3.14. Equipment Warranties..............................................57
3.15. Equipment Records.................................................57
3.16. Maintenance of Equipment..........................................57
3.17. Real Estate.......................................................58
3.18. Maintenance of Real Estate........................................58
3.19. Intellectual Property.............................................58
4. CONDITIONS TO ADVANCES.....................................................58
4.1. Conditions to All Advances.........................................58
4.2. Conditions to Initial Advance......................................59
5. COLLATERAL.................................................................63
5.1. Security Interest..................................................63
5.2. Preservation of Collateral and Perfection of Liens Thereon.........64
5.3. Consigned Inventory................................................64
6. REPRESENTATIONS AND WARRANTIES.............................................65
6.1. Existence..........................................................65
6.2. Authority..........................................................65
6.3. Binding Effect.....................................................66
6.4. Financial Data.....................................................66
6.5. Collateral.........................................................67
6.6. Solvency...........................................................68
6.7. Places of Business.................................................68
6.8. Other Names........................................................68
6.9. Tax Obligations....................................................68
6.10. Indebtedness and Liabilities......................................68
6.11. Use of Proceeds and Margin Security...............................69
6.12. Government Contracts..............................................69
6.13. Investments.......................................................69
6.14. Litigation and Proceedings........................................69
6.15. Other Agreements and Deliveries...................................69
6.16. Labor Matters.....................................................70
ii
<PAGE> 4
6.17. Compliance with Laws and Regulations..............................71
6.18. Patents, Trademarks and Licenses..................................71
6.19. ERISA.............................................................71
6.20. Property..........................................................72
6.21. Adverse Contracts.................................................72
6.22. [Intentionally Omitted.]..........................................72
6.23. Investment Company Act; Public Utility Holding Company Act........72
6.24. Broker's Fees.....................................................72
6.25. Licenses and Permits..............................................73
6.26. Environmental Compliance..........................................73
6.27. Full Disclosure...................................................75
6.28. Insurance Policies................................................75
6.29. Customer and Trade Relations......................................75
6.30. Survival of Warranties............................................75
6.31. Subsidiaries......................................................76
6.32. Related Transactions Documents....................................76
6.33. H-S-R Notification................................................76
6.34. Deposit and Disbursement Accounts.................................76
7. AFFIRMATIVE COVENANTS......................................................76
7.1. Financial Statements...............................................77
7.2. Inspections and Audits.............................................79
7.3. Conduct of Business; Compliance With Laws..........................80
7.4. Claims and Taxes...................................................80
7.5. Borrower's Liability Insurance.....................................81
7.6. Borrower's Property Insurance......................................81
7.7. Pension Plans......................................................82
7.8. Notice of Certain Matters..........................................83
7.9. Landlord and Warehouseman Agreements...............................83
7.10. Indemnity.........................................................83
7.11. Leverage Ratio....................................................84
7.12. Leverage Ratio....................................................85
7.13. Capital Expenditures..............................................85
8. NEGATIVE COVENANTS.........................................................85
8.1. Encumbrances.......................................................85
8.2. Indebtedness and Liabilities.......................................86
8.3. Consolidations, Acquisitions.......................................86
8.4. Investments........................................................87
8.5. Guaranties.........................................................87
8.6. Collateral Locations...............................................87
8.7. Disposal of Property...............................................87
8.8. Employee Loans.....................................................88
iii
<PAGE> 5
8.9. Plans..............................................................88
8.10. Restricted Payments...............................................88
8.11. Securities........................................................88
8.12. Changes in Charter, Bylaws or Fiscal Year.........................88
8.13. Changes in Subordinated Debt......................................89
8.14. Transactions with Affiliates......................................89
8.15. Capital Structure; Other Business.................................89
8.16. Sale and Leaseback................................................89
8.17. Impairment Agreements.............................................89
8.18. Corporate Accounts................................................89
9. DEFAULT, RIGHTS AND REMEDIES OF THE AGENT AND THE LENDERS..................89
9.1. Obligations........................................................89
9.2. Rights and Remedies Generally......................................90
9.3. Entry Upon Premises and Access to Information......................90
9.4. Sale or Other Disposition of Collateral by the Agent...............91
9.5. Grant of License...................................................91
9.6. Waiver of Demand...................................................91
9.7. Waiver of Notice...................................................91
10. OTHER RIGHTS AND OBLIGATIONS..............................................92
10.1. Waiver............................................................92
10.2. Costs and Attorneys' Fees.........................................92
10.3. Expenditures by the Agent and the Lenders.........................92
10.4. Custody and Preservation of Collateral............................93
10.5. Reliance by the Agent and Lenders.................................93
10.6. Parties and Assignment............................................93
10.7. Applicable Law; Severability......................................93
10.8. Submission to Jurisdiction; Waiver of Jury and Bond...............94
10.9. Marshalling.......................................................95
10.10. Section Titles...................................................95
10.11. Incorporation by Reference.......................................95
10.12. Notices..........................................................95
10.13. Waivers With Respect to Other Instruments........................96
10.14. Retention of the Borrower's Documents............................96
10.15. Entire Agreement.................................................96
10.16. Equitable Relief.................................................97
10.17. Counterparts.....................................................97
10.18. Several Obligations; Nature of Lenders' Rights...................97
10.19. Exceptions to Covenants..........................................97
10.20. Construction.....................................................97
10.21. Reinstatement....................................................97
iv
<PAGE> 6
10.22. ACKNOWLEDGMENT...................................................98
10.23. Effect on Prior Credit Agreement; Continuing Loans...............98
11. ASSIGNMENT AND PARTICIPATION..............................................98
11.1. Assignments.......................................................98
11.2. Participations....................................................99
12. AGENT.....................................................................99
12.1. Appointment.......................................................99
12.2. Powers............................................................99
12.3. General Immunity..................................................99
12.4. No Responsibility for Loans, Recitals, etc........................99
12.5. Action on Instructions of Lenders.................................99
12.6. Employment of Agents and Counsel.................................100
12.7. Reliance on Documents; Counsel...................................100
12.8. Agent's Reimbursement and Indemnification........................100
12.9. Rights as a Lender...............................................100
12.10. Lender Credit Decision..........................................101
12.11. Successor Agent.................................................101
12.12. Notice of Default...............................................101
13. AMENDMENTS AND WAIVERS...................................................101
14. SET OFF AND SHARING OF PAYMENTS..........................................103
14.1. Setoff...........................................................103
14.2. Ratable Payments.................................................103
v
<PAGE> 7
INDEX OF EXHIBITS AND SCHEDULES
EXHIBITS
Exhibit 2.3 Form of Revolving Loan Note
Exhibit 2.4 Form of Eau Claire L/C Note
Exhibit 2.6-1 Form of Borrowing Notice
Exhibit 2.6-2 Form of Notice of Conversion/Continuation
Exhibit 3.1 Form of Monthly Report Certificate
Exhibit 3.14 Equipment Locations and Leased Equipment
Exhibit 3.17 Real Estate
Exhibit 6.1-1 Jurisdictions of Qualification
Exhibit 6.1-2 Capital Stock
Exhibit 6.4-1 Pro Forma Financial Statements
Exhibit 6.4-2 Fair Saleable Value Balance Sheet
Exhibit 6.4-3 Projections
Exhibit 6.7 Place of Business
Exhibit 6.8-1 Past Trade Names
Exhibit 6.8.2 Present and Future Trade Names
Exhibit 6.11 Sources and Uses
Exhibit 6.12 Government Contracts
Exhibit 6.14 Pending or Threatened Litigation
Exhibit 6.15 Defaults
Exhibit 6.16 Labor Matters
Exhibit 6.18 Patents, Trademarks and Licenses
Exhibit 6.19(a) Benefit and Multiemployer Plans
Exhibit 6.19(c) Unfunded Liabilities
Exhibit 6.19(f) Contingent ERISA Liability
Exhibit 6.20 Property
Exhibit 6.24 Brokerage Fees Payable
Exhibit 6.26 Environmental Matters Pending
Exhibit 6.31 Subsidiaries
Exhibit 6.34 Bank Accounts
Exhibit 7.5 Liability Insurance
Exhibit 7.6 Form of Insurance Endorsement
Exhibit 7.11 Pro Forma Financial Statements (Tissue Business)
Exhibit 8.1 Existing Liens
Exhibit 8.2 Indebtedness
Exhibit 8.4 Investments
Exhibit 8.5 Guaranties
Exhibit 8.6 Collateral Locations
Exhibit 8.14 Transactions with Affiliates
Exhibit 10.23 Continuing Loans
SCHEDULES
<PAGE> 8
Schedule 1 Commitments of Lenders
<PAGE> 9
AMENDED AND RESTATED LOAN AND SECURITY AGREEMENT
This AMENDED AND RESTATED LOAN AND SECURITY AGREEMENT is dated as of
this 6th day of March, 1998, by and between PLAINWELL INC., a Delaware
corporation, and SANWA BUSINESS CREDIT CORPORATION, as Agent for the Lenders.
W I T N E S S E T H:
WHEREAS, SBCC has outstanding Continuing Loans to Plainwell Paper on
the date hereof pursuant to the terms of the Prior Loan Agreement;
WHEREAS, on the Closing Date, pursuant to the Related Transactions,
(i) Holdings, through Borrower, shall purchase the Tissue Business from Pope &
Talbot, Inc. and Pope & Talbot Wis., Inc. (collectively, "Seller") and (ii)
Plainwell Paper shall merge with and into the Borrower; and
WHEREAS, Plainwell Paper and Borrower desire that Lenders amend and
restate the Prior Loan Agreement so that it provides that (i) Borrower shall
replace Plainwell Paper as the "Borrower" hereunder and (ii) Lenders shall
extend revolving and letter of credit facilities to Borrower of up to Fifty-Four
Million Five Hundred Fifty-Two Thousand Dollars ($54,552,000), in the aggregate
(including the Continuing Loans), for the purpose of funding a portion of its
purchase of the Tissue Business and to provide (a) working capital financing for
Borrower and (b) funds for other general corporate purposes of Borrower; and for
these purposes, Lenders are willing to make certain loans and other extensions
of credit to Borrower of up to such amount upon the terms and conditions set
forth herein.
NOW, THEREFORE, in consideration of the terms and conditions
contained herein, and of any loans or extensions of credit heretofore, now or
hereafter made to or for the benefit of the Borrower by the Agent and the
Lenders, the parties hereto hereby agree as follows:
1. DEFINITIONS.
1.1. General Terms When used herein, the following terms shall have
the following meanings:
"Account Debtor" shall mean any Person who is or may become
obligated on or under an Account.
"Accounting Changes" shall mean (a) changes in accounting principles
required by the promulgation of any rule, regulation, pronouncement or opinion
by the Financial Accounting Standards Board of the American Institute of
Certified Public Accountants (or successor thereto or any agency with similar
functions) or (b) changes in accounting principles concurred in by the
Borrower's certified public accountants.
"Accounts" shall mean all of the Borrower's presently existing and
hereafter arising or acquired accounts, accounts receivable, margin accounts,
futures positions, book debts,
<PAGE> 10
contracts, notes, drafts, acceptances, and other forms of obligations (other
than forms of obligations evidenced by Chattel Paper or Instruments) now or
hereafter owned or held by or payable to the Borrower relating in any way to
Inventory or arising from the sale of Inventory or the rendering of services by
the Borrower or howsoever otherwise arising, including the right to payment of
any interest or finance charges with respect thereto, together with all of
Borrower's rights to all merchandise represented by any of the Accounts; all
such merchandise that may be reclaimed or repossessed or returned to the
Borrower; all of the Borrower's rights as an unpaid vendor, including, without
limitation, stoppage in transit, reclamation, rescission, replevin, and
sequestration; all pledged assets and all letters of credit, guaranty claims,
Liens held by or granted to the Borrower to secure payment of any Accounts; all
proceeds and products of all of the foregoing described properties and interests
in properties; and all proceeds of insurance with respect thereto, including,
without limitation, the proceeds of any applicable casualty or credit insurance
or fidelity bond, whether payable in cash or in kind; and all customer lists,
ledgers, books of account, records, computer programs, computer disks or tape
files (including, without limitation, all microfilm), computer printouts,
computer runs, and other computer prepared information relating to any of the
foregoing.
"Accounts Trial Balance" shall have the meaning ascribed thereto in
subsection 7.1(iii)(b).
"Acquisition" shall mean any transaction, or any series of related
transactions, consummated after the Closing Date by which the Borrower or any
Subsidiary (a) acquires, directly or indirectly, any business or all or
substantially all of the assets of any Person or portion thereof, whether
through purchase of assets, merger, licensing arrangement or otherwise or (b)
directly or indirectly acquires (i) securities (or warrants, options or other
rights to acquire such securities) of a Person which have, in the aggregate,
ordinary voting power for the election of a majority of directors or (ii) at
least a majority (by percentage of voting power) of the outstanding partnership
or other interests of a Person or (c) makes any Person a Subsidiary, or causes
any assets of such Person to be merged into the Borrower or such Subsidiary
pursuant to a merger, purchase of assets or other reorganization providing for
the delivery or issuance to the holders of such Person's then outstanding
securities or capital interests, in exchange for such securities, of cash or
securities of the Borrower or such Subsidiary, or any combination thereof.
"Affiliate" shall mean any Person (including any member of the
immediate family of any such natural person) (a) that directly or indirectly,
through one or more intermediaries, controls or is controlled by, or is under
common control with the Borrower or any Subsidiary, including, without
limitation, the officers and directors of the Borrower or such Subsidiary, (b)
that directly or beneficially owns or holds five percent (5%) or more of any
equity interest in the Borrower or any Subsidiary, or (c) five percent (5%) or
more of whose voting stock (or in the case of a Person which is not a
corporation, five percent (5%) or more of any equity interest) is owned directly
or beneficially or held by the Borrower or any Subsidiary. Affiliate shall not
be deemed to include the Agent or any Lender. As used herein, the term "control"
(including, with correlative meanings, the terms "controlling," "controlled by"
and "under common control with") shall mean possession, directly or indirectly,
of the power to direct the management or policies of a Person, whether through
ownership of securities, by contract or otherwise.
2
<PAGE> 11
"Agent" shall mean Sanwa Business Credit Corporation, a Delaware
corporation, in its capacity as agent for the Lenders and not in its individual
capacity as a Lender, and any successor in such capacity appointed pursuant to
subsection 12.11.
"Agreement" shall mean this Amended and Restated Loan and Security
Agreement, as the same may hereafter be restated, amended, modified or
supplemented from time to time.
"Applicable Base Margin" shall mean the per annum interest rate
margin from time to time in effect and payable in addition to the Prime Rate
with respect to the Revolving Loan.
"Applicable LIBOR Margin" shall mean the per annum interest rate
margin from time to time in effect and payable in addition to the applicable
LIBOR Rate with respect to the Revolving Loan.
"Applicable Margins" shall mean, collectively, the Applicable Base
Margin and the Applicable LIBOR Margin.
"Authorized Officer" shall mean the President or Chief Financial
Officer of the Borrower or any other officer of the Borrower approved by the
Agent as an "Authorized Officer" for the purposes hereof.
"Base Rate" shall mean a fluctuating interest rate equal to the
Applicable Base Margin per annum plus the Prime Rate from time to time in
effect.
"Base Rate Loans" shall mean any Loan bearing interest at the Base
Rate.
"Blocked Account Agreements" shall have the meaning ascribed thereto
in subsection 3.5.
"Blocked Accounts" shall have the meaning ascribed thereto in
subsection 3.5.
"Borrower" shall mean PLAINWELL INC., a Delaware corporation, and a
wholly owned Subsidiary of Holdings and, upon the effective date of the Merger
Agreement, the successor to Plainwell Paper.
"Borrowing Availability" shall have the meaning ascribed thereto in
subsection 2.1(a).
"Borrowing Base Certificate" shall have the meaning ascribed thereto
in subsection 3.1.
"Borrowing Notice" shall have the meaning ascribed thereto in
subsection 2.5(e).
"Business Day" shall mean (i) for all purposes other than as
described in clause (ii) below, any day other than a Saturday, Sunday or other
day on which banks in Chicago,
3
<PAGE> 12
Illinois are authorized or required to be closed and (ii) with respect to all
notices, determinations, borrowings, rate selections and payments in connection
with LIBOR Rate Loans, any day that is a Business Day described in clause (i)
above and that is also a day on which dealings in U.S. dollar deposits are
carried on in the applicable interbank LIBOR market.
"Capital Expenditures" shall mean, for any fiscal period, without
duplication, all expenditures (whether made in the form of cash including,
without limitation, deposits or other Property) by the Borrower or any
Subsidiary during such period for, or contracts for expenditures with respect
to, any fixed assets or improvements, or for renewals, replacements,
substitutions or additions thereto, which have a useful life of more than one
(1) year including, without limitation, the direct or indirect acquisition of
such assets by way of increased product or service charges, offset items or
otherwise, and shall include the principal portion of capital lease payments
with respect to such expenditures when made.
"Capital Lease" shall mean, with respect to any Person, any lease of
any property (whether real, personal or mixed) by such Person as lessee that, in
accordance with GAAP, would be required to be classified and accounted for as a
capital lease on a balance sheet of such Person.
"Capital Lease Obligation" shall mean, with respect to any Capital
Lease of any Person, the amount of the obligation of the lessee thereunder that,
in accordance with GAAP, would appear on a balance sheet of such lessee in
respect of such Capital Lease.
"Cash Equivalents" shall mean (i) bank certificates of deposit,
bankers' acceptances, deposit accounts or time deposits (but only with banks
organized under the laws of the United States or of any State thereof or any
branch of a foreign bank so long as such branch is licensed under the laws of
the United States of any State thereof (x) which do not have set-off rights
against the foregoing, other than set-offs for nominal service charges and
similar fees incurred in the ordinary course, and (y) which have combined
capital and surplus in excess of Two Hundred Fifty Million Dollars
($250,000,000)), (ii) commercial paper maturing within one (1) year from the
date issued and rated at least A-1 or the equivalent thereof by Standard & Poors
Ratings Services, or P-1 or the equivalent thereof by Moody's Investors Service,
Inc., (iii) obligations maturing within one (1) year from the date of
acquisition issued or directly and fully guaranteed by the United States
government or any agency thereof and (iv) investments in money market funds
registered under the Investment Company Act of 1940, as amended, which have net
assets of at least $200,000,000 and at least 85% of whose assets consist of
securities and other obligations of the type described in clauses (i) through
(iii) above..
"Change of Control" shall mean (1) before an initial public offering
of voting common stock of Guarantor (or any securities convertible into such
common stock), (A) the management employees of the Borrower and 399 Venture
Partners, Inc. or other direct or indirect wholly-owned subsidiaries of Citicorp
(collectively, "399 Venture"), CCT Partners IV, L.P., a Delaware limited
partnership, or employees of 399 Venture (together with 399 Venture, the "399
Venture Group") cease to beneficially own and control, directly or indirectly,
shares of common stock of Guarantor representing (on an as if issued or
converted basis) at least fifty-one percent
4
<PAGE> 13
(51%) of the issued and outstanding voting common stock of the Guarantor, or (B)
the management employees of the Borrower or trusts for the benefit of their
families (so long as they remain employed by the Borrower) shall cease to
beneficially own and control, directly or indirectly, at least 80% the shares of
common stock of Guarantor which such management employees own as of the Closing
Date, or (2) after an initial public offering of voting common stock of
Guarantor (or any securities convertible into such common stock), the management
employees of the Borrower and the 399 Venture Group cease to beneficially own
and control, directly or indirectly, shares of common stock representing (on an
as if issued or converted basis) at least thirty-three percent (33%) of the
outstanding voting common stock of Guarantor, or (3) at any time, Guarantor
ceases to own 100% of the outstanding equity interests of the Borrower, or (4) a
"Change of Control" (as such term is defined in the Subordinated Debt Documents)
shall occur.
"Charges" shall mean all federal, state, county, city, municipal,
local, foreign or other governmental taxes (including, without limitation, taxes
owed to the PBGC at the time due and payable), duties, levies, assessments,
charges, liens, claims or encumbrances upon or relating to (i) the Collateral,
(ii) the Obligations, (iii) the employees, payroll, income or gross receipts of
the Borrower, (iv) the ownership or use of any Property of the Borrower, or (v)
any other aspect of the Borrower's business.
"Chattel Paper" shall mean any "chattel paper," as such term is
defined in the Code, now owned or hereafter acquired by the Borrower, wherever
located.
"Closing Date" shall mean the date on or before March 15, 1998, on
which all of the conditions precedent set forth in Section 4.2 and the closing
checklist delivered to Borrower prior to February 27, 1998, have been satisfied
or waived.
"Closing Fee" shall have the meaning ascribed thereto in subsection
2.9.
"Code" shall have the meaning ascribed thereto in subsection 1.3.
"Collateral" shall mean all property and interests in property now
owned or hereafter acquired by the Borrower in or upon which a Lien is granted
to the Agent, for the benefit of the Lenders, by the Borrower, whether under
this Agreement or the other Financing Agreements or under any other documents,
instruments or writings executed by the Borrower and delivered to the Agent,
including, without limitation, Accounts, Chattel Paper, Documents, General
Intangibles, Fixtures, Instruments, Inventory, Intellectual Property, Equipment,
Real Estate and leased real property. In no event shall the "Collateral" include
(i) the Borrower's real property located at 12th Street in Plainwell, Michigan
and commonly referred to as The 12th Street Landfill or (ii) the Excluded
Assets.
"Collateral Report" shall have the meaning ascribed thereto in
subsection 3.1.
"Collecting Banks" shall have the meaning ascribed thereto in
subsection 3.5.
5
<PAGE> 14
"Commitment" shall mean, with respect to each Lender, the commitment
of each Lender to make Revolving Loans to the Borrower and to purchase a
participation in the Lender Guaranties and the Eau Claire Lender Guaranty as of
the Closing Date in the amounts set forth on the signature page hereof or on
Schedule 1; Schedule 1 shall be amended and Lenders' Pro Rata Shares shall be
adjusted from time to time to give effect to the addition of any new Lenders
pursuant to subsection 11.1.
"Control Agreement" shall mean a letter agreement between Agent and
(i) the issuer of uncertificated securities with respect to uncertificated
securities in the name of any Borrower, (ii) a securities intermediary with
respect to securities, whether certificated or uncertificated, securities
entitlements and other financial assets held in a securities account in the name
of Borrower, (iii) a futures commission merchant or clearing house with respect
to commodity accounts and commodity contracts held by Borrower, whereby, among
other things, the issuer, securities intermediary or futures commission merchant
disclaims any security interest in the applicable financial assets, acknowledges
the Lien of Agent, on behalf of itself and Lenders, on such financial assets,
and agrees to follow the instructions or entitlement orders of Agent without
further consent by the Borrower.
"Continuing Loans" shall mean the loans and letter of credit
obligations under the Prior Loan Agreement existing on the Closing Date and
listed on Exhibit 10.23.
"Conversion/Continuation Notice" shall have the meaning ascribed
thereto in subsection 2.5(f).
"Current Asset Base" shall have the meaning ascribed thereto in
subsection 2.1.
"Current Assets" shall mean, at any date of determination, all
Property which should, in accordance with Generally Accepted Accounting
Principles consistently applied, be classified as current assets on a balance
sheet at such date, excluding any Accounts owing to the Borrower from an
Affiliate.
"Current Liabilities" shall mean, at any date of determination, all
Liabilities which should, in accordance with Generally Accepted Accounting
Principles consistently applied, be classified as current liabilities on a
balance sheet at such date, and in any event shall include all Indebtedness
payable within one (1) year from the date of determination without any option on
the part of the obligor to extend or renew beyond such year, all accruals for
federal or other taxes based on or measured by income and payable within such
year, and the current portion of long-term debt required to be paid within one
(1) year from the date of determination, but expressly including for purposes of
this definition the principal amount of the Revolving Loan Obligations.
"Default" shall mean an event which through the passage of time or
the service of notice, or both, would mature into an Event of Default.
"Default Rate" shall mean, (i) with respect to Base Rate Loans, a
fluctuating interest rate per annum equal to the sum of the applicable Base
Rate, plus two percent (2%) per annum (each change in such interest rate shall
take effect simultaneously with the corresponding
6
<PAGE> 15
change in the Base Rate), (ii) with respect to LIBOR Rate Loans, a rate of
interest per annum equal to the applicable LIBOR Rate plus two percent (2.0%)
per annum, (iii) with respect to Lender Guaranty Fees, the Lender Guaranty Fee
Rate plus two percent (2%) per annum and (iv) with respect to Eau Claire L/C
Fees, the Eau Claire L/C Rate plus two percent (2%) per annum.
"Depository Account" shall have the meaning ascribed thereto in
subsection 3.5.
"Documents" shall mean any "documents" as such term is defined in
the Code, now owned or hereafter acquired by the Borrower, wherever located.
"Eau Claire L/C" shall mean that certain standby letter of credit in
the amount of Nineteen Million Five Hundred Fifty-Two Thousand Dollars
($19,552,000) issued in favor of the bond trustee for City of Eau Claire,
Wisconsin, as beneficiary, in support of Borrower's obligations under the City
of Eau Claire, Wisconsin Tax-Exempt Adjustable Mode Solid Waste Disposal Revenue
Bonds (Pope & Talbot, Wis., Inc. Project) Series 1994.
"Eau Claire L/C Fees" shall have the meaning ascribed thereto in
subsection 2.4(d).
"Eau Claire L/C Liability" means, as to the Eau Claire Lender
Guaranty, all liabilities of the Lenders with respect thereto, whether
contingent or otherwise, including: (a) the amount available to be drawn or
which may become available to be drawn and (b) all amounts which have been paid
or made available by the Lenders to the extent not reimbursed by the Borrower;
and (c) all unpaid interest, fees and expenses with respect thereto.
"Eau Claire L/C Note" shall have the meaning ascribed thereto in
subsection 2.4(b).
"Eau Claire L/C Rate" shall mean one and one-half percent (1.5%) per
annum.
"Eau Claire L/C Reserve" means, at any date of determination, a
reserve in an amount equal to the aggregate amount of the Eau Claire L/C
Liability outstanding at such time.
"Eau Claire Lender Guaranty" shall mean a guaranty of payment of the
Eau Claire L/C issued by Agent on behalf of Lenders on the Closing Date.
"Eau Claire Term Loan" shall have the meaning ascribed thereto in
subsection 2.4(b).
"EBITDA" shall mean, for any applicable fiscal period, determined
for the Borrower and its Subsidiaries on a consolidated basis, Net Income for
such period, plus, without duplication, to the extent deducted in determining
Net Income for that period, interest expense and income and franchise taxes paid
or accrued, plus to the extent deducted in determining Net Income for that
period, amortization, depreciation and other similar non-cash charges, plus to
the extent deducted in determining Net Income, extraordinary losses, minus to
the extent added in
7
<PAGE> 16
determining Net Income, extraordinary gains, all as determined in accordance
with GAAP consistently applied.
"Eligible Accounts" shall have the meaning ascribed thereto in
subsection 3.2.
"Eligible Inventory" shall have the meaning ascribed thereto in
subsection 3.10.
"Environmental Laws" shall mean and includes the following as now in
effect or hereafter amended: the Comprehensive Environmental Response,
Compensation, and Liability Act of 1980, ("CERCLA"), 42 U.S.C. ss.9601 et seq.;
the Solid Waste Disposal Act, as amended by the Resource Conservation and
Recovery Act ("RCRA"), 42 U.S.C. ss.6901 et seq.; the Toxic Substances Control
Act ("TSCA"), 15 U.S.C. ss.2601, et seq.; the Clean Air Act, 42 U.S.C. ss.7401
et seq.; the Federal Water Pollution Control Act ("Clean Water Act"), 33 U.S.C.
ss.1251 et seq.; the Emergency Planning and Community Right-to-Know Act, 42
U.S.C. ss.11001 et seq.; the Hazardous Materials Transportation Act, 49 U.S.C.
ss.1801 et seq.; the Atomic Energy Act, 42 U.S.C. ss.2011 et seq.; the Safe
Drinking Water Act, 42 U.S.C. ss.300f et seq. and the state law equivalents; any
so-called "Superfund" or "Superlien" law; and any statute, ordinance, code,
rule, regulation, order, decree or requirement under international, federal,
state, regional, provincial or local law (including, without limitation,
administrative orders and consent decrees) in effect and as amended regulating,
relating to or imposing liability or standards of conduct concerning public
health and safety, protection of the environment, or any pollutant or
contaminant or hazardous, toxic or dangerous substance, waste, chemical or
material, as now or any time hereafter may be existing.
"Environmental Matters" shall have the meaning ascribed thereto in
subsection 6.26(b).
"Equipment" shall mean all of the Borrower's machinery and
equipment, including, without limitation, processing equipment, conveyors,
machine tools, data processing and computer equipment with software and
peripheral equipment (other than software constituting part of the Accounts),
and all engineering, processing and manufacturing equipment, office machinery,
furniture, materials handling equipment, tools, attachments, accessories,
automotive equipment, trailers, trucks, ships, vessels, airplanes, forklifts,
molds, dies, stamps, motor vehicles, rolling stock and other equipment of every
kind and nature, trade fixtures and fixtures not forming a part of real
property, all whether now owned or hereafter acquired, and wherever situated,
together with all appurtenances, additions and accessions thereto, replacements
therefor, all parts therefor, all substitutes for any of the foregoing, fuel
therefor, and all manuals, drawings, instructions, warranties and rights with
respect thereto, and all products and proceeds thereof and condemnation awards
and insurance proceeds with respect thereto.
"ERISA" shall mean the Employee Retirement Income Security Act of
1974, as amended from time to time, and all rules and regulations promulgated
thereunder.
"ERISA Affiliate" shall mean any Subsidiary that is, or was at any
time during the previous six (6) years, along with the Borrower or any
Subsidiary, in the same controlled group
8
<PAGE> 17
of corporations, under common control, or otherwise, treated as a single
employer for any purpose under Section 414 of the IRC.
"Event of Default" shall mean the occurrence or existence of any one
or more of the following conditions or events:
(a) the Borrower fails to pay any of its Obligations hereunder
when the Obligations are due or are declared due or fails to deliver any
Borrowing Base Certificate or Monthly Report as required by subsection
3.1;
(b) the Borrower fails or neglects to perform, keep or observe
any of the covenants, conditions or agreements contained in any of the
subsections of this Agreement or in any of the other Financing Agreements
(other than occurrences referred to or embodied in other provisions of
this definition constituting immediate Events of Default) for a period of
twenty (20) days after the earlier of (i) the Borrower's receipt of notice
from the Agent or (ii) actual knowledge of such breach by the Borrower;
(c) any warranty or representation now or hereafter made by
the Borrower or any Subsidiary in connection with this Agreement or any of
the other Financing Agreements is untrue or incorrect in any material
respect, or any schedule, certificate, statement, report, financial data,
notice or other writing furnished at any time by the Borrower or any
Subsidiary to the Agent or any Lender is untrue or incorrect in any
material respect, as of the date on which the warranty, representation or
the facts set forth therein are stated, certified or deemed made;
(d) other than Permitted Liens, any Lien, levy or assessment
is filed or recorded with respect to or otherwise imposed upon all or any
part of the Collateral or the Property of the Borrower or any Subsidiary
by the United States, or any department, agency or instrumentality
thereof, or by any state, county, municipality or other governmental
agency and is in excess of Seven Hundred Fifty Thousand Dollars
($750,000);
(e) all or any part of the Collateral or the Property of the
Borrower or any Subsidiary with a value in excess of Two Hundred Fifty
Thousand Dollars ($250,000) is attached, seized, subjected to a writ or
distress warrant, or levied upon, or come within the possession or control
of any judgment creditor and on or before the thirtieth (30th) day
thereafter such Collateral or Property is not returned to the Borrower or
such Subsidiary or such writ, distress warrant or levy is not dismissed,
stayed or lifted;
(f) the Borrower or any Subsidiary makes an assignment for the
benefit of creditors; convenes a meeting of its creditors, or any class
thereof, for purposes of effecting a moratorium upon or extension or
composition of its debts; applies for, seeks, consents to, or acquiesces
in the appointment of a receiver, trustee or custodian to take possession
of all or any substantial portion of the Property of the Borrower or any
Subsidiary; commences any bankruptcy, reorganization or insolvency case or
proceeding or other proceeding under any federal, state or other law for
relief of debtors; or the
9
<PAGE> 18
Borrower of such Subsidiary proposes, authorizes or consents to the taking
of any of the foregoing actions;
(g) the Borrower or any Subsidiary fails to obtain the
dismissal, within sixty (60) days after the commencement thereof, of any
bankruptcy, reorganization or insolvency proceeding, or other proceeding
under any law for the relief of debtors instituted against it; fails
actively to oppose any such proceeding; or in any such proceeding,
defaults or files an answer admitting the material allegations upon which
the proceeding was based or states in any filing in such proceeding its
willingness to have an order for relief entered or its desire to seek
liquidation, reorganization or adjustment of any of its debts;
(h) without the application, approval or consent of the
Borrower or any Subsidiary, any receiver, trustee, examiner, liquidator,
custodian or similar official is appointed to take possession of all or
any substantial portion of the Property of the Borrower or such
Subsidiary, or the filing of any motion, complaint or other pleading in
any bankruptcy, reorganization or insolvency case or proceeding of any
Person other than the Borrower or such Subsidiary that seeks the
consolidation the Borrower's or such Subsidiary's assets and liabilities
with the assets and liabilities of such Person;
(i) the Borrower or any Subsidiary voluntarily or
involuntarily dissolves or is dissolved, liquidates or is liquidated;
(j) the Borrower ceases to be Solvent or admits in writing
that it is not Solvent or fails to pay all or any material portion
(measured in numbers of debts or dollar amounts) of its debts as they
become due or admits in writing its present or prospective inability to
pay its debts as they become due;
(k) any default or breach under any agreement(s) evidencing
Indebtedness of the Borrower or any Subsidiary in an aggregate amount in
excess of Seven Hundred Fifty Thousand Dollars ($750,000) shall occur and
shall continue after any applicable grace period specified in any such
document if the effect of such default or breach is to accelerate, or to
permit the acceleration of, the maturity of all or any part of any such
Indebtedness, whether or not such default or breach shall be waived by the
holders or trustees (if any) for such Indebtedness, or any such
Indebtedness shall be declared to be due and payable, or be required to be
prepaid (other than by a regularly scheduled required prepayment), prior
to the stated maturity thereof;
(l) [Intentionally Omitted];
(m) any event or occurrence not covered by business
interruption insurance which results in or causes cessation or substantial
curtailment of production or other revenue producing activities at any
Facility or Facilities generating more than forty percent (40%) of the
Borrower's gross revenues for more than thirty (30) consecutive days;
provided that such occurrence shall not constitute an Event of Default if
such occurrence is covered by the Borrower's business interruption
insurance in an amount
10
<PAGE> 19
which, in the judgment of the Required Lenders, is reasonably expected to
cover the period during which such revenue-producing activities will be
halted or substantially curtailed;
(n) entry of a judgment or judgments in an aggregate amount in
excess of Seven Hundred Fifty Thousand Dollars ($750,000) against the
Borrower or any Subsidiary which are not (i) stayed, bonded, vacated, paid
or discharged within thirty (30) days after entry or (ii) fully covered by
insurance as to which the insurance carrier has acknowledged coverage to
the Borrower in writing within thirty (30) days after entry;
(o) the loss, suspension, revocation or failure to obtain or
renew any license or permit now held or hereafter acquired by the Borrower
or any of its Subsidiaries, which loss, suspension, revocation or failure
to renew would reasonably be expected to have a Material Adverse Effect;
(p) the Borrower fails to perform, keep or observe any of the
covenants contained in clause (vii) of subsection 7.1, in subsections 3.5,
7.5, 7.6, 7.11 - 7.13 or in Section 8;
(q) a Change of Control occurs;
(r) the Agent does not have or ceases to have a legal, valid
and perfected first priority Lien on the Collateral (subject to Permitted
Liens) for any reason other than the failure of the Agent to take any
action within its total control; or
(s) any of the Financing Agreements shall cease for any reason
to be in full force and effect or is declared null and void or the
Borrower, any Subsidiary or any other Person (other than the Agent or any
Lender) shall disavow its respective obligations thereunder or shall deny
that it has any further obligations thereunder or shall contest or
challenge the validity or enforceability of any thereof, the legality or
enforceability of any of the Obligations or the perfection or priority of
any Lien granted to the Agent, or gives notice to such effect.
The occurrence or existence of any of the foregoing events shall
constitute an immediate Event of Default unless notice by the Agent or a cure
period is specifically required by the description of such event before such
event matures into an Event of Default.
"Excess Interest" shall have the meaning ascribed thereto in
subsection 2.5(d).
"Excluded Assets" shall mean (i) the Borrower's real property and
Equipment installed at Main Street in Ransom, Pennsylvania and (ii) the
Borrower's real property and Equipment installed at 901 Sathers Drive in
Pittston, Pennsylvania.
"Facility" shall mean each of the Borrower's facilities located at
200 Allegan Street, 901 Lincoln Parkway in Plainwell, Michigan, 1200 Forest
Street, Eau Claire, Wisconsin, Main Street in Ransom, Pennsylvania, and 901
Sathers Drive in Pittston, Pennsylvania and any
11
<PAGE> 20
other facility established by the Borrower hereafter in accordance with the
terms of this Agreement.
"Fair Saleable Value Balance Sheet" shall mean the Fair Saleable
Value Balance Sheet of Borrower and each Subsidiary on a consolidated basis
delivered by the Borrower to the Agent and the Lenders in form substantially as
set forth in Exhibit 6.4-2.
"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 only arranged by Federal Funds brokers as published as of such
day by the Federal Reserve Bank of New York, or if such rate is not so
published, the rate then used by first class banks in extending overnight loans
to other first class banks.
"Financial Statements" shall mean the financial statements delivered
by the Borrower pursuant to subsection 7.1.
"Financing Agreements" shall mean, collectively, this Agreement, the
Revolving Notes, any Eau Claire L/C Note, the Intellectual Property Security
Agreements, the Mortgages, and a Guaranty, Pledge Agreement and Stock Power
executed by Guarantor and all other agreements, instruments and documents,
including, without limitation, agreements, documents, instruments, pledges,
powers of attorney, consents, assignments, contracts, notices, leases, financing
statements and all other written matter whether heretofore, now, or hereafter
executed by or on behalf of the Borrower or any other Person and delivered to
the Agent or any Lender in connection with this Agreement, together with all
agreements and documents between the Borrower and the Agent or any Lender
referred to therein or contemplated thereby, as the same may hereafter be
amended, modified or supplemented from time to time.
"Fiscal Quarter" shall mean any of the quarterly fiscal periods of
the Borrower.
"Fiscal Year" shall mean the fiscal year of the Borrower ending on
December 31st each year.
"Fixed Charge Coverage Ratio" shall mean for any fiscal period
determined for the Borrower and its Subsidiaries on a consolidated basis, the
ratio of (x) EBITDA less the sum of Capital Expenditures to the extent not
financed by third parties during such period, income taxes paid in cash with
respect to such period and Restricted Payments paid in cash during such period
to (y) Fixed Charges.
"Fixed Charges" shall mean, for any fiscal period, determined for
the Borrower and its Subsidiaries on a consolidated basis, scheduled principal
payments on its Indebtedness plus interest expenses paid in cash, in each case,
during such period
"Fixtures" shall mean all "fixtures" as such term is defined in the
Code, now owned or hereafter acquired by the Borrower, wherever located.
12
<PAGE> 21
"Funded Debt" shall mean, with respect to any Person, all
Indebtedness for borrowed money evidenced by notes, bonds, debentures, or
similar evidences of Indebtedness and which by its terms matures more than one
year from, or is directly or indirectly renewable or extendible at such Person's
option under a revolving credit or similar agreement obligating the lender or
lenders to extend credit over a period of more than one year from the date of
creation thereof, and specifically including Capital Lease Obligations, current
maturities of long-term debt, revolving credit and short-term debt extendible
beyond one year at the option of the debtor, and also including, in the case of
Borrowers, the Obligations and, without duplication, Guaranteed Indebtedness
consisting of guaranties of Funded Debt of other Persons.
"Funding Date" shall mean the date of (i) the issuance of a Lender
Guaranty for the Eau Claire L/C or (ii) each funding under the Revolving Loan or
(iii) issuance of a Letter of Credit or a Lender Guaranty therefor, which date
in all cases shall be a Business Day or the date on which any portion of a
Revolving Loan is converted to, or continued as, a LIBOR Rate Loan or converted
to a Base Rate Loan.
"General Intangibles" shall mean all of the Borrower's presently
owned or hereafter acquired general intangibles, including, without limitation,
goodwill, choses in action, causes of action, franchises, methods, sales
literature, drawings, specifications, descriptions, name plates, catalogs,
dealer contracts, supplier contracts, distributor agreements, customer lists,
contract rights, confidential information, consulting agreements, employment
agreements, engineering contracts, leasehold interests in real and personal
property, insurance policies (including business interruption insurance),
licenses, permits, and such other Property which uniquely reflect the goodwill
of the business of the Borrower; deposit accounts, letters of credit, and
General Intangibles relating to other items of Collateral, including, without
limitation, rights to refunds or indemnification; reversionary or other rights
of the Borrower to excess Plan assets upon termination or amendment thereof; and
proceeds of all of the foregoing, including without limitation, insurance
proceeds, including proceeds of business interruption insurance, income tax
refunds, and claims for tax or other refunds against any city, county, state, or
federal government, or any agency or authority or other subdivision thereof.
"Generally Accepted Accounting Principles" or "GAAP" shall mean, as
of the date of any determination with respect thereto, generally accepted
accounting principles as used by the Financial Accounting Standards Board and/or
the American Institute of Certified Public Accountants, consistently applied and
maintained throughout the periods indicated.
"Governmental Authority" shall mean any nation or government or any
other political subdivision thereof, any state or other political subdivision
thereof, and any agency, authority, court, central bank, department or other
law, regulation or rule-making entity exercising executive, legislative,
judicial, taxing, regulatory or administrative functions of or pertaining to
government.
"Guaranteed Indebtedness" shall mean direct or indirect guaranties
of the Indebtedness of another Person, including "keepwell" or other similar
arrangements.
13
<PAGE> 22
"Guarantor" shall mean PLAINWELL HOLDING COMPANY, a Delaware
corporation.
"Guaranty" of a Person shall mean any agreement by which such Person
guarantees, endorses or otherwise in any way becomes or is legally responsible
for any obligations of any other Person, whether directly or indirectly, by
agreement to purchase the indebtedness of any other Person or through the
purchase of goods, supplies or services, or maintenance of working capital or
other balance sheet covenants or conditions, or by way of stock purchase,
capital contribution, advance or loan for the purpose of paying or discharging
any indebtedness or obligation of such other Person or otherwise assures any
creditor of such other Person against loss.
"Hazardous Materials" shall mean the following: hazardous
substances; hazardous wastes; polychlorinated biphenyls ("PCB"'s") or any
substance or compound containing PCB's; asbestos or any asbestos-containing
materials in any form or condition; radon; any other radioactive materials
including any source, special nuclear or by-product material; petroleum, crude
oil or any fraction thereof which is liquid at standard conditions of
temperature and pressure (60 degrees Fahrenheit and 14.7 pounds per square inch
absolute); and any other pollutant or contaminant or hazardous, toxic or
dangerous chemicals, materials or substances, as all such terms are used in
their broadest sense and defined by Environmental Laws.
"Holdings" shall mean PLAINWELL HOLDING COMPANY, a Delaware
corporation.
"Indebtedness" shall mean at a particular time (i) indebtedness for
borrowed money or for the deferred purchase price of property or services (other
than current accounts payable arising in the ordinary course of business on
terms customary in the trade) in respect of which the Borrower is liable,
contingently or otherwise, as guarantor, obligor or otherwise or any commitment
by which the Borrower assures a creditor against loss, including contingent
reimbursement obligations with respect to letters of credit, (ii) indebtedness
guaranteed in any manner by the Borrower, including guaranties in the form of an
agreement to repurchase or reimburse; provided that the amount of indebtedness
represented by any guaranty of limited recourse shall be the lesser of the
amount of indebtedness so guaranteed or the value of the asset to which the
recourse of such indebtedness is limited, (iii) obligations under leases which
shall have been or should be, in accordance with Generally Accepted Accounting
Principles, recorded as Capital Leases in respect of which obligations the
Borrower is liable, contingently or otherwise, as obligor, guarantor or
otherwise, or in respect of which obligations the Borrower assures a creditor
against loss, (iv) any unfunded obligation of, or withdrawal liability incurred
but not paid by, the Borrower with respect to a Multiemployer Plan, and (v) net
liabilities under Rate Hedging Obligations. Without limiting the generality of
the foregoing, Indebtedness shall include all of the Borrower's obligations with
respect to those certain Variable Rate Demand Notes (Plainwell Paper Co., Inc.
Project) issued by The Economic Development Corporation of the City of Plainwell
and the City of Eau Claire, Wisconsin Tax-Exempt Adjustable Mode Solid Waste
Disposal Revenue Bonds (Pope & Talbot, Wis., Inc. Project) Series 1994.
14
<PAGE> 23
"Initial Term" shall have the meaning ascribed thereto in subsection
2.7.
"Instrument" shall mean any "instrument," as such term is defined in
the Code, now owned or hereafter acquired by the Borrower, wherever located,
other than instruments that constitute, or are a part of a group of writings
that constitute, Chattel Paper.
"Intellectual Property" shall mean all of the Borrower's present and
future designs, patents, patent rights and applications therefor, technology,
trademarks and registrations or applications therefor, trade names, inventions,
copyrights and all applications and registrations therefor, advertising matter,
software or computer programs, license rights, trade secrets, methods,
processes, know-how, drawings, specifications, descriptions, and all memoranda,
notes, and records with respect to any research and development, whether now
owned or hereafter acquired by the Borrower, and proceeds of all of the
foregoing, including, without limitation, proceeds of insurance policies
thereon.
"Intellectual Property Security Agreements" shall mean the Trademark
Security Agreement and Copyright Security Agreement, dated as of the Closing
Date, duly executed and delivered by the Borrower in favor of the Agent, for the
benefit of the Lenders, with respect to Intellectual Property, as the same may
hereafter be amended, modified or supplemented from time to time.
"Interest Period" shall mean, with respect to a LIBOR Rate Loan, a
period of one, two, three or six months, as applicable, commencing on a Business
Day, selected by Borrower pursuant to subsection 2.6. Such Interest Period shall
end on the day in the relevant succeeding calendar month which corresponds
numerically to the beginning day of such Interest Period; provided that if there
is no such numerically corresponding day in such next, second, third or sixth
succeeding month, such Interest Period shall end on the last Business Day of
such next, second, third or sixth succeeding month. If an Interest Period would
otherwise end on a day which is not a Business Day, such Interest Period shall
end on the next succeeding Business Day; provided that if such next succeeding
Business Day falls in a new month, such Interest Period shall end on the
immediately preceding Business Day. In the case of immediately succeeding
Interest Periods, each successive Interest Period shall commence on the day on
which the immediately preceding Interest Period expires. Notwithstanding any of
the foregoing, no Interest Period shall extend beyond the Revolving Loan
Maturity Date.
"Inventory" shall mean all of the inventory of the Borrower of every
kind and description, now or at any time hereafter owned by the Borrower,
wherever located, including, without limitation, all merchandise, raw materials,
parts, supplies, work-in-process and finished goods intended for sale, together
with all the containers, packing, packaging, shipping and similar materials
related thereto, and including such inventory as is temporarily out of the
Borrower's custody or possession, including inventory on the premises of other
Persons and items in transit, and including any goods reclaimed, returned or
repossessed upon any Accounts, Documents, Instruments or Chattel Paper relating
to or arising from the sale of inventory, and all substitutions and replacements
therefor, and all additions and accessions thereto, and all ledgers, books of
account, records, computer printouts, computer runs, microfilm, microfiche and
other
15
<PAGE> 24
computer-prepared information relating to any of the foregoing, and any and all
proceeds of any of the foregoing, including, without limitation, proceeds of
insurance policies thereon.
"Investment" of a Person shall mean any loan, advance, extension of
credit (other than accounts receivable arising in the ordinary course of
business), deposit account or contribution of capital by such Person to any
other Person or any investment in, or purchase or other acquisition of, the
stock, partnership interests, notes, debentures or other securities of any other
Person made by such Person. The amount of any Investment shall be the original
cost of such Investment plus the costs of all additions thereto.
"Investment Property" shall mean investment property as defined in
the Code.
"IRC" shall mean the Internal Revenue Code of 1986, as amended from
time to time, and all rules and regulations promulgated thereunder.
"Issuing Bank" shall mean Wells Fargo Bank, N.A., Wachovia Bank of
Georiga, National Association any Lender or any other bank or financial
institution which is approved by the Borrower and the Agent and which issues
Letters of Credit for the account of the Borrower pursuant to subsection 2.1 or
the Eau Claire L/C.
"Lender Guaranties" and "Lender Guaranty" shall have the respective
meanings ascribed thereto in subsection 2.1(c) and shall expressly exclude the
Eau Claire Lender Guaranty.
"Lender Guaranty Fee Rate" means a rate equal to two percent (2%)
per annum.
"Lender Guaranty Fees" shall have the meaning ascribed thereto in
subsection 2.17.
"Lender Guaranty Liability" means, as to each Lender Guaranty, all
liabilities of the Lenders with respect to the transaction for which such Lender
Guaranty was issued, whether contingent or otherwise, including with respect to
a letter of credit: (a) the amount available to be drawn or which may become
available to be drawn; (b) all amounts which have been paid or made available by
the Issuing Bank or the Lenders to the extent not reimbursed by the Borrower;
and (c) all unpaid interest, fees and expenses with respect thereto.
"Lender Guaranty Reserve" means, at any date of determination, a
reserve in an amount equal to the aggregate amount of Lender Guaranty Liability
with respect to Lender Guaranties outstanding at such time other than a Lender
Guaranty with respect to the Eau Claire L/C.
"Lenders" shall mean the financial institutions signatory hereto
and, subject to the terms and conditions hereof, their respective successors and
assigns.
"Letter of Credit" shall mean a standby letter of credit or bankers
acceptance issued by an Issuing Bank at the request and for the account of the
Borrower and for which the Lenders incur Lender Guaranties.
16
<PAGE> 25
"Letter of Credit Fees" shall mean, collectively, Lender Guaranty
Fees and Eau Claire L/C Fees.
"Leverage Ratio" shall mean, for Borrower on a consolidated basis,
as of the last day of any Fiscal Quarter, the ratio of Funded Debt less
Unrestricted Cash to EBITDA for the trailing twelve months (or shorter period if
specified) then ended.
"Liabilities" shall mean liabilities of the Borrower and each
Subsidiary which are or should be reflected on a consolidated balance sheet of
the Borrower and its Subsidiaries in accordance with Generally Accepted
Accounting Principles, and shall include, without duplication, Indebtedness.
"LIBOR Rate" shall mean, for each Interest Period, a rate of
interest equal to the sum of:
(a) the quotient of (i) the rate of interest determined by
Agent to be the rate at which deposits in U.S. Dollars for the relevant
Interest Period are offered based on information presented on the Telerate
Screen as of 11:00 a.m. (London time) on the applicable LIBOR Rate
Determination Date in the approximate amount of the LIBOR Rate Loan and
having a maturity approximately equal to such Interest Period; provided
that if at least two such offered rates appear on the Telerate Screen in
respect of such Interest Period, the arithmetic mean of all such rates (as
determined by Agent) will be the rate used; provided further, that if the
Telerate System ceases to provide LIBOR quotations, such rate shall be the
average rate of interest determined by Agent at which deposits in U.S.
Dollars are offered for the relevant Interest Period by The Sanwa Bank,
Limited (or its successor) to banks with combined capital and surplus in
excess of $500,000,000 in the London interbank market as of 11:00 a.m.
(London time) on the applicable LIBOR Rate Determination Date in the
approximate amount of the LIBOR Rate Loan and having a maturity
approximately equal to such Interest Period, divided by
(ii) one minus the rate (expressed as a decimal) of reserve
requirements in effect on the LIBOR Rate Determination Date (including,
without limitation, all basic, supplemental, marginal and emergency
reserves under any regulations of the Board of Governors of the Federal
Reserve System or other governmental authority having jurisdiction with
respect thereto, as now and from time to time in effect) for Eurocurrency
funding (currently referred to as "Eurocurrency liabilities" in Regulation
D) which are required to be maintained by a member bank of the Federal
Reserve System;
plus,
(b) the Applicable LIBOR Margin per annum.
To the extent determined by reference to average rate offered (rather than the
Telerate Screen), the LIBOR Rate shall be adjusted to the nearest one-sixteenth
percent (1/16%) or, if there is no nearest one-sixteenth percent (1/16%), to the
next higher one-sixteenth percent (1/16%).
17
<PAGE> 26
"LIBOR Rate Determination Date" shall mean each date for calculating
the LIBOR Rate for purposes of determining the interest rate applicable to any
LIBOR Rate Loan made pursuant to subsection 2.6. The LIBOR Rate Determination
Date shall be the second Business Day prior to the first day of the related
Interest Period for a LIBOR Rate Loan.
"LIBOR Rate Loans" shall mean Revolving Loans bearing interest at
the LIBOR Rate plus the Applicable LIBOR Margin.
"Lien" shall mean, with respect to the Property of any Person, any
statutory or contractual lien, security interest, mortgage, pledge, claim,
encumbrance, charge, hypothecation, assignment, deposit arrangement, filing of,
or agreement to give, a financing statement, encumbrance or preference, priority
or other security agreement or preferential arrangement of any kind or nature
whatsoever, whether voluntary or involuntary (including, without limitation, the
interest of a vendor or lessor under any conditional sale, capitalized lease or
other title retention agreement), in, of or on any of the Property of such
Person in favor of any other Person.
"Litigation" shall have the meaning ascribed thereto in subsection
6.14.
"Loan Account" shall have the meaning ascribed thereto in subsection
2.14.
"Loan Year" shall mean the period of twelve (12) consecutive months
commencing on the Closing Date and each succeeding period of twelve (12)
consecutive months commencing on each anniversary of the Closing Date during the
Initial Term and any Renewal Term.
"Loans" shall mean, collectively, the Revolving Loan and the Eau
Claire Term Loans.
"Material Adverse Effect" shall mean, as determined by the Required
Lenders in their reasonable business judgment, a material adverse effect upon
(a) the business, properties, operations or condition (financial or otherwise)
or business prospects of the Borrower or of the Borrower and its Subsidiaries
taken as a whole as a result of the occurrence or existence of any single event
or condition or series of events or conditions in the aggregate, or (b) the
ability of the Borrower or any Subsidiary to perform its obligations under any
of the Financing Agreements, or (c) the validity or enforceability of any of the
Financing Agreements or the rights, powers and remedies of the Agent or any
Lender to enforce or collect the Obligations. In determining whether any
individual event would result in a Material Adverse Effect, notwithstanding that
such event does not of itself have such effect, a Material Adverse Effect shall
be deemed to have occurred if the cumulative effect of such event and all other
then existing events would result in a Material Adverse Effect.
"Merger Agreement" shall mean that certain Agreement and Plan of
Merger, dated as of March 2, 1998, between Plainwell Paper and the Borrower,
pursuant to which Plainwell Paper has been merged with and into the Borrower.
"Monthly Report" shall have the meaning ascribed thereto in
subsection 3.1.
18
<PAGE> 27
"Mortgages" shall mean the first mortgages, deeds of trust,
leasehold mortgages, collateral assignment of leases or amendments to mortgages
(as applicable) with respect to the Borrower's owned Real Estate located at (i)
200 Allegan Street and 901 Lincoln Parkway in Plainwell, Michigan and (ii) 1200
Forest Street in Eau Claire, Wisconsin, all in form and substance satisfactory
to the Agent, duly executed and delivered by the Borrower or any subsidiary in
favor of the Agent, for the benefit of the Lenders, as security for the
Obligations, as the same may hereafter be restated, amended, modified or
supplemented from time to time.
"Multiemployer Plan" shall mean any multiemployer plan within the
meaning of Section 4001(a)(3) of ERISA to which the Borrower or any ERISA
Affiliate contributes, is obligated to contribute or was required to contribute
within the immediately preceding six (6) years.
"Net Income" shall mean, for any applicable fiscal period,
determined for the Borrower and its Subsidiaries on a consolidated basis, the
audited consolidated net income after income and franchise taxes and shall have
the meaning given such term by Generally Accepted Accounting Principles;
provided that there shall be specifically excluded therefrom tax-adjusted (i)
gains or losses from the sale of fixed assets, (ii) net income of any Person in
which the Borrower or any Subsidiary has an ownership interest, unless received
by the Borrower in a cash distribution and (iii) expenses incurred in connection
with the issuance or repurchase of capital stock to or from management employees
of the Borrower.
"Note" or "Notes" shall mean one or more of the Revolving Loan Notes
and/or Eau Claire L/C Notes.
"Obligations" shall mean all of the Borrower's obligations,
liabilities and indebtedness to the Agent and the Lenders and/or to any
affiliate of the Agent or the Lenders of any and every kind and nature, whether
heretofore, now or hereafter owing, arising, due or payable and howsoever
evidenced, created, incurred, acquired, or owing, whether primary, secondary,
direct, indirect, contingent, fixed or otherwise (including, without limitation,
obligations of performance, Lender Guaranty Liabilities and the Eau Claire L/C
Liability) and whether arising or existing under written agreement, oral
agreement or operation of law including, without limitation, all of the
Borrower's indebtedness, liabilities and obligations to the Agent and the
Lenders or any Participant under this Agreement and the other Financing
Agreements.
"Participant" shall mean any Person now or from time to time
hereafter participating with any Lender in the Revolving Loans made by such
Lender to the Borrower or in the Eau Claire L/C pursuant to this Agreement.
"PBGC" shall mean the Pension Benefit Guaranty Corporation or any
successor thereto.
"Pension Plan" shall mean any Plan that is or was a defined benefit
plan (other than a Multiemployer Plan) defined in Section 3(35) of ERISA.
19
<PAGE> 28
"Permitted Investments" shall have the meaning ascribed thereto in
subsection 8.4.
"Permitted Liens" shall have the meaning ascribed thereto in
subsection 8.1.
"Person" shall mean any individual, sole proprietorship,
partnership, joint venture, trust, limited liability company, limited liability
partnership, unincorporated organization, association, corporation, institution,
entity, party, or government (whether national, federal, state, provincial,
county, city, municipal or otherwise, including, without limitation, any
instrumentality, division, agency, body or department thereof).
"Plainwell Paper" shall mean PLAINWELL PAPER COMPANY, a Michigan
corporation and, prior to the effective date of the Merger Agreement, a wholly
owned Subsidiary of Holdings.
"Plan" shall mean any employee benefit plan within the meaning of
Section 3(3) of ERISA (other than any Multiemployer Plan) under which the
Borrower or any ERISA Affiliate is, or was at any time within the previous six
(6) years, an "employer" within the meaning of Section 3(5) of ERISA.
"Prime Rate" shall mean the highest "prime rate" of interest
reported, from time to time, by The Wall Street Journal; provided, however, that
in the event that The Wall Street Journal ceases reporting a "prime rate",
"Prime Rate", "Prime Rate" shall mean the per annum rate of interest reported as
the "Bank Prime Loan" rate for the most recent weekday for which such rate is
reported in Statistical Release H.15 (519) published from time to time by the
Board of Governors of the Federal Reserve System; provided further that in the
event that both of the aforesaid indices cease to be published or to report
rates of the aforesaid types, the "Prime Rate" shall be determined from a
comparable index chosen by the Agent in good faith. The "Prime Rate" shall
change effective on the date of the publication of any change in the applicable
index by which such "Prime Rate" is determined.
"Prior Loan Agreement" shall mean the Loan and Security Agreement,
dated as of June 12, 1997 as amended, between SBCC, as Agent and Lender, the
other Lenders party thereto and Plainwell Paper.
"Prior Loan Documents" shall mean the Prior Loan Agreement and the
loan documents entered into in connection therewith.
"Pro Forma" shall have the meaning ascribed thereto in subsection
6.4(a).
"Projections" shall mean the projected balance sheets, profit and
loss statements, and cash flow statements of the Borrower and its Subsidiaries
on a consolidated basis, prepared in accordance with Generally Accepted
Accounting Principles, together with appropriate supporting details and a
statement of underlying assumptions, which have been and will be delivered to
the Agent and the Lenders in accordance with the terms hereof by the Borrower, a
copy of the first of which is attached as Exhibit 6.4-3 (except that the
Projections set forth as
20
<PAGE> 29
Exhibit 6.4-3 present the Borrower's consumer products division and specialty
paper divisions separately).
"Property" of a Person shall mean any and all assets or property,
whether real, personal, tangible, intangible, or mixed, of such Person, or other
assets or property leased or operated by such Person.
"Pro Rata Share" shall mean the percentage obtained by dividing (a)
the Commitments of a Lender by (b) the aggregate Commitments of all Lenders, as
such percentage may be adjusted by assignments permitted pursuant to subsection
11.1. The Commitments of each Lender with respect to the Revolving Loan and the
Eau Claire L/C as of the Closing Date are set forth on Schedule 1; Schedule 1
shall be amended and the Lenders' Pro Rata Shares shall be adjusted from time to
time to give effect to the addition of any new Lenders pursuant to subsection
11.1. The sum of the Pro Rata Shares of all Lenders at any date of determination
shall equal one hundred percent (100%).
"Purchase Agreement" means the Agreement of Purchase and Sale, dated
as of January 22, 1998, between Pope & Talbot, Inc., Pope & Talbot, Wis., Inc.,
Holdings and Borrower, pursuant to which Holdings, through Borrower, will
acquire the Tissue Business from Pope & Talbot, Inc. and Pope & Talbot, Wis.,
Inc.
"Rate Hedging Obligations" of a Person shall mean any and all
obligations of such Person, whether absolute or contingent and howsoever and
whensoever created, arising, evidenced or acquired (including all renewals,
extensions and modifications thereof and substitutions therefore), under (i) any
and all agreements, devices or arrangements designed to protect at least one of
the parties thereto from the fluctuations of interest rates, exchange rates or
forward rates applicable to such party's Property, liabilities or exchange
transactions, including, but not limited to, dollar-denominated or
cross-currency interest rate exchange agreements, forward currency exchange
agreements, interest rate cap or collar protection agreements, forward rate
currency or interest rate options, puts and warrants, and (ii) any and all
cancellations, buy backs, reversals, terminations or assignments of any of the
foregoing.
"Rate Option" shall mean the Base Rate or the LIBOR Rate, as
applicable.
"Real Estate" shall mean the real property, mineral rights,
leasehold or other interests in real property together with any purchase options
and other rights related to such leaseholds or other interests owned, leased,
used or operated now or hereafter by the Borrower, all Fixtures and personal
property used in conjunction therewith and the Borrower's rights to leases,
rents and profits with respect thereto, but excluding the Borrower's real
property located at 12 Street in Plainwell, Michigan and commonly referred to as
the 12th Street Landfill.
"Related Transactions" shall mean, collectively, all of the
transactions contemplated by the Related Transactions Documents.
"Related Transactions Documents" shall mean, collectively, the
Financing Agreements, the Purchase Agreement, the Merger Agreement, the
Subordinated Debt Documents
21
<PAGE> 30
and all documents, agreements, instrument and certificates executed, delivered
or filed in connection therewith.
"Renewal Term" shall have the meaning ascribed thereto in subsection
2.7.
"Required Lenders" shall mean (i) Lenders having pro rata shares in
the aggregate equal to at least sixty-six and two thirds percent (66 2/3%) of
the Total Loan Facility or (ii) if the Revolving Credit Facility has been
terminated, Lenders having in the aggregate at least sixty-six and two thirds
percent (66 2/3%) of the aggregate outstanding amount of the Revolving Loans and
the Eau Claire Lender Guaranty.
"Restricted Payment" shall mean: (a) any dividend or other
distribution, direct or indirect, on account of any shares of any class of Stock
of the Borrower now or hereafter outstanding, except a dividend payable solely
in shares of that class of Stock to the holders of that class; (b) any
redemption, conversion, exchange, retirement, sinking fund or similar payment,
purchase or other acquisition for value direct or indirect of any shares of any
class of Stock of the Borrower now or hereafter outstanding; (c) any payment or
prepayment of principal or premium, if any, or interest on, fees with respect
to, redemption, conversion, exchange, purchase, retirement, defeasance, sinking
fund or similar payment with respect to Subordinated Debt of the Borrower; (d)
any payment made to retire, or to obtain the surrender of, any outstanding
warrants, options or other rights to acquire shares of any class of Stock of the
Borrower now or hereafter outstanding; or (e) any payment by the Borrower of any
management fees, advisor fees or similar fees whether pursuant to a management
agreement or otherwise to any Affiliate of the Borrower.
"Revolving Loan" shall have the meaning ascribed thereto in
subsection 2.1.
"Revolving Loan Maturity Date" shall mean March 6, 2003, subject to
subsection 2.7.
"Revolving Loan Notes" shall have the meaning ascribed thereto in
subsection 2.3.
"SBCC" shall mean Sanwa Business Credit Corporation, a Delaware
corporation, in its individual capacity, and its successors.
"SBCC Fee Letter" shall mean that certain letter dated as of January
21, 1998 between SBCC and Borrower with respect to certain fees to be paid from
time to time by Borrower to SBCC.
"Securities Act" shall mean the Securities Act of 1933, as amended.
"Seller" shall mean have the meaning ascribed thereto in the
recitals to the Agreement.
"Service" shall mean the Internal Revenue Service and any successor
thereof.
22
<PAGE> 31
"Solvency Affidavit" shall mean the Affidavit of Solvency of even
date herewith executed and delivered by the chief financial officer of the
Borrower in favor of the Agent, for the benefit of the Lenders.
"Solvent" shall mean, when used with respect to any Person, that (i)
the fair saleable value of its Property is in excess of the total amount of its
Liabilities (including for purposes of this definition all liabilities, whether
or not reflected on a balance sheet prepared in accordance with Generally
Accepted Accounting Principles, and whether direct or indirect, fixed or
contingent, secured or unsecured, disputed or undisputed), (ii) it is able to
pay its debts or obligations in the ordinary course as they mature, and (iii)
that Person has capital sufficient to carry on its business and all businesses
in which it is about to engage. "Solvency" shall have a correlative meaning.
"Stock" shall mean all shares, options, general or limited
partnership interests or other equivalents (regardless of how designated),
participation or other equivalents (however designated) of or in a corporation,
partnership or equivalent entity, whether voting or non-voting, including,
without limitation, common stock, warrants, preferred stock, convertible
debentures or any other equity security, and all agreements, instruments and
documents convertible, in whole or in part, into any one or more of all of the
foregoing.
"Stock Pledge Agreement" shall mean the Stock Pledge Agreement,
dated as of June 12, 1997, executed by the Guarantor in favor of the Agent, on
behalf of itself and the Lenders, as the same may be restated, amended, modified
or supplemented from time to time.
"Subordinated Debt" shall mean any Indebtedness (a) the payment of
which is subordinated to the payment of the Obligations and (b) which is
incurred pursuant to terms, conditions and documentation in form and substance
satisfactory to the Required Lenders. Without limiting the generality of the
foregoing, the term "Subordinated Debt" shall include the Subordinated Notes.
"Subordinated Debt Documents" shall mean the Subordinated Notes and
the Indenture dated as of March 6, 1998 governing the Subordinated Notes between
the Borrower and the Trustee designated therein.
"Subordinated Notes" shall mean $125,000,000 principal amount of 11%
Senior Subordinated Notes due 2008.
"Subsidiary" of a Person shall mean (i) any corporation of which
more than fifty percent (50%) of the outstanding securities having ordinary
voting power to elect a majority of the board of directors or other Persons
performing similar functions is at any time of determination, directly or
indirectly, owned or controlled by such Person or by one or more of its
Subsidiaries or by such Person and one or more of its Subsidiaries, or (ii) any
partnership, association, trust, grantor trust, joint venture or similar
business organization more than 50% of the equity or partnership interests
having ordinary voting power or power of direction of which shall at any time of
determination be so owned or controlled. Unless otherwise expressly
23
<PAGE> 32
provided or the context requires otherwise, all references herein to a
"Subsidiary" shall mean a Subsidiary of the Borrower.
"Tangible Assets" shall mean, at any date of determination, the
Borrower's total Property (less applicable reserves and other properly
deductible items) which under Generally Accepted Accounting Principles would be
reflected on a balance sheet of the Borrower, after deducting therefrom all
values attributable to organizational expenses, patents, copyrights, trademarks,
licenses and other intangibles, goodwill, covenants not to compete, research and
development costs, training costs, and all unamortized debt discount, pre-paid
expenses and deferred charges, which in each case under Generally Accepted
Accounting Principles, would be included on such balance sheet.
"Tangible Net Worth" shall mean, at any date of determination,
Tangible Assets less total Liabilities.
"Taxes" shall mean taxes, liens, imposts, deductions, Charges or
withholdings, and all liabilities with respect thereto imposed by any
Governmental Authority (together with any fines, interests, penalties or other
additions thereto), excluding (a) taxes imposed on or measured by the net income
of any Lender by the jurisdictions (i) under the laws of which such Lender is
organized or (ii) where the principal office of such Lender is located or (b)
any transfer taxes imposed as a result of the transfer of any Notes or any Eau
Claire L/C Notes.
"Telerate Screen" shall mean the display designated as Screen 3750
on the Telerate System or such other screen on the Telerate System as shall
display the London interbank offered rates for deposits in U.S. dollars quoted
by selected banks.
"Termination Date" shall mean the earlier of (i) the Revolving Loan
Maturity Date then in effect and (ii) the date of termination of the Lenders'
obligation to make advances under the Revolving Loan pursuant to subsection 9.1.
"Termination Event" shall mean: (a) the tax disqualification of a
Plan under Section 401(a) of the IRC; (b) a "Reportable Event" described in
Section 4043 of ERISA and the regulations issued thereunder unless the thirty
(30) day notice to the PBGC has been waived for the event; (c) the withdrawal of
the Borrower or any ERISA Affiliate from a Pension Plan during a plan year in
which it was a "substantial employer" as defined in Section 4001(a)(2) of ERISA
or was deemed such under Section 4062(e) of ERISA; (d) the termination of a
Pension Plan, the filing of a notice of intent to terminate a Pension Plan or
the treatment of a Pension Plan amendment as a termination under Section 4041(e)
of ERISA; (e) the institution of proceedings to terminate a Pension Plan by the
PBGC; (f) any other event or condition which would constitute grounds under
Section 4042(a) of ERISA for the termination of, or the appointment of a trustee
to administer, any Pension Plan; (g) the partial or complete withdrawal of the
Borrower or any ERISA Affiliate from a Multiemployer Plan; (h) the imposition of
a Lien pursuant to Section 412 of the IRC or Section 302 of ERISA; (i) any event
or condition which results in the reorganization or insolvency of a
Multiemployer Plan under Section 4241 or Section 4245 of ERISA, respectively; or
(j) any event or condition which results in the termination of a
24
<PAGE> 33
Multiemployer Plan under Section 4041A of ERISA or the institution by the PBGC
of proceedings to terminate a Multiemployer Plan under Section 4042 of ERISA.
"399 Group" shall have the meaning set forth in the definition of
"Change of Control."
"Tissue Business" shall mean the business which manufactures and
markets private label consumer tissue products, as conducted by Seller and sold
to Borrower on the Closing Date pursuant to the Purchase Agreement.
"Total Loan Facility" shall mean Fifty Four Million Five Hundred
Fifty Two Thousand Dollars ($54,552,000).
"Total Revolving Loan Facility" shall mean Thirty Five Million
Dollars ($35,000,000), as such amount may be reduced, if at all, from time to
time in accordance with the terms of this Agreement.
"Unrestricted Cash" shall mean cash on hand or on deposit and Cash
Equivalents owned by Borrower that is not pledged to any Person other than Agent
and is not subject to any statutory, regulatory, contractual or other
restriction which would prohibit or restrict the application thereof to the
Obligations.
"Unused Line Fee" shall have the meaning ascribed thereto in
subsection 2.12.
1.2. Accounting Terms. Any accounting terms used in this Agreement
which are not specifically defined herein shall have the meanings customarily
given them in accordance with Generally Accepted Accounting Principles. All
determinations of the book value of Inventory contemplated hereby shall be at
the lower of cost (on a first-in, first-out basis) or market.
1.3. Other Terms Defined in Illinois Uniform Commercial Code. All
other terms contained in this Agreement (and which are not otherwise
specifically defined herein) shall have the meanings provided in the Uniform
Commercial Code of the State of Illinois or the laws of any other state which
are required to be applied in connection with the issue of perfection or
non-perfection of Liens on the Collateral (the "Code") to the extent the same
are used or defined therein.
1.4. Effective Date. All references to "the date hereof," "the date
of this Agreement," "the effective date hereof," "effective as of the date
hereof" or "of even date herewith" contained herein or in the other Financing
Agreements shall be deemed to refer to the Closing Date of this Agreement.
1.5. References. The foregoing definitions shall be equally
applicable to both the singular and plural forms of the defined terms. Unless
otherwise expressly provided or unless the context requires otherwise, all
references in this Agreement to Sections, subsections, Schedules and Exhibits
shall mean and refer to Sections, subsections, Schedules and Exhibits of
25
<PAGE> 34
this Agreement. References to Persons include their respective permitted
successors and assigns or, in the case of a governmental authority, Persons
succeeding to the relevant functions of such Persons. All references to statutes
shall include all related rules and regulations and shall include all amendments
of same and any successor or replacement statutes and regulations.
2. CREDIT.
2.1. Revolving Credit Facility, Revolving Loan and Lender
Guaranties.
(a) Revolving Loan. Subject to the terms and conditions herein set
forth, each Lender agrees severally (and not jointly) to make its Pro Rata Share
of advances to the Borrower, on a revolving credit basis (the "Revolving Loan"),
in an aggregate amount not in excess of the lesser of (i) the Total Revolving
Loan Facility less the Lender Guaranty Reserve, or (ii) the Current Asset Base
(such lesser amount, "Borrowing Availability"). As used herein, the "Current
Asset Base" shall mean an amount equal to:
(1) up to eighty-five percent (85%) of the face amount (less maximum
discounts, credits and allowances which may be taken by or granted to
Account Debtors in connection therewith) then outstanding of existing
Eligible Accounts, less such reserves as the Agent in its reasonable
credit judgment elects to establish, plus
(2) up to sixty percent (60%) of the book value of the Borrower's
then existing Eligible Inventory; provided that with respect to that
portion of the Current Asset Base consisting of such Eligible Inventory as
derived from the foregoing formula, the principal balance of the Revolving
Loan plus the outstanding Lender Guaranty Reserve attributable thereto
("the Inventory Advances") at any one time shall not exceed Twenty One
Million Dollars ($21,000,000). The book value of Eligible Inventory shall
be determined at the lower of cost (determined on a first-in-first-out
("FIFO") basis) or market, less such reserves as the Agent in its
reasonable discretion elects to establish, and minus
(3) the Lender Guaranty Reserve.
(b) Advances. Until all amounts outstanding in respect of the
Revolving Loan shall become due and payable on the Termination Date, within the
foregoing limits and subject to the terms, provisions and limitations set forth
herein, the Borrower may from time to time borrow, repay and reborrow under this
subsection 2.1. Each advance of the Revolving Loan shall be made on notice by an
Authorized Officer. The Agent shall be entitled to rely upon, and shall be fully
protected under this Agreement from any liability to any Person in relying upon,
any such notice believed by the Agent to be genuine and to assume that each
Person executing and delivering the same was duly authorized by the Borrower.
Each advance to the Borrower shall, on the day of such advance, be deposited, in
immediately available funds, in such account as the Borrower may, from time to
time, designate, unless otherwise requested by the Borrower in writing. On the
Closing Date, the Continuing Loans shall be converted into and shall constitute
outstanding advances under the Revolving Loan without further action by Agent,
Lenders or Borrower.
26
<PAGE> 35
(c) Lender Guaranty. Subject to the terms and conditions of this
Agreement, as part of the Total Revolving Loan Facility and in addition to
advances under the Revolving Loan, upon the request of the Borrower, SBCC, on
behalf of each Lender according to such Lender's Pro Rata Share, may issue or
arrange for the issuance of Letters of Credit for the account of the Borrower
and/or guaranty payment to the Issuing Banks which issue Letters of Credit for
the account of the Borrower or to guaranty other obligations of the Borrower
under written contracts (all such guaranties and Letters of Credit issued by
SBCC are collectively referred to herein as "Lender Guaranties" and individually
as a "Lender Guaranty"); provided that SBCC shall not be under any obligation to
issue any Lender Guaranty if any order, judgment or decree of any government
authority or other regulatory body shall purport by its terms to enjoin or
restrain SBCC or any Lender from issuing such Lender Guaranty, or any law or
governmental rule, regulation, policy, guideline or directive (whether or not
having the force of law) from any governmental authority or other regulatory
body with jurisdiction over SBCC or any Lender shall prohibit, or request that
SBCC or such Lender refrain from, the issuance of Lender Guaranties in
particular or shall impose upon SBCC or any Lender with respect to such Lender
Guaranties any restriction or reserve or capital requirement (for which SBCC or
such Lender is not otherwise compensated) or any unreimbursed loss, cost or
expense which SBCC or any Lender in good faith deems material to it. In no event
shall SBCC issue or otherwise become obligated with respect to a Letter of
Credit (including, without limitation, Letters of Credit issued with an
automatic "evergreen" provision) having an expiration date, or a date for
payment of any draft presented thereunder, later than the earlier of (i) twelve
(12) months from the date of issuance or (ii) thirty (30) days prior to the
Revolving Loan Maturity Date. Such issuance and obligations with respect to a
Letter of Credit pursuant to this subsection 2.1(c) shall be deemed to be a
Revolving Loan for purposes of requiring the satisfaction of the applicable
conditions set forth in Section 4. Additions to the Lender Guaranty Reserve
shall be established concurrently with the issuance of each Lender Guaranty.
Immediately upon the issuance of any Lender Guaranty in accordance with this
subsection 2.1(c), each Lender shall be deemed to have irrevocably and
unconditionally purchased and received from SBCC, without recourse,
representation or warranty, an individual participation interest equal to its
Pro Rata Share of the principal amount of such Lender Guaranty and each draw
paid by the Issuing Bank under the Letter of Credit issued in connection
therewith. Each Lender's obligation to pay its Pro Rata Share of all draws under
the Letters of Credit issued in connection with such Lender Guaranties shall be
absolute, unconditional and irrevocable and in each case shall be made without
counterclaim or set-off by such Lender.
(i) Maximum Amount. The aggregate amount of Lender Guaranty
Liability with respect to Lender Guaranties outstanding at any one time
shall not exceed $6,000,000.
(ii) Reimbursement. The Borrower shall be irrevocably and
unconditionally obligated forthwith without presentment, demand, protest
or other formalities of any kind, to reimburse the Agent, on behalf of the
Lenders, for any amounts paid by the Lenders with respect to each Lender
Guaranty, including, without limitation, all amounts paid by the Lenders
upon any draw with respect to a Letter of Credit, any guaranty or
reimbursement obligation paid by the Lenders to any Person upon any draw
upon a Letter
27
<PAGE> 36
of Credit and all fees, costs and expenses paid by the Lenders to any
Issuing Bank. All such reimbursement obligations shall be due and payable
on demand. If not paid within one (1) Business Day following demand, or,
if an Event of Default shall have occurred and be continuing, on the date
such reimbursement obligations arise, the Borrower hereby authorizes and
directs the Agent, at the Agent's option, to debit the Loan Account (by
increasing the principal balance of the Revolving Loan), in the amount of
any payment made by the Lenders with respect to any Lender Guaranty and,
in connection therewith, the Lender Guaranty Reserve then in effect shall
be reduced by the amount of such debit. All amounts paid by the Lenders
with respect to any Lender Guaranty that are not immediately repaid by the
Borrower with the proceeds of the Revolving Loan or otherwise shall bear
interest at the interest rate applicable to Base Rate Loans. If SBCC makes
a payment on account of any Lender Guaranty and is not concurrently
reimbursed therefor by the Borrower and if for any reason an advance under
the Revolving Loan may not be made as stated in this subsection 2.1(c),
then as promptly as practical during normal banking hours on the date of
its receipt of notice thereof or, if not practicable on such date, not
later than 12:00 noon (Chicago time) on the Business Day immediately
succeeding such date of notification, each Lender shall deliver to the
Agent for the account of the Issuing Bank, in immediately available funds,
the purchase price for such Lender's interest in such unreimbursed Lender
Guaranty, which shall be an amount equal to such Lender's Pro Rata Share
of such payment. Each Lender acknowledges and agrees that its obligation
to reimburse the Agent pursuant to this subsection 2.1(c)(ii) with respect
to Lender Guaranty Liabilities is absolute and unconditional and shall not
be affected by any circumstance whatsoever including, without limitation,
the occurrence or continuance of a Default or an Event of Default, and
further acknowledges and agrees that each such payment shall be made
without any offset, abatement, withholding or reduction whatsoever.
(iii) In addition to all other terms and conditions set forth in
this Agreement, the issuance by the Lenders of any Lender Guaranty shall
be subject to the conditions precedent that the Issuing Bank be
satisfactory to the Agent and that the Letter of Credit or written
contract for which the Borrower requests a Lender Guaranty be in such
form, be in such amount, contain such terms and support such transactions
as are reasonably satisfactory to the Agent. The Borrower shall comply
with all such terms and conditions imposed on the Borrower by any Issuing
Bank or by the Agent with respect to the issuance of any Letter of Credit,
whether such terms and conditions are imposed in the application for such
Letter of Credit, the Lenders' guaranty of such letter of credit or
otherwise. Each Lender Guaranty shall be in form and substance
satisfactory to the Agent and shall provide that the guaranty terminates
and all demands or claims for payment must be presented by a date certain,
which date will be at least thirty (30) days before the Revolving Loan
Maturity Date. Notwithstanding the recitation in this Agreement of terms
and conditions with respect to the issuance of Lender Guaranties, the
Borrower hereby acknowledges and agrees that the issuance of any Lender
Guaranty shall be in the Agent's reasonable discretion.
28
<PAGE> 37
(iv) Prior to the issuance of a Lender Guaranty and as a condition
to such issuance, the Borrower shall give the Agent prior written notice
specifying the date a Lender Guaranty is to be issued, identifying the
beneficiary of the guaranty and describing the nature of the transactions
proposed to be supported thereby and specifying whether the Borrower is
requesting a Lender Guaranty in the form of a Letter of Credit issued by
one of the Lenders that is a bank or a guaranty of a Letter of Credit
issued by another Issuing Bank. The notice shall be accompanied by the
form of the Letter of Credit or other written contract to be guarantied
and the letter of credit application and reimbursement agreements. Subject
to the terms hereof, the Agent shall issue the requested Lender Guaranty
as soon as practicable and not more than fifteen (15) Business Days
following the date of the applicable notice; provided that the Lender
Guaranty shall not be issued until the Agent and the Issuing Bank have
mutually agreed upon the form of such Lender Guaranty.
(v) The Borrower hereby agrees to indemnify, pay and hold the Agent
and each Lender harmless from and against any and all pending or
threatened claims, litigation, damages, losses and liabilities incurred by
the Agent or any Lender (or which may be claimed against the Agent or any
Lender by any Person whatsoever) and costs and expenses incurred in
defending or responding to pending or threatened claims or litigation by
reason of or in connection with the execution, delivery or transfer of, or
payment or failure to pay under, any Lender Guaranty including, without
limitation, any action taken or omitted by any Issuing Bank in accordance
with the provisions of subsection 7.10. The Borrower's unconditional
obligations to the Agent and the Lenders hereunder shall not be modified
or diminished for any reason or in any manner whatsoever. The Borrower
agrees that any charges made to the Agent or the Lenders for the
Borrower's account by any Issuing Bank shall be conclusive as between such
Persons, absent manifest error, and the Borrower and may be charged to the
Borrower's Loan Account hereunder.
2.2. Maximum Principal Balance of Revolving Loan. The aggregate
outstanding principal balance of the Revolving Loan shall at no time exceed the
Borrowing Availability. If at any time the principal balance of the Revolving
Loan exceeds Borrowing Availability, the Borrower shall immediately and without
notice or demand of any kind (a) repay the Revolving Loan to the extent
necessary to reduce the principal balance to an amount that is equal to or less
than the Borrowing Availability and (b) if any excess remains after payment of
the outstanding Revolving Loan, cash collateralize the Lender Guaranty
Liabilities to the extent necessary to eliminate such remaining excess.
2.3. Evidence of Revolving Loan Indebtedness. The advances by each
Lender constituting the Revolving Loan shall be evidenced by a promissory note
in favor of each respective Lender (collectively, the "Revolving Loan Notes") in
the amount of its Revolving Loan Commitment dated the Closing Date in the form
attached as Exhibit 2.3. All of the Borrower's Revolving Loan Obligations to the
Lenders hereunder shall be payable by the Borrower in cash or by application of
the proceeds of all Accounts and other Collateral in accordance with subsection
3.5, and shall be payable in full upon the Termination Date, and the
29
<PAGE> 38
principal amount of such Revolving Loan Obligations shall bear interest as
hereinafter provided. Each advance by the Lenders and each repayment of
principal applicable to such advance shall be reflected in the Borrower's Loan
Account.
2.4. Eau Claire L/C Facility.
(a) Eau Claire L/C. Subject to the terms and conditions herein set
forth and in addition to the Total Revolving Facility and advances made pursuant
to subsection 2.1, SBCC, on behalf of each Lender according to such Lender's Pro
Rata Share, agrees to issue on the Closing Date the Eau Claire Lender Guaranty
for the account of Borrower. Each Lender shall be deemed to have irrevocably and
unconditionally purchased and received from SBCC, without recourse,
representation or warranty, an individual participation interest equal to its
Pro Rata Share of the principal amount of the Eau Claire Lender Guaranty and
each draw paid by SBCC in connection therewith. Each Lender's obligation to pay
its Pro Rata Share of all draws under the Eau Claire L/C shall be absolute,
unconditional and irrevocable and in each case shall be made without
counterclaim or set-off by such Lender.
(b) Reimbursement. (i) The Borrower shall be irrevocably and
unconditionally obligated forthwith without presentment, demand, protest or
other formalities of any kind to reimburse the Agent, on behalf of the Lenders,
with respect to all amounts paid by the Lenders upon any draw upon the Eau
Claire L/C and all fees, costs and expenses paid by the Lenders in connection
therewith. All such reimbursement obligations shall be due and payable within
one (1) Business Day following demand and shall accrue interest, payable to the
Agent on demand, at the Default Rate applicable to Base Rate Loans from the date
of such draw until the date of reimbursement to the Agent and if not paid within
one (1) Business Day following demand, the Borrower hereby authorizes and
directs the Agent, at the Agent's option to debit the Loan Account (by
increasing the principal balance of the Revolving Loan);
(ii) Nothwithstanding the foregoing, if the Eau Claire L/C is drawn
prior to the fifth anniversary of the Closing Date and no Event of Default shall
have occurred and be continuing as of the date of any drawing and Borrower shall
have executed and delivered to Lenders the Eau Claire L/C Notes (as defined
below): (i) each Lender shall, as promptly as practical during normal banking
hours on the date of its receipt of notice thereof, but not later than 12:00
noon (Chicago time) on the Business Day immediately succeeding such date of
notification, deliver to Agent its Pro Rata share of the amount of such drawing
in immediately available funds and (ii) the amount of such drawing shall be
converted into a term loan (an "Eau Claire Term Loan"), and (iii) the Borrower
shall pay to the Agent, for the ratable benefit of the Lenders, an amount equal
to the principal balance of such drawing (together with all fees, costs and
expenses paid by the Lenders in connection therewith) in consecutive monthly
installments, each equal to 1/84th of such amount and due on the first day of
each calendar month, commencing on the first day of the first calendar month
following such drawing, with the final installment equal to the entire remaining
principal balance of such amount due and payable on the Termination Date. In
such cases where the Borrower is entitled to repay a drawing under the Eau
Claire L/C in installments, each such drawing shall be evidenced by a promissory
note, dated the date of such drawing (each, a "Eau Claire L/C Note"), in favor
of the Agent, for the
30
<PAGE> 39
ratable benefit of the Lenders, each in the amount of the principal balance of
such drawing (together with all fees, costs and expenses paid by the Lenders in
connection therewith) in the form attached as Exhibit 2.3. Amounts outstanding
under any Eau Claire L/C Note shall accrue interest at the interest rate
applicable to Base Rate Loans.
(iii) Each Lender acknowledges and agrees that its obligation to
reimburse the Agent pursuant to this subsection 2.4(a) with respect to Eau
Claire L/C Liabilities is absolute and unconditional and shall not be affected
by any circumstance whatsoever including, without limitation, the occurrence or
continuance of a Default or an Event of Default, and further acknowledges and
agrees that each such payment shall be made without any offset, abatement,
withholding or reduction whatsoever. On the Closing Date, at Borrower's request,
Agent and Lenders will make a special advance in the amount of $19,552,000 (the
"L/C Guaranty Deposit") on behalf of Borrower to Seller or a trustee bank to
secure Borrower's reimbursement obligations to Seller as the obligor with
respect to the Eau Claire L/C. Such funds shall be held pursuant to a letter of
credit trust agreement among Seller, Borrower, Agent, Wachovia Bank of Georgia,
National Association ("Wachovia"), the trustee bank (if any) and the bond
trustee for the Eau Claire bonds and/or such other agreements as the parties
require to effectuate the purposes of this subsection 2.4(b)(iii). That L/C
Guaranty Deposit will not bear interest hereunder, except (a) to the extent that
Seller or Wachovia or the trustee bank (if any), at Seller's direction, applies
any or all of such funds to the Seller's reimbursement obligations with respect
to the Eau Claire L/C or (b) if such funds are not paid to Agent and Lenders
when such funds are to be paid in accordance with the terms of the applicable
trust agreement (provided that Agent and Lenders use reasonable efforts to
obtain payment thereof), or (c) upon the Termination Date, in which cases the
Borrower's reimbursement obligations set forth in clause (b)(i) above shall
become effective. In addition to the Eau Claire L/C Fee, Agent and Lenders shall
be entitled to all interest income earned on the L/C Guaranty Deposit while the
same is held by Seller or a trustee bank, if any.
(c) Termination. Upon the earlier to occur of (i) the fifth
anniversary of the Closing Date and (ii) a termination during the Initial Term
for any reason of the Commitment to make Revolving Loans, Borrower shall be
obligated to immediately (i) cause to be issued to and for the benefit of the
Lenders a letter of credit as substitution for the Eau Claire L/C in form and
substance acceptable to the Required Lenders issued by a bank or other financial
institution acceptable to the Required Lenders, and cause SBCC and the Lenders
to be released with respect to liability under the Eau Claire L/C or (ii)
deposit cash collateral with the Agent, for the benefit of the Lenders, in
either case, in an amount equal to the aggregate Eau Claire L/C Liability that
will remain outstanding after such termination of the Commitment to make
Revolving Loans plus $30,000 to cover costs that may be incurred in connection
with a draw under the Eau Claire L/C.
(d) Eau Claire L/C Fees. The Borrower shall pay to the Agent, for
the benefit of the Lenders, fees for the Eau Claire Lender Guaranty (the "Eau
Claire L/C Fees") for the period from and including the date of issuance of the
Eau Claire Lender Guaranty or the date on which the L/C Guaranty Deposit is
advanced to and excluding the date of termination of the Eau Claire Lender
Guaranty (and the date, if any, on which the Eau Claire L/C is converted into
the Eau Claire Term Loan) or the cash collateralization thereof under subsection
2.4(c), equal to the
31
<PAGE> 40
daily average amount of the Eau Claire L/C Liability multiplied by the Eau
Claire L/C Rate, such fees to be calculated on the basis of a 360-day year for
the actual number of days elapsed and to be payable monthly in arrears on the
first day of the month following the date of issuance of the Eau Claire L/C and
the first day of each month thereafter. The Borrower shall also reimburse the
Agent and each Lender for any and all reasonable fees and expenses paid by SBCC
in connection therewith.
2.5. Interest.
(a) Subject to the terms and conditions of this Agreement, the
Revolving Loan may be divided into Base Rate Loans or LIBOR Rate Loans, or a
combination thereof, selected by the Borrower in accordance with subsections
2.5(e) and 2.5(f); provided that the Revolving Loan shall not have more than six
(6) Interest Periods outstanding with respect to such Revolving Loans in the
aggregate at any one time. So long as no Event of Default has occurred and is
continuing, the Borrower shall pay to the Agent, for the benefit of the Lenders,
interest on the outstanding principal balance of the Revolving Loans at the Base
Rate or the LIBOR Rate, as applicable, in accordance with subsection 2.16.
(b) Interest and all fees calculated on a per diem basis shall be
computed (on a daily basis) on the basis of a 360-day year for the actual number
of days elapsed. In computing interest on any Loan, the date of funding of the
Loan or the first day of an Interest Period applicable to each Revolving Loan
or, with respect to a Base Rate Loan being converted from a LIBOR Rate Loan, the
date of conversion of such LIBOR Rate Loan to such Base Rate Loan, shall be
included and the date of payment of such Loan or the expiration date of an
Interest Period applicable to such Revolving Loan or, with respect to a Base
Rate Loan being converted to a LIBOR Rate Loan, the date of conversion of such
Base Rate Loan to such LIBOR Rate Loan, shall be excluded; provided that if a
Revolving Loan is repaid on the same day on which it is made, one day's interest
shall be paid on that Revolving Loan. Each determination by the Agent of an
interest rate hereunder shall be conclusive and binding for all purposes, absent
manifest error.
(c) So long as an Event of Default with respect to payment of the
Obligations shall have occurred and be continuing, and so long as any other
Event of Default shall have occurred and be continuing for more than forty-five
(45) consecutive days, the Borrower shall pay to the Lenders interest, Lender
Guaranty Fees and Eau Claire L/C Fees from the date of such Event of Default to
and including the date of cure of such Event of Default on the outstanding
principal balance of the Loans, the Lender Guaranty Liability and the Eau Claire
L/C Liability, respectively, at the Default Rate; provided that in the case of
LIBOR Rate Loans, upon the expiration of the Interest Period in effect at the
time any Event of Default shall have occurred and be continuing, such LIBOR Rate
Loans shall automatically become Base Rate Loans and thereafter bear interest at
the Default Rate applicable to Base Rate Loans.
(d) (i) Interest shall be due at the Base Rate, the LIBOR Rate or
the Default Rate, as provided herein, after as well as before demand, default
and judgment notwithstanding any judgment rate of interest provided for in any
statute. If any interest payment
32
<PAGE> 41
or other charge or fee payable hereunder exceeds the maximum amount then
permitted by applicable law, then to the extent permitted by law and subject to
the provisions of subparagraph (ii) of this subsection 2.5(d), the Borrower
shall be obligated to pay the maximum amount then permitted by applicable law
and the Borrower shall continue to pay the maximum amount from time to time
permitted by applicable law until all such interest payments and other charges
and fees otherwise due hereunder (in the absence of such restraint imposed by
applicable law) have been paid in full.
(ii) It is the intention of the Agent, the Lenders and the
Borrower to comply with the laws of the State of Illinois, and
notwithstanding any provision to the contrary contained herein or in the
other Financing Agreements, the Borrower shall not be required to pay and
the Lenders shall not be permitted to collect any amount in excess of the
maximum amount of interest permitted by law ("Excess Interest"). If any
Excess Interest is provided for or determined to have been provided for by
a court of competent jurisdiction in this Agreement or in any of the other
Financing Agreements, then in such event: (A) the provisions of this
subsection 2.5(d)(ii) shall govern and control; (B) neither the Borrower
nor any guarantor or endorser shall be obligated to pay any Excess
Interest; (C) any Excess Interest that any Lender may have received
hereunder shall be, at such Lender's option (1) applied as a credit
against the outstanding principal balance of the Obligations or accrued
and unpaid interest (not to exceed the maximum amount permitted by law),
(2) refunded to the payor thereof, or (3) any combination of the
foregoing; (D) the interest rate(s) provided for herein shall be
automatically reduced to the maximum lawful rate allowed under applicable
law, and this Agreement and the other Financing Agreements shall be deemed
to have been, and shall be, reformed and modified to reflect such
reduction; and (E) neither the Borrower nor any guarantor or endorser
shall have any action against any Lender for any damages arising out of
the payment or collection of any Excess Interest.
(e) Subject to the terms of this Agreement, and except as otherwise
provided in subsection (f) below, Borrower shall select the Rate Option and, in
the case of LIBOR Rate Loans, the Interest Period applicable to each LIBOR Rate
Loan from time to time by giving the Agent irrevocable notice in the form of
Exhibit 2.6-1 hereto (a "Borrowing Notice") not later than 12:00 noon (Chicago
time) (i) on the Funding Date of any Base Rate Loan, and (ii) three (3) Business
Days before the Funding Date for each LIBOR Rate Loan, specifying:
(i) the Funding Date of each Revolving Loan;
(ii) the aggregate amount of such Revolving Loan (and, if such
Borrowing Notice refers to more than one Rate Option, the amount of each
Base Rate Loan and LIBOR Rate Loan which will become part of the Revolving
Loan);
(iii) the Rate Option(s) selected for such Revolving Loan; and
(iv) in the case of each LIBOR Rate Loan, the Interest Period
applicable thereto;
33
<PAGE> 42
provided that no Revolving Loan may be made as a LIBOR Rate Loan if any Default
or Event of Default has occurred and is continuing.
The Borrower shall use its best efforts to select Interest Periods
so that it is not necessary to repay any portion of a LIBOR Rate Loan prior to
the last day of the applicable Interest Period in order to make a payment or
prepayment of principal on the Revolving Loan required by the terms hereof
including, without limitation, prepayments pursuant to subsection 2.7.
(f) Base Rate Loans shall continue as Base Rate Loans unless and
until such Base Rate Loans are converted by the Borrower into LIBOR Rate Loans
in accordance with this subsection 2.5(f). Each LIBOR Rate Loan shall continue
as a LIBOR Rate Loan until the end of the then applicable Interest Period, at
which time such LIBOR Rate Loan shall be automatically converted into a Base
Rate Loan unless the Borrower has given the Agent an irrevocable notice in the
form of Exhibit 2.6-2 (a "Conversion/Continuation Notice") requesting that, at
the end of such Interest Period, such LIBOR Rate Loan continue as a LIBOR Rate
Loan for the same or another Interest Period; provided that no outstanding
Revolving Loan may be continued as, or be converted into, a LIBOR Rate Loan if
any Default or Event of Default has occurred and is continuing. Subject to the
terms of this Agreement, the Borrower may elect from time to time to convert all
or any part of the Revolving Loan of any Rate Option into any other Rate Option;
provided that any conversion of a LIBOR Rate Loan shall be made on, and only on,
the last day of the Interest Period applicable thereto. The Borrower shall give
the Agent a Conversion/Continuation Notice of each conversion or continuation of
a Base Rate Loan or LIBOR Rate Loan, as the case may be, not later than 12:00
noon (Chicago time) (i) on the Funding Date, in the case of a conversion into a
Base Rate Loan, and (ii) at least three (3) Business Days before the Funding
Date of the requested conversion or continuation of a LIBOR Rate Loan,
specifying:
(i) the Funding Date of such conversion or continuation;
(ii) the aggregate amount and Rate Option(s) of the Revolving
Loan which is to be converted or continued; and
(iii) the amount and Rate Option(s) of the Base Rate Loans or
LIBOR Rate Loans into which such Revolving Loan is to be converted
or continued and, in the case of a conversion into or continuation
of a LIBOR Rate Loan, the duration of the Interest Period applicable
thereto.
(g) In lieu of delivering a Borrowing Notice or a
Conversion/Continuation Notice, the Borrower may give the Agent notice by
telephone or telecopy by the required time of any proposed borrowing or
conversion/continuation under this subsection 2.5; provided that such notice
shall be promptly confirmed in writing by delivery of a Borrowing Notice or a
Conversion/Continuation Notice, as the case may be, to the Agent on or before
the proposed Funding Date. Neither the Agent nor any Lender shall incur any
liability to the Borrower in acting upon any such notice by telephone that the
Agent believes in good faith to have been given by an Authorized Officer or for
otherwise acting in good faith under this subsection 2.5
34
<PAGE> 43
and, upon the funding or conversion/continuation, as the case may be, by the
Agent in accordance with this Agreement pursuant to any such notice, the
Borrower shall have effected such funding, conversion or continuation, as the
case may be, hereunder. A Borrowing Notice or a Conversion/Continuation Notice
for the funding of, or conversion to, or continuation of, a LIBOR Rate Loan (or
notice by telephone or telecopy in lieu thereof) shall be irrevocable once
given, and the Borrower shall be bound to convert or continue in accordance
therewith.
(h) The Agent will notify each Lender of the contents of each
Borrowing Notice, Conversion/Continuation Notice and prepayment notice received
by it hereunder. The Agent will notify each Lender of the interest rate
applicable to each LIBOR Rate Loan promptly upon determination of such interest
rate and will give each Lender prompt notice of each change in the Base Rate.
(i) Each LIBOR Rate Loan (whether resulting from a Borrowing Notice
or a Conversion/Continuation Notice) shall be in the minimum amount of Nine
Hundred Thousand Dollars ($900,000) and in integral multiples of Three Hundred
Thousand Dollars ($300,000) if in excess thereof.
(j) The Borrower shall pay interest to Agent, for the ratable
benefit of Lenders in arrears on each interest payment date, at the Base Rate
plus the Applicable Base Margin per annum or, at the election of Borrower, at
the applicable LIBOR Rate plus the Applicable LIBOR Margin per annum.
The Applicable Base Margin and the Applicable LIBOR Margin will be
.25% and 2.75% per annum, respectively, as of the Closing Date. The Applicable
Margins will be adjusted (up or down) prospectively on a quarterly basis as
determined by the Borrower's Leverage Ratio for the trailing twelve months,
commencing with the first day of the first calendar month that occurs more than
five (5) days after delivery of Borrower's quarterly Financial Statements to
Lenders for the Fiscal Quarter ending March 31, 1999 pursuant to subsection 7.1.
Adjustments in Applicable Margins will be determined by reference to the
following grids:
<TABLE>
<CAPTION>
------------------------------------------------------------
Level of
If Leverage Ratio is: Applicable Margins:
--------------------- -------------------
------------------------------------------------------------
<S> <C>
> 5.0 Level I
------------------------------------------------------------
< 5.0, but > = 4.5 Level II
------------------------------------------------------------
< 4.5, but > = 4.0 Level III
------------------------------------------------------------
< 4.0 Level IV
------------------------------------------------------------
</TABLE>
35
<PAGE> 44
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------
Level I Level II Level III Level IV
- ---------------------------------------------------------------------
<S> <C> <C> <C> <C>
Applicable LIBOR Margin 2.75% 2.50% 2.25% 2.0%
- ---------------------------------------------------------------------
Applicable Base Margin 0.25% 0.00% 0.00% 0.00%
- ---------------------------------------------------------------------
</TABLE>
All adjustments in the Applicable Margins after March 31, 1999 will
be implemented quarterly on a prospective basis, on the first day of the first
calendar month commencing at least five (5) days after the date of delivery to
Lenders of the quarterly unaudited or annual audited (as applicable) Financial
Statements of the Borrower pursuant to subsection 7.1 evidencing the need for an
adjustment. Concurrently with the delivery of those Financial Statements, the
Borrower shall deliver to Agent and Lenders a certificate, signed by its chief
financial officer, setting forth in reasonable detail the basis for the
continuance of, or any change in, the Applicable Margins. Failure to timely
deliver such Financial Statements shall, in addition to any other remedy
provided for in this Agreement, result in an increase in the Applicable Margins
to the highest level set forth in the foregoing grid, until the first day of the
first calendar month following the delivery of those Financial Statements
demonstrating that such an increase is not required. If a Default or an Event of
Default shall have occurred or be continuing at the time any reduction in the
Applicable Margins is to be implemented, that reduction shall be deferred until
the first day of the first calendar month following the date on which such
Default or Event of Default is waived or cured.
2.6. Method of Borrowing; Manner and Method of Making Interest and
Other Payments. (a) Not later than 11:00 A.M. (Chicago time) on each Funding
Date, each Lender shall make available its Pro Rata Share of the Revolving Loan
(except for Revolving Loans made pursuant to a Conversion/Continuation Notice,
in which case each Lender shall be deemed to have made its Revolving Loan) in
funds immediately available in Chicago, Illinois to the Agent at its address
specified pursuant to subsection 10.13. The Agent will make the funds so
received from the Lenders available to the Borrower in accordance with
subsection 2.1(b). Notwithstanding the foregoing provisions of this subsection
2.6(a), to the extent that a Revolving Loan or portion thereof made by a Lender
matures or is to be repaid on the Funding Date of a requested Revolving Loan,
such Lender shall first apply the proceeds of the Revolving Loan it is then
making to the repayment of the maturing Revolving Loan or portion thereof.
(b) All payments by the Borrower of the Obligations shall be made
without deduction, defense, setoff or counterclaim and in same day funds. In
their sole discretion, the Required Lenders may deem interest and other amounts
payable hereunder (other than the principal balance of the Revolving Loan) to be
paid by causing such amounts to be added to the principal balance of the
Revolving Loan, all as set forth on the Agent's books and records. The Borrower
hereby authorizes and directs the Lenders, at the option of the Required
Lenders, to make advances in the Revolving Loan by appropriate debits to the
Loan Account for all payments which the Borrower is required to make to the
Lenders under this Agreement and the other Financing Agreements. Unless
otherwise directed by the Agent, all payments to the Lenders hereunder shall be
made by delivery thereof to the Agent at its address set forth in subsection
10.13 or by delivery to the Agent for deposit in the Blocked Accounts of all
proceeds of Accounts or other Collateral in accordance with subsection 3.5. If
the Agent elects to bill the
36
<PAGE> 45
Borrower for any reimbursable expenses due hereunder, such amount shall be due
and payable twenty-five (25) days after the date of the applicable invoice
therefor and if not paid when due shall bear interest as provided herein. Solely
for the purpose of calculating interest earned by each Lender with respect to
the Revolving Loan, any check, draft or similar item of payment by or for the
account of the Borrower delivered to the Agent or deposited in a Blocked Account
in accordance with subsection 3.5 shall be applied by the Agent on account of
the Borrower's Revolving Loan Obligations on the same Business Day that the
Agent has received immediately available funds as a result of the deposit
thereof in accordance with subsection 3.5. Immediately available funds received
by the Agent after 2:00 p.m., (Chicago time), shall be deemed to have been
received on the following Business Day.
(c) (i) Unless the Borrower or a Lender, as the case may be,
notifies the Agent prior to the date on which it is scheduled to make payment to
the Agent of (A) in the case of a Lender, such Lender's Pro Rata Share of a
Revolving Loan or (B) in the case of the Borrower, a payment of principal,
interest, fees or other Obligations to the Agent for the account of the Lenders,
that it does not intend to make such payment, the Agent may assume that such
payment has been made. The Agent may, but shall not be obligated to, make the
amount of such payment available to the intended recipient in reliance upon such
assumption. If the Borrower or such Lender, as the case may be, has not in fact
made such payment to the Agent, the recipient of such payment shall, on demand
by the Agent, repay to the Agent the amount so made available together with
interest thereon in respect of each day during the period commencing on the date
such amount was so made available by the Agent until the date the Agent recovers
such amount at a rate per annum equal to (x) in the case of payment by a Lender,
the Federal Funds Rate for such day (as determined by the Agent) or (y) in the
case of payment by the Borrower, the interest rate applicable to the relevant
Revolving Loan.
(ii) Nothing contained in this subsection 2.7(c) will be
deemed to relieve a Lender of its obligation to fulfill its
Commitments or to prejudice any rights the Agent or the Borrower may
have against such Lender as a result of any default by such Lender
under this Agreement.
(iii) If the Agent determines at any time that any amount
received by the Agent under this Agreement must be returned to the
Borrower or paid to any other Person pursuant to any insolvency law
or otherwise, then, notwithstanding any other term or condition of
this Agreement, the Agent will not be required to distribute any
portion thereof to any Lender. In addition, each Lender will repay
to the Agent on demand any portion of such amount that the Agent has
distributed to such Lender.
(iv) Without limiting the generality of the foregoing, each
Lender shall be obligated to fund its Pro Rata Share of any
Revolving Loan made with respect to any draw on a Letter of Credit
or the Eau Claire L/C or a Lender Guaranty or Eau Claire Lender
Guaranty therefor.
37
<PAGE> 46
(d) On the second Business Day of each week and on the Business Day
following receipt of all payments of interests and Fees payable under this
agreement for the benefit of Lenders, Agent shall distribute to each Lender, its
Pro Rata Share of the net amount of all payments received from or on behalf of
Borrower; provided that if any Lender has failed to fund its Pro Rata Share of
any advance or purchase its Pro Rate Share of any participation to be funded by
it hereunder, Agent may set off against such obligation all amounts received by
Agent and otherwise payable to that Lender hereunder until such funding
short-full has been eliminated.
2.7. Term of this Agreement and Prepayments.
(a) Term. This Agreement shall be effective from the Closing Date
until the Revolving Loan Maturity Date (the "Initial Term"), subject to annual
renewals thereafter of the Revolving Loan Maturity Date as hereinafter provided
(each such renewal being referred to as a "Renewal Term"); provided that all of
the Agent's and each Lender's rights and remedies under this Agreement shall
survive such termination until all of the Obligations have been finally paid in
full in cash. Not less than ninety (90) days prior to the end of the Initial
Term or any Renewal Term, the Borrower shall notify the Agent in writing if it
elects to renew this Agreement for a Renewal Term, and not less than sixty (60)
days prior to the end of the Initial Term or such Renewal Term, as applicable,
the Agent shall notify the Borrower in writing if the Lenders elect to accept
such renewal. Notwithstanding the foregoing, unless the Borrower and each Lender
shall agree in writing to extend this Agreement in accordance with the preceding
sentence, this Agreement shall terminate upon the earlier to occur of the
expiration of the Initial Term or any Renewal Term, as applicable, or the final
payment in full of all of the Obligations (not including unasserted contingent
indemnification obligations). In addition, this Agreement may be terminated as
set forth in Section 9. Upon the effective date of termination, all of the
Obligations shall become immediately due and payable without notice or demand
notwithstanding any terms contained herein or in any Note to the contrary.
Notwithstanding any termination, until all of the Obligations shall have been
paid in full in cash and the Eau Claire Lender Guaranty and Lender Guaranties
shall have been terminated or payment thereof shall have been secured in
accordance with subsections 2.4(b) and 2.7(b), respectively, on terms
satisfactory to the Lenders all of the Agent's and the Lenders' rights and
remedies under the Financing Agreements shall survive such termination and,
notwithstanding such payment, for so long as any pending or threatened action
which could reasonably be expected to result in a claim by the Agent or any
Lender under subsection 6.26 or subsection 7.10 exists hereunder, the Agent, on
behalf of the Lenders, shall be entitled to retain Liens upon all existing and
future Collateral, and the Borrower shall continue to remit collections of
Accounts and proceeds as provided herein.
(b) Subject to the prepayment fee as set forth in subsection 2.10
and the provisions of subsection 2.22, upon not less than thirty (30) days prior
written notice to the Agent specifying the date of prepayment (which date shall
be the first day of a calendar month), the Borrower may prepay in full all of
the Obligations arising hereunder and terminate the Commitments. Except for
mandatory prepayments and prepayments of the Revolving Loan Obligations other
than in connection with a termination of the Commitments, all prepayments of the
Obligations (and the termination of the Commitments to make Revolving Loans)
shall be subject to a prepayment fee as set forth in subsection 2.10. Upon
prepayment in full, the
38
<PAGE> 47
Borrower shall cause the Agent and each Lender to be released from all liability
under any Lender Guaranties and the Eau Claire Lender Guaranty or the Borrower
shall (i) cause to be issued to and for the benefit of the Lenders a letter of
credit in form and substance acceptable to the Required Lenders issued by a bank
or other financial institution acceptable to the Required Lenders, and cause
SBCC and the Lenders to be released from liability under their Lender Guaranties
and the Eau Claire Lender Guaranty, or (ii) deposit cash collateral with the
Agent, for the benefit of the Lenders, in either case, in an amount equal to the
aggregate Lender Guaranty Liability with respect to the Lender Guaranties and
the Eau Claire Lender Guaranty with respect to the Eau Claire L/C Liability that
will remain outstanding after prepayment in full of all other Obligations plus
$30,000 to cover costs that may be incurred in connection with a draw under the
Eau Claire L/C.
(c) The Borrower shall make the following mandatory prepayments:
(i) subject to subsection 8.7, 100% of the proceeds of all
asset dispositions in excess of Two Hundred Fifty Thousand Dollars
($250,000) in the aggregate in any period of three hundred sixty
(360) days to the extent not reinvested in Equipment or Fixtures
within three hundred sixty (360) days following the date of such
disposition, excluding sales of Inventory in the ordinary course of
business and net of brokerage commissions, sales taxes, if any,
capital gains taxes and similar out-of-pocket costs of sale and any
other Indebtedness secured by the Property being disposed of to the
extent such Indebtedness is required to be repaid in connection
therewith; provided that, proceeds of all dispositions of assets
constituting Collateral (other than sales of Inventory in the
ordinary course) shall, to the extent reinvested, be reinvested in
Equipment or Fixtures that are Collateral; and
(ii) within three (3) Business Day after the receipt thereof,
all proceeds of casualty insurance not used for reinvestment in
accordance within subsection 7.6 (other than such casualty proceeds
which are required to repay Indebtedness of the Borrower secured by
Liens permitted by this Agreement on the asset with respect to which
such proceeds are paid which are prior to the Liens granted to the
Agent in such assets).
(d) All mandatory prepayments in accordance with clause (c) above
shall be paid without premium or penalty and shall be applied, first, to
scheduled installments of Eau Claire Terms Loans, in inverse order of maturity
and, second, following payment in full thereof, to the outstanding balance of
the Revolving Loans with a reserve against Borrowing Availability in a
corresponding amount until such proceeds are reinvested; provided that, if no
outstanding balance of Revolving Loans exist on the date of such prepayments,
such prepayments shall be applied, at Agent's discretion, as cash collateral for
outstanding Lender Guaranty Liabilities; provided further, that if an Event of
Default shall have occurred and be continuing at the time any Collateral asset
disposition proceeds are received, Agent may, at its election, use such proceeds
to cash collateralize the Eau Claire Lender Guaranty.
39
<PAGE> 48
(e) Upon the repayment of all Obligations (other than unasserted
indemnification obligations) and the termination of the Commitments, so long as
there are no pending or threatened indemnity claims for which the Borrower would
be obligated to indemnify the Agent of any Lender, the Agent shall, and is
hereby authorized to, provide to the Borrower at the Borrower's expense such
releases, termination statements and other documents which the Borrower may
reasonably request to release the Liens of the Agent in the Collateral.
2.8. Audit Fee. The Borrower shall pay to SBCC, individually in its
capacity as the Agent, a collateral audit fee (the "Audit Fee") in an amount
equal to (i) the Agent's reasonable out-of-pocket costs, plus (ii) Six Hundred
Dollars ($600) per auditor per day for each field audit conducted by the Agent
pursuant to subsection 7.2; provided that so long as no Default or Event of
Default shall have occurred and be continuing, Borrower shall not be liable for
reimbursing the Agent for the costs and expenses of more than three (3) field
audits in any Fiscal Year.
2.9. Fee Letter. Borrower shall pay to SBCC, individually, the fees
specified in that certain fee letter, dated as of January 21, 1998, among
Borrower and SBCC (the "SBCC Fee Letter") at the times specified for payment
therein.
2.10. Prepayment Fee. If the Borrower shall voluntarily prepay all
of the Revolving Loan Obligations and terminate the Commitments hereunder prior
to the end of the Initial Term, the Borrower shall cash collateralize the Eau
Claire Lender Guaranty Liability and all Lender Guaranty Liabilities (in the
event of a termination of the Commitments) and the Borrower shall pay to the
Agent, for the ratable benefit of the Lenders, as liquidated damages and
compensation for the costs of being prepared to make funds available to the
Borrower hereunder an amount determined as follows: three percent (3.0%) of the
Total Revolving Loan Facility (in the case of a prepayment in full and
termination of the Commitments), for a prepayment during the first Loan Year;
two percent (2.0%) of the Total Revolving Loan Facility (in the case of a
prepayment in full and termination of the Commitments), for a prepayment during
the second Loan Year; and one percent (1.0%) of the Total Revolving Loan
Facility (in the case of a prepayment in full and termination of the
Commitments), for a prepayment during the third Loan Year.
2.11. [Intentionally Omitted.]
2.12. Unused Line Fee. From and after the Closing Date, the Borrower
shall pay to Agent, for the ratable benefit of the Lenders, a fee (the "Unused
Line Fee") in an amount equal to the Total Revolving Loan Facility less the
average daily closing balance of the Revolving Loan plus the Lender Guaranty
Reserve outstanding during the preceding month (or shorter period with respect
to the period commencing with the Closing Date or the period ending with the
Termination Date) multiplied by three-eighths of one percent (.375%) per annum
(calculated on the basis of a 360-day year and actual days elapsed). The Unused
Line Fee shall be payable in arrears on the first day of each calendar month
following the Closing Date and at maturity, whether on the termination of this
Agreement or earlier.
40
<PAGE> 49
2.13. Other Fees, Costs and Expenses. The Borrower shall pay to the
Agent on demand all reasonable fees, costs and expenses incurred by the Agent in
connection with any matters contemplated by or arising out of this Agreement or
any other Financing Agreement (which fees, costs and expenses shall be part of
the Obligations and secured by the Collateral) including, without limitation:
(i) following the occurrence of an Event of Default in verifying or inspecting
the Accounts or the Inventory or the Borrower's records with respect thereto;
(ii) in connection with opening and maintaining the Blocked Accounts and
depositing for collection any check or item of payment received by and/or
delivered to any Collecting Bank or the Agent or any Lender on account of the
Obligations; (iii) arising out of the Agent's indemnification of any Collecting
Bank against damages incurred by such Collecting Bank in the operation of a
Blocked Account; (iv) in connection with the Agent's forwarding to the Borrower
the proceeds of loans or advances hereunder including, without limitation,
transfer fees; (v) in connection with the negotiation, preparation, review,
execution and delivery of the Financing Agreements and all amendments,
modifications and waivers with respect hereto or with respect to the other
Financing Agreements including, without limitation, search fees, appraisal fees
and expenses, title insurance policy fees, costs and expenses; filing and
recording fees; reasonable fees, costs and expenses of the Agent's attorneys and
paralegals, whether such fees, costs and expenses are incurred prior to, on or
after the Closing Date; (vi) in connection with any documentation, negotiation,
review or closing with respect to any subordinated indebtedness, including,
without limitation, the fees, costs and expenses of the Agent's attorneys and
paralegals (including, without limitation, the usual and customary charges of
the Agent's internal counsel); and (vii) arising from the Agent's employment of
counsel or otherwise in connection with protecting, perfecting or preserving the
Agent's Liens in the Collateral in accordance with subsection 10.2 or in
connection with any refinancing or restructuring of the credit arrangements
provided under the Financing Agreements, whether in the nature of a "workout" or
in connection with any insolvency or bankruptcy proceedings, or in connection
with any other matters contemplated by or arising out of this Agreement or the
other Financing Agreements. Any portion of the foregoing fees, costs and
expenses which remains unpaid ten (10) days following the Agent's statement and
request for payment thereof shall bear interest from the date of such statement
and request for payment at the Base Rate.
2.14. Loan Account. The Agent shall maintain a loan account ("Loan
Account") on its books in which shall be recorded (i) all Revolving Loans and
advances made to the Borrower pursuant to this Agreement, (ii) the issuance of
all Lender Guaranties and the Eau Claire Lender Guaranty, (iii) all payments
made by the Borrower on all such Revolving Loans and advances and (iv) all other
appropriate debits and credits as provided in this Agreement including, without
limitation, all fees, charges, expenses and interest. All entries in the Loan
Account shall be made in accordance with the Agent's customary accounting
practices as in effect from time to time. The Borrower shall pay the Obligations
reflected as owing by it under the Loan Account and all other Obligations
hereunder as such amounts become due or are declared due pursuant to the terms
of this Agreement. So long as a Default or an Event of Default shall have
occurred and be continuing, the Borrower irrevocably waives the right to direct
the application of any and all payments at any time or times thereafter received
by the Agent or any Lender from or on behalf of the Borrower, and the Borrower
does hereby irrevocably agree that each Lender shall have the continuing
exclusive right to apply and to
41
<PAGE> 50
reapply any and all payments received at any time or times hereafter against the
Obligations in such manner as such Lender may deem advisable notwithstanding any
previous entry by the Agent upon the Loan Account or by the Agent or such Lender
on any other books and records.
2.15. Statements. All advances to the Borrower, and all other debits
and credits provided for in this Agreement, shall be evidenced by entries made
by the Agent in the Loan Account and in the Agent's books and records showing
the date, amount and reason for each such debit or credit. Until such time as
the Agent shall have rendered to the Borrower written statements of account as
provided herein, the balance in the Borrower's Loan Account, as set forth on the
Agent's most recent printout or other written statement, shall be refutably
presumptive evidence of the amounts due and owing to each Lender by the
Borrower; provided that any failure to so record or any error in so recording
shall not limit or otherwise affect the Borrower's obligations to pay the
Obligations. Not more than twenty (20) days after the last day of each calendar
month, the Agent shall render to the Borrower a statement setting forth the
principal balance of the Borrower's Loan Account and the calculation of interest
due thereon. Each such statement shall be subject to subsequent adjustment by
the Agent but shall, absent manifest errors or omissions, be presumed correct
and binding upon the Borrower, and shall constitute an account stated unless,
within thirty (30) days after receipt of any statement from the Agent, the
Borrower shall deliver to the Agent by registered or certified mail written
objection thereto specifying the error or errors, if any, contained in such
statement. In the absence of a written objection delivered to the Agent as set
forth in this subsection 2.15, the Agent's statement of the Borrower's Loan
Account shall be conclusive evidence of the amount of the Obligations.
2.16. Payment Dates. Interest shall be payable on Base Rate Loans in
arrears on the first day of each calendar month for all periods ending prior to
such month for which such Loans were outstanding and at the maturity of such
Loan (whether by acceleration or otherwise) commencing with the first of such
dates to occur after the date of such Loan. Interest shall be payable on LIBOR
Rate Loans on the first day of each calendar month and on the last day of each
Interest Period relating to such Loan, and at the maturity of such Revolving
Loan (whether by acceleration or otherwise) commencing with the first of such
dates to occur after the date of such Revolving Loan. After maturity, accrued
interest on all Loans shall be payable on demand. Any payment due hereunder on
any day other than a Business Day shall be due on the next succeeding Business
Day, and if such payment shall bear interest in accordance herewith, interest
shall accrue to the date of payment.
2.17. Lender Guaranty Fees. The Borrower shall pay to the Agent, for
the benefit of the Lenders, fees for any Lender Guaranty (the "Lender Guaranty
Fees") for the period from and including the date of issuance of such Lender
Guaranty to and excluding the date of expiration or termination of such Lender
Guaranty, equal to the daily average amount of the Lender Guaranty Reserve
multiplied by the Lender Guaranty Fee Rate, such fees to be calculated on the
basis of a 360-day year for the actual number of days elapsed and to be payable
monthly in arrears on the first day of the month following the date of issuance
of any such Lender Guaranty and the first day of each month thereafter. The
Borrower shall also reimburse the Agent and each Lender for any and all fees and
expenses paid to the Issuing Bank.
42
<PAGE> 51
2.18. Other Lender Guaranty and Eau Claire L/C Provisions.
(a) The obligation of the Borrower to reimburse the Agent and each
Lender for payments made under the Eau Claire Lender Guaranty or any Lender
Guaranty shall be unconditional and irrevocable and shall be paid strictly in
accordance with the terms of this Agreement under all circumstances including
the following circumstances:
(i) any lack of validity or enforceability of the Eau Claire
L/C or any Lender Guaranty or any other agreement;
(ii) the existence of any claim, set-off, defense or other
right which the Borrower, any of its Affiliates or the Agent or any
Lender may have at any time against a beneficiary or any transferee
of the Eau Claire L/C, the Eau Claire Lender Guaranty, any Letter of
Credit or any Lender Guaranty (or any Persons for whom any such
transferee may be acting), the Agent, any Lender or any other
Person, whether in connection with this Agreement, the transactions
contemplated herein or any unrelated transaction (including, without
limitation, any underlying transaction between the Borrower or any
of their Affiliates and the beneficiary for which the Eau Claire
Lender Guaranty or any other Lender Guaranty was procured);
(iii) any draft, demand, certificate or any other document
presented under the Eau Claire L/C or any other Letter of Credit
proving to be forged, fraudulent, invalid or insufficient in any
respect or any statement therein being untrue or inaccurate in any
respect;
(iv) payment by the Agent or any Lender under the Eau Claire
Lender Guaranty or any other Lender Guaranty against presentation of
a demand, draft or certificate or other document which does not
comply with the terms of the Eau Claire Lender Guaranty or such
Lender Guaranty; provided that, in the case of any payment by the
Agent or any Lender under the Eau Claire L/C or such Lender
Guaranty, such Person has not acted with gross negligence or willful
misconduct as determined by a final judgment, not subject to review
on appeal, of a court of competent jurisdiction in determining that
the demand for payment under the Eau Claire Lender Guaranty or any
Lender Guaranty complies on its face with any applicable
requirements for a demand for payment under the Eau Claire Lender
Guaranty or such Lender Guaranty;
(v) any other circumstance or happening whatsoever, which is
similar to any of the foregoing; or
(vi) the fact that a Default or an Event of Default shall have
occurred and be continuing.
(b) In addition to amounts payable as elsewhere provided in this
Agreement, the Borrower hereby agrees to protect, indemnify, pay and hold the
Agent and each Lender
43
<PAGE> 52
harmless from and against any and all claims, suits, demands, liabilities,
damages, losses, costs, charges and expenses(including, without limitation,
reasonable attorneys' fees) which the Agent or any Lender may incur or be
subject to as a consequence, direct or indirect, of (1) the issuance of the Eau
Claire Lender Guaranty or any other Lender Guaranty other than as a result of
the gross negligence or willful misconduct of such Person as determined by a
final order, not subject to review on appeal, of a court of competent
jurisdiction, or (2) the failure of the Agent or any Lender to honor a demand
for payment under the Eau Claire Lender Guaranty or any other Lender Guaranty as
a result of any act or omission, whether rightful or wrongful, of any
Governmental Authority.
As among the Agent, the Lenders and the Borrower, the Borrower
assumes all risks of the acts and omissions of, or misuse of the Eau Claire
Lender Guaranty or any Lender Guaranty by, beneficiaries thereof. In furtherance
and not in limitation of the foregoing, neither the Agent nor any Lender shall
be responsible: (i) for the form, validity, sufficiency, accuracy, genuineness
or legal effect of any document by any Person in connection with the application
for and issuance of the Eau Claire Lender Guaranty or any other Lender Guaranty,
even if it should in fact prove to be in any and all respects invalid,
insufficient, inaccurate, fraudulent or forged; (ii) for the validity or
sufficiency of any instrument transferring or assigning or purporting to
transfer or assign the Eau Claire Lender Guaranty or any other Lender Guaranty
or the rights or benefits thereunder or proceeds thereof, in whole or in part,
which may prove to be invalid or ineffective for any reason; (iii) for failure
of the beneficiary of the Eau Claire Lender Guaranty or any other Lender
Guaranty to comply fully with conditions required in order to demand payment
under such Eau Claire Lender Guaranty or other Lender Guaranty; provided that,
in the case of any payment by the Agent or any Lender under the Eau Claire
Lender Guaranty or any other Lender Guaranty, such Person has not acted with
gross negligence or willful misconduct, as determined by a final judgment, not
subject to review on appeal, of a court of competent jurisdiction, in
determining that the demand for payment under the Eau Claire Lender Guaranty or
any other Lender Guaranty complies on its face with any applicable requirements
for a demand for payment under such Eau Claire Lender Guaranty or other Lender
Guaranty; (iv) for errors, omissions, interruptions or delays in transmission or
delivery of any messages, by mail, cable, telegraph or otherwise; (v) for errors
in interpretation of technical terms; (vi) for any loss or delay in the
transmission or otherwise of any document required in order to make a payment
under the Eau Claire Lender Guaranty or any other Lender Guaranty or of the
proceeds thereof; (vii) for the credit of the proceeds of any drawing under the
Eau Claire Lender Guaranty or any other Lender Guaranty; and (viii) for any
consequences arising from causes beyond the control of the Agent or the Lenders,
including, without limitation, any act or omission, whether rightful or
wrongful, of any Governmental Authority. None of the above shall affect, impair,
or prevent the vesting of any of the Agent's or any Lender's rights or powers
hereunder.
In furtherance and extension of, and not in limitation of, the
specific provisions hereinabove set forth, the Borrower hereby agrees that any
action taken or omitted by the Agent or any Lender under or in connection with
the Eau Claire Lender Guaranty or any other Lender Guaranty, or the Collateral
relating thereto, if taken or omitted in good faith, or any action taken by any
Issuing Bank, shall be binding on the Borrower and shall not impose any
resulting liability on the Agent or any Lender.
44
<PAGE> 53
2.19. Taxes; Changes in Law.
(a) Any and all payments or reimbursements made hereunder, under the
Notes shall be made free and clear of and without deduction for any and all
present and future Taxes. If the Borrower shall be required by law to deduct any
Taxes from or in respect of any sum payable hereunder to the Agent or any
Lender, then (i) the sum payable hereunder shall be increased as may be
necessary so that, after making all required deductions, the Agent or such
Lender receives an amount equal to the sum it would have received had no such
deductions been made and (ii) the Borrower shall pay the full amount deducted to
the relevant taxing or other authority in accordance with applicable law. The
Borrower hereby indemnifies and agrees to hold the Agent and each Lender
harmless from and against all Taxes imposed upon the Agent or any Lender as a
result of or arising in connection with the transactions contemplated hereby.
(b) On the date of any assignment pursuant to which any Person
becomes a Lender, and on the first Business Day of each calendar year
thereafter, each Lender organized under the laws of a jurisdiction outside the
United States shall provide the Agent and the Borrower with an IRS Form 4224 or
Form 1001 or other applicable form, certificate or document prescribed by the
U.S. Internal Revenue Service (including, in the case of any Lender that is not
a "bank" within the meaning of Section 881(c)(3)(A) of the IRC, a properly
completed Form W-8 or successor form) certifying as to such Lender's entitlement
to an exemption from withholding with respect to all payments to be made to such
Lender hereunder and under the Notes.
(c) In the event that, subsequent to the date of this Agreement, or,
in the case of a Participant assigned an interest in or sold a participation in
the Revolving Loan or the Eau Claire Lender Guaranty pursuant to subsection
11.1, subsequent to the date of such assignment or sale, (a) any change in any
existing law, regulation, rule, policy, guideline, treaty or directive or in the
interpretation or application thereof (whether or not having the force of law)
including, without limitation, any change resulting from the implementation of
risk-based capital guidelines, (b) any new law, regulation, rule, guideline,
treaty or directive enacted or any interpretation or application thereof or (c)
compliance by any Lender with any request or directive (whether or not having
the force of law and including by way of withdrawal or termination of any
previously available exemption) from any central bank, governmental authority,
agency or instrumentality (including, without limitation, any request or
directive regarding capital adequacy)
(i) does or shall impose on any Lender or such Participant any
other condition or increased cost in connection with the
transactions contemplated hereby or participation herein; or
(ii) affects the amount of any reserve, special deposit,
capital adequacy, assessment or similar charge (other than reserves
and assessments taken into account in determining the LIBOR Rate)
required or expected to be maintained by any Lender or such
Participant or any corporation controlling such Lender or such
Participant and such Lender or such Participant determines that such
amount required or expected is increased by or based upon the
existence of
45
<PAGE> 54
this Agreement or its Revolving Loans hereunder or its participation
in the Eau Claire L/C or the Lender Guaranties issued pursuant
hereto,
and the result of any of the foregoing is to increase the cost to such Lender or
such Participant of making, funding, maintaining or continuing any Revolving
Loan hereunder, of issuing or purchasing interests in the Eau Claire Lender
Guaranty or issuing Lender Guaranties or selling any participation therein or
assigning any of its Commitments to make Revolving Loans or to purchase
interests in the Eau Claire Lender Guaranty hereunder, as the case may be, or to
reduce any amount receivable by such Lender or such Participant in connection
with any Revolving Loans, the Eau Claire Lender Guaranty or other Lender
Guaranties, or to require any Lender or Participant to make any payment
calculated by reference to the amount of the Revolving Loans held, the Eau
Claire Lender Guaranty issued or participated in or the other Lender Guaranties
issued or participated in or interest received by it, then, in any such case,
the Borrower shall within fifteen (15) days after written demand pay to such
Lender or such Participant any additional amounts which are necessary to
compensate such Lender or such Participant for such additional cost or reduced
amount receivable which such Lender or such Participant reasonably deems to be
material as determined by such Lender or such Participant with respect to this
Agreement, the other Financing Agreements or the Revolving Loan and Eau Claire
Lender Guaranty made hereunder. If such Lender or Participant becomes entitled
to claim any additional amounts pursuant to this subsection 2.18, it shall
promptly notify the Borrower in writing of the event by reason of which such
Lender or Participant has become so entitled. A certificate as to any additional
amounts payable pursuant to this subsection 2.18 submitted by such Lender or
Participant to the Borrower shall be presumed correct in the absence of manifest
error.
2.20. Notification of Advances, Interest Rates and Prepayment. The
Agent will notify each Lender of the contents of each Borrowing Notice and
prepayment notice received by it hereunder. The Agent will notify each Lender of
the interest rate applicable to each LIBOR Rate Loan promptly upon determination
of such interest rate and will give each Lender prompt notice of each change in
the Base Rate.
2.21. Special Provisions Governing LIBOR Rate Loans. Notwithstanding
any other provision of this Agreement to the contrary, the following provisions
shall govern with respect to LIBOR Rate Loans as to the matters covered:
(a) As soon as practicable after 11:00 a.m. (Chicago time) on each
LIBOR Rate Determination Date, the Agent shall determine (which determination
shall, absent manifest error, be final, conclusive and binding upon all parties)
the interest rate that shall apply to the LIBOR Rate Loans for which an interest
rate is then being determined for the applicable Interest Period and shall
promptly give notice thereof (in writing or by telephone confirmed in writing)
to the Borrower and each Lender.
(b) If the Required Lenders determine (which determination shall be
final and conclusive and binding upon all parties) that:
46
<PAGE> 55
(i) adequate and fair means do not exist for ascertaining the
applicable interest rate by reference to the LIBOR Rate with respect
to the LIBOR Rate Loans as to which an interest rate determination
is then being made; or
(ii) the LIBOR Rate does not accurately or fairly reflect the
cost of making or maintaining LIBOR Rate Loans; or
(iii) deposits of a type and maturity appropriate to match
fund LIBOR Rate Loans are not available; or
(iv) maintenance of LIBOR Rate Loans would violate any
applicable law, rule, regulation or directive, whether or not having
the force of law;
then, and in any such event, promptly after being notified of a borrowing,
conversion or continuation, such Lender shall give notice (in writing or by
telephone confirmed in writing) to the Borrower and the Agent (which notice the
Agent shall promptly transmit to each other Lender) of such determination, and
the Agent shall suspend the availability of LIBOR Rate Loans until such
circumstance no longer exists and require any LIBOR Rate Loans to be repaid and
Borrower shall repay or prepay the LIBOR Rate Loans, together with all interest
accrued thereon.
Prior to giving any such notice under this subsection 2.21(b), the
affected Lenders shall designate a different lending office with respect to its
LIBOR Loans if such designation will avoid the need for giving such notice or
making such demand and will not, in the judgment of the Lender, be illegal or
otherwise disadvantageous to the Lender.
(c) The Borrower shall indemnify the Agent and each Lender, upon
written request (which request shall set forth in reasonable detail the basis
for requesting such amounts and which shall, absent manifest error, be presumed
correct and binding upon all parties hereto), for losses, expenses and
liabilities (including, without limitation, any loss (including interest paid
and lost opportunity costs in re-employment of funds by such Lender regardless
of whether such Lender has obtained matched rate funding) sustained by it in
connection with the liquidation or re-employment of funds acquired to fund or
maintain LIBOR Rate Loans), that such Person may sustain: (i) if for any reason
(other than a default by the Lenders) a borrowing of any LIBOR Rate Loan does
not occur on a date specified therefor in a Borrowing Notice, a
Conversion/Continuation Notice or a request by telephone or telecopy for
borrowing or conversion/continuation or a successive Interest Period does not
commence after notice therefor is given pursuant to subsection 2.5(e) or 2.5(f);
(ii) if any prepayment of any of its LIBOR Rate Loans occurs on a date that is
not the last day of the Interest Period applicable to that Revolving Loan
whether because of acceleration, prepayment or otherwise (unless such prepayment
is required pursuant to the provisions of subsection 2.21(b)); (iii) if any of
its LIBOR Rate Loans are not paid on any date specified in a notice of
prepayment given by the Borrower; or (iv) as a consequence of any other default
by the Borrower to repay its LIBOR Rate Loans when required by the terms of this
Agreement; provided that during the period while any such amounts have not been
paid, the Lenders shall reserve an equal amount from amounts otherwise available
to be borrowed under the Revolving Loan. Unless otherwise provided herein, the
amount specified in
47
<PAGE> 56
the written statement of any Lender shall be payable on demand after receipt by
the Borrower thereof. So long as no Default or Event of Default shall have
occurred and be continuing, if any prepayment with respect to any LIBOR Rate
Loan shall occur on a day which is not the last day of the applicable Interest
Period, upon the request of the Borrower, the Agent shall hold such amounts in
escrow (subject to the security interest granted in such amounts pursuant to
this Agreement) and apply such amounts on the last day of the applicable
Interest Period rather than on the date of receipt.
(d) Any Lender may make, carry or transfer LIBOR Rate Loans at, to,
or for the account of, any of its domestic or foreign branch offices or the
office of an affiliate of such Lender.
(e) Calculation of all amounts payable to a Lender under subsection
2.21(b) or 2.21(c) shall be made as though each Lender had actually funded its
relevant LIBOR Rate Loan through the purchase of a LIBOR deposit bearing
interest at the LIBOR Rate in an amount equal to the amount of such LIBOR Rate
Loan and having a maturity comparable to the relevant Interest Period and
through the transfer of such LIBOR deposit from an offshore office to a domestic
office in the United States of America; provided that each Lender may fund each
of its LIBOR Rate Loans in any manner it sees fit and the foregoing assumption
shall be utilized only for the calculation of amounts payable under this
subsection 2.21.
2.22. Replacement of Certain Lenders.
(a) Notwithstanding any other provision of this Agreement, the
Borrower at any time after any Lender or any Lender's participant has requested
any payments under the provisions of subsection 2.19 (a "Requesting Lender"),
shall have the right to replace such Requesting Lender in accordance with the
provisions of this subsection 2.22. Notwithstanding the foregoing, in no event
may the Borrower replace the Requesting Lender pursuant to this subsection 2.22
if (i) the Agent shall have received notice from the Required Lenders specifying
that a Default or Event of Default shall have occurred and be continuing and
(ii) such Default or Event of Default shall not have been subsequently cured or
waived.
(b) The Borrower, in exercising its right to replace the Requesting
Lender shall (i) reduce the Commitment of such Lender to zero and (ii) (A) agree
with one or more Lenders to concurrently increase the respective commitments of
such Lenders by an aggregate amount not in excess of the amount of the
Commitment of the Requesting Lender prior to the exercise of this subsection
2.22, in full substitution of the Requesting Lender, (B) add one or more
additional financial institutions (reasonably acceptable to the Agent) as
signatories to this Agreement for Commitments equal to the amount of the
Commitments of the Requesting Lender prior to the Borrower's exercise of this
subsection 2.22, in full substitution of the Requesting Lender or (C) any
combination of substitutions or additions pursuant to (A) and (B) above. All
transfers pursuant to this subsection 2.22 shall be made in accordance with the
provisions of subsection 11.1 and pursuant to documentation reasonably
satisfactory to the assignor and assignee(s).
48
<PAGE> 57
(c) The Borrower shall give the Agent and any Requesting Lender
being replaced not less than ten (10) Business Days' notice of the date (which
shall be a Business Day) on which such Requesting Bank shall be replaced.
(d) Each Lender which replaces a Requesting Lender pursuant to this
Section 2.22 shall acquire all (or if more than one Lender or lender is
replacing a Requesting Lender the aggregate shall severally acquire all) of the
then outstanding Revolving Loans and participations in the Eau Claire L/C and
Lender Guaranties of the Requesting Lender.
(e) At the time of replacement, the Requesting Lender shall have
been paid in full the principal of, and interest accrued and unpaid to the date
of replacement on, all outstanding Revolving Loans and other unpaid Obligations
of the Requesting Lender and all accrued and unpaid fees owing to the Requesting
Lender up to but excluding the date of replacement.
3. REPORTING AND ELIGIBILITY REQUIREMENTS.
The Borrower covenants and agrees that, so long as any Obligations
(other than unasserted contingent indemnification obligations) remain
outstanding or any Lender shall have any Commitment hereunder:
3.1. Monthly Reports and Borrowing Base Certificates. The Borrower
shall submit to each Lender, not later than the twentieth (20th) day of each
month, a monthly report ("Monthly Report"), accompanied by a certificate in the
form attached as Exhibit 3.1, which shall be signed by the chief executive or
chief financial executive of the Borrower. The Monthly Report shall be in form
and substance satisfactory to the Required Lenders and shall include, as of the
last Business Day of the preceding month: (i) an aged trial balance of Accounts
("Accounts Trial Balance") as described in subsection 7.1(iv)(a) and a payables
report as described in subsection 7.1(iv)(b); and (ii) an aged schedule of
Inventory owned by the Borrower and in the Borrower's possession valued at the
lower of cost or market on a FIFO basis. The Borrower shall provide in all
Monthly Reports, and more frequently if requested by the Agent, in form
satisfactory to the Agent, information on each of the following occurrences
arising subsequent to the immediately preceding Monthly Report: all sales or
other reductions of and all additions to Inventory, all returns of Inventory,
and all credits issued by the Borrower, all complaints and claims against the
Borrower in connection with Inventory. In addition, the Borrower shall provide
the Agent and each Lender with a borrowing base certificate ("Borrowing Base
Certificate") summarizing Eligible Accounts and Eligible Inventory, in form and
substance satisfactory to the Agent, each such Borrowing Base Certificate to be
delivered to the Agent not later than the second Business Day of each week for
the preceding week (or such shorter period as the Required Lenders may require);
provided that so long as (i) no Event of Default has occurred and is continuing,
and (ii) Borrowing Availability equals or exceeds $10,000,000 as reflected on
the last Borrowing Base Certificate delivered hereunder, Borrower shall deliver
such Borrowing Base Certificates on the fifth Business Day of each month as of
the last day of the preceding month. The Borrower shall furnish copies of any
other reports or information, in a form and with such specificity as is
satisfactory to the Agent, concerning Accounts included,
49
<PAGE> 58
described or referred to in the Borrowing Base Certificates and any other
documents in connection therewith requested by the Agent including, without
limitation, but only if specifically requested by the Agent, copies of all
invoices prepared in connection with such Accounts and all credit memoranda
issued by the Borrower (the Borrower shall issue such credit memoranda in
accordance with its current practice and without delay, but in any event within
five (5) Business Days of receipt of notice of a dispute with respect to an
Account).
3.2. Eligible Accounts. "Eligible Accounts" shall mean all Accounts
other than the following: (i) Accounts which remain unpaid more than ninety (90)
days after the date of the original invoice with respect thereto or more than
sixty (60) days past the due date specified in the original invoice with respect
thereto; (ii) all Accounts owing by a single Account Debtor, including a
currently scheduled Account, if twenty-five percent (25%) or more of the balance
owing by such Account Debtor is ineligible by reason of either of the criteria
set forth in clause (i) of this subsection 3.2; (iii) Accounts with respect to
which the Account Debtor is an Affiliate of the Borrower or a director, officer
or employee of the Borrower or its Affiliates; provided that any Account owing
from the Simpson Paper Company which but for the operation of this clause (iii)
would constitute an Eligible Account, shall nevertheless constitute an "Eligible
Account" to the extent, and only to the extent, the amount of such Eligible
Account plus all other Eligible Accounts owing by Simpson Paper Company exceeds
all amounts owing from the Borrower or Guarantor to the Simpson Paper Company
(other than long-term obligations with respect to the preferred stock owned by
the Seller); (iv) Accounts with respect to which the Account Debtor is a
Governmental Authority or prime contractor thereof unless the Borrower has
complied in a manner satisfactory to the Agent with the Federal Assignment of
Claims Act of 1940, as amended, or similar law or statute of the relevant state,
province, municipality or other jurisdiction and any amendments thereto,
relative to the assignment of such Accounts; (v) Accounts with respect to which
the Account Debtor is not a resident of the United States unless (A) the Account
Debtor has supplied the Borrower with an irrevocable letter of credit, issued by
a financial institution satisfactory to the Required Lenders (with financial
institutions meeting the criteria set forth in clause (i) of the definition of
"Cash Equivalents" contained herein being deemed acceptable for purposes of
providing such a letter of credit), sufficient to cover such Account in form and
substance satisfactory to the Required Lenders and without right of setoff and
the Account is payable in full in United States dollars or (B) deemed acceptable
by the Agent in its sole discretion; (vi) Accounts arising with respect to goods
which have not been shipped and delivered to and accepted as satisfactory by the
Account Debtor or arising with respect to services which have not been fully
performed and accepted as satisfactory by the Account Debtor; (vii) Accounts for
which the prospect of payment in full or performance in a timely manner by the
Account Debtor is or is likely to become impaired in the reasonable credit
judgment of the Agent; (viii) Accounts which are not invoiced (and dated as of
the date of such invoice) and sent to the Account Debtor within five (5) days
after delivery of the underlying goods to or performance of the underlying
services for the Account Debtor; (ix) Accounts with respect to which the Agent,
on behalf of the Lenders, does not have a first and valid fully perfected Lien
free and clear of any other Lien whatsoever; (x) Accounts with respect to which
the Account Debtor is the subject of bankruptcy or a similar insolvency
proceeding or has made an assignment for the benefit of creditors or whose
assets have been conveyed to a receiver or trustee; (xi) Accounts with respect
to which the Account Debtor's obligation to pay the Account
50
<PAGE> 59
is conditional upon the Account Debtor's approval or is otherwise subject to any
repurchase obligation or return right, as with sales made on a guaranteed sale,
bill-and-hold, sale-or-return, sale on approval or other terms by reason of
which the payment by the Account Debtor is or may be conditional (except with
respect to Accounts in connection with which Account Debtors are entitled to
return Inventory solely on the basis of the quality of such Inventory) or
consignment basis; (xii) Accounts to the extent that the Account Debtor's
indebtedness to the Borrower exceeds a credit limit determined by the Agent in
the reasonable credit judgment of the Agent following prior written notice of
such credit limit from the Agent to the Borrower; (xiii) Accounts with respect
to which any disclosure is required in accordance with subsection 3.3; (xv)
contra Accounts to the extent of the amount of the accounts payable owed by the
Borrower to the Account Debtor; (xvi) Accounts with respect to which the Account
Debtor is located in any state denying creditors access to its courts in the
absence of a Notice of Business Activities Report or other similar filing unless
the Borrower has either qualified as a foreign corporation authorized to
transact business in such state or has filed a Notice of Business Activities
Report or similar filing with the applicable state agency in such state for the
then current year; (xvii) Accounts evidenced by Chattel Paper or any Instrument
of any kind, to the extent possession of such Chattel Paper or Instrument is not
delivered to the Agent, for the benefit of the Lenders; and (xviii) Accounts
which the Agent determines in good faith to be unacceptable. In the event that a
previously scheduled Eligible Account ceases to be an Eligible Account under the
above described criteria, the Borrower shall notify the Agent thereof.
3.3. Account Warranties. With respect to Accounts scheduled, listed
or referred to on the initial Accounts Trial Balance or on any subsequent
Accounts Trial Balance or Borrowing Base Certificate, the Borrower represents
and warrants to the Agent and each Lender that, except as disclosed in the
applicable Accounts Trial Balance or Borrowing Base Certificate: (i) the
Accounts represent bona fide sales of Inventory and services to customers in the
ordinary course of business completed in accordance with the terms and
provisions contained in the documents available to the Agent and each Lender
with respect thereto and are not evidenced by a judgment or by an Instrument or
Chattel Paper; (ii) the amounts shown on the applicable Accounts Trial Balance
and on the Borrower's books and records and all invoices and statements which
may be delivered to the Agent or any Lender with respect thereto are actually
and absolutely owing to the Borrower and are not in any way contingent; (iii) no
payments have been or shall be made thereon except payments immediately
delivered to a Blocked Account pursuant to this Agreement; (iv) there are no
setoffs, claims or disputes existing or asserted with respect thereto and the
Borrower has not made any agreement with any Account Debtor for any deduction
therefrom except a discount or allowance allowed by the Borrower in the ordinary
course of its business for prompt payment or volume discounts and which discount
and allowance is reflected in the calculation of the face amount of each invoice
related to such Account; (v) to the best of the Borrower's knowledge, there are
no facts, events or occurrences which in any way impair the validity or
enforcement thereof or tend to reduce the amount payable thereunder as shown on
the respective Accounts Trial Balances or Borrowing Base Certificates, the
Borrower's books and records and all invoices and statements delivered to the
Agent or any Lender with respect thereto; (vi) to the best of the Borrower's
knowledge, all Account Debtors have the capacity to contract and are solvent;
(vii) the Borrower has no knowledge that any Account Debtor is unable generally
to pay its debts as they become due;
51
<PAGE> 60
(viii) the Accounts do not arise from the sale of Inventory produced in
violation of the Fair Labor Standards Act so as to be subject to the so-called
"hot goods" provision contained in Title 29 U.S.C., Section 215(a)(1); (ix) the
services furnished and/or Inventory sold giving rise to the Account are not, and
will not be at the time of sale thereof, subject to any Lien except that of the
Agent, for the benefit of the Lenders; (x) the Accounts have not been pledged or
sold to any Person or otherwise encumbered and the Borrower is the owner of the
Accounts free and clear of any Lien except that of the Agent, for the benefit of
the Lenders; and (xi) with respect to Accounts for which the Account Debtor is
located in any state denying creditors access to its courts in the absence of a
Notice of Business Activities Report or other similar filing, the Borrower has
either qualified as a foreign corporation authorized to transact business in
such state or has filed all required Notice of Business Activities Reports or
comparable filings with the applicable governmental agency or authority.
3.4. Verification of Accounts. The Agent shall have the right, at
any time or times hereafter, in the name of the Borrower or a nominee of the
Agent, or during the pendency of an Event of Default, in the Agent's name, to
verify with Account Debtors the validity, amount or any other matter relating to
any Account, by mail, telephone, or in person.
3.5. Collection of Accounts and Payments. On or prior to the Closing
Date, the Borrower shall establish lock box accounts (the "Blocked Accounts") in
the Borrower's name with such banks as are acceptable to the Agent ("Collecting
Banks") and enter into blocked account agreements among the Borrower, the Agent
and each Collecting Bank (the "Blocked Account Agreements"). All Account Debtors
shall directly remit all payments on Accounts into a Blocked Account and the
Borrower will immediately deposit all cash payments made for Inventory or other
cash payments constituting proceeds of Collateral into a Blocked Account in the
identical form in which such payment was made, whether by cash or check. Within
five days after the Closing Date, the Borrower shall notify in writing each of
the existing Account Debtors of the name and address of the Blocked Account to
which each such Account Debtor shall be directed to remit all payments on its
Accounts. In addition, the Agent shall, on or prior to the Closing Date,
establish a depository account at each Collecting Bank or at a centrally located
bank (the "Collection Account"). Each Blocked Account Agreement shall provide,
among other things, that (i) all items of payment deposited in each Blocked
Account are held by such Collecting Bank as agent and bailee-in-possession for
the Agent, (ii) the Collecting Bank has no rights of setoff or recoupment or any
other claim against such Blocked Account, other than for payment of its service
fees or other charges directly related to the administration of such Blocked
Account and for returned checks or other items of payment, and (iii) such
Collecting Bank agrees to immediately forward all amounts received in such
Blocked Account to the Collection Account through daily sweeps from the Blocked
Account into the Collection Account in accordance with the terms of the
applicable Blocked Account Agreement. The Borrower hereby agrees that all
payments received by the Agent, whether by cash, check, wire transfer or any
other instrument, made to such Blocked Accounts or otherwise received by the
Agent and whether on the Accounts or as proceeds of other Collateral or
otherwise will be the sole and exclusive property of the Agent, for the benefit
of the Lenders. Such payments shall be applied to the outstanding balance of
Revolving Loans upon the same day as Agent's receipt of immediately available
funds. The Borrower shall irrevocably instruct each Collecting Bank that each
Collecting Bank shall
52
<PAGE> 61
promptly transfer all payments or deposits to the Blocked Accounts into the
Agent's Collection Account in accordance with the terms of the applicable
Blocked Account Agreement. The Borrower, and any of its Affiliates, employees,
agents or other Persons acting for or in concert with the Borrower, shall,
acting as trustee for the Agent, receive, as the sole and exclusive property of
the Agent, for the benefit of the Lenders, any monies, checks, notes, drafts or
any other payments relating to and/or proceeds of Accounts or other Collateral
which come into the possession or under the control of the Borrower or any
Affiliates, employees, agents or other Persons acting for or in concert with the
Borrower, and immediately upon receipt thereof, the Borrower or such Persons
shall remit the same or cause the same to be deposited, in kind, into a Blocked
Account or, at the direction of the Agent, shall remit the same, or cause the
same to be remitted, in kind, to the Agent at the Agent's address set forth in
subsection 10.13.
3.6. Appointment of the Agent as Borrower's Attorney-in-Fact. The
Borrower hereby irrevocably designates, makes, constitutes and appoints the
Agent (and all Persons designated by the Agent) the Borrower's true and lawful
agent and attorney-in-fact (which appointment shall for all purposes be deemed
to be coupled with an interest and shall be irrevocable for so long as any
Obligations are outstanding), and authorizes the Agent, in the Borrower's or the
Agent's name, without notice to the Borrower, to: (A) following the occurrence
and during the continuance of an Event of Default (i) demand payment of
Accounts, (ii) enforce payment of Accounts by legal proceedings or otherwise,
(iii) exercise all of the Borrower's rights and remedies with respect to the
collection of the Collateral or any legal proceedings brought to collect an
Account, (iv) sell or assign any Collateral upon such terms, for such amount and
at such time or times as the Agent deems advisable, (v) settle, adjust,
compromise, extend or renew any Collateral, (vi) discharge and release any
Account, (vii) prepare, file and sign the Borrower's name on any proof of claim
in bankruptcy or other similar document against an Account Debtor or on any
notice of Lien, assignment or satisfaction of Lien or similar document in
connection with any of the Collateral, (viii) notify the postal authorities of
any change of the address for delivery of the Borrower's mail to an address
designated by the Agent, and receive, open and dispose of all mail addressed to
the Borrower, and (ix) do all acts and things which are necessary, in the
Agent's sole discretion, to fulfill the Borrower's Obligations under the
Financing Agreements; and (B) at any time, to (i) take control in any manner of
any item of payment or proceeds of any Account, (ii) have access to any lockbox
or postal box into which the Borrower's mail is deposited, (iii) endorse the
Borrower's name upon any items of payment or proceeds thereof and deposit the
same in the Agent's account on account of the Borrower's Obligations, (iv)
endorse the Borrower's name upon any Chattel Paper, Document, Instrument,
invoice, freight bill, bill of lading or similar document or agreement relating
to any Account or any goods pertaining thereto, (v) execute in the Borrower's
name and on the Borrower's behalf any financing statements or amendments
thereto, (vi) endorse the Borrower's name on any verification of Accounts and
notices thereof to Account Debtors, (vii) use the information recorded or
contained in any data processing equipment and computer hardware and software
relating to the Accounts and any other Collateral, and (viii) communicate with
the Borrower's independent certified public accountants.
3.7. Account Records. The Borrower shall at all times hereafter
maintain a record of Accounts, keeping correct and accurate records itemizing
and describing the names and
53
<PAGE> 62
addresses of Account Debtors, relevant invoice numbers, shipping dates and due
dates, collection histories, and Accounts agings, all of which records shall be
available during the Borrower's usual business hours at the request of any of
the Agent's officers, employees or agents. The Borrower shall cooperate fully
with the Agent and its agents who shall have the right at any time or times to
inspect the Accounts and the records with respect thereto. The Borrower shall
conduct a review of its bad debt reserves and collection histories at least once
each year and promptly following such review shall supply the Agent with a
report in a form and with such specificity as may be satisfactory to the Agent
concerning such review of the Accounts.
3.8. Instruments and Chattel Paper. All Chattel Paper shall be
marked with the following legend: "This writing and the obligations evidenced or
secured hereby are subject to the security interest of Sanwa Business Credit
Corporation, as agent." Upon the request of the Agent and at all times after the
occurrence and during the continuance of a Default or Event of Default,
immediately upon the Borrower's receipt thereof, the Borrower shall deliver or
cause to be delivered to the Agent, with appropriate endorsement and assignment
to vest title, with full recourse to the Borrower, and possession in the Agent,
on behalf of the Lenders, all Instruments and Chattel Paper which the Borrower
now owns or may at any time or times hereafter acquire.
3.9. Notice to Account Debtors. The Agent may, in its sole
discretion, at any time or times, after the occurrence and during the
continuance of an Event of Default and without prior notice to the Borrower,
notify any or all Account Debtors that the Accounts have been assigned to the
Agent, for the benefit of the Lenders, and that the Agent has a Lien therein.
After the occurrence of an Event of Default, the Agent may direct or, at the
request of the Agent, the Borrower shall direct, any or all Account Debtors to
make all payments upon the Accounts directly to the Agent. The Agent shall
furnish the Borrower with a copy of any such notice.
3.10. Eligible Inventory. "Eligible Inventory" shall consist of all
of the Inventory, except the following: (i) Inventory which is damaged,
obsolete, not in good condition, or not currently usable or currently saleable
in the ordinary course of the Borrower's business as determined by the Agent;
(ii) Inventory which the Agent determines, or which in accordance with the
Borrower's customary business practices, is unacceptable due to age, type,
category and/or quantity, including, without limitation, any Inventory which is
in excess of a one (1) year's supply or is otherwise slow-moving; (iii)
Inventory with respect to which the Agent does not have a first and valid, fully
perfected Lien; (iv) Inventory consisting of packaging or supplies; (v)
Inventory in the possession of the Borrower but not owned by the Borrower; (vi)
Inventory produced in violation of the Fair Labor Standards Act and subject to
the so-called "hot goods" provision contained in Title 29 U.S.C. ss.215(a)(1);
(vii) Inventory with respect to which any disclosure is required in the
applicable Monthly Report or Borrowing Base Certificate in accordance with
subsection 3.11; (viii) Inventory which is on consignment or is located at a
place other than the places of business and collateral locations of the Borrower
listed on Exhibit 8.6; provided that, subject to subsection 7.9, in the case of
leased or bailment locations listed on Exhibit 8.6, no Inventory located at any
such location shall be "Eligible Inventory" until the applicable landlord or
bailee has executed a lien waiver in form and substance satisfactory to the
Agent) including, without limitation, Inventory in transit; (ix) Inventory
consisting of finished goods which do not meet the specifications of the
purchase order for which such Inventory was
54
<PAGE> 63
produced; and (x) Inventory which fails to meet the standards imposed by any
governmental agency, or department or division thereof, having regulatory
authority over such goods, or their use and/or sale. In the event that the
Borrower becomes aware that Inventory with a material value previously scheduled
in a Monthly Report or Borrowing Base Certificate ceases to be Eligible
Inventory, the Borrower shall notify the Agent thereof immediately.
3.11. Inventory Warranties. With respect to Inventory scheduled,
listed or referred to in any Monthly Report or Borrowing Base Certificate, the
Borrower represents and warrants that, except as disclosed in such Monthly
Report or Borrowing Base Certificate (i) such Inventory is located at one of the
Facilities or locations set forth on Exhibit 8.6, (ii) the Borrower has good,
indefeasible and merchantable title to such Inventory and such Inventory is not
subject to any Lien or document whatsoever except for Permitted Liens or the
prior, first perfected Lien granted to the Agent hereunder, (iii) such Inventory
is of good and merchantable quality, free from any defects and has not been
taken in trade, (iv) such Inventory is not subject to any licensing, patent,
royalty, trademark, tradename or copyright agreements with any third parties,
(v) the completion of manufacture, sale or other disposition of such Inventory
by the Agent following an Event of Default shall not require the consent of any
Person and shall not constitute a breach or default under any contract or
agreement to which the Borrower is a party or to which the Inventory is subject,
and (vi) no Inventory has been produced in violation of the Fair Labor Standards
Act so as to be subject to the so-called "hot goods" provision contained in
Title 29 U.S.C., Section 215(a)(1).
3.12. Inventory Records. The Borrower shall at all times hereafter
maintain a perpetual inventory, keeping correct and accurate records itemizing
and describing the kind, type, quality and quantity of Inventory and of Eligible
Inventory, the Borrower's cost therefor and daily withdrawals therefrom and
additions thereto, and the locations of all Inventory in the possession of
bailees, all of which records shall be available during the Borrower's usual
business hours at the request of any of the Agent's officers, employees or
agents. The Borrower shall cooperate fully with the Agent and its agents who
shall have the right at any time or times to inspect the Inventory and the
records with respect thereto. The Borrower shall conduct a physical count of the
Inventory at least once each year and promptly following such physical inventory
shall supply the Agent with a report in form and substance satisfactory to the
Agent concerning such physical count of the Inventory, and shall furnish to the
Agent, at the Agent's request, such other documents and reports with respect to
the Inventory.
3.13. Safekeeping of Inventory and Inventory Covenants. Neither the
Agent nor any Lender shall be responsible for: (i) the safekeeping of the
Inventory; (ii) any loss, spoilage or damage to the Inventory; (iii) any
diminution in the value of the Inventory; or (iv) any act or default of any
carrier, warehouseman, bailee, forwarding agency or any other Person. Subject to
subsection 10.4, as between the Borrower and the Agent and each Lender,
responsibility for the safekeeping of the Inventory and all risk of loss,
spoilage, damage, destruction or diminution in value of the Inventory shall be
borne by the Borrower. Without prior written notice to the Agent, the Borrower
shall not sell any Inventory to any customer on approval or on any other basis
which entitles the customer to return, or which may obligate the Borrower to
repurchase, such Inventory.
55
<PAGE> 64
3.14. Equipment Warranties. With respect to the Equipment, the
Borrower represents and warrants to the Agent and the Lenders that: (i) the
Borrower has good, indefeasible and merchantable title to the Equipment; (ii)
the Equipment is located only on the premises listed on Exhibit 3.14; (iii) the
Equipment is not subject to any Lien whatsoever except for Permitted Liens; (iv)
the Equipment is in good condition and repair (ordinary wear and tear excepted)
and is currently used or usable in the Borrower's business; and (v) except as
described in Exhibit 3.14, none of the Equipment used in the conduct of the
Borrower's business is leased.
3.15. Equipment Records. The Borrower shall at all times hereafter
keep complete and accurate records itemizing and describing the kind, type, age
and condition of Equipment, and the Borrower's cost therefor and accumulated
depreciation thereon and acquisitions, retirements, sales, or other dispositions
thereof, all of which records shall be available during the Borrower's usual
business hours on demand to any of the Agent's officers, employees or agents.
3.16. Maintenance of Equipment. The Borrower shall keep and maintain
the Equipment in good operating condition and repair (ordinary wear and tear
excepted) and shall make all necessary replacements thereof and renewals
thereto, to the extent permitted hereunder, so that the value and operating
efficiency thereof shall at all times be maintained and preserved. The Borrower
shall not permit the Equipment to be operated or maintained in violation of any
applicable law, statute, rule or regulation.
3.17. Real Estate. Exhibit 3.17 describes all Real Estate or
interests in Real Estate owned or leased by the Borrower. The Borrower
represents and warrants to the Agent and the Lenders that the Borrower has good,
indefeasible and merchantable title to and ownership of, or a valid leasehold
interest in, each parcel of Real Estate described in Exhibit 3.17, free and
clear of all Liens, except Liens in favor of the Agent, for the benefit of the
Lenders, and the Permitted Liens. The Borrower further represents and warrants
to the Agent and the Lenders that no parcel of Real Estate is subject to any
boundary or encroachment dispute, special assessment, condemnation or eminent
domain proceeding, restrictive covenant, zoning or building code violation or
any other dispute, assessment, claim or violation of law which might restrict or
interfere with the Borrower's use of such parcel of Real Estate in the ordinary
course of the Borrower's business and which might reasonably be expected to have
a Material Adverse Effect. Except as disclosed on Exhibit 3.17, the Borrower
does not own any other real property or use or occupy any real property that it
leases from any other Person.
3.18. Maintenance of Real Estate. The Borrower shall keep and
maintain the Real Estate and all improvements thereon in good operating
condition (ordinary wear and tear excepted) and shall maintain the value and
utility thereof and shall maintain such Real Estate in conformity with all
applicable building and zoning codes and other applicable laws, statutes, rules
and regulations, except for such nonconformity as would not reasonably be
expected to have a Material Adverse Effect.
3.19. Intellectual Property. The Borrower is the owner of all the
Intellectual Property consisting of registered patents and trademarks free and
clear of all Liens other than
56
<PAGE> 65
Liens in favor of the Agent, for the benefit of the Lenders. The Borrower shall
maintain complete and accurate records with respect to such Intellectual
Property and, unless Borrower has a valid business purpose for doing otherwise,
shall defend such Intellectual Property against infringement, interference,
opposition or similar actions or challenges and shall maintain and preserve all
of its material rights with respect thereto.
4. CONDITIONS TO ADVANCES.
4.1. Conditions to All Advances. In addition to those conditions set
forth in subsection 4.2 regarding the initial advance of funds, the issuance of
a Lender Guaranty under the Revolving Loan and the funding of the other
Revolving Loans shall be conditioned upon the matters set forth in this
subsection 4.1:
(a) Representations and Warranties. All of the representations and
warranties of the Borrower contained herein or in any other Financing Agreement
shall be true and correct in all material respects on and as of the date of such
advance as if made on such date, except to the extent that any such
representation or warranty expressly relates to an earlier date.
(b) Borrower's Request. The Agent shall receive (i) Borrowing Notice
or a Conversion/Continuation Notice on or prior to the date required by the
terms of the Agreement with respect to any Loan, (ii) at least fifteen (15)
Business Days' prior notice of the issuance of a Lender Guaranty, (iii) a
Monthly Report from the Borrower dated no more than thirty-one (31) days prior
to the date of such advance and (iv) a current Borrowing Base Certificate in
accordance with the terms hereof and all other documents required to have been
delivered to the Agent hereunder prior to such date.
(c) Financial Condition. As determined by the Required Lenders in
their reasonable discretion, no event(s) or occurrence(s) which have a Material
Adverse Effect shall have occurred at any time or times since the Closing Date.
(d) No Default. As determined by the Required Lenders, neither a
Default nor an Event of Default shall have occurred and be continuing or will
result from such advance.
(e) No Litigation. (i) No Litigation shall be pending or threatened
against the Borrower or any officer, director, or executive of the Borrower (A)
in connection with this Agreement or the other Financing Agreements or (B) other
than as disclosed on Exhibit 6.14, which, if adversely determined, would have a
Material Adverse Effect; and (ii) no injunction, writ, restraining order or
other order of any nature materially adverse to the Borrower shall have been
issued or threatened by any Governmental Authority.
(f) Other Requirements. The Agent shall have received, in form and
substance satisfactory to the Agent, all certificates, orders, authorizations,
consents, affidavits, schedules, instruments, security agreements, financing
statements, mortgages and other documents which are provided for hereunder, or
which the Agent may at any time reasonably request.
57
<PAGE> 66
Each request and acceptance by the Borrower of the proceeds of any
advance under the Revolving Loan and the request by the Borrower for the
incurrence by the Lenders of any Lender Guaranty Liability shall constitute a
representation and warranty by the Borrower that the conditions contained in
subsections 4.1(a), 4.1(d), and 4.1(e) have been satisfied. All legal matters
incident to the making of the advance of funds or the issuance of the Lender
Guaranty shall be satisfactory to the Agent and its counsel.
4.2. Conditions to Initial Advance. In addition to those conditions
set forth in subsection 4.1 with respect to all advances or issuances of Lender
Guaranties and other Revolving Loans hereunder, the issuance of the Eau Claire
Lender Guaranty and the making of the initial advance of funds under the
Revolving Loan shall be conditioned upon the satisfaction on or before the
Closing Date, unless otherwise stated, of the conditions set forth in this
subsection 4.2 and the delivery on or before the Closing Date, unless otherwise
stated, of the following documents to each Lender, in form and substance
satisfactory to each Lender, and consummation of all of the transactions or the
satisfaction of each condition contemplated by each such document in a manner
satisfactory to each Lender and its counsel.
(a) Financing Agreements; Notes. Duly executed copies of this
Agreement, the other Financing Agreements (including a Guaranty, Pledge
Agreement, stock power and Assignment of Representations, Warranties, Covenants
and Indemnities executed by Guarantor) and one (1) duly executed copy of each of
the Revolving Loan Note conforming to the requirements hereof, together with all
Schedules, Exhibits, certificates, instruments, documents and financial
statements required to be delivered pursuant hereto and thereto.
(b) Legal Opinion. The legal opinion of the Borrower's counsel and
Wisconsin counsel in form and substance satisfactory to the Lenders and their
counsel.
(c) UCC. Evidence of the proper filing of UCC financing statements
(or amendments to UCC financing statements) perfecting Liens in favor of the
Agent in the Collateral and copies of searches of financing statements filed
under the Code, together with tax lien and judgment searches with respect to the
Property of the Borrower, in Michigan, Wisconsin and Pennsylvania.
(d) Officer's Certificate. A certificate executed by the chief
executive officer or chief financial officer of the Borrower, stating that (i)
no Default or Event of Default has occurred and is continuing, (ii) since
September 30, 1997, no Material Adverse Effect has occurred , (iii) no
litigation, investigation or proceeding, or injunction, writ or restraining
order of the type described in subsection 4.1(e) is pending or threatened, (iv)
each of the conditions precedent to the consummation of the Financing Agreements
contemplated hereby has been met or satisfied, and (v) the representations and
warranties of the Borrower contained in the Financing Agreements are correct and
complete in all material respects on and as of the Closing Date.
(e) Insurance Policies and Endorsements. Copies of policies of
insurance required hereby together with loss payable endorsements on the Agent's
standard form, duly executed, and evidence of the payment of the first year's
premium therefor.
58
<PAGE> 67
(f) Initial Monthly Report and Other Exhibits. Copies of the initial
Monthly Report, a Fair Saleable Value Balance Sheet, initial Borrowing Base
Certificate, the Solvency Affidavit, the initial Projections, and all financial
statements and other Exhibits and Schedules required hereby.
(g) Fees. The fees payable pursuant to the SBCC Fee Letter shall
have been paid.
(h) Charter and Bylaws. A copy of the Borrower's Certificate of
Incorporation, certified by the Secretary of State of Delaware and a copy of the
Guarantor's Certificate of Incorporation certified by the Secretary of State of
Delaware as of a date not more than twenty (20) days prior to the Closing Date
and copies of the Borrower's and Guarantor's bylaws and any amendments thereto
certified by the Secretary or Assistant Secretary of the Borrower and Guarantor,
respectively.
(i) Good Standing Certificates. Good Standing Certificates for the
Borrower from the State of Delaware and for the Guarantor from the State of
Delaware, respectively, and from each other state in which the Guarantor or the
Borrower is required to be qualified to transact business as a foreign
corporation.
(j) Board Resolutions. Certified copies of resolutions of the boards
of directors of the Borrower and the Guarantor authorizing the execution and
delivery of and the consummation of the transactions contemplated by this
Agreement, the other Financing Agreements, the Related Transactions Documents,
as applicable, and all other documents or instruments to be executed and
delivered in conjunction herewith and therewith. Such resolutions shall also
designate which Authorized Officers of the Borrower shall be authorized to make
a request for an advance of the Revolving Loan hereunder.
(k) Incumbency Certificates. Incumbency certificates with respect to
the officers of the Borrower and the Guarantor executing the documents referred
to in item (j) above, certified as of the Closing Date by the Borrower's or the
Guarantor's, as applicable, Secretary or Assistant Secretary as being true and
correct.
(l) Waivers. Landlord waivers, bailee letters and mortgagee
agreements in form and substance satisfactory to Agent, in each case as required
pursuant to subsection 7.9. In the event the Borrower is unable to obtain a
landlord waiver, bailee letter and/or mortgage agreement acceptable to Agent as
to any such location on or before the Closing Date, the eligibility of such
Inventory at that location shall be determined in accordance with subsection
7.9.
(m) Accountants' Letter. A letter authorizing Borrower's independent
certified public accountants to communicate with the Agent and the Lenders in
accordance with subsection 7.1 and acknowledging the Agent's and each Lender's
reliance on future financial statements.
59
<PAGE> 68
(n) Power of Attorney. A power of attorney in favor of the Agent
with respect to the matters set forth in subsections 3.6, 5.2 and 7.6 in form
and substance satisfactory to the Agent.
(o) Agent for Service. An acknowledgment by CT Corporation System
that it has been appointed as the Borrower's agent to accept service of process
in Illinois.
(p) Letter of Direction. A letter of direction from the Borrower
with respect to the disbursement of the proceeds of the initial advance of funds
hereunder.
(q) Transition Services Agreement. A copy of the Transition Services
Agreement entered into in connection with the Purchase Agreement.
(r) [Intentionally Omitted]
(s) No Material Transactions. Other than the Related Transactions
and the other transactions described herein, the Borrower shall not have entered
into any material commitment or material transaction since September 30, 1997
including, without limitation, transactions for borrowings and capital
expenditures, which are not in the ordinary course of the Borrower's business.
(t) Blocked Account Agreements. Executed copies of each of the
Blocked Account Agreements.
(u) Mortgages. Duly executed copies of the Mortgages and amendments
to Mortgages.
(v) Mortgagee's Title Insurance. An ALTA Loan Policy for Borrower's
Real Estate in Eau Claire Wisconsin, and a mortgage modification and date down
endorsement to the existing ALTA Loan Policy for Borrower's Real Estate in
Plainwell, Michigan from a title insurance company acceptable to the Agent, each
dated the date of the initial advance under the Revolving Loan, in the fair
market value of the applicable property, subject only to such exceptions and
exclusions as are acceptable to the Agent, and containing such information and
endorsements as may be required by the Agent, including, without limitation,
usury, zoning, comprehensive, last dollar and revolving credit endorsements and
a special endorsement with respect to the Eau Claire Lender Guaranty.
(w) Surveys. A survey for Borrower's Real Estate in Eau Claire,
Wisconsin prepared in accordance with the minimum standard detail requirement
for land title surveys as adopted by the American Title Association and by the
American Congress on Surveying and Mapping, dated (i) with respect to parcels
1-13 of such Real Estate, as of or prior to the Closing Date and (ii) with
respect to parcels 14-19 of such Real Estate, within thirty (30) days of the
Closing Date, in each case certified by a licensed surveyor.
60
<PAGE> 69
(x) Real Estate Taxes and Fees. Evidence of payment of all taxes on
each parcel of Real Estate due prior to the Closing Date and all recording and
mortgage filing fees or taxes.
(y) Payoff Letter; Termination Statements; Releases. All releases
and other instruments necessary to terminate all Liens on the Borrower's and its
Subsidiaries' Intellectual Property except the Lien of the Agent, for the
benefit of the Lenders, and the Permitted Liens.
(z) [Intentionally Omitted]
(aa) Environmental Matters. The Agent shall have received such
certified environmental review and audit reports with respect to the properties
acquired as part of the Tissue Business addressed to the Agent, in form and
substance reasonably satisfactory to the Agent.
(bb) Related Transactions Documents and Consummation of Related
Transactions. Fully executed copies of the Related Transactions Documents, each
of which shall be in form and substance satisfactory to each Lender and its
counsel. The Related Transactions shall have been consummated in accordance with
the terms of the Related Transactions Documents.
(cc) Capital Structure. The stockholders of Holdings shall have
contributed at least $25,000,000 in cash to the capital of Holdings and Holdings
shall, in turn, have contributed such amount to the capital of Borrower.
(dd) Borrowing Availability. The Borrower shall have Borrowing
Availability of at least $10,000,000 as of the Closing Date after giving effect
to the Related Transactions (without deterioration of Working Capital).
(ee) Form W-9. A copy of IRS Form W-9, Taxpayer Identification
Number and Certification.
(ff) Approvals. Agent shall have received (i) satisfactory evidence
that the Borrower has obtained all required consents and approvals of all
Persons including all requisite Governmental Authorities including H-S-R, to the
execution, delivery and performance of the Related Transactions Documents or
(ii) officers' certificates in form and substance satisfactory to Agent
affirming that no such consents or approvals are required.
(gg) Subordinated Debt. Borrower shall have received no less than
$120,000,000 in cash proceeds from the issuance of Subordinated Debt pursuant to
the Subordinated Debt Documents.
(hh) Tissue Business. The Tissue Business shall have been acquired
by Borrower in accordance with the terms of the Purchase Agreement. The purchase
price for the Tissue Business under the Purchase Agreement shall not have
exceeded $160,000,000 including aggregate fees and closing costs (including
those payable to Agent and Lenders).
61
<PAGE> 70
(ii) Assignment of Representations and Warranties, Etc. An executed
copy of an Assignment of Representations, Warranties, Covenants, Indemnities and
Rights by Borrower in favor of the Agent, for the benefit of the Lenders, with
respect to Seller's representations, warranties, covenants, indemnities under
the Purchase Agreement.
(jj) Other Documents. All corporate and legal proceedings and all
agreements in connection with the transactions contemplated by this Agreement
and the other Financing Agreements shall be reasonably satisfactory to the
Agent, and the Agent shall have received all information and copies of all
documents including, without limitation, records of corporate existence,
authority and proceedings and governmental approvals, if any, which the Agent
reasonably may have requested in connection therewith, and such documents, where
appropriate, shall be certified by proper corporate or governmental authorities.
5. COLLATERAL.
5.1. Security Interest. All of the Borrower's Obligations constitute
one (1) loan secured by the Agent's Liens on the Collateral now or from time to
time hereafter granted by the Borrower to the Agent. To secure timely payment
and performance in full of the Obligations, the Borrower hereby mortgages,
pledges, hypothecates and grants to the Agent, for the benefit of the Lenders, a
right of setoff against and a continuing security interest in all of the
Borrower's right, title and interest in and to the following property and
interests in property, whether now owned or hereafter acquired by the Borrower
and wheresoever located: (i) Accounts; (ii) General Intangibles; (iii) Fixtures;
(iv) Inventory; (v) Equipment; (vi) Intellectual Property; (vii) all of the
Borrower's deposit accounts (general or special) with any financial institution
with which the Borrower maintains deposits; (viii) all of the Borrower's now
owned or hereafter acquired monies, and any and all other property and interests
in property of the Borrower now or hereafter coming into the actual possession,
custody or control of the Agent or any Lender or any agent or affiliate of the
Agent or any Lender in any way or for any purpose (whether for safekeeping,
deposit, custody, pledge, transmission, collection or otherwise); (ix)
Investment Property; (x) Documents, Instruments and Chattel Paper; (xi) all
insurance policies relating to any of the foregoing, including without
limitation business interruption insurance; (xii) all of the Borrower's books
and records relating to any of the foregoing; (xiii) all accessions and
additions to, substitutions for, and replacements of any of the foregoing; and
(xiv) all cash collections from, and all other cash and non-cash proceeds of,
any of the foregoing including, without limitation, proceeds of and unearned
premiums with respect to insurance policies insuring any of the Collateral and
claims against any Person for loss of, damage to, or destruction of, any or all
of the Collateral. In addition, concurrently with the execution and delivery
hereof the Borrower shall deliver the Mortgages, and concurrently with the
acquisition of any real property after the Closing Date, the Borrower shall
grant and convey to the Agent, for the benefit of the Lenders, as security for
the Obligations, first mortgage Liens on all such real property. Notwithstanding
the foregoing, the Collateral shall not include the Excluded Assets.
5.2. Preservation of Collateral and Perfection of Liens Thereon.
Prior to the execution of this Agreement, the Borrower shall have executed and
delivered to the Agent, and at any time or times hereafter at the request of the
Agent, the Borrower shall promptly and duly
62
<PAGE> 71
execute and deliver any and all such further instruments and documents and take
such further action as the Agent may reasonably deem desirable to obtain the
full benefits of this Agreement and of the rights and powers herein granted
including, without limitation, all financing statements, security agreements,
pledge agreements, mortgages, leasehold mortgages, bailee letters, amendments
thereto, or other documents (and pay the cost of filing or recording the same in
all public offices deemed necessary by the Agent), as the Agent may request, in
a form satisfactory to the Agent, to perfect and maintain the Liens on the
Collateral granted by the Borrower to the Agent or to otherwise protect and
preserve the Collateral and the Liens thereon or to enforce the Agent's Liens on
the Collateral. Should the Borrower fail to do so, the Agent is authorized to
sign any such financing statements or other documents as the Borrower's agent.
The Borrower further agrees that a carbon, photocopy or other reproduction of
this Agreement or of a financing statement is sufficient as a financing
statement.
5.3. Consigned Inventory. With respect to consigned Inventory, the
Borrower shall perfect its interest in such Inventory by filing and delivering
notice to the creditors of record of the consignee, all as provided in Section
9-114 of the Code, and in form and substance satisfactory to the Agent, and the
Borrower shall execute and deliver all financing statements, security
agreements, amendments thereto, or other documents (and pay the cost of filing
or recording the same in all public offices deemed necessary by the Agent), as
the Agent may request, in a form satisfactory to the Agent, to perfect and
maintain the Liens on such Collateral granted by the Borrower to the Agent
hereunder. With respect to goods in the hands of bailees, the Borrower shall
deliver notice to such bailees of Agent's interest in such goods and
instructions with respect to the disposition thereof, all in form and substance
satisfactory to the Agent, and Borrower shall execute and deliver all financing
statements, security agreements, amendments thereto, or other documents (and pay
the cost of filing or recording the same in all public offices deemed necessary
by the Agent), as the Agent may request, in a form satisfactory to the Agent, to
perfect and maintain the Liens on such Collateral granted by the Borrower to the
Agent hereunder.
6. REPRESENTATIONS AND WARRANTIES.
The Borrower represents and warrants and covenants and agrees that
as of the Closing Date and after giving effect to the Related Transactions and
continuing so long as any Obligations (other than unasserted contingent
indemnification obligations) remain outstanding or any Lender shall have any
Commitment hereunder:
6.1. Existence. (a) Each of the Borrower and the Guarantor is a
corporation duly organized, validly existing and in good standing under the laws
of its respective jurisdiction of incorporation and is qualified to transact
business as a foreign corporation in, and is in good standing under the laws of,
all states in which such Person is required by applicable law to maintain such
qualification and good standing except where the failure to so qualify would not
have a Material Adverse Effect. All such jurisdictions are listed on Exhibit
6.1-1.
(b) All shares of capital stock of the Guarantor and the Borrower
have been duly authorized and validly issued and are fully paid and
non-assessable. Except as disclosed on
63
<PAGE> 72
Exhibit 6.1-2 and as otherwise permitted by this Agreement (i) no authorized but
unissued or treasury share of capital stock of the Borrower is subject to any
option, warrant, right to call or commitment of any kind or character, (ii) the
Borrower has no any outstanding stock or securities convertible into or
exchangeable for any shares of its capital stock, or any rights issued to any
Person (either preemptive or other) to subscribe for or to purchase, or any
options or warrants for the purchase of, or any agreements providing for the
issuance (contingent or otherwise) of, or any calls, commitments or claims of
any character relating to any of its capital stock or any stock or securities
convertible into or exchangeable for any of its capital stock, and (iii) the
Borrower is not subject to any obligation (contingent or otherwise) to
repurchase or otherwise acquire or retire any shares of its capital stock or any
convertible securities, rights, warrants or options of the type described in the
clause (ii) above.
6.2. Authority. The Borrower and the Guarantor have full power,
authority and legal right to enter into this Agreement, the other Financing
Agreements and the Related Transactions Documents to which such Person is a
party. The execution and delivery by the Borrower and the Guarantor of the
Financing Agreements and the Related Transactions Documents to which it is a
party: (i) have been duly authorized by all necessary action on its part; (ii)
are not in contravention of the terms of its charter or Bylaws or of any
indenture, agreement or undertaking to which it is a party or by which it or any
of its Property is bound; (iii) do not and will not require any registration
with, or approval or the consent or approval of, any Governmental Authority or
of any other Person that has not been obtained; (iv) do not and will not
contravene any contractual or governmental restriction to which it or any of its
Property may be subject; and (v) do not and will not, except as contemplated
herein, result in the imposition of any Lien upon any Property of it under any
existing indenture, mortgage, deed of trust, loan or credit agreement or other
material agreement or instrument to which it is a party or by which it or any of
its Property may be bound or affected. Each of the Borrower and the Guarantor
has the full corporate power and authority and legal right to own, operate,
pledge, mortgage or otherwise encumber its Property, to lease the Property it
now operates under lease and conduct its business as now, heretofore and
proposed to be conducted, and has all material licenses, permits, consents and
approvals from or by, and has made all material filings with, and has given all
notices to, all Governmental Authorities having jurisdiction, to the extent
required for such ownership, operation and conduct.
6.3. Binding Effect. This Agreement and the other Financing
Agreements and the Related Transactions Documents have been duly executed and
delivered by the Borrower and the Guarantor, as applicable, are the legal, valid
and binding obligations of the Borrower and the Guarantor, as applicable, and
are enforceable against the Borrower and the Guarantor, as applicable, in
accordance with their terms.
6.4. Financial Data. (a) The Borrower has furnished to the Agent and
each Lender the pro forma balance sheet and related profit and loss statement
(the "Pro Forma") of the Borrower on a consolidated basis based on financial
data as of September 30, 1997 and attached as Exhibit 6.4-1. As of the Closing
Date, the Pro Forma fairly represents in all material respects the assets,
liabilities, financial condition and results of operations of the Borrower in
accordance with Generally Accepted Accounting Principles, consistently applied,
as of September 30, 1997
64
<PAGE> 73
(subject to normal year-end audit adjustments), but taking into account the
transactions contemplated by this Agreement and the Related Transactions
Documents. To the best knowledge of the Borrower, there are no omissions from
the Pro Forma which are or may be material. Except as contemplated hereby, since
the date of the Pro Forma, the Borrower has not: (i) incurred any debts,
obligations, or liabilities (absolute, accrued, or contingent and whether due or
to become due) except current liabilities incurred in the ordinary course of
business which (individually or in the aggregate) will not have a Material
Adverse Effect; (ii) paid any obligation or liability other than current
liabilities in the ordinary course of business, or discharged or satisfied any
Liens other than those securing current liabilities, in each case in the
ordinary course of business; (iii) declared or made any Restricted Payment or
obligated itself to do so; (iv) mortgaged, pledged, or subjected to any Lien on
any of its Property except Permitted Liens; (v) sold, transferred, or leased any
of its Property except in the usual and ordinary course of business; (vi)
suffered any physical damage, destruction, or loss (whether or not covered by
insurance) which might have a Material Adverse Effect; (vii) entered into any
transaction other than in the usual and ordinary course of business; (viii)
encountered any labor difficulties or labor union organizing activities; (ix)
issued or sold any shares of capital stock or other securities or granted any
options or similar rights with respect thereto other than pursuant hereto; or
(x) agreed to do any of the foregoing other than pursuant hereto. There has been
no Material Adverse Effect since September 30, 1997.
(b) The Borrower has furnished to the Agent and each Lender the Fair
Saleable Value Balance Sheet in the form attached as Exhibit 6.4-2 which has
been prepared based on the following assumptions: (i) Accounts have been valued
at face value less reserves for uncollectible Accounts and expenses of
collection based on previous history assuming a collection period not exceeding
ninety (90) days; (ii) Inventory has been valued at the lower of cost or market
on a FIFO basis and in accordance with the Appraisal (Inventory); (iii) fixed
assets including Real Estate have been valued in accordance with the Appraisals;
and (iv) the liabilities stated therein represent a complete statement of the
Borrower's Liabilities including, for purposes of the Fair Saleable Value
Balance Sheet only, all liabilities of the Borrower, whether fixed or
contingent, direct or indirect, disputed or undisputed, and whether or not
required to be reflected on a balance sheet prepared in accordance with
Generally Accepted Accounting Principles.
(c) The Borrower has also furnished to the Agent and each Lender
initial Projections for the Borrower attached as Exhibit 6.4-3, containing the
information required by clause (vi) of subsection 7.1. The initial Projections
have been prepared, and all Projections hereafter delivered in accordance with
clause (vi) of subsection 7.1 shall be reviewed, by the chief financial officer
of the Borrower on the basis of the assumptions set forth therein and do
represent, and in the future will represent, the good faith estimate of the
Borrower's management regarding the course of business of the Borrower and each
Subsidiary for the periods covered thereby. The assumptions set forth in the
initial Projections are, and the assumptions set forth in the future Projections
delivered hereafter shall be, reasonable and realistic based on then current
economic conditions.
65
<PAGE> 74
(d) The Borrower has also provided to the Agent and each Lender (i)
audited statements of income and cash flow and balance sheets for Plainwell
Paper Company for the Fiscal Year ending December 31, 1996 and the nine months
ended September 30, 1997 and for the Tissue Business for the Fiscal Years ending
December 31, 1995 and December 31, 1996 and the nine months ended September 30,
1997 and (ii) unaudited statements of income and cash flow and balance sheets
for Plainwell Paper Company and the Tissue Business as of December 31, 1997 and
for the three (3) months then ended and such financial statements fairly present
the financial condition and results of operations of the Borrower for the
periods indicated therein, in accordance with Generally Accepted Accounting
Principles, consistently applied (subject to normal year-end adjustment and
excluding, in the case of the unaudited financial statements, footnotes).
6.5. Collateral. Except for the Permitted Liens, all of the
Collateral and the Excluded Assets are and will continue to be owned by the
Borrower free and clear of all Liens. From and after the making of the first
advance under the Revolving Loans and after the making of all necessary filings,
the provisions of Article 5 of this Agreement will be effective to create and
will give the Agent, for the benefit of the Lenders, as security for the
repayment of the Obligations, a legal, valid, perfected and enforceable Lien
(which priority is subject only to Permitted Liens) upon all right, title and
interest of the Borrower in any and all of the Collateral (including, without
limitation, the Lien in the items and amounts deposited in the Blocked
Accounts).
6.6. Solvency. The Borrower and each Subsidiary is Solvent and will
continue to be Solvent following the consummation of the transactions
contemplated by this Agreement and the Related Transactions and the payment of
all fees, costs and expenses payable by the Borrower with respect thereto.
6.7. Places of Business. As of the Closing Date, the principal place
of business and chief executive office of the Borrower is set forth on Exhibit
6.7 and, except as disclosed on Exhibit 6.7, none of such locations have changed
within the past six (6) months. The books and records of the Borrower and all
Chattel Paper, Instruments and all records of account are located and hereafter
shall continue to be located at the principal place of business and chief
executive office of the Borrower.
6.8. Other Names. The business conducted by the Borrower has not
been conducted under any corporate, trade or fictitious name other than those
names disclosed on Exhibit 6.8-1.
6.9. Tax Obligations. The Borrower and each Subsidiary has filed
complete and correct federal, state and local tax reports and returns required
to be filed by it, prepared in accordance with applicable laws or regulations,
and, except for extensions duly obtained, has either duly paid all Charges owed
by it, or made adequate provision for the payment thereof. There are no material
unresolved questions or claims concerning any tax liability of the Borrower. No
tax Liens have been filed and no claims are being asserted with respect to any
such Charges which might have a Material Adverse Effect. The charges, accruals
and reserves
66
<PAGE> 75
on the books of the Borrower are adequate for all open years and for the current
Fiscal Year. The Borrower has not consented to any extension of, or otherwise
waived, any statute of limitation with respect to any such Charges. The Borrower
is not a party to any tax indemnity, tax sharing or tax allocation agreement
with any other Person. Proper and accurate amounts have been withheld by the
Borrower from its employees for all periods in full and complete compliance with
the tax, social security and unemployment withholding provisions of applicable
federal, state, local and foreign law and such withholdings have been timely
paid to the respective Governmental Authorities.
6.10. Indebtedness and Liabilities. The Borrower has no Indebtedness
other than Indebtedness reflected on the Pro Forma. Except for the Indebtedness
referred to above, and Liabilities reflected on the Pro Forma attached as
Exhibit 6.4-1, neither the Borrower nor any Subsidiary has any Liabilities
required to be reflected on a balance sheet prepared in accordance with GAAP
(subject to year-end adjustments).
6.11. Use of Proceeds and Margin Security. The Borrower shall use
the proceeds of the initial advance under the Revolving Loan and the proceeds of
the Subordinated Debt issued pursuant to the Subordinated Debt Documents for the
purposes disclosed on Exhibit 6.11 and shall use the proceeds of subsequent
advances under the Revolving Loan solely for the ordinary working capital
requirements of the Borrower and shall use all advances and loans hereunder for
proper business purposes, consistent with all applicable laws, statutes, rules
and regulations. The Borrower does not own any margin security and none of the
Revolving Loans advanced or funded hereunder will be used for the purpose of
purchasing or carrying any margin securities or for the purpose of reducing or
retiring any indebtedness which was originally incurred to purchase any margin
securities or for any other purpose not permitted by Regulation G or U of the
Board of Governors of the Federal Reserve System.
6.12. Government Contracts. Except as disclosed on Exhibit 6.12, the
Borrower is not a party to or bound by any supply agreements with the federal
government or any state or local government or any agency thereof. Except as
disclosed on Exhibit 6.12, after giving effect to the consummation of the
transactions contemplated by the Related Transactions Documents, all such
government contracts will be valid, legally binding and in full force and
effect.
6.13. Investments. Except as disclosed on Exhibit 8.4, as of the
Closing Date, the Borrower has no Investment in any Person other than Permitted
Investments and is not engaged in any joint venture or partnership with any
other Person.
6.14. Litigation and Proceedings. As of the Closing Date, no
judgments are outstanding against the Borrower or binding upon any of its
Property, nor, except as disclosed on Exhibit 6.14, is there now pending or, to
the Borrower's knowledge, threatened, any litigation, claim, arbitration,
investigation, administrative proceeding or other governmental proceeding
("Litigation") by or against the Borrower which, if adversely determined, would
have a Material Adverse Effect, and to the best of the Borrower's knowledge
after diligent inquiry, there are no presently existing facts or circumstances
likely to give rise to any such Litigation which would have a Material Adverse
Effect. From and after the Closing Date, there is no Litigation pending
67
<PAGE> 76
or, to the Borrower's knowledge, threatened against the Borrower, which, if
adversely determined, might have a Material Adverse Effect. None of the
Litigation will prevent, enjoin or delay the consummation of the Related
Transactions contemplated by the Related Transactions Documents.
6.15. Other Agreements and Deliveries. (a) Except as disclosed on
Exhibit 6.15, the Borrower is not in default under any material indenture, loan
agreement, mortgage, deed of trust or similar document relating to the borrowing
of monies or any other material contract, lease, or commitment to which it is a
party or by which it is bound. There is no dispute regarding any contract,
lease, or commitment which would have a Material Adverse Effect.
(b) The Borrower has provided or made available to the Agent or its
counsel accurate and complete copies of all of the following agreements or
documents to which the Borrower or any Subsidiary is subject:
(i) each Plan and other compensation or nonqualified benefit
plan arrangement which the Borrower or any ERISA Affiliate sponsors
or is committed to contribute to as of the Closing Date and, where
applicable, each Plan's most recent summary plan description,
actuarial report, determination letter from the Service and Forms
5500 for the previous five (5) years filed in respect of each such
Plan;
(ii) Collective bargaining agreements or other labor
contracts;
(iii) supply agreements delivered under the Purchase
Agreement;
(iv) purchase agreements delivered under the Purchase
Agreement;
(v) leases of real property;
(vi) leases of Equipment delivered under the Purchase
Agreement;
(vii) licenses and permits with respect to Environmental
Matters;
(viii) all management and employment agreements between the
Borrower and any other Person;
(ix) instruments and agreements governing the issuance of any
Stock of the Borrower or the Guarantor.
6.16. Labor Matters. Except as disclosed on Exhibit 6.16, there are
no strikes, work stoppages, labor disputes, decertification petitions, union
organizing efforts, grievances or other controversies pending or, to the best of
the Borrower's knowledge after diligent inquiry, threatened, between the
Borrower and any of its employees, other than employee grievances arising in the
ordinary course of business which, in the aggregate, would not have a Material
Adverse Effect. All collective bargaining agreements, labor agreements or other
contracts with
68
<PAGE> 77
or affecting any employee of the Borrower necessary to continue to conduct the
business operations of the Borrower are in full force and effect. Except as
disclosed on Exhibit 6.16, the Borrower has no obligation under any collective
bargaining agreement or any employment agreement. To the best of the Borrower's
knowledge, there is no organizing activity pending or threatened by any labor
union or group of employees. Except as disclosed on Exhibit 6.16, there are no
representation proceedings pending or threatened with the National Labor
Relations Board or other applicable Governmental Authority, and no labor
organization or group of employees has made a pending demand for recognition.
There are no material complaints or charges pending or threatened to be filed
with any Governmental Authority or arbitrator based on, arising out of, in
connection with, or otherwise relating to the employment or termination of
employment by the Borrower of any individual.
6.17. Compliance with Laws and Regulations. The execution and
delivery by the Borrower of this Agreement, the other Financing Agreements and
the Related Transactions Documents and the performance of the Borrower's
obligations hereunder and thereunder are not in contravention of any order
applicable to the Borrower or, to the Borrower's best knowledge, any federal,
foreign, state or local laws, regulations or ordinances where such contravention
would have a Material Adverse Effect. The Borrower is in compliance with all
laws, orders, regulations and ordinances of all federal, foreign, state and
local governmental authorities relating to the business operations and the
Property of the Borrower except for laws, orders, regulations and ordinances the
non-compliance or violation of which would not, in the aggregate, have a
Material Adverse Effect.
6.18. Patents, Trademarks and Licenses. Except as disclosed on
Exhibit 6.18, the Borrower owns or possesses rights to use all material
licenses, patents, patent applications, copyrights, service marks, logos, names,
trademarks and tradenames required to continue to conduct its business as
heretofore conducted; all such licenses, patents, patent applications, copyright
registrations, copyright applications, service marks and trademarks are
disclosed on Exhibit 6.18; and no such license, patent or trademark has been
declared invalid, been limited by order of any court, or is the subject of any
infringement, interference or similar formal proceeding or challenge.
6.19. ERISA. (a) Neither the Borrower nor any ERISA Affiliate has
sponsored or contributed to, or has had any obligation (contingent or otherwise)
under, any Plan or Multiemployer Plan other than those disclosed on Exhibit
6.19(a).
(b) With respect to all Plans, the Borrower and each ERISA Affiliate
is in compliance with the applicable provisions of ERISA and the IRC in all
material respects. Each Plan that is intended to be qualified under Section
401(a) of the IRC is so qualified, and each trust related to each such Plan is
exempt from federal income tax under Section 501(a) of the IRC. No liability has
been incurred by the Borrower or any ERISA Affiliate which remains unsatisfied
for any taxes or penalties with respect to any Plan or any Multiemployer Plan.
(c) Except as disclosed on Exhibit 6.19(c), the present value of all
benefit liabilities under each Pension Plan does not exceed the present value of
the assets of such Plan.
69
<PAGE> 78
No Pension Plan has been terminated, nor has any accumulated funding deficiency
(as defined in Section 412 of the IRC) been incurred (without regard to any
waiver granted under Section 412 of the IRC), nor has any funding waiver from
the Internal Revenue Service been received or requested with respect to any
Pension Plan, nor has the Borrower or any ERISA Affiliate failed to make any
contributions or to pay any amounts due and owing as required by Section 412 of
the IRC, Section 302 of ERISA or the terms of any Pension Plan by the applicable
due dates, nor has there been any event requiring any disclosure under Section
4041(c)(3)(C), or 4062(e) or 4063(a) of ERISA with respect to any Pension Plan.
(d) Neither the Borrower nor any ERISA Affiliate has: (i) engaged in
a nonexempt prohibited transaction described in Section 406 of ERISA or Section
4975 of the IRC; (ii) incurred any liability to the PBGC which remains
outstanding other than the payment of premiums and there are no premium payments
which are due and unpaid; (iii) failed to make a required contribution or
payment to a Multiemployer Plan; or (iv) engaged in any transaction which could
subject it to liability under Section 4069 or 4212(c) of ERISA.
(e) No Termination Event has occurred and no Termination Event is
reasonably expected to occur which could result in a liability to the Borrower
or any ERISA Affiliate.
(f) Except as disclosed on Exhibit 6.19(f), neither the Borrower nor
any ERISA Affiliate has any contingent liability with respect to any
post-retirement benefit under any Plan which is a welfare plan (as defined in
Section 3(1) of ERISA), other than liability for health plan continuation
coverage described in Part 6 of Title I of ERISA.
6.20. Property. The Borrower and each Subsidiary owns, possesses, or
has unrestricted rights to use or exercise all Property and rights to the extent
necessary for the conduct of the Borrower's business as heretofore conducted.
Except as disclosed on Exhibit 6.20, there are no actual, threatened, or alleged
material defaults with respect to any material agreements relating to, or
evidencing, any Property. Except as disclosed on Exhibit 6.20, no material
consent, approval, license, authorization or other action in respect of any
Person is required, except as have been obtained, in connection with the right
to use any Property. None of the items disclosed on Exhibit 6.20 might have a
Material Adverse Effect.
6.21. Adverse Contracts. The Borrower is not a party to, nor is the
Borrower or any of its Property subject to or bound by, any long term lease,
forward purchase contract or futures contract, covenant not to compete, or
similar agreement which would have a Material Adverse Effect.
6.22. [Intentionally Omitted.]
6.23. Investment Company Act; Public Utility Holding Company Act.
Neither the Borrower nor any Subsidiary is an "investment company" or a company
"controlled" by an investment company within the meaning of the Investment
Company Act of 1940, as amended. Neither the Borrower nor any Subsidiary is a
"holding company" or a "subsidiary company" or a
70
<PAGE> 79
"holding company" or an "affiliate" of a "holding company" within the meaning of
the Public Utility Holding Company Act of 1935, as amended.
6.24. Broker's Fees. Except as set forth on Exhibit 6.24, neither
the Agent or any Lender nor the Borrower or any Subsidiary is or will become
obligated to any Person with respect to any finder's or brokerage or similar fee
or commission in connection with the transactions contemplated hereby.
6.25. Licenses and Permits. The Borrower and each Subsidiary has
been and is current and in good standing in all material respects with respect
to all material governmental approvals, permits, certificates, licenses,
inspections, consents and franchises (collectively, the "Licenses") necessary to
continue to conduct its business and to own or lease and operate, its properties
as heretofore conducted, owned, leased or operated including any and all
Licenses with respect to Environmental Laws.
6.26. Environmental Compliance.
(a) Except as disclosed on Exhibit 6.26, the operations of the
Borrower and each Subsidiary comply in all material respects with all applicable
Environmental Laws.
(b) Except as disclosed on Exhibit 6.26, there are no material
claims, investigations, litigation, administrative proceedings, whether pending
or, to the knowledge of the Borrower after diligent inquiry, threatened, or
material judgments or orders, relating to any Hazardous Materials or alleging
the violation of any Environmental Laws (collectively "Environmental Matters")
relating in any way to any real property leased or otherwise used by the
Borrower or any Subsidiary or to the operations of the Borrower or any
Subsidiary.
(c) Except as disclosed on Exhibit 6.26, no Hazardous Materials are
presently stored or otherwise located on, in or under any real property leased,
owned, operated or otherwise used by the Borrower or any Subsidiary except in
compliance in all material respects with all applicable Environmental Laws, and,
no part of any real property leased, owned, operated or otherwise used by the
Borrower or any Subsidiary or to the Borrower's best knowledge, adjacent
parcels, including the groundwater located thereon, is presently contaminated in
any material respect by any such Hazardous Material.
(d) Except as disclosed on Exhibit 6.26, neither the Borrower nor
any Subsidiary has filed any notice with respect to a material matter under any
international, federal, state, regional, provincial or local law indicating past
or present treatment, storage or disposal of a Hazardous Material or reporting a
spill or release of a Hazardous Material into the environment.
(e) Except as disclosed on Exhibit 6.26, neither the Borrower nor
any Subsidiary has any known material liability, contingent or otherwise, in
connection with any release of any Hazardous Material into the environment.
71
<PAGE> 80
(f) So long as any Obligations are outstanding, no Hazardous
Materials may be used, generated, treated, stored or disposed of by any Person
for any purpose upon any real property leased, owned, operated, or otherwise
used by the Borrower or any Subsidiary except in compliance in all material
respects with all applicable Environmental Laws.
(g) The Borrower hereby indemnifies the Agent and each Lender and
agrees to hold the Agent and each Lender harmless from and against any and all
losses, liabilities, damages, injuries, costs, expenses and claims of any and
every kind whatsoever (including, without limitation, court costs and reasonable
attorneys' fees and legal expenses) which at any time or from time to time may
be paid, incurred or suffered by, or asserted against, the Agent or any Lender
arising directly or indirectly from the violation of any Environmental Law by
the Borrower or any Subsidiary with respect to the assets or business of the
Borrower or any Subsidiary or the imposition of liability on the Borrower or any
Subsidiary under any Environmental Law or any laws or regulations relating to
Hazardous Material, treatment, storage, disposal, generation and transportation,
air, water and noise pollution, soil or ground or water contamination, the
handling, storage or release into the environment of Hazardous Materials, and
the transportation of Hazardous Materials; or with respect to, or as a direct or
indirect result of the presence on or under, or the escape, seepage, leakage,
spillage, discharge, emission or release from, properties utilized, owned or
operated by the Borrower or any Subsidiary in the conduct of its business into
or upon any land, the atmosphere, or any watercourse, body of water or wetland,
of any Hazardous Material (including, without limitation, any losses,
liabilities, damages, injuries, costs, expenses or claims asserted or arising
under the Environmental Laws); provided that to the extent that the Borrower or
any Subsidiary is strictly liable under any Environmental Laws, the Borrower's
obligations to indemnify the Agent and each Lender under this subsection 6.26(g)
shall likewise be without regard to fault on the part of the Borrower or any
Subsidiary and with respect to the violation of law which results in liability
to the Borrower or any Subsidiary. To the extent that the undertaking to
indemnify, pay and hold harmless set forth in this subsection 6.26(g) may be
unenforceable because it is violative of any law or public policy, the Borrower
shall contribute the maximum portion that it is permitted to pay and satisfy
under applicable law to the payment and satisfaction of all indemnifications set
forth in this subsection 6.26(g).
(h) So long as any Obligations are outstanding, if the Agent or any
Lender, at any time, has a reasonable basis to believe that any real property
leased or otherwise used by the Borrower or any Subsidiary, or real property
adjacent to such real property, has or may become contaminated or subject to a
clean up order or decree by an agency having jurisdiction over the Borrower or
such Subsidiary (except to the extent such contamination or cleanup obligation
is described on Exhibit 6.26); then the Borrower agrees, upon request from the
Agent, to provide the Agent and each Lender with such reports, certificates,
engineering studies or other written material or data as the Agent or such
Lender, in its reasonable discretion, may require from it with respect to such
contamination or cleanup obligation; provided that with respect to any
contamination or cleanup obligation relating to real property adjacent to real
property owned by or leased to the Borrower or any Subsidiary, such reports,
certificates, studies and other material or data shall not be required to be
provided by the Borrower if (i) they are not otherwise required to be created or
provided pursuant to statute, regulation, order or otherwise, and (ii) such
72
<PAGE> 81
contamination is not attributable to the acts or omissions of the Borrower or
any Subsidiary or any Affiliate or predecessor of any of them or any previous
owner, lessee, lessor or other user of such real property.
(i) The materiality standard used in this subsection 6.26 shall be
exceeded if the facts giving rise to the events described in the representations
or warranties contained herein might result in liability or potential liability
in excess of Three Hundred Seventy-Five Thousand Dollars ($375,000) in the
aggregate.
(j) None of the items disclosed on Exhibit 6.26 might reasonably be
expected to have a Material Adverse Effect.
6.27. Full Disclosure. This Agreement, the other Financing
Agreements, the financial statements delivered in connection herewith, the
representations and warranties of the Borrower contained in this Agreement, the
other Financing Agreements or in any other document, certificate or written
statement by or on behalf of the Borrower delivered or to be delivered to the
Agent or any Lender, do not contain any untrue statement of a material fact or
omit a material fact necessary to make the statements contained therein or
herein, in light of the circumstances under which they were made, not
misleading. There is no material fact which the Borrower has not disclosed to
the Agent in writing which has had or, so far as the Borrower can now foresee,
might have a Material Adverse Effect.
6.28. Insurance Policies. Exhibit 7.5 lists all insurance of any
nature maintained for current occurrences by the Borrower, as well as a summary
of the terms of such insurance.
6.29. Customer and Trade Relations. Except as contemplated by the
Requirements Contract, dated as of June 12, 1997, by and between Holdings and
Simpson Paper Company, there exists no actual or threatened termination,
cancellation or limitation of, or any modification or change in (a) the business
relationship of the Borrower or any Subsidiary with any customer or group of
customers (other than the Simpson Paper Company) of the Borrower or the Simpson
Paper Company whose purchases individually or in the aggregate are material to
the operations of the Borrower or such Subsidiary, or (b) the business
relationship of the Borrower or any Subsidiary with any material supplier to the
Borrower or the Simpson Paper Company and, to the best knowledge of Borrower,
all such customers and suppliers will continue a business relationship with the
Borrower and each Subsidiary on a basis no less favorable to the Borrower than
that conducted prior to the Closing Date.
6.30. Survival of Warranties. All representations and warranties of
the Borrower contained in this Agreement or any of the other Financing
Agreements shall survive the execution and delivery of this Agreement and the
other Financing Agreements and the making of the Revolving Loans.
Notwithstanding anything contained in this Agreement to the contrary, the
provisions of, and the undertakings, indemnifications and agreements of the
Borrower set forth in subsections 2.1(c)(v), 2.13, 2.18(b), the last sentence of
2.19(a), 2.21(c), 6.26(g), the first sentence of 7.4(a), 7.10, 10.2 and 10.21
and the agreements of the Lenders set forth in subsections 12.8 and 14.2 shall
survive payment of the Obligations and termination of this Agreement. The
Borrower shall supplement in writing and deliver to the Agent all Exhibits
73
<PAGE> 82
required in accordance with this Agreement so that the representations and
warranties subject to such supplemental disclosure shall continue to be true and
accurate in all material respects; provided that the furnishing of such
supplemental disclosure shall not constitute a cure or waiver of any Default or
Event of Default resulting from the matters disclosed therein or otherwise then
existing.
6.31. Subsidiaries. Except as set forth on Exhibit 6.31, the
Borrower has no Subsidiaries. Exhibit 6.31 contains an accurate list of all
Subsidiaries of the Borrower, setting forth their respective jurisdictions of
incorporation and the percentages of their capital stock owned by the Borrower
or other Subsidiaries.
6.32. Related Transactions Documents. Each Related Transactions
Document is in full force and effect as of the Closing Date, have not been
terminated, rescinded or withdrawn, no material portion thereof has been amended
or waived by any Person, and no default exists thereunder. All requisite
approvals by governmental authorities and regulatory bodies having jurisdiction
over the Guarantor or the Borrower, and other Persons referenced therein,
material to the transactions contemplated by each Related Transactions Document
have been obtained, and no such approvals impose any material conditions to the
consummation of the transactions contemplated by the Related Transactions
Documents or to the conduct by the Borrower of its business thereafter. To the
best of the Borrower's knowledge, none of the representations or warranties of
any Person in the applicable Related Transactions Documents contain any untrue
statement of a material fact or omit any fact necessary to make the facts
therein not misleading. The subordination provisions of the Subordinated Debt
Documents are enforceable against the holders of the Subordinated Notes by Agent
and Lenders. All of the Borrower's Obligations hereunder and under the Notes
constitute "senior debt" entitled to the benefits of the Subordination
provisions contained in the Subordinated Debt Documents.
6.33. H-S-R Notification. Each consent, authorization or approval
of, or declaration, notification, filing or registration with, any state or
federal governmental or regulatory authority or any other Person, including,
without limitation, any applicable state or federal antitrust law or regulation
or the filing of any "Premerger Notification Report" with the Federal Trade
Commission and the Antitrust Division of the Department of Justice pursuant to
the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended, and the
regulations issued pursuant thereto in connection with the consummation of the
transactions contemplated by the Related Transactions Documents has been
obtained at or prior to the Closing Date.
6.34. Deposit and Disbursement Accounts. As of the Closing Date,
Exhibit 6.34 lists all banks and other financial institutions at which the
Borrower maintains deposits and/or other accounts, including any disbursement
accounts, and such Exhibit correctly identifies the name, address and telephone
number of each depository, the name in which the account is held, a description
of the purpose of the account, and the complete account number.
74
<PAGE> 83
7. AFFIRMATIVE COVENANTS.
The Borrower covenants and agrees that so long as any Obligations
(other than unasserted contingent indemnification obligations) remain
outstanding or any Lender shall have any Commitment hereunder:
7.1. Financial Statements. The Borrower shall keep proper books of
record and account in which full and true entries will be made of all dealings
or transactions in respect of or in relation to the business and affairs of the
Borrower, in accordance with Generally Accepted Accounting Principles
consistently applied, and the Borrower shall furnish or cause to be furnished to
the Agent and each Lender: (i) as soon as practicable and in any event within
thirty (30) days after the end of each month (other than a Fiscal Quarter end),
statements of net income and cash flow of the Borrower and its Subsidiaries on a
consolidated basis for such month and for the period from the beginning of the
then current Fiscal Year to the end of such month and a balance sheet of the
Borrower and its Subsidiaries on a consolidated basis as of the end of such
month, setting forth in each case, in comparative form, (a) figures for the
corresponding periods in the preceding Fiscal Year and as of a date one (1) year
earlier, (b) figures for the corresponding periods based on Borrower's budgeted
forecast and (c) compliance with the financial covenants set forth in
subsections 7.11-7.13, all in reasonable detail and certified as accurate by the
chief financial officer or treasurer of the Borrower (subject to normal year-end
adjustments and excluding footnotes); (ii) as soon as practicable and in any
event within forty-five (45) days after the end of each Fiscal Quarter (other
than a Fiscal Year end), statements of net income and cash flow of the Borrower
and its Subsidiaries on a consolidated basis for such quarterly period and for
the period from the beginning of the then current Fiscal Year to the end of such
quarterly period and a balance sheet of the Borrower and its Subsidiaries on a
consolidated basis as of the end of such period, setting forth in each case, in
comparative form, figures for the corresponding periods in the preceding Fiscal
Year and as of a date one (1) year earlier, all in reasonable detail and
certified as accurate by the chief financial officer or treasurer of the
Borrower (subject to normal year-end adjustments and excluding footnotes); (iii)
as soon as practicable and in any event within one hundred twenty (120) days
after the end of each Fiscal Year, statements of net income and cash flow of the
Borrower and its Subsidiaries on a consolidated basis for such year, and a
balance sheet of the Borrower and its Subsidiaries on a consolidated basis as of
the end of such year, setting forth in each case, in comparative form,
corresponding figures for the period covered by the preceding annual audit and
as of the end of the preceding Fiscal Year, all in reasonable detail and
satisfactory in scope to the Required Lenders and examined and certified by
Ernst & Young (or any other independent public accountants of recognized
national standing selected by the Borrower and acceptable to the Required
Lenders), whose opinion shall be unqualified and shall be in scope and substance
satisfactory to the Required Lenders; (iv) as part of the Monthly Report, as
soon as practicable and in any event within twenty (20) days after the end of
each month (a) an Accounts Trial Balance indicating which Accounts are current,
up to 30, 30 to 60, 60 to 90 and 90 days or more past the original invoice date
and, if requested by the Agent, listing the names and addresses of all
applicable Account Debtors, and (b) a summary of accounts payable showing which
accounts payable are current, up to 30, 30 to 60, 60 to 90 and 90 days or more
past due and listing the names and addresses of applicable creditors and (c) an
aged schedule of Inventory owned by the
75
<PAGE> 84
Borrower valued at the lower of cost or market; (v) concurrently with the
preparation of the financial statements, the Borrower shall send a letter to
such accountants with a copy to the Agent and each Lender, notifying such
accountants that one of the primary purposes for retaining such accountants'
services and having audited financial statements prepared by them is for use by
the Agent and the Lenders and such accountants shall deliver a letter addressed
to the Agent and the Lenders acknowledging the Agent's and the Lenders' reliance
thereon in form and substance satisfactory to the Required Lenders; (vi) within
thirty (30) days prior to the end of each Fiscal Year Projections approved by
the Borrower's Board of Directors and prepared in the same manner as the
Projections attached as Exhibit 6.4-3, including projected balance sheets, cash
flow statements (including proposed Capital Expenditures) and profit and loss
statements for the forthcoming Fiscal Year, in each case, month-by-month,
together with appropriate supporting details as requested by the Required
Lenders, all for the Borrower and its Subsidiaries on a consolidated basis;
(vii) as soon as practicable and in any event within ten (10) days of delivery
to the Borrower, a copy of any letter issued by the Borrower's independent
public accountants or other management consultants with respect to the
Borrower's financial or accounting systems or controls, including all so-called
"management letters"; (viii) not later than the twentieth (20th) day of each
month, a Monthly Report for the Borrower computed as of the last Business Day of
the preceding month, signed by the chief executive officer or chief financial
officer of the Borrower; (ix) in conjunction with the delivery of the quarterly
unaudited and annual audited financial statements referred to in clauses (ii)
and (iii) above, the Borrower shall deliver to the Agent and each Lender a
written report which shall describe and analyze, in detail, all material trends,
changes and developments reflected in such financial statements; and (x) with
reasonable promptness, such other business or financial data as the Required
Lenders may reasonably request.
All financial statements delivered to the Agent or any Lender
pursuant to the requirements of this subsection (except where otherwise
expressly indicated) shall be prepared in accordance with Generally Accepted
Accounting Principles consistently applied on a consolidated basis for the
Borrower and its Subsidiaries. All financial computations hereunder shall be
computed, unless otherwise specifically provided herein, in accordance with GAAP
consistently applied. That certain items or computations are explicitly modified
by the phrase "in accordance with GAAP" shall in no way be construed to limit
the foregoing. In the event that any Accounting Changes occur and such changes
result in a change in the calculation of the financial covenants, standards,
advance rates or terms used in this Agreement or any other Financing Agreement,
then the Borrower, the Agent and the Lenders agree to enter into negotiations in
order to amend such provisions of this Agreement so as to equitably reflect such
Accounting Changes with the desired result that the criteria for evaluating the
Borrower's and its Subsidiaries' financial condition shall be the same after
such Accounting Changes as if such Accounting Changes had not been made;
provided that the agreement of the Required Lenders to any required amendments
of such provisions shall be sufficient to bind all Lenders. In the event that
the Agent, the Borrower and the Required Lenders shall have agreed upon the
required amendments, then after such agreement has been evidenced in writing and
the underlying Accounting Changes with respect thereto has been implemented, any
reference to GAAP contained in this Agreement or in any other Financing
Agreement shall, only to the extent of such Accounting Changes, refer to GAAP,
consistently applied after giving effect to the
76
<PAGE> 85
implementation of such Accounting Changes. If the Agent, the Borrower and the
Required Lenders cannot agree upon the required amendments within thirty (30)
days following the date of implementation of any Accounting Change, then all
financial statements delivered and all calculations of financial covenants and
other standards, advance rates and terms in accordance with this Agreement and
the other Financing Agreements shall be prepared, delivered and made without
regard to any underlying Accounting Change. Together with each delivery of
financial statements required by subsections 7.1(i), 7.1(ii) and 7.1(iii), the
Borrower shall deliver to the Agent and the Lenders a certificate of an
Authorized Officer (i) certifying that no Default or Event of Default exists,
or, if any Default or Event of Default exists, specifying the nature thereof,
the period of existence thereof and what action the Borrower proposes to take
with respect thereto and (ii) for each Fiscal Quarter, setting forth
computations in reasonable detail satisfactory to the Agent demonstrating
compliance with the covenants contained in subsections 7.11, 7.12 and 7.13.
Together with each delivery of financial statements required by subsection
7.1(iii), the Borrower shall deliver to the Agent and the Lenders a certificate
of the accountants who performed the audit in connection with such statements
stating that in making the audit necessary to the issuance of a report on such
financial statements, they have obtained no knowledge of any Default or Event of
Default, or, if such accountants have obtained knowledge of a Default or Event
of Default, specifying the nature and period of existence thereof. Such
accountants shall not be liable by reason of any failure to obtain knowledge of
any Default or Event of Default which would not be disclosed in the ordinary
course of an audit. The Agent and each Lender shall exercise reasonable efforts
to keep such information, and all information acquired as a result of any
inspection conducted in accordance with subsection 7.2, confidential; provided
that the Agent or any Lender may communicate such information (a) to any other
Person in accordance with the customary practices of commercial lenders relating
to routine trade inquiries, (b) to any regulatory authority having jurisdiction
over the Agent or such Lender, (c) to any other Person in connection with the
Agent's or such Lender's sale of any participations in the Obligations, or (d)
to any other Person in connection with the exercise of the Agent's or such
Lender's rights hereunder or under any of the other Financing Agreements. The
Borrower authorizes the Agent to discuss the financial condition of the Borrower
with the Borrower's independent public accountants and agrees that such
discussion or communication shall be without liability to either the Agent or
the Borrower's independent public accountants. The Borrower shall deliver a
letter addressed to such accountants authorizing them to comply with the
provisions of this subsection 7.1.
7.2. Inspections and Audits. The Agent, or any Person designated by
the Agent in writing, shall have the right, from time to time hereafter, to call
at the Borrower's place or places of business (or any other place where the
Collateral or any information relating thereto is kept or located) during normal
business hours, and, without hindrance or delay (i) to inspect, audit, check and
make copies of and extracts from the Borrower's books, records, journals,
orders, receipts and any correspondence and other data relating to the
Borrower's or any Subsidiary's business or to any transactions between the
parties hereto, (ii) to make such verification concerning the Collateral as the
Agent may consider reasonable under the circumstances, and (iii) to discuss the
affairs, finances and business of the Borrower with any officers, employees or
directors of the Borrower. All out-of-pocket costs and expenses incurred
77
<PAGE> 86
by the Agent in connection with the Agent's field audits permitted under this
subsection 7.2 shall be reimbursed by the Borrower in accordance with subsection
2.8.
7.3. Conduct of Business; Compliance With Laws. The Borrower shall,
and shall cause each Subsidiary to (i) maintain its corporate existence and good
standing in its respective state of incorporation and qualify and remain
qualified as a foreign corporation in each jurisdiction where the failure to be
so qualified could reasonably be expected to have a Material Adverse Effect,
(ii) maintain in full force and effect all material licenses, bonds, franchises,
leases, patents, contracts and other rights necessary to the conduct of its
business and (iii) comply with all applicable federal, state, local and foreign
laws, rules, regulations and orders of any federal, state or local governmental
authority, except for such laws, rules and regulations the violation of which
would not, in the aggregate, have a Material Adverse Effect. Following the
Closing Date the Borrower will not conduct its business under any trade or
fictitious name other than the duly registered names disclosed on Exhibit 6.8-2.
7.4. Claims and Taxes. (a) The Borrower agrees to indemnify and hold
the Agent and each Lender harmless from and against any and all claims, demands,
obligations, losses, damages, penalties, costs, and expenses (including
reasonable attorneys' fees) asserted by any Person (other than the Borrower) in
connection with this Agreement or the other Financing Agreements or asserted by
any Person and relating to or in any way arising out of the possession, use,
operation or control of any of the Borrower's or any Subsidiary's Property by
any Person. The Borrower shall, and shall cause each Subsidiary to, file all tax
and information returns and reports required by and prepared in accordance with
applicable law and shall pay or cause to be paid all license fees, bonding
premiums and related taxes and charges, and shall pay or cause to be paid all
real and personal property taxes, assessments and charges and franchise, income,
unemployment, use, excise, old age benefit, withholding, sales and other taxes
and other governmental charges assessed against or payable by, the Borrower or
any Subsidiary, at such times and in such manner as to prevent any penalty from
accruing or any Lien from attaching to Property of the Borrower or any
Subsidiary, provided that the Borrower and each Subsidiary shall have the right
to contest in good faith, by an appropriate lawful proceeding promptly initiated
and diligently conducted, the validity, amount or imposition of any such tax,
assessment or charge, and upon such good faith contest to delay or refuse
payment thereof so long as (i) no Lien which will have priority over the Agent's
Lien granted hereunder with respect to any Collateral is filed or recorded with
respect thereto, (ii) the execution or other enforcement of such subordinate
Lien is and continues to be effectively stayed, (iii) such proceeding will
prevent the forfeiture or sale of any Property of the Borrower or such
Subsidiary, (iv) adequate reserves have been provided therefor in accordance
with GAAP, (v) such contest does not have a Material Adverse Effect and (vi) if
such contest is abandoned or determined adversely to the Borrower or such
Subsidiary, the Borrower pays, or causes to be paid, all such taxes and other
charges and any penalties and interest payable in connection therewith.
(b) The Borrower shall notify the Agent and each Lender promptly
(and in no event later than ten (10) days) after becoming aware of the intent of
the Service to assert a deficiency with respect to the Borrower or any
Subsidiary, and shall promptly (and in no event
78
<PAGE> 87
later than five (5) days after receipt) send the Agent and each Lender copies of
any notices of proposed deficiency and any notices of deficiency received from
the Service.
7.5. Borrower's Liability Insurance. The Borrower shall maintain, at
its expense, such product liability insurance, general public liability and
third party property damage insurance with financially sound and reputable
insurance companies rated "A" or better by the Best Insurance Guide in such
amounts and covering such risks and with such deductibles as are customary in
the industry in which the Borrower operates naming the Agent as an additional
insured. The policy or policies shall further provide for thirty (30) days'
written notice to the Agent prior to cancellation or any material change in
coverage. The Borrower's current liability insurance policies are summarized on
Exhibit 7.5.
7.6. Borrower's Property Insurance. The Borrower shall, and shall
cause each Subsidiary to, at its expense, keep and maintain its assets insured
against loss or damage by fire, theft, explosion, spoilage and all other hazards
and risks ordinarily insured against by other owners or users of such properties
in similar businesses including flood insurance consistent with the requirements
of FIRREA at least equal to the full insurable value thereof and business
interruption insurance in an amount reasonably acceptable to the Agent. All such
policies of insurance shall contain a breach or violation of warranties,
declarations or conditions endorsement in favor of the Agent, shall provide that
the Agent shall receive 30 days' written notice prior to cancellation or any
material change in coverage and shall otherwise be in form and substance
satisfactory to the Required Lenders. The Borrower shall deliver to the Agent a
certificate of insurance and, upon the renewal thereof, a binder evidencing such
renewal, and evidence of payment of all premiums therefor. Such policies of
insurance shall contain an endorsement, substantially in the form of Exhibit
7.6, naming the Agent, on behalf of the Lenders, as the lender loss payee and
additional insured. The Borrower irrevocably makes, constitutes and appoints the
Agent (and all officers, employees or agents designated by the Agent) as the
Borrower's true and lawful attorney-in-fact for the purpose of making, settling
and adjusting claims under all such policies of insurance, endorsing the name of
the Borrower on any check, draft, instrument or other item of payment received
by the Borrower or the Agent pursuant to any such policies of insurance and for
making all determinations and decisions with respect to such policies of
insurance. If the Borrower or any Subsidiary, at any time or times hereafter,
shall fail to obtain or maintain any of the policies of insurance required above
or to pay any premium in whole or in part relating thereto, then the Agent,
without waiving or releasing any Obligation, Default or Event of Default by the
Borrower hereunder, may at any time or times thereafter (but shall be under no
obligation to do so) obtain and maintain such policies of insurance and pay such
premiums and take any other action with respect thereto which the Agent deems
advisable. All proceeds of casualty insurance will be applied to the outstanding
balance of the Revolving Loan or held in a cash escrow account under the control
of the Agent. So long as no Event of Default shall have occurred and be
continuing and the insurance proceeds are less than $4,500,000, the Agent shall
release such funds (less the amount of any expenses incurred in litigating,
arbitrating, compromising or settling any claim arising out of the related
casualty loss) to the Borrower to repair or replace the assets subject to a
casualty loss or to the purchase of other Equipment useable in the Borrower's
business, all on the terms set forth in the applicable Mortgage and otherwise on
terms acceptable to the Agent. Such proceeds shall be released to the
79
<PAGE> 88
Borrower only if such repair or replacement is made within 180 days after the
payment of such insurance proceeds and only if at or prior to the time of the
payment of such proceeds by the insurance company the Borrower has provided the
Agent with written notice of its intent to use such proceeds for such purpose.
Otherwise, at the Agent's election, such proceeds shall be applied to the
Obligations in accordance with Section 2.7.
7.7. Pension Plans. (a) The Borrower shall (i) maintain all Plans
which are presently in existence or may, from time to time, come into existence,
in compliance with ERISA, the IRC and all other applicable laws in all material
respects and (ii) make or cause to be made contributions to all of the Pension
Plans in a timely manner and in a sufficient amount to comply with the
requirements of Section 302 of ERISA and Section 412 of the IRC.
(b) The Borrower shall promptly deliver written notice of any of the
following to the Agent and each Lender, but in no event later than thirty (30)
days after such event or occurrence:
(1) the Borrower or any ERISA Affiliate knows or has reason to
know that a Termination Event has occurred, with such notice
setting forth the details of such event;
(2) the filing of a request for a funding waiver by the Borrower
or any ERISA Affiliate with respect to any Pension Plan, a
copy of such request and all correspondence received by
Borrower or any ERISA Affiliate with respect to such request;
(3) the Borrower or any ERISA Affiliate fails to make a required
installment or payment under Section 302 of ERISA or Section
412 of the IRC by the applicable due date;
(4) the Borrower or any ERISA Affiliate knows or has reason to
know that a prohibited transaction (as defined in Section 406
of ERISA or Section 4975 of the IRC) has occurred with respect
to any Plan with a statement describing such transaction and
the action or response taken with respect thereto;
(5) any increase in the benefits of any existing Plan or
contribution rate to a Multiemployer Plan or the establishment
of any new Plan or the commencement of contributions to any
Plan or Multiemployer Plan to which the Borrower or any ERISA
Affiliate had not been contributing;
(6) receipt by the Borrower or any ERISA Affiliate of any adverse
ruling from the Service regarding the qualification of a Plan
under Section 401(a) of the IRC, with a copy of such ruling;
and
(7) any other report such as an annual report on Form 5500 or
actuarial report in which any Lender may request from time to
time.
80
<PAGE> 89
7.8. Notice of Certain Matters. The Borrower shall, as soon as
possible, and in any event within five (5) days after the Borrower learns of the
following, give written notice to the Agent and each Lender of (i) any material
Litigation being instituted or threatened to be instituted by or against the
Borrower or any Subsidiary in any federal, state, local or foreign court or
before any commission or other regulatory body (federal, state, local or
foreign) including, without limitation, any and all pending or threatened
proceedings with respect to Environmental Matters, (ii) any labor dispute to
which the Borrower or any Subsidiary may become a party and which has had or
might have a Material Adverse Effect, any strikes or walkouts relating to any of
its plants or Facilities, and the expiration of any labor contract to which it
is a party or by which it is bound, (iii) any Default or Event of Default, (iv)
any judgment rendered against the Borrower or any Subsidiary, and (v) any other
event or occurrence which could have a Material Adverse Effect.
7.9. Landlord and Warehouseman Agreements. The Borrower shall
provide the Agent and each Lender with copies of all agreements between the
Borrower and any landlord or warehouseman which owns any premises at which
Inventory or any other Collateral may, from time to time, be located. The
Borrower shall deliver to the Agent on or before the Closing Date a landlord's
waiver in form and substance acceptable to the Agent from the lessor of each
leased property currently being used by the Borrower or any Subsidiary where
Collateral is located. The Borrower shall deliver to the Agent a bailee letter
in form and substance acceptable to the Agent with respect to any warehouse or
other location where Collateral is located. With respect to leased locations or
warehouse space leased on the Closing Date, if the Borrower is unable to deliver
such a landlord waiver or bailee letter the Inventory at that location shall
automatically be deemed ineligible without further action by the Agent or any
Lender. In the event that the Borrower delivers to the Agent such landlord
waiver or bailee letter, as applicable, after such date, subject to the terms
and conditions of this Agreement including, without limitation, subsection 3.10,
Inventory located at such leased location or warehouse location, as applicable,
may be considered Eligible Inventory. The Borrower shall timely and fully pay
and perform its obligations under all leases and other agreements with respect
to each leased location or warehouse where any Collateral is or may be located.
The Borrower shall promptly deliver to the Agent copies of (i) any and all
default notices received under or with respect to any such leased location or
warehouse, and (ii) such other notices or documents as the Agent may request in
its reasonable discretion.
7.10. Indemnity. (a) The Borrower agrees to indemnify, pay and hold
harmless the Agent and each Lender and the officers, directors, employees,
agents, affiliates, representatives and attorneys of the Agent and such Lender
(collectively called the "Indemnitees") from and against any and all
liabilities, obligations, losses, damages, penalties, actions, proceedings,
judgments, suits, claims, costs, expenses and disbursements of any kind or
nature whatsoever (including, without limitation, all reasonable fees and
disbursements of counsel for such Indemnitees in connection with any
investigative, administrative or judicial proceeding commenced or threatened,
whether or not such Indemnitee shall be designated a party thereto) that may be
imposed on, incurred by, or instituted or asserted against any Indemnitee in any
manner in connection with or relating to or arising out of this Agreement or the
other Financing Agreements, the Related Transactions Documents, or any other
transaction
81
<PAGE> 90
contemplated hereby or thereby, the statements contained in the commitment
letters delivered by the Agent, the Agent and the Lenders' agreement to make the
Loans hereunder, the direct or indirect application or proposed application of
the proceeds of the Loans or the exercise of any right, power or remedy
hereunder or under any other Financing Agreement (the "Indemnified
Liabilities"); provided that the Borrower shall have no obligation to an
Indemnitee hereunder with respect to Indemnified Liabilities if a court of
competent jurisdiction shall render a judgment, final and not subject to review
on appeal, that such Indemnified Liabilities arise solely from the gross
negligence or willful misconduct of that Indemnitee. To the extent that the
undertaking to indemnify, pay and hold harmless set forth in the preceding
sentence may be unenforceable because it is violative of any law or public
policy, the Borrower shall contribute the maximum portion that it is permitted
to pay and satisfy under applicable law to the payment and satisfaction of all
Indemnified Liabilities incurred by the Indemnitees or any of them. The
provisions of and undertakings and indemnifications set forth in this subsection
7.10 shall survive the satisfaction and payment of the Obligations and the
termination of this Agreement, and shall continue to be the liability,
obligation and indemnification of the Borrower.
(b) In any suit, proceeding or action brought by the Agent relating
to any Account, Chattel Paper, contract, General Intangible, Instrument or
Document for any sum owing thereunder, or to enforce any provision of any
Account, Chattel Paper, Instrument or Document, the Borrower shall save,
indemnify and keep the Agent and the Lenders harmless from and against all
expense, loss or damage suffered by reason of any defense, setoff, counterclaim,
recoupment or reduction of liability by the Borrower of any obligation
thereunder arising out of a breach by the Borrower of any obligation thereunder
or arising out of any other agreement, indebtedness or liability at any time
owing to, or in favor of, such obligor or its successors from the Borrower, all
such obligations of the Borrower shall be and remain enforceable against, and
only against, the Borrower and shall not be enforceable against the Agent or any
Lender.
7.11. Fixed Charge Coverage Ratio. The Borrower shall maintain a
Fixed Charge Coverage Ratio measured as of the last day of each Fiscal Quarter
for the trailing twelve months then ended equal to or greater than the
respective Fixed Charge Coverage Ratios set forth below:
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------
Measurement Period Ending: Fixed Charge Coverage Ratio:
-------------------------- ----------------------------
- -------------------------------------------------------------------------------
<S> <C>
June 30, 1998 1.25 to 1.0
- -------------------------------------------------------------------------------
September 30, 1998 1.25 to 1.0
- -------------------------------------------------------------------------------
December 31, 1998 1.25 to 1.0
- -------------------------------------------------------------------------------
March 31, 1999 and the last day of
each Fiscal Quarter thereafter 1.25 to 1.0
- -------------------------------------------------------------------------------
</TABLE>
; provided that for the measuring periods ending June 30, 1998, September 30,
1998 and December 31, 1998, the components of the Fixed Charge Coverage Ratio
relating to the Tissue Business for periods prior to the Closing Date shall be
based on the pro forma financial statements pertaining to the Tissue Business
attached hereto as Exhibit 7.11.
82
<PAGE> 91
7.12. Leverage Ratio. The Borrower shall maintain a Leverage Ratio
of not more than the following respective ratios measured as of the last day of
each Fiscal Quarter, and for the trailing twelve months then ended:
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------
Measurement Period Ending: Ratio:
-------------------------- ------
- -------------------------------------------------------------------------------
<S> <C>
the last day of the Fiscal Quarters ending June 6.0 to 1.0
30, 1998, September 30, 1998 and December
31, 1998 and the last day of each Fiscal
Quarter of 1999
- -------------------------------------------------------------------------------
the last day of each Fiscal Quarter of 2000 5.50 to 1.0
- -------------------------------------------------------------------------------
the last day of each Fiscal Quarter of 2001 5.25 to 1.0
- -------------------------------------------------------------------------------
the last day of each Fiscal Quarter thereafter 5.0 to 1.0
- -------------------------------------------------------------------------------
</TABLE>
; provided that for the measuring periods ending June 30, 1998, September 30,
1998 and December 31, 1998, the components of the Leverage Ratio relating to the
Tissue Business for periods prior to the Closing Date shall be based on the pro
forma financial statements pertaining to the Tissue Business attached hereto as
Exhibit 7.11.
7.13. Capital Expenditures. The Borrower shall not make Capital
Expenditures in any Fiscal Year in excess of the following respective amounts:
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------
Fiscal Year: Amount:
- ------------ -------
- -------------------------------------------------------------------------------
<S> <C>
1998 $9,200,000
- -------------------------------------------------------------------------------
1999 $10,500,000
- -------------------------------------------------------------------------------
2000 $6,900,000
- -------------------------------------------------------------------------------
2001 $5,000,000
- -------------------------------------------------------------------------------
2002 and each Fiscal Year thereafter $5,000,000
- -------------------------------------------------------------------------------
</TABLE>
8. NEGATIVE COVENANTS.
The Borrower covenants and agrees that so long as any Obligations
(other than unasserted contingent indemnification obligations) remain
outstanding or any Lender shall have any Commitment hereunder:
8.1. Encumbrances. The Borrower shall not, and shall not permit any
Subsidiary to, create, incur, assume or suffer to exist any Lien of any nature
whatsoever on any of its Property, including, without limitation, the Collateral
and the Excluded Assets, other than the following "Permitted Liens": (i) Liens
(other than Liens relating to Environmental Laws or ERISA) securing the payment
of Charges not yet due and payable or contested in good faith by appropriate
proceedings(so long as no notice of lien shall have been filed with respect
thereto); (ii) cash pledges or cash deposits under workmen's compensation,
unemployment insurance, social security and other similar laws, or to secure the
performance of bids, tenders or contracts (other than for the repayment of
borrowed money) or to secure statutory obligations or surety or appeal bonds, or
to secure indemnity, performance or other similar bonds in the ordinary course
83
<PAGE> 92
of business; (iii) statutory Liens of landlords, carriers, warehousemen,
mechanics, materialmen or other similar Liens imposed by law, which are incurred
in the ordinary course of business for sums not more than 60 days delinquent;
(iv) the Liens in favor of the Agent, for the benefit of the Lenders; (v)
purchase money Liens (including capitalized leases and other forms of
installment purchase financing) granted to the Person financing a purchase of
Equipment so long as the Lien granted is limited to the specific Equipment so
acquired, the debt secured by the Lien is not more than the acquisition cost of
the specific item of Equipment on which the Lien is granted, the aggregate
amount of Indebtedness secured by such Liens as a result of purchases shall not
exceed One Million Five Hundred Thousand Dollars ($1,500,000) in each Fiscal
Year, and not to exceed Three Million Seven Hundred Fifty Thousand Dollars
($3,750,000) in the aggregate outstanding at any time, and the transaction does
not violate any other provision of this Agreement; (vi) Liens permitted in
accordance with subsection 7.4(a); (vii) other easements with respect to Real
Estate, which do not, in the Agent's sole determination, (a) materially impair
the use of such property as Collateral, or (b) materially lessen the value of
such property for the purposes for which the same is held by the Borrower or
such Subsidiary; (vii) Liens with respect to judgments which do not give rise to
an Event of Default; (viii) Liens existing on the Closing Date and disclosed on
Exhibit 8.1; and (ix) Liens in addition to those set forth in clauses (i)
through (ix) above which secure Indebtedness or other obligations not to exceed
$100,000 in the aggregate.
8.2. Indebtedness and Liabilities. The Borrower shall not, and shall
not permit any Subsidiary to, incur, create, assume, become or be liable in any
manner with respect to, or suffer to exist, any Indebtedness, except for (i) the
Obligations, (ii) Indebtedness existing on the Closing Date and disclosed on
Exhibit 8.2, (iii) Indebtedness secured by purchase money Liens permitted by
subsection 8.1(iv), (iv) Rate Hedging Obligations of the Borrower and (v) other
Indebtedness of the Borrower in an aggregate amount not to exceed $750,000
outstanding at any time. The Borrower shall not, and shall not permit any
Subsidiary to, voluntarily prepay, defease, purchase, redeem, retire or
otherwise acquire any Indebtedness other than the Obligations.
8.3. Consolidations, Acquisitions. Except with respect to the
Related Transactions, the Borrower shall not, and shall not permit any
Subsidiary to, merge or consolidate with, purchase, lease or otherwise acquire
all or substantially all of the assets or properties of, or acquire any capital
stock, equity interests, debt or other securities of, any other Person provided
that any Subsidiary may merge or consolidate with or into any other Subsidiary
or with or into the Borrower (provided that the Borrower is the surviving
entity). The Borrower shall not, and shall not permit any Subsidiary to,
dissolve, terminate, enter into any joint venture or become a partner in any
partnership. The Borrower shall not sell, assign, encumber, pledge, transfer or
otherwise dispose of any interest in any Subsidiary or transfer any Property to
any Affiliate except as otherwise expressly permitted hereby.
8.4. Investments. The Borrower shall not, and shall not permit any
Subsidiary to, make or permit to exist Investments in, or commitments therefor,
or create any Subsidiary other than the following "Permitted Investments": (i)
loans made in accordance with subsection 8.8; (ii) Investments existing on the
Closing Date and disclosed on Exhibit 8.4; and (iii) demand deposit accounts
maintained in the ordinary course of business, (iv) cash in the process of
84
<PAGE> 93
transmittal from lockboxes to the Agent's collection account, (v) so long as no
Event of Default shall have occurred and be continuing, Cash Equivalents subject
to a Control Agreement; provided that, in the event any Revolving Loans shall be
outstanding, at no time (regardless of whether any Event of Default shall then
exist) shall the amount of Cash Equivalents permitted as Investments hereunder
exceed $500,000, (vi) Investments arising as a result of the Borrower's entering
into contracts of the type described in the definition of "Rate Hedging
Obligations", (vii) Investments received in connection with the bankruptcy or
reorganization of customers.
8.5. Guaranties. The Borrower shall not, and shall not permit any
Subsidiary to, make or suffer to exist any Guaranty, except (i) endorsements of
negotiable Instruments or items of payment for deposit or collection in the
ordinary course of business and (ii) Guaranties existing on the Closing Date and
disclosed on Exhibit 8.5.
8.6. Collateral Locations. Neither the location of the principal
place of business and chief executive office of the Borrower as set forth on
Exhibit 6.7, the locations of Collateral as set forth on Exhibit 8.6 nor the
corporate name or mailing address of the Borrower shall be changed, nor shall
there be established additional places of business or additional locations at
which Collateral is stored, kept or processed unless (i) the Borrower shall have
given the Agent not less than 30 days prior written notice thereof, (ii) the
Agent shall have determined that, after giving effect to any such change of
name, address or location, the Agent shall have a first perfected Lien in the
Collateral except for Permitted Liens, (iii) in the case of Collateral
locations, the Borrower shall have delivered a landlord waiver or bailee letter,
as applicable, in form and substance satisfactory to the Agent with respect to
such location, and (iv) all negotiable documents and receipts in respect of any
Collateral maintained at such premises are promptly delivered to the Agent.
Prior to making any such change or establishing such new location, the Borrower
shall execute any additional financing statements or other documents or notices
required by the Agent.
8.7. Disposal of Property. The Borrower shall not, and shall not
permit any Subsidiary to, sell, lease, assign, transfer or otherwise dispose of
any of its Property, assets and rights to any Person except for (i) sales of
Inventory to customers in the ordinary course of business, (ii) sales of
Equipment which is obsolete, worn-out or otherwise not useable or used in the
Borrower's business (up to One Million Five Hundred Thousand Dollars
($1,500,000) in sales proceeds in the aggregate in any Fiscal Year), (iii)
trade-ins of Equipment or sales of Equipment in connection with the acquisition
of other similar Equipment substantially concurrently with such trade-in or sale
and (iv) licensing of the Borrower's Intellectual Property in the ordinary
course of business. In the event any Equipment of the Borrower is sold,
transferred or otherwise disposed of as permitted by this subsection 8.7 or with
the Required Lenders' consent, and such sale, transfer or disposition is
effected without using the proceeds thereof within 180 days of such sale,
transfer or other disposition, to purchase Equipment useable in the Borrower's
business or such Equipment is replaced by Equipment leased by the Borrower, the
Borrower shall promptly pay the proceeds thereof to the Agent for application to
the Loans in accordance with subsections 2.7(c) and (d). The Borrower shall
deliver to the Agent written evidence of the use of the proceeds for any such
purchase. Except as permitted by subsection
85
<PAGE> 94
8.1, all such Equipment purchased by the Borrower shall be free and clear of all
Liens, except for Liens in favor the Agent, for the benefit of the Lenders.
8.8. Employee Loans. Except for advances for travel and related
expenses by the Borrower or any Subsidiary to its employees in the ordinary
course of business and commission advances by the Borrower or any Subsidiary to
its employees in an aggregate amount for all such advances not to exceed from
time to time $100,000, the Borrower shall not, and shall not permit any
Subsidiary to, make any loans or other advances to any Person.
8.9. Plans. The Borrower shall not, nor will it permit any ERISA
Affiliate to take any action or fail to take any action which results in a Lien
being imposed upon any of its assets under ERISA or the IRC. If the Borrower
adopts any Plans after the Closing Date, it shall comply with ERISA and deliver
copies thereof to the Agent.
8.10. Restricted Payments. The Borrower shall not, and shall not
permit any Subsidiary to, directly or indirectly declare, pay, order, make or
set apart any Restricted Payment; provided that (i) any Subsidiary may declare
and pay dividends to any Subsidiary owning its capital stock or to Borrower,
(ii) so long as no Default or Event of Default shall have occurred and be
continuing (or will result therefrom any of the following), the Borrower may
make the following Restricted Payments to Guarantor or in an amount not to
exceed $500,000 per year to pay for the maintenance of Guarantor's corporate
existence, auditors' fees, outside directors' fees, directors' and officers'
insurance and similar out-of-pocket costs and expenses, (iii) the Borrower may
declare dividends to enable the Guarantor to pay federal and state income taxes
attributable to the net income of the Borrower and its Subsidiaries, (iv) so
long as no Default or Event of Default shall have occurred and be continuing or
result therefrom, the Borrower may make Restricted Payments in an aggregate
amount not to exceed $400,000 in any twelve month period to enable the Guarantor
to redeem or repurchase shares of the Guarantor's stock issued to Persons who at
the time of such issuance were management employees of the Borrower and who
have, for any reason, ceased to be employed by the Borrower and (v) so long as
payment thereof has not been blocked under the subordination provisions
contained in the Subordinated Debt Documents, Borrower may make semi-annual
payments of interest on the Subordinated Notes when due.
8.11. Securities. Except as permitted by subsection 8.11, the
Borrower shall not, and shall not permit any Subsidiary to, issue or distribute
or redeem, prepay, repurchase or acquire any capital Stock of the Borrower of
any description for consideration or otherwise.
8.12. Changes in Charter, Bylaws or Fiscal Year. Borrower shall not,
and shall not permit any Subsidiary to, (i) amend its charter or Bylaws or (ii)
change its Fiscal Year.
8.13. Changes in Subordinated Debt. Borrower shall not change or
amend any of the terms of the Subordinated Debt Documents if the effect thereof
is to: (a) increase the rate of interest on the Subordinated Notes; (b) change
the dates upon which payments of principal or interest are due on such
Subordinated Debt; (c) change any default or event of default other than to make
less restrictive any default provision therein, or add any covenant with respect
to such Subordinate Debt; (d) change the redemption or prepayment provisions of
such Subordinated
86
<PAGE> 95
Debt other than to extend the dates therefor or to reduce the premiums payable
in connection therewith; (e) grant any Liens to secure payment of the
Subordinated Debt; or (f) materially increases the obligations of the Borrower
or confer material rights on the holders of the Subordinated Debt adverse to
Holdings, the Borrower, Agent or any Lender.
8.14. Transactions with Affiliates. Except as set forth on Exhibit
8.15 and as permitted by subsections 8.8, 8.9, 8.10 and 8.19, the Borrower shall
not, and shall not permit any Subsidiary to, enter into any transaction
including, without limitation, the purchase, sale, lease or exchange of property
or the rendering or purchase of any service to or from any Affiliate (other than
management of the Borrower, solely in their capacity as employees) except in the
ordinary course of and pursuant to the reasonable requirements of the Borrower's
or such Subsidiary's business and upon fair and reasonable terms that are fully
disclosed to the Agent and the Lenders in advance and are no less favorable to
the Borrower than the Borrower would obtain in a comparable arm's length
transaction with an unaffiliated Person.
8.15. Capital Structure; Other Business. The Borrower shall not, and
shall not permit any Subsidiary to, change its capital structure or engage in
any business unrelated to its current businesses or businesses incidental
thereto.
8.16. Sale and Leaseback. The Borrower shall not, and shall not
permit any Subsidiary to, sell or transfer any of its Property in order to
concurrently or subsequently lease as lessee such or similar Property.
8.17. Impairment Agreements. The Borrower shall not, and shall not
permit any Subsidiary to, enter into or assume any agreement, instrument,
indenture or other obligation (other than the Financing Agreements) which (i)
prohibits or limits the creation or assumption of any Lien upon its Property,
whether now owned or hereafter acquired, or (ii) restricts, prohibits or
requires the consent of any Person with respect to the payment of Restricted
Payments.
8.18. Corporate Accounts. The Borrower shall not maintain corporate
deposit accounts jointly with any Affiliate or commingle any of its funds with
funds of any Affiliate.
9. DEFAULT, RIGHTS AND REMEDIES OF THE AGENT AND THE LENDERS.
9.1. Obligations. If a Default or an Event of Default shall exist or
occur, the Agent may, and at the direction of the Required Lenders, shall do one
or more of the following at any time or times and in any order: (i) reduce the
Total Revolving Loan Facility, (ii) restrict the amount of, or suspend its
obligations to make, Revolving Loans, (iii) restrict or suspend the issuance of
Lender Guaranties or (iv) demand that the Borrower immediately deposit with the
Agent an amount equal to the Lender Guaranty Liabilities and the Eau Claire
Lender Guaranty Liability to enable the Agent to make payments under the Lender
Guaranties and the Eau Claire Lender Guaranty when required and such amount
shall become immediately due and payable. If an Event of Default shall exist or
occur, in addition to the actions described in the preceding sentence, the Agent
may, and at the direction of the Required Lenders, shall do one or more of the
following at any time or times: (a) terminate the Commitments to make Revolving
Loans and
87
<PAGE> 96
this Agreement, (b) declare any or all Obligations to be immediately due and
payable; provided that upon the occurrence of any Event of Default referred to
in clauses (f), (g) or (h) within the definition of "Event of Default," the
Commitments shall automatically and immediately terminate and all Obligations
shall automatically become immediately due and payable without notice, demand or
other actions of any kind by any Person, or (c) pursue its other rights and
remedies under the Financing Agreements and applicable law. In the case of any
Event of Default occurring by reason of any willful action or inaction by or on
behalf of the Borrower in order to avoid payment of the prepayment fee pursuant
to subsection 2.10 which the Borrower would have to pay if the Obligations were
paid in full, an equivalent fee shall also be immediately due and payable to the
extent permitted by law.
9.2. Rights and Remedies Generally. Upon acceleration of the
Obligations, the Agent, on behalf of the Lenders, shall have, in addition to any
other rights and remedies contained in this Agreement or in any of the other
Financing Agreements, all of the rights and remedies of a secured party under
the Code or other applicable laws, all of which rights and remedies shall be
cumulative and non-exclusive, to the extent permitted by law. In addition to all
such rights and remedies, the Agent shall have the right to sell, lease or
otherwise dispose of all or any part of the Collateral and the sale, lease or
other disposition of the Collateral, or any part thereof, by the Agent after an
Event of Default may be for cash, credit or any combination thereof, and the
Agent or any Lender may purchase all or any part of the Collateral at public or,
if permitted by law, private sale, and in lieu of actual payment of such
purchase price, may set-off the amount of such purchase price against the
Obligations then owing. Any sales of the Collateral may be adjourned from time
to time with or without notice. The Agent shall have the right to conduct such
sales on the Borrower's premises, at the Borrower's expense, or elsewhere, on
such occasion or occasions as the Agent may see fit.
9.3. Entry Upon Premises and Access to Information. Upon
acceleration of the Obligations, the Agent shall have the right (i) to cause the
Collateral to remain on the Borrower's premises, without any obligation to pay
rent, (ii) to enter upon the premises of the Borrower where the Collateral is
located or any other place or places where the Collateral is believed to be
located and kept, without any obligation to pay rent, to render the Collateral
useable or saleable, or to remove the Collateral therefrom to the premises of
the Agent or any agent of the Agent, at the Borrower's expense, for such time as
the Agent may desire in order effectively to collect or liquidate the
Collateral, and (iii) to require the Borrower to assemble the Collateral and
make it available to the Agent at a place or places to be designated by the
Agent. Upon acceleration of the Obligations, the Agent shall have the right to
take possession of the Borrower's original books and records, to obtain access
to Borrower's data processing equipment, computer hardware and software relating
to the Collateral and to use all of the foregoing and the information contained
therein in any manner the Agent deems appropriate; and the Agent shall have the
right to notify postal authorities to change the address for delivery of the
Borrower's mail to an address designated by the Agent and to receive, open and
dispose of all mail addressed to the Borrower and to take possession of all
checks or other original remittances contained in such mail.
9.4. Sale or Other Disposition of Collateral by the Agent. Any
notice required to be given by the Agent of a sale, lease or other disposition
or other intended action by the
88
<PAGE> 97
Agent with respect to any of the Collateral which is deposited in the United
States mails, postage prepaid and duly addressed to the Borrower at the address
specified in subsection 10.13, at least ten (10) days prior to such proposed
action, shall constitute fair and reasonable notice to the Borrower of any such
action. The net proceeds realized by the Agent upon any such sale or other
disposition, after deduction for the expenses of retaking, holding, storing,
transporting, preparing for sale, selling or otherwise disposing of the
Collateral incurred by the Agent in connection therewith, shall be applied as
provided herein toward satisfaction of the Obligations. The Agent shall account
to the Borrower for any surplus realized upon such sale or other disposition,
and the Borrower shall remain liable for any deficiency. The commencement of any
action, legal or equitable, or the rendering of any judgment or decree for any
deficiency shall not affect the Agent's Liens on the Collateral until the
Obligations are fully paid (other than unasserted contingent indemnification
obligations).
9.5. Grant of License. For the purpose of enabling, and only to the
extent necessary to enable, the Agent to exercise its rights, powers and
remedies under this Section 9 (including, without limitation, in order to take
possession of, hold, preserve, process, assemble, prepare for sale, market for
sale, sell or otherwise dispose of the Collateral) at such time as the Agent
shall be entitled to exercise such rights and remedies, the Borrower hereby
grants to the Agent a license, lease and right to use (exercisable without
payment of royalty or other compensation) the Borrower's General Intangibles,
Intellectual Property, Equipment, Fixtures, Real Estate, whether part of the
Collateral or not including, without limitation, any patents, copyrights, rights
of use of any name, trade secrets, trade names, trademarks, service marks and
advertising matter, or any other Property of a similar nature and all goodwill
associated therewith, as it pertains to the Collateral, in completing production
of, advertising for sale or lease and selling or leasing any Inventory or other
Collateral and the Borrower's rights under all licenses, leases and franchise
agreements shall inure to the Agent's benefit until all Obligations are paid in
full (other than unasserted contingent indemnification obligations).
9.6. Waiver of Demand. DEMAND, PRESENTMENT, PROTEST AND NOTICE OF
DEMAND, PRESENTMENT, PROTEST, NONPAYMENT, INTENT TO ACCELERATE AND ACCELERATION
ARE HEREBY WAIVED BY THE BORROWER. THE BORROWER ALSO WAIVES THE BENEFIT OF ALL
VALUATION, APPRAISAL AND EXEMPTION LAWS.
9.7. Waiver of Notice. UPON THE OCCURRENCE OF A DEFAULT OR AN EVENT
OF DEFAULT, THE BORROWER HEREBY WAIVES ALL RIGHTS TO NOTICE AND HEARING OF ANY
KIND PRIOR TO THE EXERCISE BY THE AGENT OF ITS RIGHTS TO REPOSSESS THE
COLLATERAL WITHOUT JUDICIAL PROCESS OR TO REPLEVY, ATTACH OR LEVY UPON THE
COLLATERAL WITHOUT PRIOR NOTICE OR HEARING. THE BORROWER ACKNOWLEDGES THAT IT
HAS BEEN ADVISED BY COUNSEL OF ITS CHOICE WITH RESPECT TO THIS TRANSACTION AND
THIS AGREEMENT.
89
<PAGE> 98
10. OTHER RIGHTS AND OBLIGATIONS.
10.1. Waiver. The failure of the Agent or any Lender, at any time or
times hereafter, to require strict performance by the Borrower of any provision
of this Agreement shall not waive, affect or diminish any right of any such
Person thereafter to demand strict compliance and performance therewith. Any
suspension or waiver by the Lenders or Required Lenders, as applicable, of a
Default or an Event of Default under this Agreement or any of the other
Financing Agreements shall not suspend, waive or affect any other Default or
Event of Default under this Agreement or any of the other Financing Agreements,
whether the same is prior or subsequent thereto and whether of the same or of a
different kind or character. None of the undertakings, agreements, warranties,
covenants and representations of the Borrower contained in this Agreement or any
of the other Financing Agreements and no Default or Event of Default by the
Borrower under this Agreement or any of the other Financing Agreements shall be
deemed to have been suspended or waived by the Lenders or Required Lenders, as
applicable, unless such suspension or waiver is in writing and signed by an
officer of each of the Lenders or Required Lenders, as applicable, and directed
to the Borrower specifying such suspension or waiver. Neither this Agreement nor
the other Financing Agreements may be modified or amended except in a written
agreement signed by the Borrower, the Agent and the Lenders.
10.2. Costs and Attorneys' Fees. All fees, costs and expenses
incurred by the Agent or any Lender in connection with protecting, perfecting or
preserving the Agent's Lien in the Collateral or in connection with any matters
contemplated by or arising out of this Agreement or the other Financing
Agreements, whether (a) to commence, defend, or intervene in any litigation or
to file a petition, complaint, answer, motion or other pleadings, (b) to take
any other action in or with respect to any suit or proceedings (bankruptcy or
otherwise), (c) to consult with officers of the Agent or any Lender or to advise
the Agent or any Lender, (d) to protect, collect, lease, sell, take possession
of, or liquidate any of the Collateral, or (e) to attempt to enforce or to
enforce any Lien on any of the Collateral, or to enforce any rights of the Agent
or any Lender to collect any of the Obligations, including, without limitation,
reasonable fees, costs and expenses of the attorneys and paralegals of the Agent
or any Lender, and the out-of-pocket costs and the per diem charges for the
examiners of such Persons at their then applicable rates, together with interest
thereon at the Default Rate then applicable to the Revolving Loan, shall be part
of the Obligations, payable on demand and secured by the Collateral.
10.3. Expenditures by the Agent and the Lenders. In the event the
Borrower shall fail to pay Charges, insurance, assessments, costs or expenses
which the Borrower is, under any of the terms hereof, required to pay, or fails
to keep the Collateral free from Liens, except Permitted Liens, or fails to
maintain, replace or repair the Collateral as required hereby, the Agent or any
Lender may, in its sole discretion, make expenditures for any or all of such
purposes and acquire or accept an assignment of any Lien against the Collateral,
and the amount so expended (including, without limitation, reasonable attorneys'
fees and expenses, court costs, filing fees and other charges), together with
interest thereon at the Base Rate or the Default Rate then applicable to the
Revolving Loan shall be part of the Obligations, payable on demand and secured
by the Collateral.
90
<PAGE> 99
10.4. Custody and Preservation of Collateral. Except as expressly
provided in the Code, the Agent shall have no duty with respect to any
Collateral in its possession or control (or in the possession or control of any
agent or bailee) or with respect to any income thereon. The Agent shall be
deemed to have exercised reasonable care in the custody and preservation of any
of the Collateral in its possession if it takes such action for that purpose as
the Borrower shall request in writing, but failure by the Agent to comply with
any such request shall not of itself be deemed a failure to exercise reasonable
care, and no failure by the Agent to comply with any such request shall of
itself be deemed a failure to exercise reasonable care, and no failure by the
Agent to preserve or protect any right with respect to such Collateral against
prior parties, or to do any act with respect to the preservation of such
Collateral not so requested by the Borrower, shall of itself be deemed a failure
to exercise reasonable care in the custody or preservation of such Collateral.
The Agent shall not be liable or responsible for any loss or damage to any of
the Collateral, or for any diminution in the value thereof, by reason of the act
or omission of any warehouseman, carrier, forwarding agency, consignee or other
agent or bailee selected by the Agent in good faith.
10.5. Reliance by the Agent and Lenders. All covenants, agreements,
representations and warranties made herein or in any of the other Financing
Agreements by the Borrower shall, notwithstanding any investigation by the Agent
or any Lender, be deemed to be material to and to have been relied upon by the
Agent and each Lender.
10.6. Parties and Assignment. This Agreement and the other Financing
Agreements shall be binding upon and inure to the benefit of the Agent, the
Lenders, the Borrower and their respective successors and assigns. The
Borrower's successors and assigns shall include, without limitation, any
trustee, receiver or debtor in possession of or for the Borrower.
Notwithstanding the foregoing, the Borrower may not sell, assign or transfer
this Agreement, or the other Financing Agreements or any portion thereof
including, without limitation, its rights, titles, interests, remedies, powers
and/or duties hereunder or thereunder. Subject to subsection 11.1, The Borrower
hereby consents to each Lender's sale, assignment, transfer or other disposition
pursuant hereto, at any time and from time to time hereafter, of this Agreement,
or the other Financing Agreements or any portion thereof, including without
limitation all or any part of each Lender's rights, titles, interests, remedies,
powers and/or duties hereunder or thereunder.
10.7. Applicable Law; Severability. This Agreement and the other
Financing Agreements have been submitted to the Agent and each Lender at its
office in Illinois, and this Agreement and the other Financing Agreements, shall
not be binding upon the Agent or any Lender or effective until accepted by the
Agent and each Lender and shall be construed in all respects, except as
otherwise provided in any such Financing Agreement, in accordance with, and
governed by, all of the provisions of the Code and by the other internal laws
(as opposed to conflicts of law provisions) of the State of Illinois, except for
the perfection and enforcement of Liens in other jurisdictions which shall be
governed by the laws of those jurisdictions. Whenever possible, each provision
of this Agreement shall be interpreted in such a manner as to be effective and
valid under applicable law, but if any provision of this Agreement shall be
prohibited by or invalid under applicable law, such provision shall be
ineffective only to the
91
<PAGE> 100
extent of such prohibition or invalidity, without invalidating the remainder of
such provisions or the remaining provisions of this Agreement.
10.8. Submission to Jurisdiction; Waiver of Jury and Bond. THE
BORROWER, THE AGENT AND EACH LENDER HEREBY SUBMIT TO THE EXCLUSIVE JURISDICTION
OF ANY STATE OR FEDERAL COURT LOCATED WITHIN THE COUNTY OF COOK, STATE OF
ILLINOIS, AND IRREVOCABLY AGREE THAT ALL ACTIONS OR PROCEEDINGS RELATING TO THIS
AGREEMENT OR THE OTHER FINANCING AGREEMENTS SHALL BE LITIGATED IN SUCH COURTS,
AND THE BORROWER, THE AGENT AND EACH LENDER EACH WAIVE ANY OBJECTION WHICH IT
MAY HAVE BASED ON IMPROPER VENUE OR FORUM NON CONVENIENS TO THE CONDUCT OF ANY
PROCEEDING IN ANY SUCH COURT AND EACH WAIVES PERSONAL SERVICE OF ANY AND ALL
PROCESS UPON IT, AND CONSENTS THAT ALL SUCH SERVICE OF PROCESS BE MADE BY MAIL
OR MESSENGER DIRECTED TO IT AT THE ADDRESS SET FORTH IN SUBSECTION 10.13 AND
THAT SERVICE SO MADE SHALL BE DEEMED TO BE COMPLETED UPON THE EARLIER OF ACTUAL
RECEIPT OR FIVE (5) DAYS AFTER THE SAME SHALL HAVE BEEN POSTED TO THE BORROWER'S
ADDRESS. THE BORROWER DESIGNATES AND APPOINTS CT CORPORATION SYSTEM, 208 SOUTH
LASALLE STREET, CHICAGO, ILLINOIS 60604 AND SUCH OTHER PERSON AS MAY HEREAFTER
BE SELECTED BY THE BORROWER WHICH IRREVOCABLY AGREES IN WRITING TO SO SERVE AS
ITS AGENT TO RECEIVE ON ITS BEHALF SERVICE OF ALL PROCESS IN ANY SUCH PROCEEDING
IN ANY SUCH COURT, SUCH SERVICE BEING HEREBY ACKNOWLEDGED BY THE BORROWER TO BE
EFFECTIVE AND BINDING SERVICE IN EVERY RESPECT. A COPY OF ANY SUCH PROCESS SO
SERVED SHALL BE MAILED BY REGISTERED MAIL TO THE BORROWER AT ITS ADDRESS
PROVIDED IN SUBSECTION 10.13, EXCEPT THAT UNLESS OTHERWISE PROVIDED BY
APPLICABLE LAW, ANY FAILURE TO MAIL SUCH COPY SHALL NOT AFFECT THE VALIDITY OF
SERVICES OF PROCESS. IF ANY AGENT APPOINTED BY THE BORROWER REFUSES TO ACCEPT
SERVICE, THE BORROWER HEREBY AGREES THAT SERVICE UPON IT BY MAIL OR OTHERWISE IN
ACCORDANCE WITH SUBSECTION 10.13 SHALL CONSTITUTE SUFFICIENT NOTICE. THE AGENT,
EACH LENDER AND THE BORROWER ACKNOWLEDGE THAT THE TIME AND EXPENSE REQUIRED FOR
TRIAL BY JURY EXCEED THE TIME AND EXPENSE REQUIRED FOR A BENCH TRIAL AND HEREBY
WAIVE, TO THE EXTENT PERMITTED BY LAW, TRIAL BY JURY, AND WAIVE ANY BOND OR
SURETY OR SECURITY UPON SUCH BOND WHICH MIGHT, BUT FOR THIS WAIVER, BE REQUIRED
OF THE AGENT OR ANY LENDER. NOTHING CONTAINED IN THIS SUBSECTION 10.8 SHALL
AFFECT THE RIGHT OF THE AGENT OR ANY LENDER TO SERVE LEGAL PROCESS IN ANY OTHER
MANNER PERMITTED BY LAW OR AFFECT THE RIGHT OF THE AGENT OR ANY LENDER TO BRING
ANY ACTION OR PROCEEDING AGAINST THE BORROWER OR ITS PROPERTY IN THE COURTS OF
ANY OTHER JURISDICTION TO THE EXTENT NECESSARY TO ENFORCE ITS LIENS AGAINST
PROPERTY LOCATED IN SUCH JURISDICTIONS. THE BORROWER WAIVES ANY RIGHT IT MAY
HAVE TO CLAIM OR RECOVER IN ANY LITIGATION REFERRED TO ABOVE ANY SPECIAL,
92
<PAGE> 101
EXEMPLARY, PUNITIVE OR CONSEQUENTIAL DAMAGES OR ANY DAMAGES OTHER THAN, OR IN
ADDITION TO, ACTUAL DAMAGES.
10.9. Marshalling. The Agent shall be under no obligation to
marshall any assets in favor of the Borrower or any other Person or against or
in payment of any or all of the Obligations.
10.10. Section Titles. The section titles contained in this
Agreement shall be without substantive meaning or content of any kind whatsoever
and are not a part of the agreement between the parties.
10.11. Incorporation by Reference. The provisions of the other
Financing Agreements are incorporated in this Agreement by this reference.
Except as otherwise provided in this Agreement and except as otherwise provided
in the other Financing Agreements by specific reference to the applicable
provision of this Agreement, if any provision contained in this Agreement is in
conflict with, or inconsistent with, any provisions in the other Financing
Agreements, the provision contained in this Agreement shall govern and control.
10.12. Notices. Except as otherwise expressly provided herein, any
notice required or desired to be served, given or delivered hereunder shall be
in writing, and shall be deemed to have been validly served, given or delivered
(a) if delivered in person, when delivered, (b) if delivered by telecopy or
telex, on the date of confirmed transmission, (c) if delivered by overnight
courier, two days after delivery to such courier properly addressed or (d) if by
U.S. Mail, three (3) days after deposit in the United States mails (by certified
mail, return receipt requested), with proper postage prepaid, or upon delivery
by courier or upon transmission by telex, telecopy or similar electronic medium
to the following addresses:
(i) If to the Agent, at:
SANWA BUSINESS CREDIT CORPORATION
One South Wacker Drive, 39th Floor
Chicago, Illinois 60606
Attn: Commercial Finance Division Executive Vice President
Telecopy No.: (312) 782-6035
With a copy to:
LATHAM & WATKINS
233 South Wacker Drive
Suite 5800
Chicago, Illinois 60606
Attn: David G. Crumbaugh, Esq.
(ii) If to a Lender, at the address set forth opposite its name on
Schedule 1 hereto
93
<PAGE> 102
(iii) to the Borrower, at:
PLAINWELL INC.
200 Allegan Street
Plainwell, Michigan 49080
Attn: President
With a copy to:
KIRKLAND & ELLIS
Citicorp Center
153 East 53rd Street
New York, New York 10022-4675
Attn: Kirk A. Radke, Esq.
or to such other address as each Person designates to the other in the manner
herein prescribed.
10.13. Waivers With Respect to Other Instruments. The Borrower
waives presentment, demand and protest and notice of presentment, demand
protest, default, nonpayment, maturity, release, compromise, settlement,
extension, or renewal of any or all commercial paper, Accounts, contract rights,
documents, Instruments, Chattel Paper and guaranties at any time held by the
Agent on which the Borrower may in any way be liable and hereby ratifies and
confirms whatever the Agent may do regarding the enforcement, collection,
compromise, or release thereof.
10.14. Retention of the Borrower's Documents. The Agent or any
Lender may destroy or otherwise dispose of all documents, schedules, invoices or
other papers delivered to such Person in accordance with its customary practices
unless the Borrower requests in writing that same be returned. Upon the
Borrower's request and at the Borrower's expense, such Person shall return such
papers when such Person's actual or anticipated need for same has terminated.
10.15. Entire Agreement. This Agreement, including all Exhibits,
Schedules and other documents attached hereto or incorporated by reference
herein, together with the other Financing Agreements constitutes the entire
agreement of the parties with respect to the subject matter hereof and
supersedes all other negotiations, understandings and representations, oral or
written, with respect to the subject matter hereof, including, without
limitation, that certain Commitment Letter dated as of January 21, 1998 between
the Borrower and the Agent.
10.16. Equitable Relief. The Borrower recognizes that, in the event
the Borrower fails to perform, observe or discharge any of its Obligations under
this Agreement, any remedy at law may prove to be inadequate relief to the Agent
or any Lender; therefore, the Borrower agrees that the Agent or any Lender, if
such Person so requests, shall be entitled to temporary and permanent injunctive
relief in any such case without the necessity of proving actual damages.
94
<PAGE> 103
10.17. Counterparts. This Agreement and any amendments, waivers,
consents or supplements may be executed in any number of counterparts and by
different parties in separate counterparts, each of which when so executed and
delivered shall be deemed an original, but all of which counterparts together
shall constitute but one and the same agreement.
10.18. Several Obligations; Nature of Lenders' Rights. The
respective obligations of the Lenders hereunder are several and not joint and no
Lender shall be the partner or agent of any other Lender (except to the extent
to which the Agent is authorized to act as such). No provision contained herein
or in any other Financing Agreement or Related Transactions Document and no
course of dealing between the parties shall be deemed to create any fiduciary
relationship between the Agent or any Lender and the Borrower. The Indebtedness
of the Borrower incurred under each of the Notes and any Eau Claire L/C Notes
shall be a separate obligation owing to the holder or interest holder thereof;
provided that each Lender hereby agrees that it shall have no individual right
to seek to enforce its rights under its Note or any Eau Claire L/C Note, or to
realize upon the Collateral, it being understood and agreed that such rights and
remedies may be exercised solely by the Agent for the benefit of the Lenders at
the direction of the Required Lenders in accordance with the terms of this
Agreement.
10.19. Exceptions to Covenants. The Borrower shall not be deemed to
be permitted to take any action or omit to take any action which is permitted as
an exception to any of the terms, provisions or covenants contained in any of
the Financing Agreements if such action or omission would result in a Default or
Event of Default or the breach of any term, provision or covenant contained in
any Financing Agreement.
10.20. Construction. The Borrower acknowledges that it and its
counsel have approved the Financing Agreements and that the usual rule of
construction to the effect that any ambiguities or inconsistencies are to be
resolved against the drafting Person shall not be applicable in the
interpretation of any of the Financing Agreements.
10.21. Reinstatement. This Agreement shall remain in full force and
effect and continue to be effective or to be reinstated, as the case may be, if
at any time payment and performance of the Obligations, or any part thereof, is,
pursuant to applicable law, rescinded or reduced in amount, or must otherwise be
restored or returned by any obligee of the Obligations, whether as a "voidable
preference," "fraudulent conveyance," or otherwise, all as though such payment
or performance had not been made. In the event that any payment, or any part
thereof, is rescinded, reduced, restored or returned, the Obligations shall be
reinstated and deemed reduced only by such amount paid and not so rescinded,
reduced, restored or returned.
10.22. ACKNOWLEDGMENT. THE BORROWER ACKNOWLEDGES THAT IT HAS BEEN
ADVISED BY COUNSEL OF ITS CHOICE WITH RESPECT TO THIS LOAN AGREEMENT AND THE
TRANSACTIONS CONTEMPLATED HEREBY, AND THE BORROWER ACKNOWLEDGES AND AGREES THAT
(i) EACH OF THE WAIVERS SET FORTH HEREIN, INCLUDING, WITHOUT LIMITATION, THOSE
WAIVERS SET FORTH IN SUBSECTIONS 9.5, 9.6 AND 10.8 WERE KNOWINGLY AND
VOLUNTARILY MADE, (ii) THE OBLIGATIONS OF THE AGENT AND EACH LENDER HEREUNDER,
95
<PAGE> 104
INCLUDING THE OBLIGATION TO ADVANCE AND LEND FUNDS TO THE BORROWER IN ACCORDANCE
HEREWITH, SHALL BE STRICTLY CONSTRUED AND SHALL BE EXPRESSLY SUBJECT TO THE
BORROWER'S COMPLIANCE IN ALL RESPECTS WITH THE TERMS AND CONDITIONS HEREIN SET
FORTH, AND (iii) NO REPRESENTATIVE OF THE AGENT OR ANY LENDER HAS WAIVED OR
MODIFIED ANY OF THE PROVISIONS OF THIS AGREEMENT AS OF THE DATE HEREOF AND NO
SUCH WAIVER OR MODIFICATION FOLLOWING THE DATE HEREOF SHALL BE EFFECTIVE UNLESS
MADE IN ACCORDANCE WITH SUBSECTION 10.1
10.23. Effect on Prior Credit Agreement; Continuing Loans. Effective
as of the Closing Date, this Agreement amends and restates the Prior Loan
Agreement in its entirety and supersedes the terms and provisions thereof.
Nevertheless, the Borrower acknowledges that the Continuing Loans in the
respective amounts set forth on Exhibit 10.23 remain outstanding, and the
parties agree that (i) such Continuing Loans are continuing Obligations
hereunder governed by the terms and provisions hereof; (ii) the Liens securing
payment thereof are continuing in all respects, and (iii) this Agreement shall
not be deemed to evidence a novation, or repayment and refunding, of the
Continuing Loans. Effective as of the Closing Date, all references in the Prior
Loan Documents to the "Loan Agreement", the "Agreement" or the "Credit
Agreement" shall be deemed to refer to this Agreement, without further amendment
of those Loan Documents. The Borrower, as the successor by merger to Plainwell
Paper Company, hereby expressly assumes Plainwell Paper Company's liabilities
with respect to the Continuing Loans. Until the Closing Date, this Agreement
shall not affect the rights and duties of the parties under the Prior Loan
Documents.
11. ASSIGNMENT AND PARTICIPATION.
11.1. Assignments. Each Lender may, in the ordinary course of its
business and in accordance with applicable law, assign all or any part of its
rights and obligations under the Financing Agreements to any Person; provided
that such Lender shall first obtain the written consent of the Agent and the
written consent of the Borrower, which shall not be unreasonably withheld prior
to any such assignment becoming effective; provided that no consent of the
Borrower shall be required so long as an Event of Default has occurred and is
continuing and no consent of the Borrower shall be required for an assignment by
SBCC to its affiliates. The assigning Lender shall be relieved of its Commitment
or assigned portion thereof. The Borrower hereby acknowledges and agrees that
any assignment will give rise to a direct obligation of the Borrower to the
assignee and that the assignee shall be considered to be a "Lender".
11.2. Participations. Each Lender shall have the right to sell or
assign to a Participant or Participants participating interests in the
Borrower's Obligations hereunder in such amounts and on such terms and
conditions as such Lender shall determine.
12. AGENT.
12.1. Appointment. SBCC is hereby appointed Agent hereunder and
under each other Financing Agreements, and each of the Lenders authorizes the
Agent to act as the Agent of such Lender. The Agent agrees to act as such upon
the express conditions contained in this
96
<PAGE> 105
Section 12. The Agent shall not have a fiduciary relationship in respect of the
Borrower or any Lender by reason of this Agreement.
12.2. Powers. The Agent shall have and may exercise such powers
under the Financing Agreements as are specifically delegated to the Agent by the
terms of each thereof, together with such powers as are reasonably incidental
thereto. The Agent shall have no implied duties to the Lenders, or any
obligation to the Lenders to take any action thereunder, except any action
specifically provided by the Financing Agreements to be taken by the Agent.
12.3. General Immunity. Neither the Agent nor any of its directors,
officers, Agents or employees shall be liable to the Borrower or any Lender for
any action taken or omitted to be taken by it or them hereunder or under any
other Financing Agreements or in connection herewith or therewith except for its
or their own gross negligence or willful misconduct as determined by a final
order, not subject to review, of a court of competent jurisdiction.
12.4. No Responsibility for Loans, Recitals, etc. Neither the Agent
nor any of its directors, officers, Agents or employees shall be responsible for
or have any duty to ascertain, inquire into, or verify (a) any statement,
warranty or representation made in connection with any Financing Agreements or
any borrowing hereunder, (b) the performance or observance of any of the
covenants or agreements of any obligor under any Financing Agreements, (c) the
satisfaction of any condition specified in Section 4, except receipt of items
required to be delivered to the Agent and not waived at closing, or (d) the
validity, effectiveness or genuineness of any Financing Agreements or any other
instrument or writing furnished in connection therewith.
12.5. Action on Instructions of Lenders. The Agent shall in all
cases be fully protected in acting, or in refraining from acting, hereunder and
under any other Financing Agreements in accordance with written instructions
signed by the Required Lenders, and such instructions and any action taken or
failure to act pursuant thereto shall be binding on all of the Lenders, all
holders of Notes and all interest holders of Eau Claire L/C Notes. The Agent
shall be fully justified in failing or refusing to take any action hereunder and
under any other Financing Agreements unless it shall first be indemnified to its
satisfaction by the Lenders pro-rata against any and all liability, cost and
expense that it may incur by reason of taking or continuing to take any such
action.
12.6. Employment of Agents and Counsel. The Agent may execute any of
its duties as Agent hereunder and under any other Financing Agreements by or
through employees, agents and attorneys-in-fact and shall not be answerable to
the Lenders, except as to money or securities received by it or its authorized
agents, for the default or misconduct of any such agents or attorneys-in-fact
selected by it with reasonable care. The Agent shall be entitled to advice of
counsel concerning all matters pertaining to the agency hereby created and its
duties hereunder and under any other Financing Agreements.
12.7. Reliance on Documents; Counsel. The Agent shall be entitled to
rely upon any Note, Eau Claire L/C Note, notice, consent, certificate,
affidavit, letter, telegram, statement, paper or document believed by it to be
genuine and correct and to have been signed or sent by the
97
<PAGE> 106
proper Person or Persons, and, in respect to legal matters, upon the opinion of
counsel selected by the Agent, which counsel may be employees of the Agent.
12.8. Agent's Reimbursement and Indemnification. The Lenders agree
to reimburse and indemnify the Agent ratably in proportion to their respective
Pro Rata Shares (a) for any amounts not reimbursed by the Borrower for which the
Agent is entitled to reimbursement by the Borrower under the Financing
Agreements, (b) for any other expenses incurred by the Agent on behalf of the
Lenders, in connection with the preparation, execution, delivery, administration
and enforcement of the Financing Agreements, and (c) for any liabilities,
obligations, losses, damages, penalties, actions, judgments, suits, costs,
expenses or disbursements of any kind and nature whatsoever which may be imposed
on, incurred by or asserted against the Agent in any way relating to or arising
out of the Financing Agreements or any other document delivered in connection
therewith or the transactions contemplated thereby, or the enforcement of any of
the terms thereof or of any such other documents; provided that no Lender shall
be liable for any of the foregoing to the extent they arise from the gross
negligence or willful misconduct of the Agent as determined by a final order,
not subject to appeal, of a court of competent jurisdiction. The obligations of
the Lenders under this subsection 12.8 shall survive payment of the Obligations
and termination of this Agreement.
12.9. Rights as a Lender. In its capacity as a Lender hereunder, the
Agent shall have the same rights and powers hereunder and under any other
Financing Agreements as any Lender and may exercise the same as though it were
not the Agent, and the term "Lender" or "Lenders" shall, at any time when the
Agent is a Lender, unless the context otherwise indicates, include the Agent in
its individual capacity. The Agent may accept deposits from, lend money to, and
generally engage in any kind of trust, debt, equity or other transaction, in
addition to those contemplated by this Agreement or any other Financing
Agreements, with the Borrower or any of its Subsidiaries in which the Borrower
or such Subsidiary is not restricted hereby from engaging with any other Person.
12.10. Lender Credit Decision. Each Lender acknowledges that it has,
independently and without reliance upon the Agent or any other Lender and based
on the financial statements prepared by the Borrower and such other documents
and information as it has deemed appropriate, made its own credit analysis and
decision to enter into this Agreement and the other Financing Agreements. Each
Lender also acknowledges that it will, independently and without reliance upon
the Agent or any other Lender and based on such documents and information as it
shall deem appropriate at the time, continue to make its own credit decisions in
taking or not taking action under this Agreement and the other Financing
Agreements.
12.11. Successor Agent. The Agent may resign at any time by giving
written notice thereof to the Lenders and the Borrower. The Agent may be removed
at any time for cause by the Required Lenders. Upon any such resignation or
removal, the Required Lenders shall have the right to appoint, on behalf of the
Borrower and the Lenders, a successor Agent. If no successor Agent shall have
been so appointed by the Required Lenders and shall have accepted such
appointment within thirty days after the retiring Agent's giving notice of
resignation or within thirty days after the removal of such Agent, then the
retiring Agent shall
98
<PAGE> 107
use reasonable efforts to appoint, on behalf of the Borrower and the Lenders, a
successor Agent. Such successor Agent shall be a financial institution having
capital and retained earnings of at least Two Hundred Fifty Million Dollars
($250,000,000). Upon the acceptance of any appointment as Agent hereunder by a
successor Agent, such successor Agent shall thereupon succeed to and become
vested with all the rights, powers, privileges and duties of the retiring Agent,
and the retiring Agent shall be discharged from its duties and obligations
hereunder and under the other Financing Agreements. After any retiring Agent's
resignation or removal hereunder as Agent, the provisions of this Section 12
shall continue in effect for its benefit in respect of any actions taken or
omitted to be taken by it while it was acting as the Agent hereunder and under
the other Financing Agreements.
12.12. Notice of Default. The Agent shall not be deemed to have
knowledge or notice of the occurrence of any Default or Event of Default
hereunder unless the Agent has received notice from a Lender or the Borrower
referring to this Agreement describing such Default or Event of Default and
stating that such notice is a "notice of default". In the event that the Agent
receives such a notice, the Agent shall give prompt notice thereof to the
Lenders. Subject to the provisions of subsection 12.5, the Agent shall take any
action of the type specified in this Agreement with respect to such Default or
Event of Default as shall be reasonably directed by the Required Lenders (or, if
so required by Section 13, by all Lenders); provided that unless and until the
Agent shall have received such directions, the 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 the Agent shall determine is in the best
interests of the Lenders.
13. AMENDMENTS AND WAIVERS.
Subject to the provisions of this Section 13, the Required Lenders
(or the Agent with the consent in writing of the Required Lenders) and the
Borrower may enter into agreements supplemental hereto for the purpose of
adding, terminating or modifying any provisions to the Financing Agreements or
changing in any manner the rights of the Lenders or the Borrower hereunder or
waiving any Event of Default hereunder; provided that no such supplemental
agreement shall, without the consent of each Lender:
(a) extend the final maturity of any Revolving Loan, Note or Eau
Claire L/C Note or reduce the principal amount thereof, or reduce the rate or
extend the time of payment of interest or fees thereon;
(b) reduce the percentage specified in the definition of Required
Lenders;
(c) reduce the amount or extend the payment date for the mandatory
payments required hereunder, or increase the amount of the Commitments of any
Lender hereunder (other than an increase in the Commitment to make Revolving
Loans of any Lender as a result of an assignment consummated between such Lender
and another Lender pursuant to subsection 11.1);
(d) extend the Initial Term or any Renewal Term, as applicable
(except as contemplated by subsection 2.8), or permit any Letter of Credit or
Lender Guaranty to have an
99
<PAGE> 108
expiry date beyond the Revolving Loan Maturity Date, or permit the Eau Claire
L/C or any Eau Claire L/C Note to have an expiry date beyond the fifth
anniversary of the Closing Date;
(e) amend this Section 13;
(f) change the definition of "Current Asset Base", "Eligible
Accounts" or "Eligible Inventory", except as provided by subsections 3.3 and
3.10;
(g) release all or any substantial portion of the Collateral or the
real property subject to the Mortgages;
(h) permit any assignment by the Borrower of its Obligations or its
rights hereunder; or
(i) amend the definition of the term "Commitment".
No amendment, modification, termination or waiver affecting the
rights or duties of the Agent under any Financing Agreement shall be effective
without the written consent of the Agent.
Each amendment, modification, termination or waiver shall be
effective only in the specific instance and for the specific purpose for which
it was given. No amendment, modification, termination or waiver shall be
required for the Agent to take additional Collateral pursuant to any Financing
Agreement. No notice to or demand on the Borrower not required by the terms
hereof in any case shall entitle the Borrower to any other or further notice or
demand in similar or other circumstances. Any amendment, modification,
termination, waiver or consent effected in accordance with this Section 13 shall
be binding upon each holder of the Notes and each interest holder in the Eau
Claire L/C and any Eau Claire L/C Notes at the time outstanding, each future
holder of such Notes and each future interest holder in the Eau Claire L/C and
any Eau Claire L/C Notes and the Borrower. Notwithstanding anything to the
contrary contained herein, the Agent may, at its sole discretion, release or
compromise Collateral and the proceeds thereof to the extent of asset
dispositions permitted by the terms hereof.
14. SET OFF AND SHARING OF PAYMENTS.
14.1. Setoff. In addition to any rights now or hereafter granted
under applicable law and not by way of limitation of any such rights, upon the
occurrence and during the continuance of any Event of Default, each Lender is
hereby authorized by the Borrower at any time or from time to time, with
reasonably prompt subsequent notice to the Borrower or to any other Person (any
prior or contemporaneous notice being hereby expressly waived) to set off and to
appropriate and to apply any and all (a) balances (including, without
limitation, all account balances, whether provisional or final and whether or
not collected or available) held or owing by such Lender at any of its offices
to or for the credit or account of the Borrower (regardless of whether such
balances are then due to the Borrower) and (b) other property held or owing by
100
<PAGE> 109
such Lender to or for the credit or the account of the Borrower, toward the
payment of the Obligations owing to such Lender, whether or not the Obligations,
or any part hereof, shall then be due.
14.2. Ratable Payments. If any Lender, whether by setoff or
otherwise, has payment of interest or principal made to it upon its Revolving
Loans, its participation in the Eau Claire Lender Guaranty or its participation
in any other Lender Guaranty (other than payments received pursuant to
subsections 2.19 and 2.21) or receives any fees payable pursuant to subsections
2.10, 2.12, 2.4 or 2.17 in a greater proportion than its Pro Rata Share of such
Revolving Loans or Pro Rata Share of such Eau Claire Lender Guaranty and other
Lender Guaranties, such Lender agrees, promptly upon demand, to purchase a
portion of the Revolving Loans or the interest in the Eau Claire Lender Guaranty
and other Lender Guaranties held by the other Lenders so that after such
purchase each Lender will hold its ratable proportion of Revolving Loans and
interests in the Eau Claire Lender Guaranty and other Lender Guaranties. If any
Lender, whether in connection with setoff or otherwise, receives collateral or
other protection for its Obligations, such Lender agrees, promptly upon demand,
to take such action necessary such that all Lenders share in the benefits of
such collateral ratably in proportion to their Commitments. In case any such
payment is disturbed by legal process, or otherwise, appropriate further
adjustments shall be made. If an amount to be setoff is to be applied to
Indebtedness of the Borrower to a Lender, other than Indebtedness evidenced by
any of the Notes or any Eau Claire L/C Notes held by such Lender, such amount
shall be applied ratably to such other Indebtedness and to the Indebtedness
evidenced by such Notes and Eau Claire L/C Notes, respectively. The Borrower
agrees, to the fullest extent permitted by law, that (x) any Lender may exercise
its right to set off with respect to amounts in excess of its Pro Rata Share of
the Obligations and may sell participation in such excess to other Lenders, and
(y) any Lender so purchasing a participation in the Revolving Loans made or an
interest in the Eau Claire Lender Guaranty, other Lender Guaranties or other
Obligations held by other Lenders may exercise all rights of set-off, bankers'
lien, counterclaim or similar rights with respect to such participation as fully
as if such Lender were a direct holder of Revolving Loans or holder of interests
in the Eau Claire Lender Guaranty, other Lender Guaranties and other Obligations
in the amount of such participation. In addition to the foregoing, the Borrower
agrees to the fullest extent permitted by law that any Person acquiring a
participation pursuant to the provisions of subsection 11.2 may exercise the
same rights of setoff which it would have (and shall have the same sharing
obligations which it would have) if such participant were a Lender.
[signature page follows]
101
<PAGE> 110
IN WITNESS WHEREOF, this Agreement has been duly executed as of the
day and year first above written.
PLAINWELL INC.
By:
---------------------------------
Title:
------------------------------
COMMITMENTS: SANWA BUSINESS CREDIT
Revolving Loan: $35,000,000 CORPORATION, as Agent and
Eau Claire L/C: $19,552,000 as a Lender
By:
---------------------------------
Title:
------------------------------
S-1
<PAGE> 1
Exhibit 10.2
- --------------------------------------------------------------------------------
AGREEMENT OF PURCHASE AND SALE
Dated as of January 22, 1998
by and among
POPE & TALBOT, INC.,
POPE & TALBOT, WIS., INC.,
PLAINWELL HOLDING COMPANY
and
PLAINWELL INC.
<PAGE> 2
TABLE OF CONTENTS
ARTICLE I......................................................................1
TERMS OF PURCHASE AND SALE.....................................................1
1.01. Purchase and Sale.....................................................1
1.02. The Closing...........................................................3
1.03. Consideration; Purchase Price and Payment; Delivery of Documents......4
1.04. Purchase Price Adjustments............................................4
1.05. Liabilities...........................................................6
1.06. Accounting Principles.................................................8
ARTICLE II.....................................................................8
REPRESENTATIONS AND WARRANTIES OF SELLER AND PARENT............................8
2.01. Financial Statements..................................................8
2.02. Absence of Certain Changes or Events..................................9
2.03. Title to Assets......................................................10
2.04. Patents, Trademarks, Etc.............................................11
2.05. Commitments..........................................................12
2.06. Litigation...........................................................13
2.07. Compliance with Laws; Environmental Matters..........................13
2.08. Corporate Power and Authority; Effect of Agreement...................14
2.09. Employee Benefit Plans...............................................15
2.10. Consents.............................................................17
2.11. Taxes................................................................17
2.12. Fees.................................................................18
2.13. Insurance............................................................18
2.14. Labor Matters........................................................18
2.15. Capitalization of Seller.............................................19
2.16. Conveyance of Assets.................................................19
2.17. Transactions with Affiliates.........................................19
2.18. Undisclosed Liabilities..............................................20
2.19. Disclaimer...........................................................20
i
<PAGE> 3
ARTICLE III...................................................................20
REPRESENTATIONS AND WARRANTIES OF BUYER AND NEWCO.............................20
3.01. Organization.........................................................20
3.02. Corporate Power and Authority; Effect of Agreement...................21
3.03. Consents.............................................................21
3.04. Availability of Funds................................................21
3.05. Litigation...........................................................22
3.06. Fees ................................................................22
ARTICLE IV....................................................................23
PRE-CLOSING COVENANTS OF SELLER AND PARENT....................................23
4.01. Cooperation by Seller and Parent.....................................23
4.02. Conduct of Business..................................................23
4.03. Access...............................................................24
4.04. Notice of Events.....................................................25
4.05. Exclusivity..........................................................25
4.06. Mutual Assistance....................................................25
ARTICLE V.....................................................................26
PRE-CLOSING COVENANTS OF BUYER AND NEWCO......................................26
5.01. Cooperation by Buyer.................................................26
5.02. Buyer's Knowledge of Business; Seller's and Parent's Representations
Modified by Buyer's Knowledge......................................26
5.03. Performance Bonds, Etc...............................................27
5.04. Consummation of Financing............................................27
ARTICLE VI....................................................................28
ADDITIONAL COVENANTS..........................................................28
6.01. Tax Cooperation......................................................28
6.02. Corporate Name.......................................................29
6.03. Disbursement Account.................................................29
6.04. Further Information..................................................30
6.05. Record Retention.....................................................30
6.06. Post-Closing Assistance..............................................30
ii
<PAGE> 4
6.07. Non-Compete..........................................................31
6.08. Further Assurances...................................................33
6.09. Accounts Receivable; Mail............................................34
6.10. Transition Services..................................................34
6.11. Brokerage Arrangements...............................................34
ARTICLE VII...................................................................34
CONDITIONS TO BUYER'S AND NEWCO'S OBLIGATIONS.................................34
7.01. Representations, Warranties and Covenants of Seller and Parent.......34
7.02. No Prohibition, etc..................................................35
7.03. Governmental Consents................................................35
7.04. No Material Adverse Change...........................................35
7.05. Delivery of Transfer Documents.......................................35
7.06. Seller and Parent Closing Documents..................................35
7.07. Delivery of Consents.................................................36
7.08. Opinion of Counsel to Parent and Seller..............................36
7.09. Financing............................................................36
7.10. Real Property........................................................36
ARTICLE VIII..................................................................37
CONDITIONS TO SELLER'S AND PARENT'S OBLIGATIONS...............................37
8.01. Representations, Warranties and Covenants of Buyer and Newco.........37
8.02. No Prohibition, etc..................................................37
8.03. Performance Bonds....................................................37
8.04. Governmental Consents................................................38
8.05. Delivery of Transfer Documents.......................................38
8.06. Opinion of Counsel to Buyer..........................................38
8.07. Buyer and Newco Closing Documents....................................38
ARTICLE IX....................................................................38
EMPLOYMENT AND EMPLOYEE BENEFITS ARRANGEMENTS.................................38
9.01. Definitions..........................................................38
9.02. Employment...........................................................39
9.03. Pension Plans........................................................39
iii
<PAGE> 5
9.04. Multiemployer Pension Plan...........................................43
9.05. Other Benefit Plans.................................................44
9.06. Severance............................................................45
9.07. Workers Compensation.................................................45
9.08. Collective Bargaining Agreements.....................................45
9.09. Buyer Indemnity......................................................46
9.10. W-2 Matters..........................................................46
ARTICLE X.....................................................................46
TERMINATION PRIOR TO CLOSING..................................................46
10.01. Termination........................................................46
10.02. Effect on Obligations..............................................47
ARTICLE XI....................................................................49
MISCELLANEOUS.................................................................49
11.01. Survival...........................................................49
11.02. Indemnification....................................................49
11.03. Interpretive Provisions............................................54
11.04. Entire Agreement...................................................54
11.05. Successors and Assigns.............................................55
11.06. Headings...........................................................55
11.07. Modification and Waiver............................................55
11.08. Counterparts.......................................................55
11.09. Expenses...........................................................55
11.10. Notices............................................................56
11.11. Governing Law......................................................57
11.12. Public Announcements...............................................57
11.13. Bulk Transfer Laws.................................................58
11.14. Disclosure Schedule................................................58
11.15. Severability of Provisions.........................................58
11.16. Specific Performance...............................................58
11.17. Time is of the Essence.............................................59
11.18. Remedies Cumulative................................................59
11.19. Waiver of Jury Trial...............................................59
iv
<PAGE> 6
Exhibits
Exhibit 3.03 Required Consents
Exhibit 5.04 Subordinated Debt Financing Term Sheet
Exhibit 6.02(b) Temporary License Agreement
Exhibit 6.10 Term Sheet for Transition Services Agreement
Exhibit 7.08 Opinion of Seller's Counsel
Exhibit 8.06 Opinion of Buyer's Counsel
Exhibit 9.03(a) Benefit Plans Opinions
Exhibit 9.03(b)(4) Actuarial Assumptions
Exhibit 11.03 Persons Representing Buyer
Disclosure Schedule
Schedule 1.01(a)(iv) Purchased Real Property
Leased Real Property
Schedule 1.01(b) Excluded Assets
Schedule 1.05(c)(i) Excluded Liabilities
Schedule 2.01 Financial Statements
Schedule 2.02 Certain Changes or Events
Schedule 2.03(a) Encumbrances
Schedule 2.04 Patents and Trademarks
Schedule 2.05 Commitments
Schedule 2.06 Litigation
Schedule 2.07 Compliance with law; Permits
Schedule 2.07 Environmental Matters
Schedule 2.09 Employee Benefit Plans
Schedule 2.10 Consents
Schedule 2.11 Taxes
Schedule 2.13 Insurance Policies
Schedule 2.14 Labor Matters
Schedule 2.16 Conveyance of Assets
Schedule 2.17 Transactions with Affiliates
Schedule 2.18 Undisclosed Liabilities
Schedule 5.03 Replacement Bonds
Schedule 6.07(a)(iv) Key Employees
Schedule 7.04 Material Adverse Change
Schedule 9.01(b) List of Employees
Schedule 9.06 Severance Benefits
Schedule 11.03 Knowledge of Parent
v
<PAGE> 7
AGREEMENT OF PURCHASE AND SALE
Agreement, dated as of January 22, 1998, by and among Pope & Talbot,
Inc., a Delaware corporation ("Parent"), Pope & Talbot, Wis., Inc., a Delaware
corporation and a wholly owned subsidiary of Parent ("Seller"), Plainwell
Holding Company, a Delaware corporation ("Buyer"), and PLAINWELL INC., a
Delaware corporation and a newly-formed wholly-owned subsidiary of Buyer
("Newco").
W I T N E S S E T H:
WHEREAS, Parent, through its consumer tissue products business
conducted by Seller, manufactures and markets private label consumer tissue
products (including both Parent and Seller to the extent they participate in
such business, the "Tissue Business"); and
WHEREAS, upon the terms and subject to the conditions of this
Agreement, Seller and Parent desire to sell, convey, transfer, assign and
deliver to Buyer, and Buyer desires, through Newco, to purchase and acquire from
Seller and Parent, the Tissue Business;
WHEREAS, Citicorp Venture Capital, Ltd. ("CVC"), an affiliate of
Buyer, has concurrently herewith entered into a letter agreement with Buyer
delivered herewith (the "Equity Commitment Letter"), which Equity Commitment
letter confirms CVC's commitment (subject to the terms and conditions contained
herein and therein) to contribute to Buyer the equity financing required for the
consummation of the transactions contemplated hereby;
NOW, THEREFORE, in consideration of the mutual representations,
warranties, covenants and agreements, and upon the terms and subject to the
conditions, hereinafter set forth, the parties do hereby agree as follows:
ARTICLE I
TERMS OF PURCHASE AND SALE
1.01. Purchase and Sale. (a) Upon the terms and subject to the
conditions of this Agreement, at the Closing (as defined in Section 1.02),
Parent and Seller shall sell, convey, transfer, assign and deliver to Buyer, and
Buyer shall purchase and acquire from Parent and Seller, all of Parent's and
Seller's respective right, title and interest in and to the Tissue Business,
including, without limitation, all of the assets used or held for use by Parent
or Seller primarily or exclusively in connection with the conduct of the Tissue
Business (except as provided in Section 1.01(b)), as the same may exist on the
Closing Date (as defined in Section 1.02), and whether tangible or intangible
(collectively, the "Assets"), including, without limitation, all of Parent's and
Seller's respective right, title and interest in and to the following, as the
same may exist on the Closing Date (without
<PAGE> 8
duplication of any item covered in more than one category below), and excluding
the Excluded Assets (as defined in Section 1.01(b)):
(i) all machinery, equipment, vehicles, office furniture, tools and
other tangible property used or held for use primarily or exclusively in
connection with the conduct of the Tissue Business;
(ii) all rights under leases and rental agreements in respect of
equipment or other tangible personal property employed primarily or
exclusively in connection with the Tissue Business;
(iii) all raw materials, inventories, including inventories of work
in process, samples and finished goods, products and supplies used or held
for use primarily or exclusively in connection with the conduct of the
Tissue Business;
(iv) all real property, and rights thereto, owned, used or held for
use in connection with the Tissue Business and as described in the
Disclosure Schedule (the "Purchased Real Property") and all rights under
leases of real property occupied in the conduct of the Tissue Business as
described in the Disclosure Schedule (the "Leased Real Property" and,
collectively with the Purchased Real Property, the "Properties");
(v) all accounts and notes receivable (other than intercompany
receivables to the extent not included as current assets for purposes of
the purchase price adjustments set forth in Section 1.04) relating to the
Assets and products sold by the Tissue Business;
(vi) subject to Section 4.01(b), all Commitments (as defined in
Section 2.05), Permits (as defined in Section 2.07), transferable
telephone exchange numbers, the right to receive and retain mail and other
communications and collections, including mail and communications from
customers, suppliers, distributors, agents and others;
(vii) all sales and promotional literature and all books, records,
files and data (including customer and supplier lists), or copies thereof,
pertaining materially to the Tissue Business, except (a) for books and
records relating primarily to the Excluded Assets and the Excluded
Liabilities and (b) all personnel records and files, copies of which will
be provided to Buyer to the extent permitted by law;
(viii) all patents, patent applications, patent disclosures and any
reissues, continuations, continuations-in-part, revisions, extensions or
reexaminations thereof, inventions (whether or not patentable and whether
or not reduced to practice), trademarks (including, without limitation,
the Tissue Names (as defined herein)), trade names, service marks, trade
dress, logos, corporate names, copyrights, mask works, and all
registrations, applications and renewals for any of the foregoing and all
goodwill associated therewith, all trade secrets, confidential
-2-
<PAGE> 9
information, technology (including, without limitation, software
associated with the efficient consumer response technology and category
management systems related to the Tissue Business), ideas, formulae,
compositions, know-how, manufacturing and production processes and
techniques, research information, drawings, specifications, designs,
plans, improvements, proposals, technical and computer data and
information, documentation and software, financial business and marketing
plans and related information, user, training and technical manuals,
marketing materials and all other proprietary rights, the right to sue for
past infringement or misappropriation thereof, and all licenses or other
agreements relating thereto, which are used or held for use primarily or
exclusively in connection with the conduct of the Tissue Business
(collectively, "Intellectual Property Rights");
(ix) all claims, security deposits, security bonds, prepayments,
warranties, guarantees, refunds, causes of action, rights of recovery,
rights of set-off and rights of recoupment of every kind and nature,
related primarily or exclusively to the conduct of the Tissue Business
(other than those relating solely to the Excluded Assets);
(x) all goodwill associated with the Tissue Business; and
(xi) all assets, properties and rights of Seller or Parent reflected
as assets on the Balance Sheet (as defined in Section 2.01), except for
deferred income tax assets and except to the extent such assets have been
sold or otherwise disposed of in the ordinary course of business since the
date of the Balance Sheet and except for assets not material to the Tissue
Business.
(b) Notwithstanding anything in Section 1.01(a) to the contrary, the
following assets shall be specifically excluded from the Assets (such excluded
assets, the "Excluded Assets"): cash, cash deposits, other cash equivalent
investments, and cash refunds; insurance policies and insurance proceeds; surety
bonds, security bonds or deposits; tax refunds; deferred income tax assets; any
and all rights (including all Intellectual Property Rights) related to the "Pope
& Talbot" and "Gentle Touch" Names or any similar Name (as defined in Section
6.02) and any Logo (as defined in Section 6.02) utilizing any such Name or any
similar Name; the Disbursement Account (as defined in Section 6.03(b)); and any
other assets set forth as "Excluded Assets" in the disclosure schedule delivered
by Seller to Buyer in connection herewith (the "Disclosure Schedule").
1.02. The Closing. The closing of the transactions contemplated
hereby (the "Closing") shall take place at the offices of counsel to Buyer's
senior lender, commencing at 9:00 a.m., New York City time, on the fifth
business day after the conditions precedent set forth in Articles VII and VIII
shall have been satisfied or shall have been waived by the parties entitled to
waive the same, or at such other time and/or place and/or on such other date as
the parties may mutually agree (the "Closing Date").
-3-
<PAGE> 10
1.03. Consideration; Purchase Price and Payment; Delivery of
Documents. (a) The aggregate purchase price to be paid by Buyer for the Assets
(the "Purchase Price") shall be $121,000,000 plus the excess of the amount of
Closing Working Capital set forth on the Preliminary Closing Statement over
$14,600,000, or minus the amount by which the amount of Closing Working Capital
as set forth on the Preliminary Closing Statement is less than $14,400,000.
Payment of the Purchase Price shall be in U.S. dollars on the Closing Date by
wire transfer of immediately available funds to such account or accounts as may
be designated by Seller.
(b) At the Closing, (i) Seller and/or Parent, as the case may be,
shall deliver to Buyer duly executed instruments of transfer (including transfer
by special warranty deed (or the equivalent) for the Purchased Real Property)
and assignment of the Assets sufficient to vest in Buyer (or, at Buyer's
direction, in Newco) all of Parent's and Seller's respective right, title and
interest in and to the Assets in accordance with the terms of this Agreement and
(ii) Buyer or Newco, as the case may be, shall deliver to Seller and Parent duly
executed instruments of assumption evidencing the assumption by Buyer or Newco,
as the case may be, of the Assumed Liabilities (as defined in Section 1.06).
Buyer and Parent shall each bear 50% of the cost of any documentary, stamp,
sales, excise, transfer, gross receipts or other taxes payable (other than
income taxes payable by Seller) attributable to or in respect of the sale of the
Assets and the assumption of the Assumed Liabilities contemplated hereby.
1.04. Purchase Price Adjustments. (a) At least ten business days
prior to the Closing Date, Seller and Buyer shall in good faith work together to
develop a statement (such statement the "Preliminary Closing Statement"),
setting forth their joint determination, as of the Closing Date, of the Closing
Working Capital (as defined in Section 1.04(h)). In the event that Buyer and
Seller are unable to reach agreement on such statement, the Closing Working
Capital included in the Preliminary Closing Statement shall be based upon the
balance sheet prepared in good faith by Parent for the Tissue Business as at the
end of the month immediately preceding the Closing.
(b) As promptly as practicable, but in no event more than 60 days
after the Closing Date, Seller, with the cooperation of Buyer, shall prepare and
deliver to Buyer a statement, certified by Seller's Chief Financial Officer (the
"Proposed Final Closing Statement"), setting forth Seller's good faith
calculation of Closing Working Capital, as of the Closing Date, together with
reasonable supporting details. For purposes of this Agreement, the Proposed
Final Closing Statement and the Final Closing Statement (as defined in Section
1.04(e)) shall be prepared (and Closing Working Capital shall be calculated) in
accordance with GAAP (as defined in Section 2.01).
(c) Within 30 days after delivery of the Proposed Final Closing
Statement, Buyer shall notify Seller of its agreement or disagreement with the
Proposed Final Closing Statement. For a period of 15 days after Buyer's notice
of any disagreement in accordance with the preceding sentence, the parties shall
attempt in good faith to resolve any items or amounts affecting the calculation
of Closing Working Capital as to which Buyer objects ("Disputed Items"). If
during such 15-day period, the
-4-
<PAGE> 11
parties are able to resolve all Disputed Items, the statement of Closing Working
Capital as revised to reflect such resolution, or as presented on the Proposed
Final Closing Statement if there are no Disputed Items identified by Buyer
within such 15-day period, shall become the "Final Closing Statement."
(d) If during such 15-day period any such Disputed Items cannot be
resolved, (i) those items to the extent of the amounts agreed upon by the
parties shall no longer constitute Disputed Items and shall be conclusive for
purposes of preparing the Final Closing Statement and calculation of the Closing
Working Capital and (ii) the parties shall cause KPMG Peat Marwick or, if such
firm is unable to serve, another independent accounting firm of internationally
recognized standing reasonably satisfactory to Parent and Buyer promptly to
review this Agreement and the remaining Disputed Items for purposes of resolving
the remaining Disputed Items and calculating the Closing Working Capital. In
making such calculation, such accounting firm shall make a determination only of
Disputed Items not resolved by the parties (and then, such determination shall
not fall outside the range established by the parties) and in the case of all
other items of Closing Working Capital shall use the amounts which are agreed
upon by the parties. Such accounting firm shall deliver to Seller and Buyer, as
promptly as practicable, a report setting forth its resolution of the remaining
Disputed Items and its calculation of Closing Working Capital. Such report shall
be in writing, shall utilize the definitions set forth in, and other terms of,
this Agreement, and shall be final and binding upon the parties hereto. The cost
of such review and report shall be borne by the party against whom the
disagreement is in greater part resolved or, if the resolution does not favor
either party, such costs shall be borne equally by Seller and Buyer.
(e) The Closing Working Capital agreed to by the parties or as
calculated by the accounting firm as set forth in Section 1.04(d) above, as the
case may be, shall be the final Closing Working Capital ("Final Closing Working
Capital") and the Proposed Final Closing Statement adjusted to reflect such
Final Closing Working Capital, shall be the "Final Closing Statement" which
shall be conclusive for all purposes of this Agreement.
(f) If the amount of Final Closing Working Capital is greater than
the amount of Closing Working Capital set forth on the Preliminary Closing
Statement, the Purchase Price shall be increased by the lesser of (x) the amount
of such difference and (y) the sum of (1) the positive excess, if any, of
$14,400,000 over Closing Working Capital and (2) the excess, if any, of the
Final Closing Working Capital over $14,600,000; and if the amount of Final
Closing Working Capital is less than the amount of Closing Working Capital set
forth on the Preliminary Closing Statement, the Purchase Price shall be
decreased by the lesser of (x) the amount of such difference and (y) the sum of
(1) the positive excess, if any, of Closing Working Capital over $14,600,000 and
(2) the excess, if any, of 14,400,000 over Final Closing Working Capital. If the
net result of the preceding sentence is an increase in the Purchase Price, Buyer
shall promptly pay to (or as directed by) Seller the amount of such net
difference, and if the net result of the preceding sentence is a decrease in the
Purchase Price, Seller shall promptly pay to (or as directed by) Buyer the
amount of such net difference. Any such payment pursuant to this
-5-
<PAGE> 12
Section 1.04(f) shall be made within 10 days after (i) Buyer and Seller agree
upon the Final Closing Working Capital pursuant to Section 1.04(d) or (ii) if
Disputed Items are referred to a firm of independent accountants pursuant to
Section 1.04(d), the delivery of the report of such firm referred to in Section
1.04(d).
(g) Any payments pursuant to this Section 1.04 shall be made by wire
transfer of immediately available funds to such account of Seller or Buyer, as
the case may be, as may be designated by such receiving party. The amount of any
payment to be made pursuant to this Section 1.04 shall bear interest from and
including the Closing Date to, but excluding, the date of payment at an annual
rate equal to the rate announced from time to time by U.S. National Bank of
Oregon as its prime rate, plus 2% (the "Interest Rate"), with the amount of such
interest being payable on the date of the payment made pursuant to this Section
1.04.
(h) For purposes hereof, the "Closing Working Capital" shall mean
(A) the sum of (i) accounts receivable, (ii) inventories, (iii) prepaid
expenses, minus (B) the sum of (i) accounts payable, (ii) accrued liabilities,
including compensation, benefits and related taxes, and unearned volume
discounts and (iii) other current liabilities, in each case of the Tissue
Business and in any event shall exclude Excluded Assets and Excluded Liabilities
provided that in computing Closing Working Capital, the liability for workers'
compensation expense and the current portion, if any, of the liability for
retiree health shall be deemed to be equal to the amount that such liabilities
are reflected on the Balance Sheet (as defined in Section 2.01).
1.05. Liabilities. (a) At the Closing, except as specifically
provided below in Section 1.05(c) and Section 6.03, Buyer shall assume all
liabilities and obligations (collectively the "Assumed Liabilities") of or
arising out of or relating to the Tissue Business, its assets or business, or
the conduct or ownership or operation by Seller (or any of its predecessors) of
the Tissue Business, its assets or business, of whatever kind or nature, whether
contingent or absolute, whether known or unknown, whether arising prior to or on
or after, and whether determined or indeterminable as of, the Closing Date,
including, without limitation, the following:
(i) all liabilities and obligations under or primarily related to
the Commitments, the Permits and other intangible property to the extent
included in the Assets;
(ii) all (a) liabilities and obligations to the extent relating
primarily or exclusively to the acquisition, ownership or use of any of
the Assets after the Closing, and (b) litigation relating primarily or
exclusively to the Tissue Business;
(iii) all liabilities and obligations which are included as
liabilities on the Final Closing Statement and all liabilities (other than
Excluded Liabilities and Income Tax liabilities) reflected as such in the
Financial Statements (as defined in Section 2.01);
-6-
<PAGE> 13
(iv) all liabilities and obligations relating primarily or
exclusively to or arising out of Environmental Matters in respect of the
Tissue Business arising directly or indirectly from acts, omissions,
conditions, releases, including, without limitation, the presence of
Hazardous Materials on or prior to the Closing Date;
(v) all accounts payable to third parties and accrued liabilities
which relate primarily or exclusively to the Tissue Business, including
without limitation, all accrued liabilities for salaries and compensated
absences of the Employees (as defined in Section 9.01); and
(vi) subject to Section 4.01(c), all liabilities of Parent and
Seller under or in respect of the $18,800,000 City of Eau Claire,
Wisconsin Tax-Exempt Adjustable Mode Solid Waste Disposal Revenue Bonds
(Pope & Talbot, Wis., Inc. Project) Series 1994 (the "IRB").
(b) If applicable (and without duplication), Seller shall retain,
and Buyer shall not assume, any obligations or liabilities of Seller to the
extent that (i) Seller is insured therefor and (ii) Seller actually receives
payments from Seller's insurers in respect of any such obligations or
liabilities pursuant to the insurance policies in effect on the date hereof,
including, without limitation, any insurance Seller may have relating to
worker's compensation, product liability, general liability and automobile
liability. Seller agrees to use its commercially reasonable best efforts to seek
to collect any insurance claims with respect to the Tissue Business to the
extent Seller is insured therefor.
(c) Anything in this Agreement to the contrary notwithstanding,
Buyer shall not assume, and Seller shall, in accordance with Section 11.02,
indemnify and hold harmless Buyer and its affiliates from and against any Loss
incurred or suffered by Buyer arising out of, the following (collectively, the
"Excluded Liabilities"):
(i) the liabilities and obligations the responsibility for which is
set forth in the Disclosure Schedule as being retained by Seller or any
Affiliate thereof;
(ii) all liabilities and obligations relating to or arising out of
the Excluded Assets;
(iii) all liabilities and obligations which do not arise out of or
relate primarily or exclusively to the Tissue Business;
(iv) all liability for Income Taxes with respect to taxable periods
or portions thereof, ending on or before the Closing Date;
(v) all liabilities in respect of indebtedness for borrowed money
(other than the IRB and any capital leases included in the Commitments);
(vi) all intercompany liabilities (other than through the operation
of the Disbursement Account (as defined in Section 6.03));
-7-
<PAGE> 14
(vii) all liabilities for Seller's and Parent's payments, or
obligations to pay, any fee or any commission to any broker, finder or
intermediary in connection with the transactions contemplated by this
Agreement; and
(viii) all liabilities and obligations (including without limitation
any fines or penalties) arising from any failure of the Tissue Business,
prior to Closing, to demonstrate financial responsibility in accordance
with applicable financial responsibility requirements set forth in
Wisconsin State Statute ss. 289.41 (and any applicable analogous federal
financial responsibility requirements) applicable to the Pope & Talbot,
Inc. Landfill in Eau Claire, Wisconsin.
1.06. Accounting Principles. Each accounting term used herein shall
have the meaning that is applied thereto in accordance with generally accepted
accounting principles, as in effect on the date hereof, applied on a basis
consistent with past practice ("GAAP") and each account included in the
financial statements delivered hereunder shall be calculated in accordance with
GAAP and shall be consistent with the books and records of Parent and Seller;
provided, that in case of Disputed Items only, all known errors and adjustments
shall be taken into account in the calculation of each account set forth above
constituting a Disputed Item, regardless of its materiality. With respect to the
calculation of the levels of the accounts set forth in this Article I, no change
in accounting principles shall be made from those utilized by Parent in
preparing the Financial Statements, including, without limitation, with respect
to the nature or classification of accounts or reserves, as well as all
practices, methods or conventions utilized by Parent in making accounting
estimates.
ARTICLE II
REPRESENTATIONS AND WARRANTIES OF SELLER AND PARENT
Seller and Parent, jointly and severally, represent and warrant to
Buyer and Newco as follows:
2.01. Financial Statements. Seller has delivered to Buyer audited
balance sheets of the Tissue Business (determined, except as set forth in the
Disclosure Schedule, without including the Excluded Assets and the Excluded
Liabilities) as at September 30, 1997 (the "Balance Sheet") and December 31,
1996 and audited statements of operations of the Tissue Business (determined,
except as set forth in the Disclosure Schedule, without including the Excluded
Assets and the Excluded Liabilities) for the nine-month period ended September
30, 1997 and each of the fiscal years ended December 31, 1996 and December 31,
1995 (collectively, the "Financial Statements"), copies of which are included in
the Disclosure Schedule. Except as set forth in the Disclosure Schedule and the
notes to the Financial Statements, the Financial Statements (i) have been
prepared in accordance with GAAP and (ii) fairly present in all material
respects the financial position of the Tissue Business (determined, except as
set forth in the Disclosure Schedule, without including the Excluded Assets and
the Excluded Liabilities) as of September 30, 1997, December 31, 1996 and
December 31, 1995 and the results of
-8-
<PAGE> 15
operations of the Tissue Business (determined, except as set forth in the
Disclosure Schedule, without including the Excluded Assets and the Excluded
Liabilities) for the nine months ended September 30, 1997 (subject to normal
year end adjustments) and each of the fiscal years ended December 31, 1996 and
December 31, 1995, respectively.
2.02. Absence of Certain Changes or Events. Except as set forth in
the Disclosure Schedule or expressly authorized by this Agreement, since the
date of the Balance Sheet, the Tissue Business has not (a) suffered any damage,
destruction or casualty loss to its physical properties which individually or in
the aggregate would have a material adverse effect on the assets, business or
financial condition of the Tissue Business (a "Material Adverse Effect"); (b)
incurred or discharged any obligation or liability or entered into any other
transaction except in the ordinary course of business and except for
obligations, liabilities and transactions that do not individually or in the
aggregate have a Material Adverse Effect; (c) suffered any change in its assets,
business or financial condition that individually or in the aggregate have a
Material Adverse Effect; (d) increased the rate or terms of compensation payable
or to become payable directly or indirectly to the Employees or increased the
rate or terms of any bonus, pension or other employee benefit plan covering any
of the Employees, except in each case increases occurring in the ordinary course
of business in accordance with its past practices (including normal periodic
performance reviews and related compensation and benefit increases) or as
required by any pre-existing Commitment listed in the Disclosure Schedule; (e)
sold, leased, licensed or otherwise disposed of any assets of the Tissue
Business, other than sales of inventory or obsolete equipment in the ordinary
course of business; (f) amended or terminated any Commitment to which Seller or
Parent is a party other than in the ordinary course of business; (g) entered
into any transactions with its affiliates (except for (i) services provided by
Parent to the Tissue Business of the nature covered by the Transition Services
Agreement (as defined in Section 6.10), (ii) the operation of Parent's cash
management and disbursement accounts and (iii) transactions set forth in the
Disclosure Schedule); (h) committed to pay any severance or termination pay to
any Person except in the ordinary cause of business; or (i) committed to do any
of the things set forth in this Section 2.02.
2.03. Title to Assets. (a) Parent or Seller has good and marketable
title to, and/or an enforceable right to use, all of the Assets (including those
reflected on the Balance Sheet, except for assets and properties sold, consumed
or otherwise disposed of in the ordinary course of business since the date of
the Balance Sheet), free and clear of all liens, security interests, mortgages,
pledges, adverse claims, title defects or other encumbrances (collectively,
"Encumbrances"), except (a) as may otherwise be set forth in the Disclosure
Schedule, (b) for liens of Taxes not yet due and payable or due but not
delinquent or being contested in good faith by appropriate proceedings and set
forth in the Disclosure Schedule and (c) Encumbrances which individually or in
the aggregate do not have a Material Adverse Effect (collectively, "Permitted
Encumbrances"). The Assets are in good physical condition and repair, subject to
normal wear and tear, as is sufficient and appropriate to enable the Tissue
Business, to conduct its business as currently conducted.
-9-
<PAGE> 16
(b) The Disclosure Schedule sets forth a list containing the
addresses and legal descriptions of all Purchased Real Property. With respect to
each such parcel of real property: (i) such parcel is free and clear of all
Encumbrances, except Permitted Encumbrances; (ii) there are no parties in
possession (other than Seller) and no leases, subleases, licenses, concessions,
or other agreements, written or oral, granting to any person the current or
future right of use or occupancy of any portion of such parcel; and (iii) there
are no outstanding rights of first refusal to purchase such parcel (other than
the right of Buyer pursuant to this Agreement), or any portion thereof or
interest therein. None of such parcels has been condemned or otherwise taken in
any material respect by public authority and, to Parent's knowledge, no such
condemnation or taking is threatened.
(c) The Disclosure Schedule sets forth a list containing the
addresses of all of the Leased Real Property and the leases, subleases, or other
occupancy agreements therefor (the "Leases"). Each of the Leases is in full
force and effect and either Seller or Parent holds a valid and existing
leasehold or subleasehold interest under each of such Leases, free and clear of
all Encumbrances, except Permitted Encumbrances. Seller has delivered to Buyer
complete and accurate copies of each of the Leases including all amendments,
extensions, and other modifications thereto. With respect to each Lease listed
in the Disclosure Schedule: (i) the Lease is legal, valid, binding, enforceable
and in full force and effect; (ii) neither Parent nor Seller nor, to Parent's
knowledge, any other party to the Lease is in breach or default, and no event
has occurred which, with notice or lapse of time, would constitute such a breach
or default, or permit termination, modification or acceleration, under the
Lease; (iii) no party to the Lease has, to Parent's knowledge, repudiated any
material provision thereof; (iv) there are no material disputes, oral
agreements, or forbearance programs in effect as to the Lease; (v) the Lease has
not been modified in any material respect, except to the extent that such
modifications are disclosed by the documents delivered to Buyer; (vi) Parent or
Seller has not assigned, transferred, conveyed, mortgaged, deeded in trust or
encumbered any interest in the Lease, except for the Permitted Encumbrances;
(vii) except as set forth in the Disclosure Schedule, the Lease is fully
assignable to Buyer and no consent, waiver, approval or authorization is
required from the landlord under any of the Leases as a result of the execution
of this Agreement or the consummation of the transactions completed hereby
resulting in a Material Adverse Effect; (viii) other than Parent or Seller,
there are no parties in possession or parties having any current or future right
to occupy the Leased Real Property during the term of the Leases and any
extensions thereto which would have a Material Adverse Effect; and (ix) none of
the Leased Real Property has been condemned or otherwise taken in any material
respect by public authority and, to Parent's knowledge, no such condemnation or
taking is threatened.
(d) Except for the Properties disclosed in the Disclosure Schedule,
there is no real property leased, owned, used or occupied by Seller in
connection with the Tissue Business.
(e) The Properties and all plants, buildings and improvements
located thereon conform to all applicable building, zoning and other laws,
ordinances, rules and
-10-
<PAGE> 17
regulations, except to the extent that failure to comply does not, individually
or in the aggregate, have any Material Adverse Effect. All Permits necessary to
the current occupancy and use of the Properties have been obtained, are in full
force and effect and have not been violated, except for matters not having,
individually or in the aggregate, a Material Adverse Effect. There exists no
violation of any covenant, condition, restriction, easement, agreement or order
affecting any portion of the Properties which would have a Material Adverse
Effect. All improvements located on the Properties have direct access to a
public road adjoining such Properties. No such improvements or accessways
encroach on land not included in the Properties and no such improvement is
dependent for its access, operation or utility on any land, building or other
improvement not included in the Properties, except for matters disclosed in the
Disclosure Schedule and matters not having any Material Adverse Effect. Seller
is not obligated to purchase or lease any real property in respect of the Tissue
Business.
2.04. Patents, Trademarks, Etc. The Disclosure Schedule sets forth a
complete and correct list of all: (i) patented or registered Intellectual
Property Rights and pending applications therefor and (ii) to Parent's
knowledge, all material trade names and material unregistered trademarks and
material service marks included in the Intellectual Property rights, and (iii)
all licenses or similar agreements or arrangements for the Intellectual Property
Rights to which Seller is a party and all licenses or similar agreements or
arrangements for intellectual property rights to which Parent or Seller, as the
case may be, is a party as a licensee. Except as set forth in the Disclosure
Schedule, the Intellectual Property Rights comprise, to Parent's knowledge, all
of the material intellectual property rights necessary or desirable for the
operation of the Tissue Business as currently conducted in all material
respects. Except as set forth in the Disclosure Schedule, (a) Parent or Seller
owns all right, title and interest in and to or possesses adequate licenses or
other valid rights to use all Intellectual Property Rights necessary for the
operation of the Tissue Business as currently conducted free and clear of all
Encumbrances (other than Permitted Encumbrances), (b) to Parent's knowledge, the
conduct of the Tissue Business as now being conducted does not conflict with or
misappropriate any intellectual property rights of any third party and nor, to
Parent's knowledge, will any such infringement, misappropriation or conflict
occur as a result of the continued operation of the Tissue Business as currently
conducted, except for matters not having a Material Adverse Effect, (c) no
written or, to Parent's knowledge, verbal claim by any third party contesting
the validity, enforceability, use or ownership of any of the Intellectual
Property Rights has been made, is currently outstanding or, to the Parent's
knowledge, is threatened, and (d) neither Parent nor Seller have received any
notices of, and are not aware of any facts which indicate any infringement or
misappropriation by, or conflict with, any third party with respect to the
Intellectual Property Rights (including, without limitation, any demand or
request that Parent or Seller license any rights from a third party).
2.05. Commitments. The Disclosure Schedule contains a list, as of
the date hereof, of each contract or agreement, whether written or oral
(including any and all amendments thereto), relating to the conduct of the
Tissue Business to which Parent or
-11-
<PAGE> 18
Seller is a party or by which Parent or Seller or any of the Assets is bound
(collectively, the "Commitments"), other than the purchase or sale orders
entered into in the ordinary course of business, (i) which involves payment over
the remaining term of such Commitment of more than $125,000 or requires the
Tissue Business to provide goods or services worth more than $125,000 and which
in each case is not cancelable upon 30 days' notice or less without penalty,
(ii) which evidences or provides for any indebtedness of the Tissue Business or
any Encumbrance securing such indebtedness on any of their respective assets,
(iii) which guarantees the performance, liabilities or obligations of any other
entity, (iv) which restricts the Tissue Business from competing in any line of
business, (v) which relates to the distribution or marketing of the products of
the Tissue Business and involves payment over the remaining term of such
Commitment of more than $125,000 and is not cancelable upon 30 days' notice or
less without penalty, (vi) which constitute joint venture or partnership
agreements, (vii) which constitute take or pay or requirements contracts or
agreements or any similar contracts or agreements requiring Seller to pay
regardless of whether products or services are received, (viii) which constitute
contracts and other agreements with clients, customers or any other Person for
the sharing of fees, the rebating of charges or purchase price or other similar
arrangements (excluding from this clause (viii) any purchase or sale orders
entered into in the ordinary course of business and any other category of
contracts covered in (i) - (vii) above), (ix) which constitute employment
agreements, commitments, consulting or severance agreements or arrangements or
other contracts or agreements, including indemnification agreements with any
current or former officer, director, employee representative or other key
employee, or (x) which is otherwise material to the Tissue Business (provided,
however, that for purposes of the condition contained in Section 7.01 that the
foregoing representations contained in the Section 2.05 be true and correct as
of the Closing Date, the foregoing $125,000 dollar amounts referred to above
shall each be deemed to be $250,000). Except as set forth in the Disclosure
Schedule, Parent or Seller is not in default under any of the Commitments which
default individually or in the aggregate would have a Material Adverse Effect.
Except as set forth in the Disclosure Schedule, each of such Commitments is a
valid and binding obligation of Parent or Seller, as the case may be, and is
enforceable against Parent or Seller in accordance with its terms, except to the
extent that such enforceability may be limited by bankruptcy, insolvency,
reorganization, moratorium or other similar laws relating to creditors' rights
generally and is subject to general principles of equity, and neither Parent nor
Seller nor, to the knowledge of Parent, any other party is, or with the passage
of time or giving notice will be, in default under any Commitment, except in
each case for such failures to be valid, binding and enforceable and for such
defaults which, individually or in the aggregate, do not have a Material Adverse
Effect.
2.06. Litigation. Except as set forth in the Disclosure Schedule,
there is no action or proceeding related to the conduct of the Tissue Business
in any court or before any governmental authority ("Litigation") pending or, to
Parent's knowledge, threatened against Parent or Seller. Except as set forth in
the Disclosure Schedule, none of such Litigation (i) has a reasonable likelihood
of a determination which would have a Material Adverse Effect or (ii) seeks to
enjoin or obtain damages in respect of the
-12-
<PAGE> 19
consummation of the transactions contemplated hereby. Except as set forth in the
Disclosure Schedule, neither Parent nor Seller is subject to any outstanding
orders, rulings, judgments or decrees which individually or in the aggregate
would have a Material Adverse Effect or would prevent or obtain damages in
respect of the consummation of the transactions contemplated hereby.
2.07. Compliance with Laws; Environmental Matters. Except as set
forth in the Disclosure Schedule, the Tissue Business is in compliance with all
applicable laws, rules and regulations, orders, judgments and decrees, in each
case, as in effect as of the date hereof (collectively, "Laws"), except where
the failure to comply therewith individually or in the aggregate would not have
a Material Adverse Effect. Seller and/or Parent, as the case may be, has all
governmental permits, licenses and authorizations (collectively, "Permits")
required under applicable Laws for the operation of the Tissue Business as
presently conducted or for the ownership of the Assets, except where the absence
thereof individually or in the aggregate would not have a Material Adverse
Effect. All such Permits are in full force and effect and in good standing,
except for failures not having a Material Adverse Effect and except as
separately identified on the Disclosure Schedule. Neither Parent nor Seller has
received any written notice of any claim of revocation of any such Permits nor,
to Parent's knowledge, has any such claim been threatened, except for such
notices or claims which would not have a Material Adverse Effect. Except as set
forth in the Disclosure Schedule, since January 1, 1992, no hazardous substance
(as defined under the Comprehensive Environmental, Response, Compensation and
Liability Act of 1980, 42 U.S.C. ss. 9601, et seq., as amended as of the date
hereof), petroleum product, pollutant, contaminant, toxic chemical waste or odor
has been released into the environment on or from (i) the premises of the Tissue
Business or (ii) any other property where hazardous substances, petroleum
products, pollutants, contaminants, waste or toxic chemicals used or generated
by the Tissue Business, in each case, which is required by applicable Laws to be
remediated by or at the expense of Seller and/or Parent, as the case may be, or
has given or is reasonably expected to give rise to Losses (as defined in
Section 11.02(i)) resulting from adverse, or allegedly adverse, effects on the
environment, real or personal property, human health and safety or natural
resources, except where the costs of such remediation or Losses, individually or
in the aggregate, would not have a Material Adverse Effect. Except as set forth
in the Disclosure Schedule, since January 1, 1992, there have been no written
claims, actions or proceedings with respect to Environmental Matters related to
the conduct of the Tissue Business. Buyer, Parent and Seller agree that the only
representations and warranties of Seller and Parent being made herein with
respect to any Environmental Matters are those contained in this Section 2.07.
As used herein, the term "Environmental Matters" means any matter arising out of
or relating to the protection or regulation of the environment, human health or
safety.
2.08. Corporate Power and Authority; Effect of Agreement. (a) Each
of Seller and Parent is a corporation duly organized, validly existing and in
good standing under the laws of the State of Delaware and has all requisite
corporate power and authority to execute, deliver and perform this Agreement and
each Ancillary Document
-13-
<PAGE> 20
(as defined in Section 11.01) to which it is a party and to consummate the
transactions contemplated hereby and thereby, to the extent each of them shall
be a party hereto or thereto.
(b) The execution, delivery and performance by Seller and Parent of
this Agreement and the consummation by Seller and Parent of the transactions
contemplated hereby have been duly authorized by all necessary corporate action
on the part of Seller and Parent.
(c) This Agreement has been, and the Ancillary Documents when
executed and delivered will be, duly and validly executed and delivered by
Seller and Parent, to the extent each of them shall be a party thereto. This
Agreement constitutes, and the Ancillary Documents when executed and delivered
will constitute, valid and binding obligations of Seller and Parent, to the
extent each of them shall be a party thereto, enforceable against Seller and
Parent, to the extent each of them shall be a party thereto, in accordance with
their terms, except to the extent that such enforceability (i) may be limited by
bankruptcy, insolvency, reorganization, moratorium or other similar laws
relating to creditors' rights generally, and (ii) is subject to general
principles of equity.
(d) The execution, delivery and performance by Seller and Parent of
this Agreement and the Ancillary Documents, to the extent each of them shall be
a party thereto, and the consummation by Seller and Parent of the transactions
contemplated hereby and thereby will not, with or without the giving of notice
or the lapse of time, or both, (i) violate any provision of Law, rule or
regulation to which Seller or Parent, as the case may be, is subject, (ii)
violate any order, judgment or decree applicable to Seller or Parent, as the
case may be, or (iii) conflict with or result in a breach of the provisions of,
or constitute a default under (A) the Certificate of Incorporation or the
By-laws of Seller or Parent, as the case may be, or (B) any agreement or
instrument to which Seller or Parent, as the case may be, is a party, except, in
the case of clauses (i), (ii) and (iii)(B), for violations or conflicts,
breaches or defaults, which would not individually or in the aggregate have a
Material Adverse Effect and which in the aggregate would not materially hinder
or impair the consummation of the transactions contemplated hereby or Buyer's
ability to operate the Tissue Business.
2.09. Employee Benefit Plans. (a) The Disclosure Schedule lists all
material Parent Benefit Plans and Benefit Arrangements (as defined in Section
9.01(c) and (d), respectively). With respect to each Parent Benefit Plan and
each Benefit Arrangement, Seller has made available to or provided Buyer with
true, complete and correct copies of (to the extent applicable): (i) all
documents pursuant to which the Parent Benefit Plan or Benefit Arrangement is
maintained, funded and administered, including any relevant collective
bargaining agreements; (ii) the most recent annual report (Form 5500 series) as
filed with the Internal Revenue Service (the "IRS") (with applicable
attachments); (iii) the most recent audited financial statements; (iv) the most
recent actuarial valuation of benefit obligations; (v) the most recent summary
plan
-14-
<PAGE> 21
description and summary annual report provided the plan participants; and (vi)
the most recent determination letter received from the IRS.
(b) Each Parent Benefit Plan that is intended to be qualified within
the meaning of Section 401(a) of the Code (as defined in Section 2.11(b)) and
each trust which forms a part of any such Parent Benefit Plan has received a
determination from the IRS that such Parent Benefit Plan is qualified under
Section 401(a) of the Code and that such related trust is exempt from taxation
under Section 501(a) of the Code, and nothing has occurred since the date of
such determination that could adversely affect the qualification of such Parent
Benefit Plan or the exemption from taxation of such related trust, and that
could not be corrected without material liability to Parent.
(c) Except as set forth in the Disclosure Schedule: (i) each Parent
Benefit Plan and any related trust, insurance contract or fund has been
maintained, funded and administered in all material respects in compliance with
its respective terms and the terms of any applicable collective bargaining
agreement and in compliance with all applicable laws and regulations, including,
but not limited to, the Employee Retirement Income Security Act of 1974, as
amended ("ERISA") and the Code; (ii) there has been no application for or waiver
of the minimum funding standards imposed by Section 412 of the Code with respect
to any Parent Benefit Plan; (iii) no asset that is to be acquired by Buyer,
directly or indirectly, pursuant to this Agreement is subject to any lien under
ERISA or the Code; (iv) neither Seller nor Parent has incurred any liability
under Title IV of ERISA (other than for contributions not yet due) or to the
Pension Benefit Guaranty Corporation (other than for payment of premiums not yet
due); (v) all contributions and premium payments required to be made on account
of or with respect to each Parent Benefit Plan and Benefit Arrangement for all
periods ending on the Closing Date have been made; and (vi) there are no pending
or, to the knowledge of Parent, threatened material actions, suits,
investigations or claims with respect to any Parent Benefit Plan or Benefit
Arrangement (other than routine claims for benefits) which could result in
material liability to Buyer.
(d) Except as set forth in the Disclosure Schedule, to the knowledge
of Parent: (i) no Parent Benefit Plan subject to Title IV of ERISA which is a
"multiemployer plan" (as such term is defined in Section 3(37) of ERISA) (a
"Multiemployer Plan") has been terminated since September 2, 1974; (ii) no
proceeding has been initiated to terminate any such Multiemployer Plan and there
has been no "reportable event" (within the meaning of Section 4043(c) of ERISA)
since September 2, 1974 with respect to any such Multiemployer Plan; (iii) no
Multiemployer Plan is in reorganization as described in Section 4241 of ERISA
and no Multiemployer Plan is insolvent as described in Section 4245 of ERISA;
(iv) neither Seller nor Parent has incurred any liability on account of a
"partial withdrawal" or a "complete withdrawal" (within the meaning of Sections
4205 and 4203, respectively, of ERISA) from any Multiemployer Plan, no such
liability has been asserted, and there are no events or circumstances which
could reasonably result in any such partial or complete withdrawal; and (v)
neither Seller nor Parent is bound by any contract or agreement or has any
obligation or liability described in Section 4204 of ERISA. To the knowledge of
Parent,
-15-
<PAGE> 22
each Multiemployer Plan complies in form and has been administered in all
material respects in accordance with the requirements of ERISA and, where
applicable, the Code; and to the knowledge of Parent, each Multiemployer Plan is
qualified under Section 401(a) of the Code, as of the date hereof. Set forth in
the Disclosure Schedule is an accurate and complete list of the amounts which
Seller or Parent has contributed (or, if greater, the amount Seller or Parent
was required to contribute) to each Multiemployer Plan with respect to each of
the calendar years from 1993 to 1997.
(e) Except as set forth in the Disclosure Schedule, none of the
Parent Benefit Plans or Benefit Arrangements obligates Parent or Seller to pay
any separation, severance, termination or similar benefit solely as a result of
any transaction contemplated by this Agreement or solely as a result of a change
in control or ownership within the meaning of Section 280G of the Code.
(f) Except as set forth in the Disclosure Schedule: (i) Parent and
Seller have complied in all material respects with the health care continuation
requirements of Part 6 of Subtitle B of Title I of ERISA; and (ii) neither
Seller nor Parent nor any other "disqualified person" (within the meaning of
Section 4975 of the Code) or "party in interest" (within the meaning of Section
3(14) of ERISA) has taken any action with respect to any of the Parent Benefit
Plans which could subject any such Parent Benefit Plan (or its related trust) or
Seller or Parent or any officer, director or employee of any of the foregoing to
any material penalty or tax under Section 502(i) or ERISA or Section 4975 of the
Code.
2.10. Consents. Except as set forth in the Disclosure Schedule, no
consent, approval or authorization of, or exemption by, or filing with, any
governmental authority or third party (collectively, "Consents") is required to
be obtained or made by Seller and/or Parent, as the case may be, in connection
with the execution, delivery and performance by Seller and Parent of this
Agreement and the Ancillary Documents or the taking by Seller and/or Parent, as
the case may be, of any other action contemplated hereby or thereby, except for
Consents the failure of which to obtain or make would not have a Material
Adverse Effect and would not materially hinder or impair the consummation of the
transactions contemplated hereby.
2.11. Taxes. (a) Except as set forth in the Disclosure Schedule, all
federal, state, local and foreign Tax Returns required to be filed with respect
to the Tissue Business have been properly filed in a timely manner (taking into
account all extensions of due dates), except where the failure to so file,
individually or in the aggregate, does not have a Material Adverse Effect.
Except as set forth in the Disclosure Schedule, no deficiencies for any Taxes in
respect of the Tissue Business have been asserted in writing against Seller
which remain unpaid and which individually or in the aggregate would have a
Material Adverse Effect. Except as set forth in the Disclosure Schedule, no
extensions of time or waivers of statutes of limitation are in effect in respect
of federal income Taxes with respect to the Tissue Business. All Taxes due and
payable with respect to the Tissue Business have been paid other than Taxes
reserved or reflected as liabilities on the Balance Sheet as adjusted for the
passage of time in accordance with
-16-
<PAGE> 23
past customs and practice of the Tissue Business and Taxes which individually or
in the aggregate would not have a Material Adverse Effect. All payroll and
employment-related Taxes required to have been withheld and paid over to any
taxing authority with respect to the Tissue Business have been withheld and
paid, other than Taxes reserved or reflected as liabilities on the Balance Sheet
as adjusted for passage of time in accordance with past customs and practice of
the Tissue Business and Taxes which individually or in the aggregate would not
have a Material Adverse Effect.
(b) For purposes of this Agreement:
"Code" means the Internal Revenue Code of 1986, as amended, and the
applicable regulations thereunder.
"Income Tax" or "Income Taxes" means all federal, state, local or
foreign income, franchise or similar Tax.
"Tax" or "Taxes" means any federal, state, local, or foreign income,
gross receipts, license, payroll, employment, excise, severance, stamp,
occupation, premium, windfall profits, environmental (including taxes under Code
ss. 59A), customs duties, capital stock, franchise, profits, withholding, social
security (or similar), unemployment, disability, real property, personal
property, sales, use, transfer, registration, value added, alternative or add-on
minimum, estimated, or other tax of any kind whatsoever, including any interest,
penalty, or addition with respect to Taxes.
"Tax Return" means any return, declaration, report, claim for
refund, or information return or statement relating to Taxes.
2.12. Fees. Except for the fees payable to Peter J. Solomon Company
Limited, Seller and Parent have not paid or become obligated to pay any fee or
commission to any broker, finder, or intermediary in connection with the
transactions contemplated hereby.
2.13. Insurance. The Disclosure Schedule sets forth a list of all
material casualty, general liability and other insurance maintained by Parent or
Seller (the "Insurance Policies"). Each of the Insurance Policies is valid and
enforceable in accordance with its terms and is in full force and effect and no
written notice has been received by Parent or Seller from any insurance carrier
purporting to cancel coverage under any of the Insurance Policies which
cancellation would have, individually or in the aggregate, a Material Adverse
Effect. Except as set forth in the Disclosure Schedule, to Parent's knowledge,
there are no pending material claims against the Insurance Policies by Parent or
Seller as to which the insurers have denied liability. Parent or Seller has made
timely premium payments with respect to all of the Insurance Policies. Neither
Parent nor Seller has received notice of any cancellation or non-renewal of any
such insurance policy or binder from any of its insurance carriers or brokers
that any insurance premium will be materially increased in the future or that
any such insurance will not be available in the future on substantially the same
terms as now in effect. Seller and Parent
-17-
<PAGE> 24
make no representation or warranty that insurance coverage under the Insurance
Policies will be continued or is continuable after the Closing.
2.14. Labor Matters. Except as set forth in the Disclosure Schedule,
neither Seller nor Parent is a party to any collective bargaining agreement nor
does any labor union or collective bargaining agent represent any of the
employees of Seller, provided that Parent makes no representation or warranty
with respect to any collective bargaining agreement which does not cover the
Tissue Business or its employees. Except as set forth in the Disclosure
Schedule, there is no union organizing effort, labor strike, slow-down or
stoppage or material grievance pending or, to Parent's knowledge, threatened by
the Employees or their representatives. Except as set forth on the Disclosure
Schedule, no consent, approval or authorization of, or exemption by, or filing
with, or any other action with respect to, any governmental authority or third
party (collectively, "Labor Consents") is required to be obtained or made by
Seller and/or Parent, as the case may be, under any collective bargaining
agreement in connection with the execution, delivery and performance by Seller
and Parent of this Agreement and the Ancillary Documents or taking by Seller
and/or Parent, as the case may be, of any other action contemplated hereby or
thereby, except for Labor Consents the failure of which to offer or make would
not have a Material Adverse Effect and would not materially hinder or impair the
consummation of the transactions contemplated hereby. Since the date of the
Balance Sheet, neither Seller nor Parent has implemented with respect to the
Tissue Business any plant closing or mass layoff of Employees as those terms are
defined in the Worker Adjustment and Retraining Notification ("WARN") Act of
1988, as amended, or any similar state or local law or regulation.
2.15. Capitalization of Seller. The authorized capital stock of
Seller consists of 20,000,000 shares of common stock, $1.00 par value per share
and 1,500,000 shares of preferred stock, $10.00 par value per share, of which
13,971,605 shares of common stock and no shares of preferred stock are issued
and outstanding, all of which issued and outstanding shares are owned
beneficially and of record by Parent. Seller does not own, directly or
indirectly, any capital stock, or any other investment in, any other Person
(other than receivables in the ordinary course of business of the Tissue
Business and other than Excluded Assets).
2.16. Conveyance of Assets. Except as set forth in the Disclosure
Schedule, the Assets include all assets (other than the Excluded Assets) which
are used, or intended for use, by Parent and Seller, in the Tissue Business.
2.17. Transactions with Affiliates. Except as set forth on the
Disclosure Schedule, neither Parent nor Seller, nor any director or officer or
other affiliate of Parent or Seller or of such director or officer (a) has
borrowed money from or loaned money to the Tissue Business which loans with
remain outstanding at the Closing (other than through operation of Parent's cash
management and disbursement account and other than payroll advances and travel
and entertainment advances and relocation loans to officers and Employees of the
Tissue Business in the ordinary course of business); (b) has any material
contractual or other claim, express or implied, of any kind whatsoever against
-18-
<PAGE> 25
the Tissue Business; (c) has any material interest in the property or assets
(tangible or intangible) used by or useful to the Tissue Business; (d) is
engaged in any other transaction with the Tissue Business (except for
transactions between Parent and the Tissue Business of the nature referred to in
Section 2.02(g)), or (e) owned, directly or indirectly, any interest in (except
not more than five percent (5%) stockholdings for investment purposes in
securities of publicly held and traded companies), or served as an officer,
director, employee or consultant of or otherwise receives remuneration from, any
Person which is, or has engaged in business as, a competitor, lessor, lessee,
customer or supplier of the Tissue Business.
2.18. Undisclosed Liabilities. The Tissue Business does not have any
liabilities of any nature other than (i) liabilities that are reflected in the
Financial Statements; (ii) liabilities disclosed or referred to in the
Disclosure Schedule (including liabilities for present or future performance
under any of the documents listed in the Disclosure Schedule); (iii) liabilities
as to which no disclosure is required pursuant to this Article II (for example,
because the making of the representation and warranty is disclaimed or because
the liability involves an amount which is less than the threshold above which
disclosure is required); (iv) liabilities arising since September 30, 1997 in
the ordinary course of business; and (v) liabilities which in the aggregate
would not have Material Adverse Effect.
2.19. Disclaimer. EXCEPT AS SET FORTH IN THIS ARTICLE II, SELLER AND
PARENT MAKE NO REPRESENTATION OR WARRANTY, EXPRESS OR IMPLIED, AND THE ASSETS
AND THE TISSUE BUSINESS BEING SOLD TO BUYER AND/OR NEWCO AT THE CLOSING ARE TO
BE CONVEYED HEREUNDER "AS IS WHERE IS" ON THE CLOSING DATE, AND IN THEIR THEN
PRESENT CONDITION, AND BUYER SHALL RELY UPON ITS OWN EXAMINATION THEREOF. IN ANY
EVENT, EXCEPT AS SET FORTH HEREIN, NEITHER SELLER NOR PARENT MAKES ANY WARRANTY
OF MERCHANTABILITY, SUITABILITY OR FITNESS FOR A PARTICULAR PURPOSE, OR QUALITY,
WITH RESPECT TO ANY OF THE TANGIBLE ASSETS BEING SO SOLD, OR AS TO THE CONDITION
OR WORKMANSHIP THEREOF OR THE ABSENCE OF ANY DEFECTS THEREIN, WHETHER LATENT OR
PATENT.
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF BUYER AND NEWCO
Buyer and Newco, jointly and severally, represent and warrant to
Seller and to Parent as follows:
3.01. Organization. Each of Buyer and Newco is a corporation duly
organized, validly existing and in good standing under the laws of the
jurisdiction of its incorporation, and has all requisite corporate power and
authority to carry on its business
-19-
<PAGE> 26
as it is now being conducted, and to execute, deliver and perform this Agreement
and to consummate the transactions contemplated hereby and thereby.
3.02. Corporate Power and Authority; Effect of Agreement. The
execution, delivery and performance by each of Buyer and Newco of this Agreement
and each Ancillary Document, to the extent each is a party thereto, and the
consummation by each of Buyer and Newco of the transactions contemplated hereby
have been duly authorized by all necessary corporate action on the part of Buyer
and Newco. This Agreement has been, and the Ancillary Documents when executed
and delivered will be, duly and validly executed and delivered by each of Buyer
and Newco, to the extent each is a party thereto. This Agreement constitutes,
and the Ancillary Documents when executed and delivered will constitute, valid
and binding obligations of each of Buyer and Newco, to the extent each is a
party thereto, enforceable against each of Buyer and Newco in accordance with
their terms, except to the extent that such enforceability (i) may be limited by
bankruptcy, insolvency, reorganization, moratorium or other similar laws
relating to creditors' rights generally, and (ii) is subject to general
principles of equity. The execution, delivery and performance by Buyer and Newco
of this Agreement and the Ancillary Documents, to the extent each is a party
thereto, and the consummation by each of Buyer and Newco of the transactions
contemplated hereby will not, with or without the giving of notice or the lapse
of time, or both, (i) violate any provision of Law to which Buyer or Newco, as
the case may be, is subject, (ii) violate any order, judgment or decree
applicable to Buyer or Newco, as the case may be, or (iii) conflict with or
result in a breach of the provisions of, or constitute a default under (A) the
Certificate of Incorporation or the By-laws of Buyer or Newco or (B) any
agreement or instrument to which Buyer or Newco is a party, except, in the case
of clauses (i), (ii) and (iii)(B), for violations, conflicts, breaches or
defaults which would not individually or in the aggregate have a Material
Adverse Effect and which in the aggregate would not materially hinder or impair
the consummation of the transactions contemplated hereby.
3.03. Consents. Except as set forth in Exhibit 3.03, no Consent is
required to be obtained or made by Buyer or Newco in connection with the
execution, delivery and performance by Buyer and Newco of this Agreement, or the
taking by Buyer or Newco of any other action contemplated hereby, except for
Consents the failure of which to obtain or make would not have a Material
Adverse Effect and would not materially hinder or impair the consummation of the
transactions contemplated hereby.
3.04. Availability of Funds. To evidence the ability of Buyer to
obtain the financing necessary for Buyer to consummate the transactions
contemplated hereby, to refinance any other indebtedness of Buyer requiring
repayment as a result of consummation of the transactions contemplated hereby,
to provide for Buyer's ongoing working capital requirements and to pay all
related fees and expenses (collectively, the "Required Financing"), Buyer has
previously delivered to Seller the following: (a) a fully executed commitment
letter, dated as of January 20, 1998 (the "Senior Debt Letter") issued by Sanwa
Business Credit Corporation ("SBCC") and accepted by Buyer, providing the
detailed terms and conditions upon which SBCC has committed to provide the
entire senior debt and revolving credit portion of the Required Financing, (b) a
fully
-20-
<PAGE> 27
executed "highly confident" letter, dated as of January 20, 1998 (the
"Subordinated Debt Letter"), issued by Bear Stearns & Co. Inc. ("Bear Stearns")
pursuant to which Bear Stearns has expressed its confidence in raising the
senior subordinated note portion of the Required Financing on the basis of the
anticipated terms for such notes described in detail in such letter, (c) the
executed Equity Commitment Letter (together with the Senior Debt Letter and the
Subordinated Debt Letter, the "Financing Letters") issued by CVC providing the
detailed terms and conditions upon which CVC has committed to provide Buyer the
equity portion of the Required Financing, (d) evidence of Buyer's available cash
on hand sufficient to supply the balance of the Required Financing not to be
provided pursuant to the Financing Letters and (e) a statement, certified by
Buyer's chief financial officer, setting forth the anticipated sources and uses
of the Required Financing for the transactions contemplated hereby and by the
Required Financing. Each of the Financing Letters is in full force and effect
and, to the knowledge of Buyer, there are no facts or circumstances which
prevent, or could reasonably be expected to prevent, (i) the conditions to
financing contemplated by the Financing Letters from being satisfied, or (ii)
Buyer from receiving financing pursuant to the Financing Letters.
3.05. Litigation. There is no litigation pending or, to Buyer's
knowledge, threatened (i) against Buyer or any of its affiliates with respect to
which there is a reasonable likelihood of a determination which would have a
material adverse effect on the ability of Buyer or Newco to perform its
obligations under this Agreement, or (ii) which seeks to enjoin or obtain
damages in respect of the consummation of the transactions contemplated hereby.
Neither Buyer or Newco nor any of their affiliates is subject to any outstanding
orders, rulings, judgments or decrees which would have a material adverse effect
on the ability of Buyer or Newco to perform their obligations under this
Agreement or would prevent or obtain damages in respect of the consummation of
the transactions contemplated hereby.
3.06. Fees. Except for the fees payable to Larkspur Capital
Corporation, neither Buyer, Newco nor any of their affiliates has paid or become
obligated to pay any fee or commission to any broker, finder or intermediary in
connection with the transactions contemplated hereby.
ARTICLE IV
PRE-CLOSING COVENANTS OF SELLER AND PARENT
Seller and Parent hereby covenant and agree with Buyer and Newco as
follows:
4.01. Cooperation by Seller and Parent. (a) From the date hereof and
prior to the Closing, Seller and Parent will use their commercially reasonable
best efforts, and will cooperate with Buyer, to secure all necessary consents,
approvals, authorizations, exemptions and waivers from third parties (including
pursuant to the HSR Act) as shall be required in order to enable Seller and
Parent to effect the transactions
-21-
<PAGE> 28
contemplated hereby, and will otherwise use their commercially reasonable best
efforts to cause the consummation of such transactions in accordance with the
terms and conditions hereof.
(b) Notwithstanding anything herein to the contrary, to the extent
the assignment of any Commitment, Permit, sales order or purchase order included
in the Assets to be assigned to Buyer pursuant to the provisions hereof shall
require the consent of any other party (including, without limitation, any
governmental authority with jurisdiction over such Commitment, Permit, sales
order or purchase order), this Agreement shall not constitute a breach thereof
or create rights in others not desired by Buyer. If any such consent is not
obtained, Seller shall, at Buyer's request and subject to reimbursement by Buyer
of any out of pocket expense incurred by Seller in connection therewith,
cooperate with Buyer in any reasonable arrangement designed to provide for Buyer
the benefit of any such Commitment, Permit, sales order or purchase order,
including using its commercially reasonable best efforts to enforce any and all
rights of Seller against the other party to any such Commitment, Permit, sales
order or purchase order arising out of the breach or cancellation thereof by
such party or otherwise. To the extent any such Commitment, Permit, sales order
or purchase order is assigned to Buyer or Newco, Buyer and Newco shall perform
the obligations of Seller arising under such Commitment, Permit, sales order or
purchase order.
(c) In connection with Newco's assumption of Seller's obligations
under the IRB, Parent and Seller at the Closing shall use their commercially
reasonable best efforts to assist Newco in fulfilling its and Buyer's
obligations under Section 5.01(b).
(d) Parent or Seller shall pay 50% of any and all real property
transfer, transfer gains, stamp and other similar taxes, if any, assessed in
connection with the transactions contemplated by this Agreement and shall
deliver evidence satisfactory to Buyer and the Title Company of the payment of
such taxes.
4.02. Conduct of Business. Except as may be otherwise contemplated
by this Agreement or required by any of the documents listed in the Disclosure
Schedule or except as Buyer may otherwise consent to in writing (which consent
shall not be unreasonably withheld or delayed), from the date hereof and prior
to the Closing, Parent will cause Seller to and Seller will (i) in all material
respects operate the Tissue Business only in the ordinary course; (ii) use its
commercially reasonable best efforts to preserve intact the business
organization of the Tissue Business; (iii) maintain the properties, machinery
and equipment used in the conduct of the Tissue Business in sufficient operating
condition and repair to enable the Tissue Business to operate in all material
respects in the manner in which it is currently operated, except for maintenance
required by reason of fire, flood, earthquake or other acts of God; (iv) use its
commercially reasonable best efforts to continue in full force and effect all
material existing Insurance Policies insuring Seller in connection with the
Tissue Business and the Assets; (v) use its commercially reasonable best efforts
to keep available until the Closing the services of the present employees and
agents (as a group) of the Tissue Business; (vi) use its commercially reasonable
best efforts to preserve its relationship with the Tissue
-22-
<PAGE> 29
Business's lenders, suppliers, customers, licensors and licensees and others
having business dealings with the Tissue Business and (vii) maintain and protect
all Intellectual Property Rights.
4.03. Access. From the date hereof and prior to the Closing, Seller
and Parent shall provide Buyer with such information as Buyer may from time to
time reasonably request with respect to the Tissue Business and the transactions
contemplated by this Agreement, and shall provide Buyer and its accountants,
counsel, consultants and other representatives reasonable access during regular
business hours and upon reasonable notice to the personnel, properties, books
and records of the Tissue Business as Buyer may from time to time reasonably
request; provided that Seller and Parent shall not be obligated to provide Buyer
with any information not material to the Tissue Business relating to trade
secrets or which would violate any law, rule or regulation or term of any
Commitment, or if the provision thereof would adversely affect the ability of
Seller or Parent or any of their respective affiliates to assert
attorney-client, attorney work product or other similar privilege. Seller
acknowledges that Buyer shall be entitled to cause an information memorandum to
be prepared and used in connection with the consummation of Buyer's financing of
the transactions contemplated hereby pursuant to the Financing Letters and
agrees to use commercially reasonable best efforts to furnish Buyer with access
to, and to cause the cooperation of, all personnel necessary for Buyer to
consummate such financing, provided that (i) Buyer shall provide Parent with
drafts of any such information memorandum reasonably in advance of any proposed
distribution thereof and (ii) prior to the time at which Buyer and Newco print
and distribute the information memorandum in preparation for the "road show,"
Buyer shall take reasonable and customary steps (which shall be approved in
advance by Parent and Seller) to ensure that any recipient of any such
information memorandum shall treat the information contained therein related to
the Tissue Business as confidential in accordance with Buyer's obligations under
the Confidentiality Agreement. In addition, Parent and Seller shall request
their accountants, at Buyer's request, to consent to the inclusion of their
report or reports in, and to issue a comfort letter on customary terms in
connection with, any information memoranda or filings required by such
financing. Seller and Parent expressly disclaim (and Buyer hereby acknowledges
and agrees to such disclaimer) any responsibility for the completeness or
accuracy or sufficiency for Buyer's purposes of the information contained in any
such information memorandum (it being understood that no cooperation provided by
Seller or Parent pursuant to this Section 4.03 shall diminish, change or enlarge
the representations and warranties of Parent and Seller expressly set forth
herein).
4.04. Notice of Events. Parent and Seller shall promptly notify
Buyer of (a) any event, condition or circumstance occurring from the date hereof
through the Closing Date that would constitute a violation or breach of this
Agreement, (b) any event, occurrence, transaction or other item which would have
been required to have been disclosed on the Disclosure Schedule or any statement
delivered hereunder had such event, occurrence, transaction or item existed on
the date hereof, other than items arising
-23-
<PAGE> 30
in the ordinary course of business which would not render any representation or
warranty of Parent or Seller materially misleading.
4.05. Exclusivity. Until the earlier occurs of the Closing or the
termination of this Agreement, none of Parent, Seller nor any of their
respective directors, officers, employees, agents, representatives, members or
Affiliates shall initiate, solicit, entertain, negotiate, accept or discuss,
directly or indirectly, or encourage inquiries or proposals (each, an
"Acquisition Proposal") with respect to, or furnish any information relating to
or participate in any negotiations or discussions concerning, or enter into any
agreement with respect to, any acquisition or purchase of all or a substantial
portion of the assets of the Tissue Business. Parent and Seller shall, and shall
cause each of their respective Affiliates to, immediately cease and cause to be
terminated any existing activities, including discussions or negotiations with
any parties, conducted prior to the date hereof with respect to any Acquisition
Proposal. Each of Parent and Seller represent that it is not a party to or bound
by any agreement with respect to an Acquisition Proposal other than under this
Agreement. Each of Parent and Seller shall cause its officers, directors, agents
and advisors to comply with the provisions of this Section 4.05.
4.06. Mutual Assistance. Parent, Seller and Buyer agree that they
will mutually cooperate in the expeditious filing of all notices, reports and
other filings with any governmental body required to be submitted jointly by
Seller and Buyer in connection with the execution and delivery of this
Agreement, the other agreements contemplated hereby and the consummation of the
transactions contemplated hereby or thereby, including any such filing required
under the HSR Act (as defined in Section 7.03).
ARTICLE V
PRE-CLOSING COVENANTS OF BUYER AND NEWCO
Each of Buyer and Newco hereby covenants and agrees with Parent and
Seller as follows:
5.01. Cooperation by Buyer. (a) From the date hereof and prior to
the Closing, Buyer will use its commercially reasonable best efforts, and will
cooperate with Seller and Parent, to secure all necessary consents, approvals,
authorizations, exemptions and waivers from third parties (including pursuant to
the HSR Act) as shall be required in order to enable Buyer and Newco to effect
the transactions contemplated hereby, and will otherwise use its commercially
reasonable best efforts to cause the consummation of such transactions in
accordance with the terms and conditions hereof.
(b) In connection with Newco's assumption of Seller's obligations
under the IRB, Buyer at the Closing shall use its commercially reasonable best
efforts to (i) without limiting Buyer's obligations under this Section 5.01,
deliver to the Trustee under the Indenture relating to the IRB an Alternate
Credit Facility (as defined in the Indenture) satisfactory to the Trustee and
sufficient to permit the Trustee to release to
-24-
<PAGE> 31
Seller the letter of credit delivered by Seller to secure Seller's obligations
under the IRB and (ii) cause Newco to assume Seller's obligations under the IRB,
such assumption to be secured by an evergreen letter of credit satisfactory to
Seller in the amount of the outstanding principal amount of the IRB plus 13.52
months interest therein.
5.02. Buyer's Knowledge of Business; Seller's and Parent's
Representations Modified by Buyer's Knowledge. To the knowledge of Buyer the
representations and warranties made by Seller and Parent in this Agreement and
each Ancillary Document entered into on or prior to the date hereof are true and
correct. Buyer hereby agrees that to the extent any representation or warranty
of Seller or Parent, as the case may be, made herein or in any Ancillary
Document to which either is a party is, to the knowledge of Buyer (to the extent
such knowledge is established by Parent) acquired prior to the date hereof,
untrue or incorrect, (i) Buyer shall have no rights thereunder by reason of such
untruth or inaccuracy, and (ii) any such representation or warranty by Seller or
Parent, as the case may be, shall be deemed to be amended to the extent
necessary to render it consistent with such knowledge of Buyer. In addition,
between the date hereof and the Closing, Buyer may acquire additional knowledge
concerning the matters covered by the representations and warranties of Seller
and Parent. Accordingly, Buyer agrees (without prejudice to any rights which
Buyer may have under Sections 7.01, 10.01 and 10.02) that, if the Closing
occurs, then to the extent any representation or warranty of Seller or Parent,
as the case may be, made herein or in any Ancillary Document to which either is
a party entered into at or prior to the Closing, to the knowledge of Buyer (to
the extent such knowledge is established by Parent) acquired from and after the
date hereof and prior to the Closing, is untrue or incorrect, (x) Buyer shall
have no rights hereunder by reason of such untruth or inaccuracy, and (y) any
such representation or warranty by Seller or Parent, as the case may be, shall
be deemed to be amended to the extent necessary to render it consistent with
such knowledge of Buyer.
5.03. Performance Bonds, Etc. At the Closing, and without limiting
Buyer's obligations under Section 5.01, Buyer shall deliver to Parent
replacement (or, if the beneficiary thereof will not permit replacement,
back-up) performance bonds, payment bonds, bid bonds, letters of credit,
guarantees and similar instruments, in an aggregate principal amount and with
terms and from banks or other financial institutions or surety companies, in
each case reasonably satisfactory to Parent, to replace (or, to the extent
required as described above, to collateralize) any performance bonds, payment
bonds, bid bonds, letters of credit, guarantees and similar instruments of
Seller or Parent or of any of their respective affiliates related to the Tissue
Business listed in the Disclosure Schedule with respect to which Seller or
Parent or any of their respective affiliates will have any liability after the
Closing.
5.04. Consummation of Financing. Buyer will use commercially
reasonable best efforts to obtain the Required Financing for the consummation of
the transactions contemplated by this Agreement pursuant to the Financing
Letters and to satisfy all conditions to funding as set forth in the Financing
Letters; provided, that in no event shall Buyer be required to issue equity or
equity equivalents to obtain the Required
-25-
<PAGE> 32
Financing (except as set forth in the Equity Commitment Letter) or be required
to accept an increase in the effective interest expense (inclusive of financing
fees) or shorter average life to maturity from that contemplated by the
Financing Letters. To the extent that any portion of the debt portion of the
Required Financing is or becomes for any reason unavailable, Buyer will use
reasonable efforts to arrange for alternative debt financing for the
transactions contemplated by this Agreement on terms which, in the aggregate,
are not materially less favorable to Buyer than those set forth in the Senior
Debt Letter and the Subordinated Debt Letter (which shall in no event require
that Buyer issue equity or equity equivalents except as set forth in the Equity
Commitment Letter or suffer an increase in the effective interest expense
(inclusive of financing fees) or shorter average life to maturity from that
contemplated in the Financing Letters). Buyer acknowledges and agrees that,
except as provided in Section 4.03, neither Parent nor Seller shall, or shall be
obligated to, solicit or otherwise assist Buyer in its efforts to solicit
potential lenders and/or investors in connection with Buyer's obtaining the
necessary financing for the transactions contemplated by this Agreement and
Buyer's obtaining, on behalf of Buyer, the necessary financing for the
transactions contemplated by this Agreement.
ARTICLE VI
ADDITIONAL COVENANTS
6.01. Tax Cooperation. (a) After the Closing, upon reasonable
written notice, Buyer and Newco, on the one hand, and Seller and Parent, on the
other, shall furnish or cause to be furnished to each other as promptly as
practicable, such information and assistance (to the extent within the control
of such party) relating to the Assets (including access to books and records) as
is reasonably necessary for the filing of all Tax Returns, and making of any
election related to Taxes, the preparation for any audit by any taxing
authority, and the prosecution or defense of any claim, suit or proceeding
relating to any Tax Return. Buyer and Newco shall promptly notify Seller and
Parent in writing upon receipt by Buyer or an affiliate of Buyer of any notice
relating to Taxes for which Seller or Parent has liability hereunder. Such
cooperation shall include the retention and (upon the other party's request) the
provision of records and information which are reasonably relevant to any such
audit, litigation or other proceeding and making employees available on a
mutually convenient basis to provide additional information and explanation of
any material provided hereunder. Buyer and Seller agree (A) to retain all books
and records with respect to Tax matters pertinent to the Tissue Business
relating to any taxable period beginning before the Closing Date until the
expiration of the statute of limitations (and, to the extent notified by Buyer
or Seller, any extensions thereof) of the respective taxable periods, and to
abide by all record retention agreements entered into with any taxing authority,
and (B) to give the other party reasonable written notice prior to transferring,
destroying or discarding any such books and records and, if the other party so
requests, Buyer or Seller, as applicable, shall allow the other party to take
possession of such books and records other than with respect to Income Taxes.
Buyer and Seller further agree, upon request, to use their best efforts to
-26-
<PAGE> 33
obtain any certificate or other document from any governmental authority or any
other Person as may be necessary to mitigate, reduce or eliminate any Tax that
could be imposed (including, but not limited to, with respect to the
transactions contemplated hereby).
(b) Allocation of Purchase Price. Buyer, Parent and Seller agree
that the Purchase Price and the Assumed Liabilities (plus other relevant items)
will be allocated to the Assumed Assets for all purposes (including Tax and
financial accounting) pursuant to an allocation schedule (the "Allocation
Schedule"). A draft of such Allocation Schedule, consistent with the provisions
of Section 1060 of the Code and applicable Treasury regulations thereunder,
shall be prepared by Buyer and delivered to Parent as promptly as practicable,
but in no event more than 60 days after the Closing Date. Within 30 days after
delivery of the Allocation Schedule, Parent shall notify Buyer of its agreement
or disagreement with the Allocation Schedule. If there are any disagreements
concerning the Allocation Schedule, such disagreements shall be resolved
utilizing the procedures set forth in Section 1.04. Buyer, Seller and Parent
will file all Tax Returns (including amended returns and claims for refund) and
information reports in a manner consistent with such allocation.
6.02. Corporate Name. (a) (1) Buyer acknowledges that, as between
Buyer, on the one hand, and Seller and Parent, on the other, Seller and Parent
have the absolute and exclusive proprietary right to all names, marks, trade
names, trademarks, service names and service marks (collectively, "Names")
incorporating "Pope & Talbot" and to all corporate symbols or logos
(collectively, "Logos") incorporating "Pope & Talbot," all right to which and
the goodwill represented thereby and pertaining thereto are being retained by
Seller and Parent. Buyer agrees that it will not use the Name "Pope & Talbot" or
any Logo incorporating such Name in connection with the sale of any products or
services or otherwise in the conduct of its business, except as expressly
permitted by subsection (b) of this Section 6.02.
(2) Seller and Parent acknowledge that Buyer has the absolute and
exclusive proprietary right to all Names incorporating "Nature's Choice", "Best
Value", "Pert" and "Capri" (collectively, the "Tissue Names") and to all Logos
incorporating the Tissue Names, all right, title and interest of Seller to
which, and the goodwill represented thereby and pertaining thereto, are hereby
being sold to Buyer. Seller and Parent agree that they will not use the Tissue
Names or any Logo incorporating such Tissue Names or any names or logos similar
thereto in connection with the sale of any products or services or otherwise in
the conduct of their respective business. Notwithstanding the foregoing, it is
expressly understood and agreed by the parties that Seller and Parent retain the
absolute and exclusive proprietary right to all Names incorporating "Gentle
Touch" and such Names are included in the Excluded Assets.
(b) Notwithstanding the foregoing, for a period of six months from
the Closing Date (the "Window Period"), Buyer shall have the right, subject to
the Temporary License Agreement substantially in the form of Exhibit 6.02(b)
hereto, which Temporary License Agreement, upon execution, shall be incorporated
herein, to (i) to sell
-27-
<PAGE> 34
all inventory which was produced prior to the Closing Date, including, without
limitation, inventory which uses any Name or Logo which incorporates "Pope &
Talbot," or any derivatives, trade names, trademarks, abbreviations or symbols
thereof or trade dress associated therewith, and (ii) use any other Assets,
including, without limitation, any catalogs, invoices or packaging material,
bearing a Name or Logo which incorporates "Pope & Talbot," in each case without
having to remove or obliterate any such Name or Logo thereon; provided that any
new items ordered or reordered by Buyer shall not bear such Name or Logo, even
if the Window Period has not expired, except as expressly permitted herein.
Immediately upon the expiration of the Window Period, Buyer shall cease to use
any such Name or Logo.
6.03. Disbursement Account. In connection with the transactions
contemplated hereby, Seller shall establish a separate controlled disbursement
checking account at Wachovia Bank (the "Disbursement Account") on which checks
and drafts in respect of the Tissue Business are drawn and which is funded by
Seller. No later than one business day prior to the Closing Date, Seller shall
supply Buyer with its written, best estimate (the "Estimated Overdraft") of the
checks and drafts in respect of the Tissue Business that will have been written
on the Disbursement Account but not presented for payment as of the close of
business on the day immediately preceding the Closing Date (the "Outstanding
Checks"). At the Closing, Buyer shall pay to Seller, together with and in the
same manner as the Purchase Price, an amount equal to the Estimated Overdraft.
Within 10 days after the Closing, Seller shall advise Buyer in writing as to the
actual amount of Outstanding Checks (the "Actual Overdraft"). If the Actual
Overdraft exceeds the Estimated Overdraft, Buyer shall pay Seller, within two
days of receipt of such advice, the amount of such excess. If the Estimated
Overdraft exceeds the Actual Overdraft, Seller's written advice shall be
accompanied by a check in the amount of the excess. The Disbursement Account
shall not be assigned to Buyer. From and after the Closing, Buyer shall not
write any checks drawn on the Disbursement Account, and Seller shall be
responsible to fund the Disbursement Account in amounts sufficient to pay all
Outstanding Checks.
6.04. Further Information. Following the Closing, each party will
afford to the other party, its counsel and its accountants, during normal
business hours, reasonable access to the books, records and other data of or
relating to the Tissue Business, the Assets, the Excluded Assets and the Assumed
Liabilities and in its possession with respect to periods prior to the Closing
and the right to make copies and extracts therefrom, to the extent that such
access may be reasonably required by the requesting party (a) to facilitate the
investigation, litigation and final disposition of any claims which may have
been or may be made against any party or its affiliates and (b) for any other
reasonable business purpose.
6.05. Record Retention. Each party agrees that for a period of not
less than seven (7) years following the Closing Date, it shall not destroy or
otherwise dispose of any of the books and records relating to the Tissue
Business, the Assets, the Assumed Liabilities and the Excluded Assets of and in
its possession with respect to periods prior to the Closing. Each party shall
have the right to destroy all or part of such books and
-28-
<PAGE> 35
records after the seventh anniversary of the Closing Date or, at an earlier time
by giving each other party hereto thirty (30) days prior written notice of such
intended disposition and by offering to deliver to the other parties, at the
other parties' expense, custody of such books and records as such party may
intend to destroy.
6.06. Post-Closing Assistance. Parent and Seller, on the one hand,
and Buyer, on the other hand, will provide each other with such assistance as
may reasonably be requested in connection with the preparation of any Tax
Return, any audit or examination by any taxing authority, or any judicial or
administrative proceedings relating to liability for Taxes, and each will retain
and provide the requesting party with any records or information that may be
reasonably relevant to such return, audit or examination, proceedings or
determination. The party requesting assistance shall reimburse the other party
for reasonable out-of-pocket expenses (other than salaries or wages of any
employees of the parties) incurred in providing such assistance. Any information
obtained pursuant to this Section 6.06 or pursuant to any other Section hereof
providing for the sharing of information or the review of any Tax Return or part
of the Disclosure Schedule relating to Taxes shall be kept confidential by the
parties hereto.
6.07. Non-Compete.
(a) Covenants Against Competition. Parent and Seller acknowledge
that (i) Parent and Seller are comprised of a limited number of persons who have
developed the Tissue Business; (ii) the Tissue Business is, in part, national in
scope; (iii) Parent and Seller each possess certain confidential affairs and
trade secrets of the Tissue Business not readily available to the public; and
(iv) Buyer would not purchase the Assets but for the agreements and covenants of
Parent and Seller contained in this Section 6.07. Accordingly, Parent and Seller
each covenants and agrees that:
(i) Parent and Seller shall not engage in the Tissue Business
in the United States of America for a period commencing on the
Closing Date and terminating on the fourth anniversary of the
Closing Date (the "Restricted Period"), provided, however, that the
foregoing shall not prohibit (a) Seller or Parent from purchasing up
to 10% of any class of voting securities of any person whose
securities are listed on a national securities exchange or traded in
the NASDAQ national market system, (b) purchasing any Person or
business unit if, as of the date of each such acquisition, (I) no
more than 20% of the revenues or assets of such Person or business
unit are derived from the consumer tissue products business and (II)
the most recent annual revenues of such Person or business unit so
derived from the consumer tissue products business do not exceed 33
1/3% of the revenues of the Tissue Business for the year ended
December 31, 1997 less the sum of the comparable most recent annual
revenue amounts of each preceding acquisition by Parent since the
Closing Date as of the date of each such acquisition or (c) any
person who acquires control of Parent or any subsidiary or affiliate
of such person (other than Parent and
-29-
<PAGE> 36
its subsidiaries) from engaging in the Tissue Business to the extent
such Person was so engaged prior to such acquisition.
(ii) During and after the Restricted Period, Parent and Seller
shall keep secret and retain in strictest confidence, and shall not
use for the benefit of itself or others, all confidential
information with respect to the Tissue Business and the Assets, or
learned by Parent or Seller heretofore or hereafter directly or
indirectly from Buyer, including, without limitation, information
with respect to (a) prospective facilities, (b) sales figures, (c)
profit or loss figures, (d) customers, clients, suppliers, sources
of supply and customer lists (the "Confidential Company
Information"), and shall not disclose such Confidential Company
Information to anyone outside of Buyer and its affiliates except
with Buyer's express written consent and except for Confidential
Company Information which (x) is at the time of receipt or
thereafter becomes publicly known through no wrongful act of either
of Seller or Parent or (y) is received from a third party not under
an obligation to keep such information confidential and without
breach of this Agreement, provided that if Parent or Seller is
requested pursuant to, or required by, applicable law or regulation
or by legal process to disclose any Confidential Company
Information, in the event of any such request or requirement, Parent
and Seller will provide Buyer, as promptly as the circumstances
reasonably permit, with notice of such request or requirement and,
unless a protective order or other appropriate relief is previously
obtained, the Confidential Company Information, subject to such
request may be disclosed pursuant to and in accordance with the
terms of such request or requirement.
(iii) During the Restricted Period, Parent and Seller shall
not, directly or indirectly, knowingly solicit or encourage to leave
the employment of Buyer and its affiliates, any employee of Buyer
and its affiliates.
(iv) For a period of two years from the Closing Date, Parent
and Seller shall not employ key employees of the Tissue Business
listed as such on the Disclosure Schedule who have left their
employment with Buyer other than by reason of the termination of
their employment by Buyer.
(b) Rights and Remedies Upon Breach. If Parent or Seller breaches,
or threatens to commit a breach of, any of the provisions of this Section 6.07
(the "Restrictive Covenants"), Buyer shall have the following rights and
remedies (upon compliance with any necessary prerequisites imposed by law upon
the availability of such remedies), each of which rights and remedies shall be
independent of the other and severally enforceable and shall not be affected by
the provisions of Section 11.02, and all of which rights and remedies shall be
in addition to, and not in lieu of, any other rights and remedies available to
Buyer under law or in equity:
-30-
<PAGE> 37
(i) the right and remedy to have the Restrictive Covenants
specifically enforced by any court having equity jurisdiction,
including, without limitation, the right to an entry against Parent
or Seller of restraining orders and injunctions (preliminary,
mandatory, temporary and permanent) against violations, threatened
or actual, and whether or not then continuing, of such covenants, it
being acknowledged and agreed that any such breach or threatened
breach will cause irreparable injury to Buyer and its affiliates and
that money damages (notwithstanding any allocation of purchase price
to such covenants) will not provide adequate remedy to Buyer and its
affiliates; and
(ii) the right and remedy to require Parent or Seller to
account for and pay over to Buyer all compensation, profits, monies,
accruals, increments or other benefits (collectively, "Benefits")
derived or received by such person as the result of any transactions
constituting a breach of any of the Restrictive Covenants, and such
person shall account for and pay over such Benefits to Buyer.
(c) Severability of Covenants. If any court determines that any of
the Restrictive Covenants, or any part thereof, is invalid or unenforceable, the
remainder of the Restrictive Covenants shall not thereby be affected and shall
be given full effect, without regard to the invalid portions.
(d) Blue-Pencilling. If any court determines that any of the
Restrictive Covenants, or any part thereof, is unenforceable because of the
duration of such provision or the area covered thereby, such court shall have
the power to reduce the duration or area of such provisions and, in its reduced
form, such provision shall then be enforceable and shall be enforced.
(e) Enforceability in Jurisdictions. Parent, Buyer, and Seller
intend to and hereby confer jurisdiction to enforce the Restrictive Covenants
upon the courts of any jurisdiction within the geographical scope of the
Restrictive Covenants. If the courts of any one or more of such jurisdictions
hold the Restrictive Covenants wholly unenforceable by reason of the breadth of
such scope or otherwise, it is the intention of Buyer, Parent and Seller that
such determination not bar or in any way affect Buyer's right to the relief
provided above in the courts of any other jurisdiction within the geographical
scope of such Restrictive Covenants, as to breaches of such Restrictive
Covenants in such other respective jurisdictions, such Restrictive Covenants as
they relate to each jurisdiction being, for this purpose, severable into diverse
and independent covenants, subject, where appropriate, to the doctrine of res
judicata.
6.08. Further Assurances. From and after the Closing, each of Buyer,
Parent and Seller will, and will cause its affiliates to, at Buyer's expense,
execute and deliver such further instruments of sale, conveyance, transfer,
assignment and delivery and such consents, assurances, powers of attorney and
other instruments and take such other action as reasonably may be necessary in
order to vest in Buyer or Newco all right,
-31-
<PAGE> 38
title and interest of Parent and Seller in and to the Assets, to put Buyer or
Newco in actual possession and control of the Tissue Business and to otherwise
fully effectuate and carry out the transactions contemplated by this Agreement.
The Parties shall use their commercially reasonable best efforts to fulfill or
obtain the fulfillment of the conditions to the Closing, including, without
limitation, the execution and delivery of any document, the execution and
delivery of which are conditions precedent to the Closing.
6.09. Accounts Receivable; Mail. (a) In the event that any payment
of any accounts receivable included in the Assets is received by Parent or
Seller after the Closing Date, Parent or Seller will hold such amounts received
or paid for and remit such payments to Buyer by wire transfer of immediately
available funds as soon as practicable.
(b) Parent and Seller authorize and empower Buyer from and after the
Closing Date (i) to receive and open mail addressed to Parent or Seller and (ii)
to deal with the contents thereof in any manner Buyer sees fit; provided, in the
case of clause (ii), such mail and the contents thereof relate to the Assets or
otherwise to the Tissue Business or to any of the Assumed Liabilities. Parent
and Seller agree to deliver to Buyer promptly upon receipt of any mail, checks
or documents which it receives to which it is not entitled by reason of this
Agreement or otherwise and to which Parent or Seller is entitled.
6.10. Transition Services. After the Closing, Parent and Seller
shall, pursuant to a Transition Services Agreement, to be entered into as of the
Closing Date among the parties hereto (the "Transition Services Agreement") on
substantially the terms set forth in Exhibit 6.10 hereto, use their commercially
reasonable best efforts to provide Buyer with such transition services after the
Closing Date provided in the Transition Services Agreement for the periods and
on the terms and conditions set forth in such Agreement.
6.11. Brokerage Arrangements. For a period of thirty days from the
Closing Date, Buyer shall not rescind, repudiate, amend, alter or otherwise
modify any third party distributorship or brokerage Commitments assumed by Buyer
without the consent of the other party thereto.
ARTICLE VII
CONDITIONS TO BUYER'S AND NEWCO'S OBLIGATIONS
The obligation of each of Buyer and Newco to purchase the Assets
shall be subject to the satisfaction (or waiver by Buyer) on or prior to the
Closing Date of all of the following conditions:
7.01. Representations, Warranties and Covenants of Seller and
Parent. Each of Seller and Parent shall have complied in all material respects
with their respective agreements and covenants contained herein to be performed
on or prior to the Closing Date, and the respective representations and
warranties of each of Seller and
-32-
<PAGE> 39
Parent contained herein (without giving effect to any materiality qualifiers
therein) shall be true and correct in all respects on and as of the Closing Date
with the same effect as though made on and as of the Closing Date, except to the
extent that any such representations and warranties were made as of a specified
date and as to such representations and warranties (without giving effect to any
materiality qualities therein) the same shall continue on the Closing Date to
have been true and correct in all respects as of the specified date and except
in each case above where the failure of any such representations and warranties
to be so true and correct, individually and in the aggregate, would not have a
Material Adverse Effect. Buyer shall have received a certificate of Seller and
Parent, dated as of the Closing Date and signed by officers of Seller and
Parent, certifying as to the fulfillment of the condition set forth in this
Section 7.01 (the "Seller's Certificate").
7.02. No Prohibition, etc. No statute, rule or regulation or order
of any court or administrative agency shall be in effect which (a) prohibits
Buyer and Newco from consummating, or otherwise invalidates or prevents
consummation of, the transactions contemplated hereby or (b) otherwise
interferes with this Agreement or any of the conditions to the consummation of
the transactions contemplated by this Agreement and would be likely to have a
Material Adverse Effect.
7.03. Governmental Consents. The applicable waiting period under the
Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended, and the rules
and regulations thereunder (the "HSR Act") shall have expired or been terminated
and all other consents, approvals, authorizations, exemptions and waivers from
governmental agencies that shall be required in order to enable Buyer to
consummate the transactions contemplated hereby shall have been obtained (except
for such consents, approvals, authorizations, exemptions and waivers, the
absence of which would not prohibit consummation of such transactions or render
such consummation illegal).
7.04. No Material Adverse Change. Other than as set forth in the
Disclosure Schedule, since September 30, 1997 there shall have been no event
that has a Material Adverse Effect.
7.05. Delivery of Transfer Documents. Seller and Parent shall have
delivered to Buyer the instruments described in Section 1.03(b)(i).
7.06. Seller and Parent Closing Documents. Each of Seller and Parent
will have delivered to Buyer the following documents:
(i) a copy of the resolutions duly adopted by the respective
boards of directors of Seller and Parent authorizing the execution,
delivery and performance by Seller and Parent of the Agreement and each
Ancillary Document to which it is a party and the consummation of the
transactions contemplated by the Ancillary Documents, as in effect as of
the Closing, certified by officers of Seller and Parent; and
-33-
<PAGE> 40
(ii) good standing certificates (each dated not less than ten
business days prior to the Closing), of the appropriate authorities of the
State of Delaware showing each of Seller and Parent to be in good standing
in such state.
7.07. Delivery of Consents. Seller and Parent shall have delivered
to Buyer the Consents, except for Consents the failure of which to obtain or
make would not have a Material Adverse Effect and would not materially hinder or
impair the consummation of the transactions contemplated hereby.
7.08. Opinion of Counsel to Parent and Seller. Buyer and its lenders
shall have received the opinion of Fried, Frank, Harris, Shriver & Jacobson,
counsel to Parent and Seller, substantially in the form of Exhibit 7.8 hereto.
7.09. Financing. Buyer and its affiliates shall have received cash
proceeds equal to the Required Financing on terms and conditions consistent with
the Financing Letters or the alternate financing contemplated by Section 5.04
and otherwise reasonably acceptable to Buyer.
7.10. Real Property. (a) A title insurance company selected by Buyer
(the "Title Company") shall be willing to insure at standard rates Buyer's good
and marketable title in and to the Purchased Real Property in fee simple, free
and clear of all liens, defects, claims, leases, rights of possession or other
encumbrances (other than Permitted Encumbrances) including such endorsements and
affirmative coverages as Buyer and the lenders under Buyer's Financing Letters
shall reasonably require. Parent and Seller shall provide all such affidavits
and indemnities as the Title Company shall reasonably require in order to afford
such coverages.
(b) Buyer shall have received, at Buyer's expense, a survey of each
Purchased Real Property conforming to the minimum Standard Detail Requirements
jointly established and approved in 1992 by ALTA and ACSM certified to Buyer,
the lender under Buyer's Financing Letters and the Title Company and showing no
defects, encroachments or encumbrances other than Permitted Encumbrances.
(c) Buyer shall have received special warranty deeds (or the
equivalent) conveying all of the Purchased Real Property to Buyer.
(d) Buyer shall have received an affidavit (i) stating that Seller
is not a "foreign person", as defined in Section 1445(f)(3) of the Code, and
(ii) setting forth Seller's taxpayer identification number.
ARTICLE VIII
CONDITIONS TO SELLER'S AND PARENT'S OBLIGATIONS
The obligations of Seller and Parent to sell the Assets shall be
subject to the satisfaction (or waiver) on or prior to the Closing Date of all
of the following conditions:
-34-
<PAGE> 41
8.01. Representations, Warranties and Covenants of Buyer and Newco.
Each of Buyer and Newco shall have complied in all material respects with its
agreements and covenants contained herein to be performed on or prior to the
Closing Date, and the representations and warranties of each of Buyer and Newco
contained herein shall be true and correct in all material respects on and as of
the Closing Date with the same effect as though made on and as of the Closing
Date, except to the extent that any such representations and warranties were
made as of a specified date and as to such representations and warranties the
same shall continue on the Closing Date to have been true and correct in all
material respects as of the specified date. Seller and Parent shall have
received a certificate of each of Buyer and Newco, dated as of the Closing Date
and signed by an officer of Buyer or Newco, as the case may be, certifying as to
the fulfillment of the condition set forth in this Section 8.01 (the "Buyers'
Certificate").
8.02. No Prohibition, etc. No statute, rule or regulation or order
of any court or administrative agency shall be in effect which prohibits Seller
or Parent from consummating or otherwise invalidate or prevents consummation of
the transactions contemplated hereby.
8.03. Performance Bonds. Buyer shall have tendered to Parent the
performance bonds, letters of credit and/or other instruments referred to in
clauses (i) and (ii) of Section 5.01(b) and in Section 5.03.
8.04. Governmental Consents. The applicable waiting period under the
HSR Act shall have expired or been terminated and all other consents, approvals,
authorizations, exemptions and waivers from governmental agencies that shall be
required in order to enable Seller and Parent to consummate the transactions
contemplated hereby shall have been obtained (except for such consents,
approvals, authorizations, exemptions and waivers, the absence of which would
not prohibit consummation of such transactions or render such consummation
illegal).
8.05. Delivery of Transfer Documents. Buyer shall have tendered to
Seller and Parent the instruments described in Section 1.03(b)(ii).
8.06. Opinion of Counsel to Buyer. Parent and Seller shall have
received the opinion of Kirkland & Ellis, counsel to Buyer and Newco,
substantially in the form of Exhibit 8.6 hereto.
8.07. Buyer and Newco Closing Documents. Buyer will have tendered to
Seller and Parent the following documents:
(i) a copy of the resolutions duly adopted by the board of
directors of each of Buyer and Newco authorizing their respective
execution, delivery and performance of the Agreement and the Ancillary
Documents to which each is a party and the consummation of the
transactions contemplated by the Agreement and the Ancillary Documents, as
in effect as of the Closing, certified by an officer of each of Buyer and
Newco; and
-35-
<PAGE> 42
(ii) a certificate (dated not less than ten business days
prior to the Closing) of the secretary of state or other similar official
of jurisdiction in which each of Buyer and Newco is incorporated and of
each jurisdiction in which each of Buyer and Newco is authorized to do
business as to the good standing of Buyer and Newco in such state.
ARTICLE IX
EMPLOYMENT AND EMPLOYEE BENEFITS ARRANGEMENTS
9.01. Definitions. (a) The term "Business" shall mean the Tissue
Business.
(b) The term "Employees" shall mean all current employees (including
those on layoff, disability or leave of absence, whether paid or unpaid), former
employees and retired employees of the Business, and the term "Employee" shall
mean any of the Employees. A list of all Employees and their employment status
as of the date of this Agreement (i.e., laid off, disabled, retired, etc.) is
set forth on the Disclosure Schedule.
(c) The term "Parent Benefit Plans" shall mean each and all
"employee benefit plans" as defined in Section 3(3) of ERISA at any time
contributed to, maintained or sponsored by Seller or Parent and with respect to
which Seller or Parent has any liability or potential liability, with respect to
the Business.
(d) The term "Benefit Arrangements" shall mean each and all pension,
supplemental pension, accidental death and dismemberment, life and health
insurance and benefits (including medical, dental, vision and hospitalization),
savings, bonus, deferred compensation, incentive compensation, holiday,
vacation, severance pay, salary continuation, sick pay, sick leave, short and
long term disability, tuition refund, service award, company car, scholarship,
relocation, patent award, fringe benefit and other employee benefit
arrangements, plans, contracts (including individual employment, consulting and
severance contracts), policies or practices of Seller, Parent or the Business
providing employee or executive compensation or benefits to Employees, other
than the Parent Benefit Plans.
9.02. Employment. As of the Closing Date, Buyer shall offer to
employ all Employees (other than former or retired Employees) in comparable
positions (including level of responsibilities and authority, and location) at
the same salary (including bonus, commission and sales incentive programs) and
on substantially the same terms and conditions as those in effect immediately
prior to the Closing Date. Buyer shall assume all obligations of Seller, Parent
and their affiliates solely with respect to the Tissue Business under all
agreements with any Employee which relate to employment or termination of
employment or compensation or benefits which are listed on the Disclosure
Schedule. Notwithstanding the foregoing or any other provision of this
Agreement, nothing in this Agreement shall limit Buyer's ability to terminate
the
-36-
<PAGE> 43
employment of any Employee at any time following the Closing Date for any
reason, including without cause.
9.03. Pension Plans. (a)(1) As of the Closing Date, each of the
Employees shall become fully vested and cease to be an active participant in the
Pope & Talbot, Inc. Tax Deferred Savings Plan (the "Investment Plan") and Seller
and Parent shall take, or cause to be taken, all such action as may be necessary
to effect such cessation of participation. As soon as practicable after the
Closing Date, Buyer shall establish or designate, and maintain, a defined
contribution plan ("Buyer's Investment Plan") to provide benefits to the
Employees (other than retired or former Employees) who, on the Closing Date, are
participants in the Investment Plan ("Investment Plan Participants") which are
substantially equivalent to the benefits provided to the Investment Plan
Participants under the Investment Plan. Buyer's Investment Plan shall be
qualified under Sections 401(a) and 401(k) of the Code and shall provide the
Investment Plan Participants credit for service with Seller and its affiliates
(including Parent) and their respective predecessors prior to the Closing Date
for all purposes for which service was recognized under the Investment Plan.
(2)(i) Seller and Parent shall cause the trustee of the Investment
Plan to transfer to the trust forming a part of Buyer's Investment Plan
cash or other property reasonably acceptable to Buyer (or with respect to
participant loans granted prior to the Closing Date, if any, such loans
and any promissory notes or other documents evidencing such loans) in an
amount equal to the account balances of Investment Plan Participants as of
a valuation date under the Investment Plan occurring coincident with or
immediately following the Closing Date, or as of such later valuation date
as may be mutually selected by Seller and Buyer. Such transfer shall
account appropriately for earnings and losses during the period from the
applicable valuation date to the actual date of transfer (the "Transfer
Date")(it being understood that if the amount initially transferred is in
excess of the amount finally determined to be required, the Buyer's
Investment Plan will transfer such excess amount back to the Investment
Plan). As soon as practicable following the Closing Date, Buyer shall
submit the Buyer's Investment Plan to the IRS for a favorable
determination that the Buyer's Investment Plan is qualified under Section
401(a) of the Code, and Buyer shall take such actions as may be required
by the IRS to obtain such initial favorable determination. Notwithstanding
the foregoing, no transfer shall be made unless and until the Buyer
provides Seller and Parent with an opinion letter of counsel substantially
in the form attached hereto as Exhibit 9.03(a).
(ii) From the Closing Date until the Transfer Date, Buyer
shall cause to be made continuous payroll deductions each pay period from
the pay of each Investment Plan Participant who has a loan(s) outstanding
from the Investment Plan of amounts sufficient to pay the installment
payments of principal and interest on each such loan as required by the
promissory note or other evidence of indebtedness relating to such loan.
Such deducted amounts shall be
-37-
<PAGE> 44
paid to the trustee of the Investment Plan and the trustee shall accept
such payments for a credit against such loans.
(iii) On or prior to the Transfer Date and subject to the
requirements of applicable law, Seller or Parent shall make a contribution
to the Investment Plan of the amounts of any salary reduction
contributions, employer matching contributions, and profit sharing
contributions attributable to or payable on account of each Investment
Plan Participant under the terms of the Investment Plan for any time
period ending on the Closing Date.
(3) In consideration for the provisions contained in this Section
9.03(a) for the transfer by the Investment Plan of the Account Balances to the
trust forming a part of Buyer's Investment Plan, Buyer shall, except as provided
above, effective as of the Closing Date assume all of the liabilities and
obligations of Seller, Parent and their affiliates in respect of the Investment
Plan Participants and their beneficiaries under the Investment Plan, and Seller,
Parent and their affiliates and the Investment Plan shall be relieved of all
liabilities and obligations to the Investment Plan Participants and their
beneficiaries arising out of the Investment Plan.
(b)(1) As of the Closing Date, each Employee shall cease to be a
participant in the Restated Defined Benefit Retirement Income Plan for Certain
Employees of Pope & Talbot, Inc. (the "Pension Plan") and Seller and Parent
shall take, or cause to be taken, all such action as may be necessary to effect
such cessation of participation. As soon as practicable after the Closing Date,
Buyer shall, or shall cause the Tissue Business to, establish or designate, and
maintain, a defined benefit pension plan ("Buyer's Pension Plan") to provide
benefits to Employees (other than retired or former Employees) who, on the
Closing Date, are participants in the Pension Plan ("Pension Plan Participants")
which are substantially equivalent to the benefits provided to the Pension Plan
Participants under the Pension Plan. Seller shall transfer (or cause to be
transferred) from the Pension Plan to the Buyer's Pension Plan the assets (as
determined in accordance with subparagraph (4) below) and liabilities which are
attributable to the Pension Plan Participants. Buyer's Pension Plan shall be
qualified under Section 401(a) of the Code and shall provide the Pension Plan
Participants with credit for service with Seller, Parent and their affiliates
(including the Tissue Business) and their respective predecessors prior to the
Closing Date for all purposes for which such service was recognized under the
Pension Plan including, without limitation, vesting, benefit accrual,
eligibility to participate and eligibility for disability and early retirement
benefits (including subsidies relating to such benefits).
(2) Within 30 days after the Closing Date, Seller shall file or
cause to be filed any Forms 5310-A required to be submitted to the IRS in
respect to the transfer contemplated by this Section 9.03(b). The transfer shall
be made as soon as practicable following the determination of the transfer
amount as described below, but in no event prior to the thirtieth day following
the filing of such Forms 5310-A with the IRS (or, in the event the IRS raises
any objections to the transfer, the date as of which the IRS
-38-
<PAGE> 45
withdraws such objections or is satisfied that the terms of the transfer have
been modified to the extent necessary to meet such objections). Notwithstanding
the foregoing, no transfer shall be made unless and until the Buyer provides
Seller and Parent with an opinion letter of counsel substantially in the form
attached hereto as Exhibit 9.03(b).
(3) At the time specified in subparagraph (2) above, Seller shall
cause assets to be transferred from the Pension Plan to the Buyer's Pension Plan
in accordance with the requirements of Section 414(l) of the Code and the
specifications described below, together with interest on such amount (less the
Reduction Amount, as defined below) at the annual rate equal to 7.5% for the
period from the Closing Date to the date of the actual transfer of assets.
(4) The amount of the assets to be transferred from the Pension Plan
to the Buyer's Pension Plan (the "Pension Benefits Value") shall initially be
determined by the actuary for the Pension Plan and shall be equal to the amount,
determined as of the Closing Date, that is the greater of: (A) the amount
required to be transferred pursuant to Section 414(l) of the Code; or (B) the
projected benefit obligation ("PBO"), whether or not vested, within the meaning
of Financial Accounting Standards Board Statement 87 and which is attributable
to the Pension Plan Participants. For purposes of the preceding sentence,
determination of the PBO shall be calculated in accordance with the actuarial
assumptions set forth in Exhibit 9.03(b)(4). Seller and Parent shall provide
Buyer with all necessary information for the determination of the Pension
Benefits Value. If Buyer believes that the Pension Benefits Value has not been
properly calculated in accordance with the assumptions described above, it shall
deliver to Seller a written notice of dispute (the "Notice") within 30 business
days after its receipt of the Pension Benefits Value from Seller. If the parties
are not able to resolve their dispute within 20 business days after Buyer
provides the Notice, the dispute shall be submitted to an independent accounting
or actuarial firm selected by mutual agreement of Seller and Buyer, the fees and
expenses of which shall be shared equally by the parties. The decision of such
accounting or actuarial firm shall be rendered within 30 business days after the
dispute is submitted to such accounting or actuarial firm and shall be binding
on all parties.
(5) All assets transferred pursuant to this Section 9.03(b) shall be
transferred in cash or, if mutually agreed by Seller and Buyer, in kind. Pending
completion of the transfer contemplated by this Section 9.03(b), any benefits
that are payable to the Pension Plan Participants under the terms of the Pension
Plan shall be paid or continue to be paid out of the Pension Plan, and the
amount to be transferred to the Buyer's Pension Plan shall be reduced by the
amount of such payments (the "Reduction Amount"). Pending the completion of such
transfer, Seller and Buyer will cooperate with each other with respect to plan
administration, disbursement of benefits and other pertinent information.
(6) In consideration for the provisions contained in this Section
9.03(b) for the transfer of the Pension Transfer Amount to the trust forming a
part of Buyer's Pension Plan, Buyer shall, effective as of the Closing Date (but
subject to subparagraph 5 of this Section 9.03(b)), assume all of the
liabilities and obligations of Seller, Parent and
-39-
<PAGE> 46
their affiliates in respect of the Pension Plan Participants and their
beneficiaries under the Pension Plan, and Seller, Parent and their affiliates
and the Pension Plan shall be relieved of all liabilities and obligations
arising out of or relating to the Pension Plan Participants and their
beneficiaries arising out of the Pension Plan.
(c) As of the Closing Date, Buyer shall and hereby does adopt and
become the successor sponsor of the Pope & Talbot Wisc., Inc. Tax Deferred
Savings Plan for Hourly Employees in Pennsylvania and the Pope & Talbot, Inc.
Tax Deferred Savings Plan for the Members of United Paperworkers International
Union Local 42, Eau Claire, Wisconsin (collectively the "Tissue Business 401(k)
Plans"). As of the Closing Date, Buyer shall assume all of Seller's and Parent's
liabilities and obligations with respect to the Tissue Business 401(k) Plans,
including without limitation all obligations to make contributions required to
be made to the Tissue Business 401(k) Plans after the Closing Date. Buyer shall
execute such documents as may be reasonably requested by Seller and Parent to
effect such adoption and assumption.
(d) As of the Closing Date, Buyer shall adopt and become the
successor sponsor of the Pope & Talbot Wisc. Inc. Retirement Plan for Hourly
Employees in Pennsylvania Operations (the "Hourly Pension Plan"). As of the
Closing Date, Buyer shall assume all of Seller's liabilities and obligations
with respect to the Hourly Pension Plan, including without limitation all
obligations to make contributions required to be made to the Hourly Pension Plan
after the Closing Date. Buyer shall execute such documents as may be reasonably
requested by Seller to effect such adoption and assumption.
9.04. Multiemployer Pension Plan. (a) With respect to the Paper
Industry Union-Management Pension Fund (the "Eau Claire Union Plan"), Buyer, on
the one hand, and Seller and Parent, on the other, intend to satisfy the
requirements of Section 4204 of ERISA to avoid a withdrawal by Seller, Parent or
their affiliates as a result of the transactions contemplated hereby from the
Eau Claire Union Plan in respect of the Employees covered by the Eau Claire
Union Plan. In this regard, effective as of 12:01 a.m. on the Closing Date,
Buyer shall become a successor employer contributing to the Eau Claire Union
Plan on behalf of the Employees participating therein pursuant to the terms of
the applicable collective bargaining agreement and Buyer shall make
contributions after the Closing Date to the Eau Claire Union Plan for
substantially the same number of contribution base units (as defined in Section
4001(a)(11) of ERISA) that Seller or Parent or their affiliates had an
obligation to contribute to the Eau Claire Union Plans.
(b) With respect to the Eau Claire Union Plan, Buyer shall provide,
as soon as practicable after the Closing Date, a bond issued by a corporate
surety company that is an acceptable surety for purposes of Section 412 of ERISA
with a five-year term commencing as of the first day of the first plan year of
the Eau Claire Union Plan immediately following the Closing Date (the "Protected
Period") or establish an escrow account with a bank or similar financial
institution, with the same term, satisfactory to the trustees of the Eau Claire
Union Plan, in an amount equal to the greater of (x) the average
-40-
<PAGE> 47
of Seller's, Parent's and their affiliates' annual contributions to the Eau
Claire Union Plan with respect to the Tissue Business for the three plan years
preceding the plan year in which the Closing Date occurs, or (y) Seller's,
Parent's and their affiliates' contributions to the Eau Claire Union Plan with
respect to the Tissue Business for the plan year preceding the plan year in
which the Closing Date occurs.
(c) If there is a partial or complete withdrawal (as such terms are
defined in Sections 4205(a) and 4203(a) of ERISA, respectively) from the Eau
Claire Union Plan by Buyer prior to the end of the Protected Period, Seller or
Parent or such affiliate of Seller that was obligated to contribute to the Eau
Claire Union Plan shall, to the extent required by applicable law, rule or
regulation, be secondarily liable for any withdrawal liability Seller or Parent
would have had to the Eau Claire Union Plan if Seller or Parent or their
respective affiliates and Buyer had not entered into the agreements contained in
this Section 9.04 to the extent the liability of Buyer to the Eau Claire Union
Plan as a result of either a complete or partial withdrawal therefrom is not
paid by Buyer to the Eau Claire Union Plan in respect of such withdrawal. With
respect to the Eau Claire Union Plan, if either Buyer, on the one hand, or
Seller or Parent or any of their respective affiliates, on the other, requests
the Pension Benefit Guaranty Corporation to grant a variance or exemption from
the requirements of Section 4204(a)(1)(B) or (C) of ERISA and such variance or
exemption is granted or in the event an exemption from such requirements is
available under applicable law, rule or regulation and the Eau Claire Union Plan
confirms that such exemption is applicable, then subparagraphs (b) and (c) shall
be void and not enforceable other than this sentence.
(d) Notwithstanding anything to the contrary set forth in
subparagraphs (b) and (c) above, Buyer shall indemnify and hold harmless Seller,
Parent and their affiliates for all Losses (including any secondary liability
contemplated by subparagraph (3) above) which are incurred or become payable (i)
as a result of Buyer's failure to comply with the provisions of this Section
9.04 or (ii) as a result of Buyer's partial or complete withdrawal from the Eau
Claire Union Plan after the Closing Date. Either Buyer, on the one hand, or
Seller or Parent, on the other, shall promptly notify the other party of any
demand for payment of withdrawal liability received by Buyer or Seller or
Parent, respectively, from the Eau Claire Union Plan.
9.05. Other Benefit Plans. With respect to Employees, Buyer shall
(i) assume and maintain for a period of at least one year immediately following
the Closing Date the Parent Benefit Plans and Benefit Arrangements maintained or
sponsored by Seller or Parent or their respective affiliates immediately prior
to the Closing Date which solely cover Employees (and not any other employees of
Seller or Parent or any of their respective affiliates) as set forth in the
Disclosure Schedule and specifically designated as solely pertaining to the
Tissue Business, and (ii) establish and maintain for at least one year
immediately following the Closing Date employee benefit plans providing benefits
which are substantially the same in the aggregate as the benefits provided to
Employees under each other Parent Benefit Plan and Benefit Arrangement. Buyer
shall grant all Employees credit for all service with Seller, Parent and their
affiliates and their respective predecessors prior to the Closing Date for all
purposes for
-41-
<PAGE> 48
which such service was recognized by Seller, Parent and their affiliates under
such Parent Benefit Plans and Benefit Arrangements. To the extent the employee
benefit plans of Buyer provide medical or dental benefits after the Closing
Date, such plans shall waive any pre-existing conditions and actively-at-work
exclusions and shall provide that any expenses incurred on or before the Closing
Date shall be taken into account under such plans for purposes of satisfying
applicable deductible, coinsurance and maximum out-of-pocket provisions. Without
limiting the generality of Section 1.05, Buyer shall assume all Employee-related
liabilities and obligations of Seller, Parent and their affiliates, including
all liabilities and obligations under the Parent Benefit Plans and Benefit
Arrangements (other than those Parent Benefit Plans which are covered by
Sections 9.03 and 9.04, which shall be governed by those Sections) with respect
to the Employees and their dependents and beneficiaries, including, but not
limited to, (i) liabilities and obligations for wages, claims for benefits,
compensation, contributions, insurance and health maintenance organization
premiums, reserves and administrative expenses, whether incurred or accrued
before, on or after the Closing Date and whether or not reported as of the
Closing Date, (ii) liabilities and obligations arising under the continuation
coverage requirements of Section 4980B(f) of the Code and Section 601 of ERISA
with respect to all Employees (or any beneficiary or dependent of any Employee)
who, as of the Closing Date, have exercised or are eligible to exercise their
right to such continuation coverage and (iii) liabilities and obligations to
provide post-retirement health and life insurance benefits to Employees (whether
or not currently retired).
9.06. Severance. Buyer agrees to provide severance pay and other
benefit entitlements which may be owing pursuant to the plans and agreements set
forth in Section 9.06 of the Disclosure Schedule to any Employee whose
employment is terminated by Buyer or one of its affiliates on or after the
Closing Date or by reason of the transactions contemplated hereby. If such
severance occurs on or within one year after the Closing Date or by reason of
the transactions contemplated hereby, such severance pay and benefit
entitlements shall be determined (on an Employee by Employee basis) in
accordance with the severance policy of Seller and/or Parent applicable to such
Employee immediately prior to the Closing, if more favorable than the severance
policy of Buyer, as applicable, in effect after the Closing.
9.07. Workers Compensation. On and after the Closing Date, Buyer
shall assume and have sole responsibility for, and the Assumed Liabilities shall
include, all liabilities, obligations and commitments of Seller and Parent
arising in connection with any workers' compensation, long-term disability and
unemployment compensation insurance claims whether arising from incidents
occurring on or prior to or after the Closing Date with respect to any
individual at any time employed in the Business.
9.08. Collective Bargaining Agreements. Effective as of the Closing
Date, Seller and/or Parent shall and hereby does assign its right, title and
interest in, and Buyer shall become a successor to and shall assume and agree to
perform all of Seller's obligations under, the collective bargaining agreements
with the United Paperworkers International Union Local 42 dated as of April 1,
1997 and the United Paperworkers International Union Local 1448 dated as of
November 29, 1995. Seller shall use its best
-42-
<PAGE> 49
efforts to cause each of the foregoing unions to agree to the assignment of such
collective bargaining agreements to Buyer as of the Closing Date under the terms
of such collective bargaining agreements in effect on the date hereof.
9.09. Buyer Indemnity. Buyer shall indemnify Seller, Parent and
their affiliates and hold each of them harmless from and against any Losses
which may be incurred or suffered by any of them (i) under the WARN arising out
of, or relating to, any actions taken by Buyer on or after the Closing Date; or
(ii) by reason of Buyer's or the Business' failure to comply with any of the
provisions of this Article IX.
9.10. W-2 Matters. Pursuant to IRS Revenue Procedure 96-60, Buyer
shall assume Seller's and/or Parent's obligation to furnish, and shall indemnify
and hold harmless Seller and/or Parent, as the case may be, with respect to,
Forms W-2 to Employees for the calendar year in which the Closing Date occurs.
Seller and/or Parent, as the case may be, will provide Buyer with any
information not available to Buyer relating to periods ending on the Closing
Date necessary for Buyer to prepare and distribute Forms W-2 to Employees for
the calendar year in which the Closing Date occurs, which Forms W-2 will include
all remuneration earned by Employees from each of Seller, Parent and Buyer
during such year, and Buyer will prepare and distribute such forms.
ARTICLE X
TERMINATION PRIOR TO CLOSING
10.01. Termination. This Agreement may be terminated at any time
prior to the Closing:
(a) by the mutual written consent of the parties hereto; or
(b) by Parent, (I) if Buyer shall have failed to make a
substantially complete submission to the rating agencies selected to rate
the senior subordinated notes contemplated by the Subordinated Debt Letter
on or prior to January 26, 1998, (II) if the Senior Debt Letter shall not
have been amended prior to January 28, 1998 to be in a form reasonably
acceptable to Parent, or (III) if the final information memorandum
relating to the offering of senior subordinated notes as contemplated by
the Subordinated Debt Letter shall not have been distributed to
prospective purchasers and the "road show" marketing of such notes shall
not have been commenced by February 9, 1998; or
(c) by either Seller and Parent, on the one hand, or Buyer, on the
other, in writing, if the Closing shall not have occurred on or before
March 31, 1998; or
(d) by either Seller and Parent, on the one hand, or Buyer, on the
other, in writing, if there shall have been a material breach by the other
party of any of its
-43-
<PAGE> 50
representations, warranties, covenants or agreements contained herein and
after notice of and a reasonable cure period with respect to such breach,
such breach results in a failure to satisfy a condition to the terminating
party's obligation to consummate the transactions provided herein.
10.02. Effect on Obligations. Termination of this Agreement pursuant
to this Article X shall terminate all obligations of the parties hereunder,
except for the obligations under Sections 4.06, 11.11 and 11.12 and the last
sentence of Section 4.03; provided, however, that termination pursuant to clause
(b), (c) or (d) of Section 10.01 by reason of breaches of covenants or
agreements of Seller and Parent, on the one hand, or
-44-
<PAGE> 51
Buyer on the other hand, shall not relieve the defaulting or
breaching party (whether or not it is the terminating party) from any liability
to the other party hereto.
ARTICLE XI
MISCELLANEOUS
11.01. Survival. Subject to the limitations set forth in Section
11.02, all representations, warranties, covenants and obligations contained in
this Agreement, the Disclosure Schedule or in any agreement, certificate
(including Seller's Certificate and Buyer's Certificate) or other document
executed at or prior to the Closing in connection herewith (an "Ancillary
Document") shall survive the Closing provided that, all the obligations of
Parent and Seller under Sections 4.02(ii) - (vii) and 4.03 will terminate
effective as of the Closing Date, and thereafter Parent and Seller will have no
liability to the Buyer Indemnitees (as hereinafter defined) pursuant to Section
11.02(a) for any Losses arising from the breach by Parent and Seller of any
covenant or obligation of Parent and Seller contained in such Sections.
11.02. Indemnification. (a) If the Closing shall occur, Seller and
Parent will jointly and severally indemnify, defend and hold harmless Buyer, its
Affiliates and their respective officers, directors, shareholders, successors
and permitted transferees and assigns (collectively, the "Buyer Indemnitees")
from and against, and will reimburse the Buyer Indemnitees, for any Losses (as
defined in Section 11.02(i)), arising directly or indirectly from any of the
following:
(i) any breach of any representation or warranty (it being
understood that for all purposes of Section 11.02 (except for the last
sentence of Section 2.03(a)), any such representation or warranty shall be
interpreted without giving effect to the word "materially" or "material",
individually or as it appears in the phrase "Material Adverse Effect" or
qualifications or exceptions based on such terms) made by Parent and
Seller in connection with this Agreement or in any Ancillary Document
delivered by Seller or Parent pursuant to this Agreement;
(ii) any breach by Parent or Seller of any covenant or
obligation of Parent or Seller in this Agreement or any Ancillary
Document; and
(iii) any Excluded Liability.
(b) If the Closing shall occur, Buyer shall indemnify Seller,
Parent, their affiliates and the respective officers, directors, shareholders,
successors and permitted transferees and assigns (collectively, the "Seller
Indemnitees") from and against, and will
-49-
<PAGE> 52
reimburse the Seller Indemnitees for, any Losses arising directly or indirectly
from any of the following:
(i) any breach of any representation or warranty made by Buyer
in this Agreement or in any Ancillary Document delivered by Buyer pursuant
to or in connection with this Agreement;
(ii) any breach by Buyer of any covenant or obligation of
Buyer in this Agreement or any Ancillary Document;
(iii) any Assumed Liability; and
(iv) any untrue statement of material fact contained in any
registration statement, prospectus or preliminary prospectus utilized by
Buyer or Newco in connection with its financing of the transactions
contemplated hereby or any amendment thereof or supplement thereto or any
omission or alleged omission of a material fact required to be stated
therein or necessary to make the statements therein not misleading, except
insofar as the same are caused by or contained in any information which
Parent and Buyer mutually agree in writing is being furnished to Buyer or
Newco by Parent or Seller expressly for use therein.
(c) Time Limitations. (i) Except as otherwise provided in Sections
11.02(c)(ii) and (iii), Parent and Seller will have no liability to the Buyer
Indemnitees pursuant to Section 11.02(a)(i) unless on or before March 31, 1999
Parent is given written notice from a Buyer Indemnitee of a bona fide indemnity
claim specifying the factual basis of that claim in reasonable detail (a "Claim
Notice"). With respect to any claim for which a Claim Notice has been given to
Parent prior to the expiration of the applicable time period, Parent's liability
to the Buyer Indemnitees for such claim shall survive without limitation as to
time until such claim is resolved.
(ii) Subject to the second sentence of Section 11.02(c)(i),
Parent and Seller will have no liability to the Buyer Indemnitees pursuant to
Section 11.02(a)(i) for the claims arising out of the Environmental Matters
unless on or before March 31, 2001 Parent is given a Claim Notice with respect
thereto.
(iii) Subject to the second sentence of Section 11.02(c)(i),
Parent and Seller will have no liability to the Buyer Indemnitees pursuant to
Section 11.02(a)(i) for the claims arising out of Taxes (other than Income
Taxes), unless on or before March 31, 2000 Parent is given a Claim Notice with
respect thereto.
(d) Limitations on Amount of Liability.
(i) Deductible and Minimum for Breaches of Representations and
Warranties. (A) Parent and Seller will have no liability to the Buyer
Indemnitees
-50-
<PAGE> 53
pursuant to Section 11.02(a)(i) until the total of all Losses with respect to
claims arising under such Section 11.02(a)(i) (collectively, "Deductible
Losses") exceeds $2,000,000 (the "Deductible"). Thereafter, subject to Sections
11.02(d)(ii) and 11.02(d)(iii)(A), Parent and Seller shall be obligated to
indemnity the Buyer Indemnitees for all such Losses exclusive of any such Losses
attributable to the Deductible. Notwithstanding the foregoing, no single claim
for indemnity under Section 11.02(a) may be asserted against Parent and Seller
that does not involve, and Parent and Seller shall have no liability to the
Buyer Indemnitees with respect to, any single claim (or series of claims arising
from or relating to the same facts or events) that does not result in, Losses
that exceed $75,000 in the aggregate, and, accordingly, the amount of the Losses
relating to any such claim involving Losses that do not exceed $75,000 shall not
be included or taken into account in determining the limitation on Losses set
forth in this Section 11.02(d)(i)(A).
(B) Buyer and Newco will have no liability to the Seller
Indemnitees pursuant to Section 11.02(b)(i) until the total of all Losses with
respect to claims arising under such Section 11.02(b)(i) (collectively "Buyer
Deductible Losses") exceeds $2,000,000 (the "Buyer Deductible"). Thereafter,
subject to Section 11.02(d)(iii)(B), Buyer and Newco shall be obligated to
indemnify the Seller Indemnitees for all such Losses exclusive of any such
Losses attributable to the Buyer Deductible. Notwithstanding the foregoing, no
single claim for indemnity under Section 11.02(b) may be asserted against Buyer
and Newco that does not involve, and Buyer and Newco shall have no liability to
the Seller Indemnitees with respect to, any single claim (or series of claims
arising from or relating to the same facts or events) that does not result in,
Losses that exceed $75,000 in the aggregate, and, accordingly, the amount of the
Losses relating to any such claim involving Losses that do not exceed $75,000
shall not be included or taken into account in determining the limitation on
Losses set forth in this Section 11.02(d)(i)(B).
(ii) Sharing of Losses for Environmental Matters and
Undisclosed Obligations. If the aggregate Deductible Losses exceed the
Deductible, the liability of Parent and Seller for Deductible Losses
attributable (x) to breaches of any representations related to the Environmental
Matters and (y) to breaches of the representations made pursuant to Section 2.18
hereof (other than breaches of which Parent has knowledge on the Closing Date)
shall be limited to (1) 30% of all such Deductibles Losses in excess of the
Deductible until the total of all Deductible Losses exceeds $3,500,000, and (2)
70% of all such Deductible Losses in excess of $3,500,000 if the total of all
Deductible Losses exceed $3,500,000. For purposes of the application of
Deductible Losses against the Deductible, Deductible Losses other than the
Deductible Losses referred to in clauses (x) and (y) of the preceding sentence
shall be deemed to be applied first against the Deductible and the Deductible
Losses referred to in clauses (x) and (y) of the preceding sentence shall be
deemed to be applied second against the Deductible.
-51-
<PAGE> 54
(iii) Maximum Indemnification Amounts. (A) The maximum amount
of Losses that Parent and Seller shall be required to pay to the Buyer
Indemnitees pursuant to Section 11.02(a)(i) shall be $12,500,000.
(B) The maximum amount of Losses that Buyer and Newco shall be
required to pay to the Seller Indemnitees pursuant to Section 11.02(b)(i) shall
be $12,500,000.
(iv) Notwithstanding anything herein to the contrary, the
foregoing limitations of Section 11.02(d) shall not apply to any Losses arising
directly or indirectly from breaches of the representations made (A) by Parent
and Seller pursuant to Sections 2.08(a), (b) and (c) and (B) by Buyer and Newco
pursuant to Section 3.01 and Section 3.02 (excluding the last sentence of
Section 3.02).
(e) Indemnification Procedures. (i) In the event that any party
shall incur or suffer any Losses in respect of which indemnification may be
sought by such party pursuant to the provisions of this Section 11.02, the party
seeking to be indemnified hereunder (the "Indemnitee") shall assert a claim for
indemnification by written notice (a "Notice") to the party from whom
indemnification is sought (the "Indemnitor") stating the nature and basis of
such claim, and if such claim is with respect to a third-party claim. In the
case of Losses arising by reason of any third-party claim, the Notice shall be
given within 30 days of the filing or other written assertion of any such claim
against the Indemnitee, but the failure of the Indemnitee to give the Notice
within such time period shall not relieve the Indemnitor of any liability that
the Indemnitor may have to the Indemnitee except to the extent that the
Indemnitor is prejudiced thereby.
(ii) The Indemnitee shall provide to the Indemnitor on request
all information and documentation reasonably necessary to support and verify any
Losses which the Indemnitee believes give rise to a claim for indemnification
hereunder and shall give the Indemnitor reasonable access to all books, records
and personnel in the possession or under the control of the Indemnitee which
would have bearing on such claim.
(iii) Subject to the provisions of Section 11.02(e)(iv), in
the case of third-party claims for which indemnification is sought, the
Indemnitor shall have the option, and with respect to such claims that represent
or are in respect of any of the Excluded Liabilities or Assumed Liabilities, as
the case may be ("Liabilities Claims") shall have the obligation, (x) to conduct
any proceedings or negotiations in connection therewith, (y) to take all other
steps to settle or defend any such claim (provided that the Indemnitor shall not
settle any such claim without the consent of the Indemnitee (which consent shall
not be unreasonably withheld)) and (z) to employ counsel to contest any such
claim or liability in the name of the Indemnitee or otherwise. In any event, the
Indemnitee shall be entitled to participate at its own expense and by its own
counsel in
-52-
<PAGE> 55
any proceedings relating to any third-party claim. The Indemnitor shall, within
45 days of receipt of the Notice, notify the Indemnitee of (or, in the case of a
Liabilities Claim, confirm to the Indemnitee) its intention to assume the
defense of such claim. Until the Indemnitee has received notice of the
Indemnitor's election whether to (or, in the case of a Liabilities Claim, the
Indemnitor's confirmation of its intention to) defend any claim, the Indemnitee
shall take reasonable steps to defend (but may not settle) such claim. If the
Indemnitor shall decline to assume the defense of such claim, or shall fail to
notify the Indemnitee within 45 days after receipt of the Notice of the
Indemnitor's election to defend such claim, the Indemnitee shall defend against
such claim. The expenses of all proceedings, contests or lawsuits in respect of
any such claims (other than those incurred by the Indemnitee which are referred
to in the second sentence of this subparagraph (iii)) shall be borne by the
Indemnitor but only if the Indemnitor is responsible pursuant hereto to
indemnify the Indemnitee in respect of the third-party claim. Regardless of
which party shall assume the defense of the claim, the parties agree to
cooperate fully with one another in connection therewith.
(iv) The Indemnitor shall have the options to assume the
defense of a third-party claim set forth in the preceding Section 11.02(d)(iii)
only if the third party seeks only the recovery of a sum of money for which
indemnification is provided under this Agreement.
(f) All amounts payable by one party in indemnification of the other
shall be considered an adjustment to the Purchase Price.
(g) (i) Buyer understands and agrees that the rights accorded it by
Section 11.02(a) are its sole and exclusive remedy against Seller, Parent or any
of their respective affiliates with respect to any Environmental Matters
whatsoever. Buyer (on its own behalf and on behalf of its affiliates and the
successors and assigns of any of the foregoing) hereby waives any right to seek
contribution or other recovery from Seller, Parent or any of their respective
affiliates that any of them may now or in the future ever have under 42 U.S.C.
ss.ss. 9607 and 9613(f) of the Comprehensive Environmental Response,
Compensation, and Liability Act (42 U.S.C. ss. 9601 et seq.), as amended
("CERCLA"), the Hazardous Material Transportation Act (49 U.S.C. ss. 1801 et
seq.), the Clean Water Act (33 U.S.C. ss. 1251 et seq.), the Resource
Conservation and Recovery Act (42 U.S.C. ss. 6901 et seq.), the Clean Air Act
(42 U.S.C. ss. 7401 et seq.), the Emergency Planning and Community Right-to-Know
Act of 1986 (42 U.S.C. ss.ss. 11001 et seq.), the Safe Drinking Water Act (42
U.S.C. ss.ss. 300f et seq.), the Toxic Substances Control Act, as amended (15
U.S.C. ss. 2601 et seq.), the Federal Insecticide, Fungicide, and Rodenticide
Act (7 U.S.C. ss. 136 et seq.), the Occupational Safety and Health Act (29
U.S.C. ss. 651 et seq.) or any other federal, state, local or foreign law
relating to Environmental Matters, the rules and regulations promulgated under
any thereof, and any provisions of common law providing for any remedy or right
of recovery with respect to Environmental Matters, as these laws, rules,
regulations and provisions were in the past
-53-
<PAGE> 56
or are currently in effect, or may in the future be enacted or be in effect
(collectively, "Environmental Laws"), with respect to the liabilities. Buyer (on
its own behalf and on behalf of its affiliates and the successors and assigns of
any of the foregoing) hereby further unconditionally releases Seller, Parent and
their respective affiliates from any and all claims, demands, and causes of
action that any of them may now or in the future ever have against Seller,
Parent or any of their respective affiliates for recovery under CERCLA or under
any other Environmental Laws with respect to the Assumed Liabilities.
(ii) Except as set forth in Sections 6.01 and this Section
11.02(g) and except for common law fraud, the sole and exclusive remedy of Buyer
and Parent and Seller for any and all claims or Losses relating to or arising
out of or in connection with this Agreement or any of the Ancillary Documents
and the transactions contemplated hereby and thereby and the facts and
circumstances relating and pertaining thereto shall be an action for indemnity
pursuant to this Section 11.02 which shall be governed and limited by this
Section 11.02 (whether any such claim may be made in contract, breach of
warranty, tort or otherwise).
(h) Upon making any payment to an Indemnitee for any indemnification
claim pursuant to this Section 11.02, the Indemnitor shall be subrogated, to the
extent of such payment, to any rights which the Indemnitee may have against any
other parties with respect to the subject matter underlying such indemnification
claim.
(i) For purposes of this Agreement, "Loss" or "Losses" shall mean
each and all of the following items to the extent actually incurred: claims,
losses, liabilities, damages, judgments, fines, penalties, amounts paid in
settlement and reasonable costs and expenses incurred in connection therewith
(including, without limitation, interest which is imposed in connection
therewith, costs and expenses of suits and proceedings, and reasonable fees and
disbursements of counsel); provided that Losses shall exclude any and all
consequential, punitive, exemplary and duplicative damages.
11.03. Interpretive Provisions. Whenever used in this Agreement, "to
Parent's knowledge" or "to the knowledge of Parent" shall mean the knowledge of
those persons who are listed in the Disclosure Schedule, and "to Buyer's
knowledge" or "to the knowledge of Buyer" shall mean the actual knowledge of
Buyer and the persons listed on Exhibit 11.03.
11.04. Entire Agreement. This Agreement (including the Disclosure
Schedule) and Ancillary Documents and the Confidentiality Agreement constitute
the sole understanding of the parties with respect to the subject matter hereof.
11.05. Successors and Assigns. The terms and conditions of this
Agreement shall inure to the benefit of and be binding upon the respective
successors and assigns of the parties hereto; provided, however, that this
Agreement may not be assigned
-54-
<PAGE> 57
by Buyer without the prior written consent of Seller and Parent, except that
Buyer may, at its election and without the consent of Parent or Seller, assign
this Agreement (a) to any direct or indirect wholly owned subsidiary so long as
(i) the representations and warranties of Buyer made herein are equally true of
such assignee, and (ii) such assignment does not have any adverse consequences
to Seller, Parent or any of their respective affiliates (including, without
limitation, any adverse tax consequences or any adverse effect on the ability of
Buyer to consummate (or timely consummate) the transactions contemplated
hereby), and (iii) such assignee shall execute a counterpart of this Agreement
agreeing to be bound by the provisions hereof as "Buyer," and agreeing to be
jointly and severally liable for any liabilities of buyer hereunder and (b) to
any of its debt financing sources. Nothing in this Agreement, express or
implied, is intended to confer on any person other than the parties hereto or
their respective heirs, successors, executors, administrators and assigns any
rights, remedies, obligations or liabilities under or by reason of this
Agreement.
11.06. Headings. The headings of the Articles, Sections and
paragraphs of this Agreement are inserted for convenience only and shall not be
deemed to constitute part of this Agreement or to affect the construction
hereof.
11.07. Modification and Waiver. No amendment, modification or
alteration of the terms or provisions of this Agreement shall be binding unless
the same shall be in writing and duly executed by the parties hereto, except
that any of the terms or provisions of this Agreement may be waived in writing
at any time by the party which is entitled to the benefits of such waived terms
or provisions. No waiver of any of the provisions of this Agreement shall be
deemed to or shall constitute a waiver of any other provision hereof (whether or
not similar). No delay on the part of any party in exercising any right, power
or privilege hereunder shall operate as a waiver thereof.
11.08. Counterparts. This Agreement may be executed in one or more
counterparts, each of which shall for all purposes be deemed to be an original
and all of which shall constitute the same instrument.
11.09. Expenses. Except as otherwise provided herein, Seller and
Parent, on the one hand, and Buyer, on the other, shall each pay all costs and
expenses incurred by it or on its behalf in connection with this Agreement and
the transactions contemplated hereby, including, without limiting the generality
of the foregoing, fees and expenses of its own financial consultants,
accountants and counsel.
11.10. Notices. Any notice, request, instruction or other document
to be given hereunder by any party hereto to any other party shall be in writing
and shall be given (and will be deemed to have been duly given upon receipt) by
delivery in person, by electronic facsimile transmission, cable, telegram, telex
or other standard forms of
-55-
<PAGE> 58
written telecommunications, by overnight courier or by registered or certified
mail, postage prepaid,
if to Seller and Parent to:
Pope & Talbot, Inc.
1500 S.W. First Avenue
Portland, Oregon 97201
Attention: Michael Flannery
Telecopy: (503) 220-2722
with a copy to:
Fried, Frank, Harris, Shriver & Jacobson
One New York Plaza
New York, New York 10004
Attention: F. William Reindel, Esq.
Telecopy: (212) 859-4000
if to Buyer or Newco to:
Plainwell Holding Company
c/o PLAINWELL INC.
200 Allegan Street
Plainwell, MI 49080
Attention: William L. New
Telecopy: (616) 685-2708
with a copy to:
Citicorp Venture Capital, Ltd.
399 Park Avenue, 14th Floor
New York, NY 10043
Attention: John D. Weber
Telecopy: (212) 888-2940
and to:
Kirkland & Ellis
Citicorp Center
153 E. 53rd Street
New York, NY 10022
Attention: Kirk A. Radke, Esq.
Telecopy: (212) 446-4900
-56-
<PAGE> 59
or at such other address for a party as shall be specified by like notice.
11.11. Governing Law. This Agreement shall be construed in
accordance with and governed by the laws of the State of New York applicable to
agreements made and to be performed wholly within such jurisdiction. Each of the
parties hereto hereby irrevocably and unconditionally consents to submit to the
exclusive jurisdiction of the courts of the State of New York and of the United
States of America, in each case located in the County of New York, for any
litigation arising out of or relating to this Agreement and the transactions
contemplated hereby (and agrees not to commence any litigation relating thereto
except in such courts), and further agrees that service of any process, summons,
notice or document by U.S. registered mail to its respective address set forth
in Section 11.10 shall be effective service of process for any litigation
brought against it in any such court. Each of the parties hereto hereby
irrevocably and unconditionally waives any objection to the laying of venue of
any litigation arising out of this Agreement or the transactions contemplated
hereby in the courts of the State of New York or the United States of America,
in each case located in the County of New York, and hereby further irrevocably
and unconditionally waives and agrees not to plead or claim in any such court
that any such litigation brought in any such court has been brought in an
inconvenient forum.
11.12. Public Announcements. Neither Seller or Parent, on the one
hand, nor Buyer, on the other, shall make any public statements, including,
without limitation, any press releases, with respect to this Agreement and the
transactions contemplated hereby without the prior written consent of the other
party (which consent shall not be unreasonably withheld) except (a) as may be
required by law (if a public statement is required to be made by law, the
parties shall consult with each other in advance as to the contents and timing
thereof) (b) to or by any of Buyer's financing sources (subject to Buyer's
obligations under this Agreement), or (c) in connection with a public offering
of the securities of Buyer, subject to Buyer's obligations under this Agreement.
11.13. Bulk Transfer Laws. Buyer hereby waives compliance by Seller
and Parent with the provisions of any so-called bulk transfer law in any
jurisdiction in connection with the transactions contemplated hereby.
11.14. Disclosure Schedule. Buyer acknowledges, with respect to the
Disclosure Schedule delivered by Seller and Parent, that the mere inclusion of
an item in the Disclosure Schedule as an exception to a representation or
warranty shall not be deemed an admission by Seller or Parent, as the case may
be, that such item represents a material exception of fact, event or
circumstance or a change in the thresholds of materiality for such
representation or warranty or that such item is reasonably likely to have a
Material Adverse Effect.
-57-
<PAGE> 60
11.15. Severability of Provisions. If any provision or any portion
of any provision of this Agreement or the application of such provision or any
portion thereof to any Person or circumstance, shall be held invalid or
unenforceable, the remaining portion of such provision and the remaining
provisions of this Agreement, or the application of such provision or portion of
such provision as is held invalid or unenforceable to persons or circumstances
other than those as to which it is held invalid or unenforceable, shall not be
affected thereby.
11.16. Specific Performance. Each of Parent and Seller acknowledges
and agrees that the other party would be damaged irreparably in the event any of
the provisions of this Agreement are not performed in accordance with their
specific terms or otherwise are breached. Accordingly, each party agrees that
the other party shall be entitled to an injunction or injunctions to prevent
breaches of the provisions of this Agreement and to enforce specifically this
Agreement and the terms and provisions hereof in any action instituted in any
court of the United States or any state thereof having jurisdiction over the
parties and the matter, in addition to any other remedy to which they may be
entitled, at law or in equity.
11.17. Time is of the Essence. Parent and Seller agree that time is
of the essence with respect to every covenant, condition to be satisfied, and
action to be taken hereunder, and shall proceed accordingly with respect to
every action necessary, proper or advisable to make effective the transactions
contemplated by this Agreement.
11.18. Remedies Cumulative. Except as otherwise provided herein, the
remedies provided herein shall be cumulative and shall not preclude the
assertion by any party hereto of any other rights or the seeking of any other
remedies against any other party hereto.
11.19. Waiver of Jury Trial. Each of the parties hereto waives to
the fullest extent permitted by law any right it may have to trial by jury in
respect of any claim, demand, action or cause of action based on, or arising out
of, under or in connection with this Agreement, or any course of conduct, course
of dealing, verbal or written statement or action of any party hereto, in each
case whether now existing or hereafter arising, and whether in contract, tort,
equity or otherwise. The parties to this Agreement each hereby agrees that any
such claim, demand, action or cause of action shall be decided by court trial
without a jury and that the parties to this Agreement may file an original
counterpart of a copy of this Agreement with any court as evidence of the
consent of the parties hereto to the waiver of their right to trial by jury.
-58-
<PAGE> 61
IN WITNESS WHEREOF, each of the parties hereto has caused this
Agreement to be executed on its behalf as of the date first above written.
POPE & TALBOT, INC.
By:
-----------------------------
Name:
Title:
POPE & TALBOT, WIS., INC.
By:
-----------------------------
Name:
Title:
PLAINWELL HOLDING COMPANY
By:
-----------------------------
Name:
Title:
PLAINWELL INC.
By:
-----------------------------
Name:
Title:
-59-
<PAGE> 1
Exhibit 10.3
EXECUTION COPY
TRANSITION SERVICES AGREEMENT
TRANSITION SERVICES AGREEMENT (this "Agreement"), dated as of March 6,
1998, by and between PLAINWELL INC., a Delaware corporation (the "Company") and
POPE & TALBOT, INC., a Delaware corporation ("PTI"). Capitalized terms used but
not defined herein shall have the meanings ascribed to them in the Agreement of
Purchase and Sale dated January 22, 1998 (the "Purchase Agreement") by and among
the Company, Plainwell Holding Company, a Delaware corporation ("Holdings"), PTI
and Pope & Talbot, Wis., Inc., a Delaware corporation ("PTWI").
WHEREAS, the Company, Holdings, PTI and PTWI have entered into the
Purchase Agreement;
WHEREAS, pursuant to the terms of the Purchase Agreement, the Company is
acquiring the tissue business (the "Tissue Business") of PTI and PTWI; and
WHEREAS, PTI is prepared to provide certain transition services to the
Company following consummation of the transactions contemplated by the Purchase
Agreement (the "Acquisition") upon the terms and conditions set forth herein.
NOW, THEREFORE, in consideration of the foregoing and the agreements
contained herein, and other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the parties agree as follows:
1. SERVICES.
(a) Transition Services. PTI shall provide to the Company certain
services, described in Exhibit A for the periods set forth in Exhibit A (the
"Transition Services"). The Transition Services, together with the Additional
Services described in paragraph 2(b) are herein collectively referred to as the
"Services" and individually as a "Service". PTI shall not be obligated to: (i)
provide any services to the Company other than the Services and services that
are a necessary incident thereto; or (ii) provide any Service after the Company
has terminated such Service pursuant to paragraph 8(c) herein.
(b) Additional Services. The parties have attempted to identify and
specifically enumerate on Exhibit A hereto all transition services required to
be provided by PTI to the Company in order to continue the uninterrupted
operation of the Tissue Business following the Closing. In the event that the
Company needs additional services (the "Additional Services"), PTI shall use its
commercially reasonable best efforts to provide such Additional Services.
Notwithstanding anything to the contrary contained herein, PTI shall only be
required to provide Additional Services to the Tissue Business if (i) such
Additional Services are requested within three months after the Closing and (ii)
the provision of such services is within the scope of this Agreement. With
respect to Additional Services, PTI shall provide such Additional Services as
soon as commercially practical for PTI.
2. PROCESSING ERRORS, COMPANY OBLIGATIONS, ETC.
(a) Correction of Processing Errors. The Company is responsible from the
date hereof for: (i) the accuracy and completeness of all data or information
submitted by the Company to PTI for processing or transmission in connection
with the Services (the "Data"); and (ii) any errors in and with respect to data
or information obtained from PTI because of any inaccurate or incomplete Data.
<PAGE> 2
(b) Company Obligations. The Company shall: (i) maintain in good operating
condition all equipment, software and operational resources necessary to allow
PTI to provide the Services in a manner consistent with past practice of the
Company prior to the date hereof; and (ii) comply with any reasonable
instructions provided by PTI that are necessary for PTI to provide the Services
in accordance with this Agreement.
3. DATA.
Except as may be required in order to perform the Services, all Data shall
be maintained as set forth in Exhibit A and shall be the property of the
Company. Unless furnished to PTI by the Company, all media upon which Data is
stored is and shall remain the property of the Company. The Company shall be
entitled to copies of all media upon which Data is stored and shall have access
to data as set forth in Exhibit A. Upon the Company's written request, PTI shall
erase or destroy all copies of all media upon which Data is stored and shall
provide the Company written verification thereof.
4. FEES.
(a) Fees.
(i) In consideration of the provision of the Services, the Company
shall pay to PTI the fees specified in Exhibit A (the "Fees").
(ii) Not later than the close of business on the 30th day of each
calendar month during the Term and not later than 30 days after the last day of
the Term, PTI shall deliver an invoice to the Company setting forth the Fees
(which shall be prorated in the case of Fees payable for any period in the Term
that is less than a full calendar month) payable by the Company for the Services
provided in the preceding month (or, in the case of the invoice delivered after
the last day of the Term, in the period since the end of the preceding month)
(the "Fee Invoice"). The Company shall pay the Fees set forth in the Fee Invoice
in full by check or by wire transfer of immediately available funds to or an
account of PTI's designation not later than the close of business on the tenth
business day following the date of receipt of such Fee Invoice.
(b) Taxes. The Company shall pay any valued-added tax and any tariff,
duty, export or import fee, sales tax, use tax, service tax or other tax or
charge imposed or incurred relating to PTI's performance of the Services
hereunder. Any payments made pursuant to this paragraph 4(b) shall not reduce
the amount of the Fees payable hereunder.
5. CONFIDENTIALITY.
All confidential or proprietary information and documentation relating to
either party hereto provided by either party to the other pursuant to the terms
and conditions of this Agreement (the "Confidential Information") shall be held
in confidence by the other party (including its affiliates) during and after the
Term to the same extent and in at least the same manner as such party protects
its own confidential or proprietary information. Neither party shall disclose,
publish, release, transfer or otherwise make available Confidential Information
of the other party in any form to, or for the use or benefit of, any person or
entity without the other party's prior written approval. Each party shall,
however, be permitted to disclose relevant aspects of the other party's
Confidential Information to its officers, agents and employees and to the
officers, agents and employees of its affiliates to the extent that such
disclosure is reasonably necessary to the performance of its duties and
obligations under this Agreement, provided that such party shall take all
reasonable measures to ensure that Confidential Information of the other party
is not disclosed or duplicated in contravention of the provisions of this
Agreement by such officers, agents and employees. The obligations in this
-2-
<PAGE> 3
Section 5 shall not: (a) restrict any disclosure by either party pursuant to
order of any court or government agency (provided that the disclosing party
shall endeavor to give prior written notice to the non-disclosing party as may
be reasonable under the circumstances); and (b) apply with respect to
information that: (i) is independently developed by the other party, (ii)
becomes part of the public domain (other than through unauthorized disclosure in
contravention of the terms and conditions of this Agreement); (iii) is disclosed
by the owner of such information to a third party free of any obligation of
confidentiality under the terms and conditions of this Agreement; or (iv) either
party gained knowledge or possession of free of any obligation of
confidentiality under the terms and conditions of this Agreement.
6. WARRANTY; DISCLAIMER.
PTI shall perform the Services consistent with the manner (including,
without limitation, quality and level of Services) in which such Services were
provided by PTI for the Tissue Business prior to the Closing. THE COMPANY
ACKNOWLEDGES THAT THE SERVICES ARE PROVIDED WITHOUT ANY OTHER EXPRESS OR IMPLIED
WARRANTIES, INCLUDING THE WARRANTIES OF MERCHANTABILITY AND FITNESS FOR A
PARTICULAR PURPOSE.
7. FORCE MAJEURE.
In case either party shall be hindered, delayed or prevented from
performing its obligations under this Agreement, or if such performance is
rendered impossible by reason of any force majeure event including but not
limited to fire, explosion, earthquake, storm, flood, drought, embargo, war or
other hostilities. strike, lockout or other labor disturbance, mechanical
breakdown, governmental action, or any other cause whatsoever that is beyond a
party's reasonable control, the party so hindered, delayed or prevented shall
not be liable to the other for the resulting failure to carry out its
obligations hereunder. Any such obligations, so far as may be necessary, shall
be suspended during the period of such hindrance, delay or prevention, and the
Term shall be extended by a period of time equal to the duration of all such
events of force majeure so as to permit performance of this Agreement as
contemplated.
8. TERM, TERMINATION.
(a) Term. The term of this Agreement shall commence upon the date
hereof and shall continue until the end of all periods for which Services are to
be provided as set forth on Exhibit A or such earlier date on which this
Agreement is terminated pursuant to paragraph 8(b) or terminated in respect of
all the Services pursuant to paragraph 8(c) (the "Term").
(b) For Default. In the event that either party fails to perform any
of its material duties or obligations pursuant to this Agreement and such
failure is not cured within 30 days after written notice to such party
specifying the nature of such failure, the other party may terminate this
Agreement upon notice of such termination to the defaulting party.
(c) For Convenience. The Company may terminate this Agreement in
respect of any or all of the Services at any time upon 30 days written notice to
PTI.
(d) Effect of Termination. Once the Company terminates any of the
Services provided by PTI to the Company, the Company may request the renewal of
such Services, but PTI shall not be required to provide such terminated Services
on a renewed basis. Upon the expiration of the Term, all Fees owed by the
Company to PTI for Services provided through the date of such expiration shall
be paid within 30 days of the date of such expiration.
9. MISCELLANEOUS PROVISIONS.
-3-
<PAGE> 4
(a) No Waivers. The failure on the part of either party to exercise or
delay in exercising any right or remedy hereunder shall not operate as a waiver
of such right or remedy. Any single or partial exercise by a party of any right
or remedy hereunder shall not preclude the exercise of any other right or remedy
or further exercise of such right or remedy.
(b) Invalid Provisions. If any provision of this Agreement is held to be
illegal, invalid or unenforceable under any present or future law, and if the
rights or obligations of each party hereto under this Agreement will not be
materially and adversely affected thereby, (i) such provision will be fully
severable, (ii) this Agreement will be construed and enforced as if such
illegal, invalid or unenforceable provision had never comprised a part hereof,
and (iii) the remaining provisions of this Agreement will remain in full force
and effect and will not be affected by the illegal, invalid or unenforceable
provision or by its severance herefrom.
(c) Headings. The headings used in this Agreement are intended for
reference only. They are not intended as and shall not be construed to be a
substantive part of this Agreement or in any way affect the validity,
construction or effect of any of the provisions of this Agreement.
(d) Exhibit. Exhibit A attached hereto is incorporated herein by reference
as an integral part of this Agreement. In the event of any inconsistency between
the terms contained in Exhibit A and the terms contained herein, the terms in
Exhibit A shall govern.
(e) Notices. All notices, designations, approvals, consents, requests,
acceptances, rejections or other communications required or permitted by this
Agreement shall be in writing and shall be sent by either telecopy (effective
upon the sender's receipt of transmission confirmation), overnight courier or
similar service (effective on the day after mailed) or by U.S. mail (effective
on the third day after mailed) to the addresses specified below:
If to PTI:
Pope & Talbot, Inc.
1500 S.W. First Avenue
Portland, OR 97201
Attention: Maria M. Pope
Facsimile: (503) 220-2722
If to the Company:
Plainwell Tissue Company
200 Allegan Street
Plainwell, MI 49080
Attention: Bill New
Facsimile: (616)685-2597
With copies (which shall not constitute notice) to:
Citicorp Venture Capital, Ltd.
399 Park Avenue
14th Floor
New York, New York 10043
Attention: John Weber
-4-
<PAGE> 5
Facsimile: (212) 888-2940
Kirkland & Ellis
Citicorp Center
153 East 53rd Street
New York, New York 10022-4675
Attention: Kirk A. Radke, Esq.
Facsimile: (212) 446-4900
Any party may at any time, by notice to the other party transmitted or
sent in the manner described above, change the address or telecopy number to
which communications to it are to be sent.
(f) Relationship. The performance by PTI of its duties and obligations
under this Agreement shall be that of an independent contractor and nothing
herein contained shall create or imply an agency relationship between the
parties, nor shall this Agreement be deemed to constitute a joint venture,
franchise or partnership between the parties hereto.
(g) Governing Law. This Agreement shall be governed by and construed in
accordance with the laws of the State of New York applicable to a contract
executed and performed therein, without giving effect to the conflicts of laws
principles thereof.
(h) Covenant of Further Assurances. The parties covenant and agree that,
subsequent to the execution and delivery of this Agreement and without any
additional consideration, each of the parties hereto will execute and deliver,
or cause their respective appropriate affiliates to execute and deliver, any
further legal instruments and perform any acts which are or may become
reasonably necessary to effectuate this Agreement.
(i) Assignment. Neither this Agreement nor any right, interest or
obligation hereunder may be assigned by either party hereto without the prior
written consent of the other party hereto.
(j) Entire Understanding. This Agreement represents the entire
understanding of the parties with respect to its subject matter and supersedes
all prior or contemporaneous writings, correspondence and memoranda with respect
hereto. No representations, warranties, agreements or covenants, express or
implied, of any kind or character whatsoever with respect to such subject matter
have been made by either party to the other, except as herein expressly set
forth.
(k) Successors. Subject to the restrictions on assignment set forth in
paragraph 9(i) above, this Agreement shall be binding upon and inure to the
benefit of and be enforceable against the parties hereto and their respective
successors and permitted assigns.
(l) Amendments. This Agreement can be modified or amended only by a
written amendment executed by both parties.
(m) Counterparts. This Agreement may be executed in counterparts, each of
which shall be deemed an original, but all of which shall constitute one and the
same instrument.
(n) Third Party Beneficiaries. Each party intends that this Agreement
shall not benefit or create any right or cause of action in or on behalf of any
person or entity other than the Company and PTI.
-5-
<PAGE> 6
(o) Time is of the Essence; Computation of Time. Time is of the essence
for each and every provision of this Agreement. Whenever the last day for the
exercise of any privilege or the discharge of any duty hereunder shall fall upon
any day which is not a business day, the party having such privilege or duty may
exercise such privilege or discharge such duty on the next succeeding business
day.
(p) Indemnification. The Company will indemnify, defend and hold harmless
PTI, its affiliates and their respective officers, directors, employees,
successors and permitted transferees and assigns (collectively, the
"Indemnitees") from and against, and will reimburse the Indemnitees, for any
Losses resulting from a failure to comply with Laws or a breach of third party
contracts which may be imposed on or incurred by the Indemnitees by reason of
their performance of their duties hereunder, but only to the extent that the
Indemnitees (i) acted in good faith, (ii) acted in a manner reasonably believed
to be not opposed to the best interests of the Company and (iii) were acting
within the scope of their duties to PTI or under the Agreement; provided, that
the Company shall not be liable (i) for any portion of such Losses resulting
form the Indemnitees' gross negligence or willful misconduct and (ii) for any
Losses resulting from a breach of Section 2.10 of the Purchase Agreement (except
for Losses attributable to the failure of PTI to obtain Consents necessary to
provide the payroll deduction Services, provided such Consents are obtained
within 30 days after Closing).
* * * * *
-6-
<PAGE> 7
IN WITNESS WHEREOF, the parties hereto have caused this Transition
Services Agreement to be executed by their duly authorized officers to be
effective as of the day and year first above written.
PLAINWELL INC.
By:
---------------------------
Title:
------------------------
POPE & TALBOT, INC.
By:
---------------------------
Title:
------------------------
-7-
<PAGE> 8
EXHIBIT A
TRANSITION SERVICES
1. SERVICES
(a) Financial Applications
(i) The Company will require all financial applications currently
implemented by PTWI or PTI for use by the Tissue Business,
including but not limited to the following applications, in
substantially the same format and substantially the same
timetable as were provided by PTI to the Tissue Business prior
to the Closing:
(A) General ledger
(B) Receivables
(C) Payables
(D) Purchasing
(E) Fixed Assets
(F) Cost Accounting
(G) Payroll
(H) Tax assistance for sales, use, payroll, state, local or
excise taxes or any other related tax matter; provided,
that PTI shall not be responsible for preparing or
making any filings with any governmental authority on
behalf of the Company.
(ii) With respect to the financial applications or Services listed
above, to the extent commercially practicable, and in no event
earlier than such time as is commercially reasonable for PTI,
the Company shall require each of such applications or
Services to be maintained or provided by PTI in a manner
separate and distinct from those which PTI maintains for its
businesses not related to the Tissue Business.
(iii) With respect to the financial applications or Services listed
above, the Company shall require the following format/output
specifications:
(A) PTI Applications
(1) The right to receive every report currently
available to the Tissue Business in substantially
the same format (printed and electronic, e.g., as
displayed on a computer monitor) on substantially
the same schedule, with substantially the same
system response times.
(B) Tissue Business Applications
(1) Maintenance and support of all interfaces between
PTI and Tissue Business applications in
substantially the same format and substantially
A-1
<PAGE> 9
the same timetable and with substantially
equivalent system response times as were provided
by PTI to the Tissue Business prior to Closing
(iv) With respect to the financial applications or services listed
above, the Company shall require the following access to and
maintenance of data:
(A) Maintenance of existing data bases logically (if not
physically) separate from those of PTI and the Tissue
Business.
(B) Access to all historical data currently available to the
Tissue Business and relevant only to the Tissue Business
kept in substantially the same format as was done prior
to the Closing.
(C) Access to Affiliated Computing Services ("ACS") and
continuation of their services on an ex ante basis
(b) Order Management, Electronic Data Interchange ("EDI") and Vendor
Managed Inventory ("VMI") Systems
(i) For the following applications and systems, and for all host
and client hardware, software and network components, the
Company will require the continuation of services on not less
than an ex ante basis with regard to system inputs, outputs,
responses, data storage and retrieval capability and capacity
and network capability and capacity unless any such changes
shall be mutually agreed; provided, that with -------- respect
to items (B), (D) and (E) set forth below, PTI shall not be
required to provide any Service to the Company unless the
Company shall have previously obtained its own license from
any relevant vendor:
(A) Order Management (Manugustics & Oracle)
(B) Order Management Data Base System (Sybase)
(C) Warehouse Management (Uniteq)
(D) Warehouse Management Data Base System (Sybase)
(E) EDI (Premenos)
(F) VMI (IBM)
(ii) For all applications not fully implemented, service or
performance levels must be no less than levels committed by
system vendors to the PTI or the Tissue Business prior to the
Closing.
(c) Human Resources
(i) The Company shall require the following human resources
services in substantially the same format and substantially
the same timetable as were provided by PTI to the Tissue
Business prior to the Closing:
A-2
<PAGE> 10
(A) Payroll processing
(B) Administration and support of the Tissue Business'
employee benefit plans, including without limitation,
the Tissue Business' 401(k) savings plan, pension plan
and group insurance plan
(d) Marketing Research
(i) With respect to marketing research services provided by
Information Resources, Inc. ("IRI") to PTI and the Tissue
Business, if the Company decides to enter into a similar
agreement with IRI, the Company will require PTI to provide
ongoing support as reasonably requested by the Company.
(e) Miscellaneous
(i) With respect to each of the services set forth above (and the
computer hardware, software and network components used in
providing those services), the PTI shall provide as reasonably
requested the following services:
(A) Training for current and future Tissue Business
personnel
(B) Personnel support for systems maintenance and
integration
(C) Upgrade and/or conversion assistance as mutually agreed
(D) Joint development and implementation of systems
currently available directly or indirectly to the Tissue
Business as will be mutually agreed
(E) Continued support from PTI for all applications
(ii) If requested by the Company, PTI will make available and give
access to the Tissue Business information systems which may be
owned by or licensed to PTI including without limitation
information regarding cost accounting, order management,
warehouse management, logistics and production information
management; provided, that PTI's obligations with respect to
information systems licensed to it shall be subject to the
terms and conditions of the respective license agreements and
subject to the consent of the applicable licensors.
(iii) With respect to any of the Services set forth above (and the
computer hardware, software and network components used in
providing those Services), it is expressly understood and
agreed by the parties hereto that the Company shall use its
commercially reasonable best efforts to enter into its own
licensing arrangements with any relevant vendor as may be
required for PTI to provide such Services to the Company
pursuant to this Agreement.
(iv) If requested by the Company, PTI shall use its commercially
reasonable best efforts to assist the Company in obtaining any
rights, licenses, permits, leases or agreements as will be
necessary for PTI to provide and the Company to receive all
Services covered by this Agreement.
2. TERM
A-3
<PAGE> 11
PTI shall provide Transition Services to the Company for the continuous
period or periods beginning immediately after the Closing and ending on such
dates as may be specified by the Company, which in no event shall be later than
the second anniversary of the Closing. PTI shall provide any Additional Services
for the continuous period or periods requested by the Company and ending on such
date as may be specified by the Company, which in no event shall be later than
the second anniversary of the Closing. With respect to Additional Services, PTI
shall provide such Additional Services as soon as commercially practical for
PTI.
3. FEES
As fees for the Services (which, for any particular period, shall comprise
fees for all or any part of the Services provided during such period), the
Company shall pay to PTI an aggregate amount per calendar month (pro rated in
the case of any partial calendar month) equal to (i) all reasonable (x) direct
costs incurred by PTI (which shall include PTI's actual expenses incurred in
providing the services of an employee of PTI) in providing the Services and (y)
overhead expenses directly attributable to the Company and incurred by PTI in
providing the Services, apportioned consistent with past practice ("PTI's Cost")
plus (ii) (a) 10% on a per month basis during the period beginning on the
Closing Date and ending on the first anniversary of such date, or (b) 20% on a
per month basis during the period beginning on the day after the first
anniversary of the Closing Date and ending on the 180th day thereafter or (c)
30% on a per month basis during the period beginning on the 181st day after the
first anniversary of the Closing Date and ending on the second anniversary of
the Closing Date.
A-4
<PAGE> 1
EXHIBIT 10.5
EXECUTION COPY
CVC SECURITIES PURCHASE AGREEMENT
CVC SECURITIES PURCHASE AGREEMENT dated as of June 16, 1997 by and
between Plainwell Holding Company, a Delaware corporation (the "Company"), and
Citicorp Venture Capital, Ltd., a New York corporation ("CVC").
CVC desires to purchase from the Company and the Company desires to
sell to CVC (i) 27,297.31 shares of the Company's Series B Preferred Stock, par
value $.01 per share (the "Series B Preferred"), (ii) 765.00 shares of the
Company's Class A Common Stock, par value $.01 per share (the "Class A Common"),
(iii) 74,460.00 shares of the Company's Class B Common Stock, par value $.01 per
share (the "Class B Common"), and (iv) stock purchase warrants exercisable for
257,334.62 shares of Class B Common, as adjusted pursuant to the terms of such
warrants (the "CVC Warrants"). The execution and delivery of (i) each of the
Executive Stock Purchase Agreements, (ii) the Securities Purchase Agreements,
(iii) the Larkspur Agreement, and (iv) the Investor Stock Purchase Agreement
(each as defined below) are conditions to CVC's obligations under this
Agreement.
NOW, THEREFORE, in consideration of the mutual covenants contained
herein and other good and valuable consideration, the receipt and sufficiency of
which are hereby acknowledged, the parties to this Agreement hereby agree as
follows:
1. Definitions. As used herein, the following terms shall have the
following meanings:
"Affiliate" of any particular Person or entity means any other
Person or entity controlling, controlled by or under common control with such
particular Person or entity and, in the case of a limited partnership,
"Affiliate" includes limited partners of such limited partnership.
"CCT" means CCT II Partners, L.P., a Delaware limited partnership.
"CCT Purchase Agreement" means that Securities Purchase Agreement by
and between CVC and CCT, pursuant to which CCT is purchasing shares of Class A
Common, Class B Common, and Series B Preferred from CVC.
"Certificate of Incorporation" means the Company's certificate of
incorporation, as amended from time to time.
"Common Stock" means the Class A Common and the Class B Common, as
adjusted for any stock split, dividend, share combination, share exchange,
recapitalization, merger, consolidation, or other reorganization.
"Exchange Act" means the Securities Exchange Act of 1934, as
amended.
<PAGE> 2
"Executive Stock Purchase Agreements" means the Executive
Employment and Stock Purchase Agreements and Executive Stock Purchase Agreements
between the Company and each of William L. New, George E. Mangarelli, Francis
Fitzpatrick, Bill Boyden and Randy Rhodes (each an "Executive"), pursuant to
which, among other things, each Executive is, or will be, purchasing shares of
Common Stock.
"Investor Stock Purchase Agreement" means that Stock Purchase
Agreement dated as of the date hereof, by and between the Company and Brenton
Halsey (the "Investor"), pursuant to which the Investor is purchasing shares of
Class A Common, Class B Common, and Series B Preferred.
"Larkspur Agreement" means that Stock Purchase Agreement,
dated as of the date hereof, by and between the Company and Larkspur Capital
Corporation ("Larkspur"), pursuant to which Larkspur is purchasing shares of
Class B Common and Series B Preferred.
"Officer's Certificate" means a certificate signed by the
Company's president or its chief financial officer, stating that (i) the officer
signing such certificate has made or has caused to be made such investigations
as are necessary in order to permit him to verify the accuracy of the
information set forth in such certificate or any documents accompanying such
certificate and (ii) such certificate does not misstate any material fact and
does not omit to state any fact necessary to make the certificate not
misleading.
"Person" means an individual, a partnership, a corporation, a
limited liability company, an association, a joint stock company, a trust, a
joint venture, an unincorporated organization and a governmental entity or any
department, agency or political subdivision thereof.
"Registration Rights Agreement" means the Registration Rights
Agreement, dated as of the date hereof, by and among the Company, CVC, CCT, the
Executives, the Investor, Larkspur, and the Individual Purchasers (as defined
below).
"Restricted Securities" means (i) the Stock (as defined below)
issued hereunder, (ii) any securities issued with respect to the Stock referred
to in clause (i) above by way of a stock dividend or stock split or in
connection with a combination of shares, recapitalization, merger, consolidation
or other reorganization, and (iii) any securities issued pursuant to an exchange
of such Stock. As to any particular Restricted Securities, such securities shall
cease to be Restricted Securities when they have (a) been effectively registered
under the Securities Act and disposed of in accordance with the registration
statement covering them, (b) become eligible for sale pursuant to Rule 144 (or
any similar provision then in force) under the Securities Act, or (c) been
otherwise transferred and new certificates for them not bearing the Securities
Act legend set forth in Section 9 have been delivered by the Company. Whenever
any particular securities cease to be Restricted Securities, the holder thereof
shall be entitled to receive from the Company, without expense, new securities
of like tenor not bearing a Securities Act legend of the character set forth in
Section 9.
"SBA" means the United States Small Business Administration,
and any successor agency performing the functions thereof.
-2-
<PAGE> 3
"SBIC" means a Small Business Investment Company licensed by
the SBA under the SBIC Act.
"SBIC Act" means the Small Business Investment Act of 1959, as
amended.
"SBIC Regulations" means the SBIC Act and the regulations
issued by the SBA thereunder, codified as Title 13 of the Code of Federal
Regulations ("13 CFR"), parts 107 and 121.
"Securities Act" means the Securities Act of 1933, as amended.
"Securities Purchase Agreement" means that Securities Purchase
Agreement, dated as of the date hereof, among the Company and the persons listed
on the signature pages thereto (the "Individual Purchasers") pursuant to which
the Individual Purchasers are purchasing shares of Class A Common, Class B
Common, and Series B Preferred.
"Stock" means the Class A Common, the Class B Common, the
Series B Preferred, and the Underlying Stock.
"Stockholders Agreement" means the Stockholders Agreement,
dated as of the date hereof, by and among the Company, CVC, CCT, the Executives,
the Investor, Larkspur, and the Individual Purchasers.
"Subsidiary" means, with respect to any Person, any
corporation, partnership, association or other business entity of which (i) if a
corporation, a majority of the total voting power of shares of 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 that Person or one or more of the other Subsidiaries
of that Person or a combination thereof, or (ii) if a partnership, association
or other business entity, a majority of the partnership or other similar
ownership interest thereof is at the time owned or controlled, directly or
indirectly, by any Person or one or more Subsidiaries of that Person or a
combination thereof. For purposes hereof, a Person or Persons shall be deemed to
have a majority ownership interest in a partnership, association or other
business entity if such Person or Persons shall be allocated a majority of
partnership, association or other business entity gains or losses or shall be or
control the managing director or general partner of such partnership,
association or other business entity.
"Underlying Stock" means (i) the Common Stock issued or
issuable upon exercise of the CVC Warrants, and (ii) all shares issued with
respect to, or as a result of, a stock dividend or stock split or in connection
with a combination of shares, recapitalization, merger, consolidation, or other
reorganization.
2. Authorization and Closing.
(a) Authorization of the Stock. The Company shall authorize
the issuance and sale to CVC of (i) shares of its Class A Common, Class B
Common, and Series B Preferred, each
-3-
<PAGE> 4
such shares having the rights and preferences set forth in Exhibit A attached
hereto, and (ii) the CVC Warrants, which CVC Warrants shall be in the form of
Exhibit B attached hereto.
(b) Purchase and Sale of the Stock. At the Closing, the
Company shall sell to CVC and, subject to the terms and conditions set forth
herein, CVC shall purchase from the Company (i) 27,297.31 shares of Class A
Common at a price of $1.00 per share, (ii) 765.00 shares of Class B Common at a
price of $1.00 per share, (iii) 74,460.00 shares of Series B Preferred at a
price of $100.00 per share, and (iv) the CVC Warrants.
(c) The Closing. The closing of the purchase and sale of the
Stock (the "Closing") shall take place at the offices of Latham & Watkins, Sears
Tower, Suite 5800, Chicago, Illinois on the date hereof or at such other place
or such other time or date as the Company may designate. At the Closing, the
Company shall deliver to CVC stock certificates evidencing the Stock and the CVC
Warrants to be purchased by CVC, each registered in the name of CVC or its
nominee, upon payment of the purchase price thereof by a cashier's or certified
check, or by wire transfer of immediately available funds to an account
designated by the Company.
3. Financial Statements and Other Information. The Company
shall, upon the request of CVC and for so long as CVC holds any Underlying
Stock, deliver to CVC:
(a) as soon as available but in any event within 30 days after
the end of each monthly accounting period in each fiscal year, unaudited
consolidating and consolidated statements of income and cash flows of the
Company and its Subsidiaries for such monthly period and for the period from the
beginning of the fiscal year to the end of such month, and unaudited
consolidating and consolidated balance sheets of the Company and its
Subsidiaries as of the end of such monthly period, setting forth in each case
comparisons to the annual budget and to the corresponding period in the
preceding fiscal year, and all such statements shall be prepared in accordance
with generally accepted accounting principles, consistently applied, subject to
the absence of footnote disclosures and to normal year-end adjustments, and
shall be accompanied by an Officer's Certificate;
(b) within 45 days after the end of each quarterly accounting
period in each fiscal year, unaudited consolidating and consolidated statements
of income and cash flows of the Company and its Subsidiaries for such quarterly
period, and unaudited consolidating and consolidated balance sheets of the
Company and its Subsidiaries as of the end of such quarterly period, setting
forth in each case comparisons to the annual budget and to the corresponding
period in the preceding fiscal year, and all such statements shall be prepared
in accordance with generally accepted accounting principles, consistently
applied, subject to the absence of footnote disclosures and to normal year-end
adjustments, and shall be accompanied by an Officer's Certificate;
(c) within 90 days after the end of each fiscal year, audited
consolidating and consolidated statements of income and cash flows of the
Company and its Subsidiaries for such fiscal year, and audited consolidating and
consolidated balance sheets of the Company and its Subsidiaries as of the end of
such fiscal year, setting forth in each case comparisons to the annual budget
and to the preceding fiscal year, all prepared in accordance with generally
accepted accounting principles, consistently applied, and accompanied by (i)
with respect to the consolidated
-4-
<PAGE> 5
portions of such statements, an opinion of an independent accounting firm of
recognized national standing, (ii) a certificate from such accounting firm,
addressed to the Company's board of directors, stating that in the course of its
examination nothing came to its attention that caused it to believe that there
was any default by the Company or any Subsidiary in the fulfillment of or
compliance with any of the terms, covenants, provisions or conditions of any
material agreement to which the Company or any Subsidiary is a party or, if such
accountants have reason to believe any default by the Company or any Subsidiary
exists, a certificate specifying the nature and period of existence thereof, and
(iii) a copy of such firm's annual management letter to the board of directors;
(d) promptly upon receipt thereof, any additional reports,
management letters or other detailed information concerning significant aspects
of the Company's or its Subsidiaries' operations or financial affairs given to
the Company by its independent accountants (and not otherwise contained in other
materials provided hereunder);
(e) at least 30 days prior to the end of each fiscal year, an
annual budget prepared on a monthly basis for the Company and its Subsidiaries
for the following fiscal year (displaying anticipated statements of income and
cash flows and balance sheets), and following preparation thereof quarterly
revisions of such budget and any other significant budgets prepared by the
Company or its Subsidiaries, and within 30 days after any monthly period in
which there is a material adverse deviation from the annual budget, an Officer's
Certificate explaining the deviation and what actions the Company has taken and
proposes to take with respect thereto; and
(f) with reasonable promptness, such other information and
financial data concerning the Company and its Subsidiaries as any Person
entitled to receive information under this Section 3 may reasonably request.
4. Inspection of Property. The Company shall permit any
representatives designated by CVC (so long as CVC holds any Underlying Stock),
upon reasonable notice and during normal business hours and such other times as
any such holder may reasonably request, to (i) visit and inspect any of the
properties of the Company and its Subsidiaries, (ii) examine the corporate and
financial records of the Company and its Subsidiaries and make copies thereof or
extracts therefrom, and (iii) discuss the affairs, finances and accounts of any
such corporations with the directors, officers, key employees and independent
accountants of the Company and its Subsidiaries.
5. Regulatory Compliance Cooperation.
(a) Regulatory Violation. In the event that CVC determines
that it has a Regulatory Problem (as defined below), the Company agrees to take
all such actions as are reasonably requested by CVC in order (i) to effectuate
and facilitate any transfer by CVC of any securities of the Company then held by
CVC to any Person designated by CVC, (ii) to permit CVC (or any of its
Affiliates) to exchange all or a portion of any voting security then held by it
on a share-for-share basis for shares of a nonvoting security of the Company,
which nonvoting security shall be identical in all respects to the voting
security exchanged for it, except that it shall be nonvoting and shall be
convertible into a voting security on such terms as are requested by CVC in
light of
-5-
<PAGE> 6
regulatory considerations then prevailing, and (iii) to continue and preserve
the respective allocation of the voting interests with respect to the Company
provided for in the Stockholders Agreement, and with respect to CVC's ownership
of the Company's Stock. Such actions may include, but shall not necessarily be
limited to entering into such additional agreements, adopting such amendments to
the Certificate of Incorporation and bylaws of the Company and taking such
additional actions as are reasonably requested by CVC in order to effectuate the
intent of the foregoing. For purposes of this Agreement, a "Regulatory Problem"
means any set of facts or circumstances wherein it has been asserted by any
governmental regulatory agency (or CVC believes that there is a substantial risk
of such assertion) that CVC is not entitled to hold, or exercise any significant
right with respect to, the Stock.
(b) Use of Proceeds. The Company hereby agrees that: (i) the
Company will provide CVC with a written summary certified by the Company's
president or chief financial officer describing in reasonable detail the
Company's use of the proceeds received hereunder (including the intended use of
any such unused proceeds as of the date of such summary) within 75 days of the
date hereof, and (ii) the Company will repurchase at the request of CVC the
Stock for an amount equal to the purchase price thereof (plus any accrued
interest or dividends thereon), payable in immediately available funds, in the
event that CVC determines in its reasonable good faith judgment that a
Regulatory Violation (as defined below) occurred. In the event of such
repurchase, the Company shall pay for such Stock by a cashier's check, certified
check or wire transfer within 30 days after the Company's receipt of the
repurchase request, and upon such payment, CVC shall deliver the certificates
evidencing the securities being repurchased.
For purposes of this Agreement, "Regulatory Violation" means
(a) a diversion of the proceeds of the sale of Stock hereunder described on the
use of proceeds statement delivered by the Company at the Closing, if such
diversion was effected without obtaining the prior written consent of CVC (which
consent may be withheld in CVC's sole discretion) or (b) a change in the
principal business activity of the Company and its Subsidiaries to an ineligible
business activity (within the meaning of the SBIC Regulations), if such change
occurs within one year after the date hereof.
(c) Number of Stockholders. As long as CVC holds any Stock,
the Company shall notify CVC (a) at least 15 days prior to taking any action
after which the number of record holders of the Company's voting stock would be
increased from fewer than 50 to 50 or more, and (b) of any other action or
occurrence after which the number of record holders of the Company's voting
stock was increased (or would increase) from fewer than 50 to 50 or more, as
soon as practicable after the Company becomes aware that such other action or
occurrence has occurred or is proposed to occur.
(d) Economic Impact Information. Promptly after the end of
each fiscal year (but in any event prior to May 31 of each year) the Company
shall deliver to CVC a written assessment of the economic impact of CVC's
investment in the Company, specifying the full-time equivalent jobs created or
retained in connection with the investment, the impact of the investment on the
businesses of the Company in terms of expanded revenue and taxes, and other
economic benefits resulting from the investment, including but not limited to,
technology development or
-6-
<PAGE> 7
commercialization, minority business development, urban or rural business
development, expansion of exports.
6. Notice of Developments. The Company will give prompt
written notice to CVC of any material adverse development causing a breach of
any of the above representations and warranties. No disclosure by the Company
pursuant to this Section 6, however, shall prevent or cure any
misrepresentation, breach of warranty, or breach of contract.
7. Representations and Warranties of the Company. The
Company hereby represents and warrants to CVC that:
(a) Organization and Corporate Power. The Company is a
corporation duly organized, validly existing and in good standing under the laws
of Delaware and is qualified to do business in every jurisdiction in which its
ownership of property or conduct of business requires it to qualify. The Company
has all requisite corporate power and authority to carry out the trans actions
contemplated by this Agreement.
(b) Authorization; No Breach. The execution, delivery and
performance of this Agreement has been duly authorized by the Company. This
Agreement constitutes a valid and binding obligation of the Company, enforceable
in accordance with its terms. The execution and delivery by the Company of this
Agreement, the offering, sale and issuance of the Stock hereunder and the
fulfillment of and compliance with the respective terms hereof and thereof by
the Company, do not and shall not (i) conflict with or result in a breach of the
terms, conditions or provisions of, (ii) constitute a default under, (iii)
result in the creation of any lien, security interest, charge or encumbrance
upon the Company's capital stock or assets pursuant to, (iv) give any third
party the right to modify, terminate or accelerate any obligation under, (v)
result in a violation of, or (vi) require any authorization, consent, approval,
exemption or other action by or notice to any court or administrative or
governmental body pursuant to, the charter or bylaws of the Company, or any law,
statute, rule or regulation to which the Company is subject, or any agreement,
instrument, order, judgment or decree to which the Company is subject.
(c) Capitalization. Immediately following the Closing, the
authorized capital stock of the Company shall consist of:
(i) 560,000 shares of Class A Common, of which 3,000 shares
shall be issued and outstanding and 560,000 shares of Class B Common, of which
175,974.36 shares shall be issued and outstanding; 497,000 shares of Class A
Common shall be reserved for issuance upon conversion of the Class B Common;
376,582 shares of Class B Common shall be reserved for issuance upon exercise of
(A) the CVC Warrants and (B) incentive stock options expected to be given to
certain members of management of the Company pursuant to the terms and
conditions of a stock option plan adopted by the Company's board of directors;
and
(ii) 40,000 shares of the Company's Series A Preferred Stock,
par value $.01 per share (the "Series A Preferred"), of which 40,000 shares
shall be issued and outstanding, and 40,000 shares of Series B Preferred, of
which 38,210.26 shares shall be issued and outstanding.
-7-
<PAGE> 8
Except as set forth in this Section 7(c), immediately following the consummation
of the transactions contemplated hereby, neither the Company nor any Subsidiary
shall have outstanding any stock or securities convertible or exchangeable for
any shares of its capital stock or containing any profit participation features,
nor shall it have outstanding any rights or options to subscribe for or to
purchase its capital stock or any stock or securities convertible into or
exchangeable for its capital stock, options under the Plan or any stock
appreciation rights or phantom stock plans. There are no statutory or, to the
best of the Company's knowledge, contractual stockholders preemptive rights or
rights of refusal with respect to the issuance of the Stock hereunder.
Immediately following the consummation of the transactions contemplated hereby,
all of the outstanding shares of the Company's capital stock shall be validly
issued, fully paid and nonassessable.
(d) Securities Laws. To the best of the Company's knowledge,
the Company has not violated any applicable federal or state securities laws in
connection with the offer, sale or issuance of any of its capital stock, and the
offer, sale and issuance of the Stock hereunder do not require registration
under the Securities Act or any applicable state securities laws.
(e) Small Business Matters. The Company, together with its
"affiliates" (as that term is defined in 13 CFR Section 121.401), is a "smaller
business concern" within the meaning of the SBIC regulations, including 13 CFR
Section 121.802. The information regarding the Company and its affiliates set
forth in the SBA Form 480, Form 652 and Section A of Form 1031 is accurate and
complete. Copies of such forms shall have been completed by the Company and
delivered to CVC at the Closing. Neither the Company nor any Subsidiary
presently engages in, or shall hereafter engage in, any activities, nor shall
the Company or any Subsidiary use directly or indirectly the proceeds from the
sale of the Stock hereunder for any purpose, for which an SBIC is prohibited
from providing funds by SBIC regulations, including 13 CFR Section 107.804 and
Section 107.901.
8. Investor's Investment Representations. CVC hereby
represents that it is acquiring the Restricted Securities purchased hereunder or
acquired pursuant hereto for its own account with the present intention of
holding such securities for purposes of investment, and that it has no intention
of selling such securities in a public distribution in violation of the federal
securities laws or any applicable state securities laws. Each certificate for
Restricted Securities shall be imprinted with a legend in substantially the
following form:
"THE SECURITIES REPRESENTED BY THIS CERTIFICATE WERE ORIGINALLY ISSUED
ON JUNE 16, 1997, AND HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT
OF 1933, AS AMENDED. THE TRANSFER OF THE SECURITIES REPRESENTED BY THIS
CERTIFICATE IS SUBJECT TO THE CONDITIONS SPECIFIED IN THE CVC
SECURITIES PURCHASE AGREEMENT, DATED AS OF JUNE 16, 1997 BETWEEN THE
ISSUER (THE "COMPANY") AND CITICORP VENTURE CAPITAL, LTD. A COPY OF
SUCH CONDITIONS SHALL BE FURNISHED BY THE COMPANY TO THE HOLDER HEREOF
UPON WRITTEN REQUEST AND WITHOUT CHARGE."
9. SBA Forms. The Company shall deliver to CVC prior to the
Closing:
-8-
<PAGE> 9
(a) duly completed and executed SBA Forms 480, 652, and Part A
of 1031;
(b) a business plan showing the Company's financial
projections (including balance sheets and income and cash flow
statements) for the period ending December 31, 1997;
(c) a written statement from the Company regarding its
intended use of the proceeds of the purchase of Stock hereunder; and
(d) a list, after giving effect to the transactions
contemplated by this Agreement, of (a) the name of each of the
Company's directors, (b) the name and title of each of the Company's
officers, and (c) the name of each of the Company's stockholders
setting forth the number and class of shares held.
10. Miscellaneous.
(a) Expenses. The Company agrees to pay and hold CVC harmless
from and against liability for the payment of all fees and expenses incurred in
connection with the transactions contemplated by this Agreement and each of the
agreements contemplated hereby, including (i) reasonable attorneys',
consultants' and accountants' fees and expenses arising in connection with the
negotiation, execution and consummation of the transactions contemplated by this
Agreement and each of the agreements contemplated hereby, (ii) reasonable fees
and expenses incurred with respect to any amendments or waivers (whether or not
the same become effective) under or in respect of this Agreement, the
Registration Rights Agreement, the Stockholders Agreement, the CCT Purchase
Agreement, the agreements contemplated hereby or the Certificate of
Incorporation, (iii) stamp and other taxes which may be payable in respect of
the execution and delivery of this Agreement, (iv) reasonable fees and expenses
incurred in respect of the enforcement of the rights granted under this
Agreement, the agreements contemplated hereby and the Certificate of
Incorporation, and (v) fees and expenses incurred by CVC in filing with any
governmental agency with respect to its investment in the Company or any other
filing with any governmental agency with respect to the Company which mentions
CVC.
(b) Waiver of Jury Trial. The parties to this Agreement each
hereby waives, to the fullest extent permitted by law, any right to trial by
jury of any claim, demand, action, or cause of action (i) arising under this
Agreement or (ii) in any way connected with or related or incidental to the
dealings of the parties hereto in respect of this Agreement or any of the
transactions related hereto, in each case whether now existing or hereafter
arising, and whether in contract, tort, equity, or otherwise. The parties to
this Agreement each hereby agrees and consents that any such claim, demand,
action, or cause of action shall be decided by court trial without a jury and
that the parties to this Agreement may file an original counterpart of a copy of
this Agreement with any court as written evidence of the consent of the parties
hereto to the waiver of their right to trial by jury.
(c) Remedies. CVC shall have all rights and remedies set forth
in this Agreement and the Certificate of Incorporation and all rights and
remedies which CVC have been granted at any time under any other agreement or
contract and all of the rights which CVC have under any law. The
-9-
<PAGE> 10
parties hereto agree and acknowledge that money damages may not be an adequate
remedy for any breach of the provisions of this Agreement and that any Person
having any rights under this Agreement may in its sole discretion apply to any
court of law or equity of competent jurisdiction (without posting any bond or
other security) for specific performance and for other injunctive relief in
order to enforce or prevent violation of the provisions of this Agreement.
(d) Notices. Any notice provided for in this Agreement must be
in writing and must be either personally delivered, mailed by first class mail
(postage prepaid and return receipt requested) or sent by reputable overnight
courier service (charges prepaid) to the recipient at the address below
indicated:
To the Company:
Plainwell Holding Company
c/o Plainwell Paper Company
200 Allegan Street
Plainwell, Michigan 49080
Attention: Chief Executive Officer
Telecopy No.: (616) 685-2597
With copies to:
Kirkland & Ellis
Citicorp Center
153 East 53rd Street
New York, NY 10022-4675
Attention: Kirk A. Radke, Esq.
Telecopy No.: (212) 446-4900
Godfrey & Kahn, S.C.
780 North Water Street
Milwaukee, WI 53202-3590
Attention: Thomas A. Myers, Esq.
Telecopy No.: (414) 273-5198
To CVC:
Citicorp Venture Capital, Ltd.
399 Park Avenue
14th Floor
New York, NY 10043
Attention: John D. Weber
Telecopy No.: (212) 888-2940
-10-
<PAGE> 11
With a copy to:
Kirkland & Ellis
Citicorp Center
153 East 53rd Street
New York, NY 10022-4675
Attention: Kirk A. Radke, Esq.
Telecopy No.: (212) 446-4900
or such other address or to the attention of such other person as the recipient
party shall have specified by prior written notice to the sending party. Any
notice under this Agreement will be deemed to have been given when so delivered
or sent or, if mailed, five days after deposit in the U.S. mail.
(e) Successors and Assigns. All covenants and agreements in
this Agreement by or on behalf of any of the parties hereto will bind and inure
to the benefit of the respective successors and assigns of the parties hereto
whether so expressed or not. In addition, whether or not any express assignment
has been made, the provisions of this Agreement which are for the benefit of CVC
or holders of Restricted Securities are also for the benefit of, and enforceable
by, any subsequent holder of Restricted Securities.
(f) Consent to Amendments. Except as otherwise expressly
provided herein, the provisions of this Agreement may be amended and the Company
may take any action herein prohibited, or omit to perform any act herein
required to be performed by it, only if the Company has obtained the written
consent of holders of a majority of the issued and outstanding shares of the
Stock issued hereunder. No other course of dealing between the Company and CVC
or any delay in exercising any rights hereunder or under the Certificate of
Incorporation shall operate as a waiver of any rights of CVC.
(g) Survival of Representations and Warranties. All
representations and warranties contained herein or made in writing by any party
in connection herewith shall survive the execution and delivery of this
Agreement and the consummation of the transactions contemplated hereby,
regardless of any investigation made by CVC or on its behalf.
(h) Severability. Whenever possible, each provision of this
Agreement shall be interpreted in such manner as to be effective and valid under
applicable law, but if any provision of this Agreement is held to be invalid,
illegal or unenforceable in any respect under any applicable law or rule in any
jurisdiction, such invalidity, illegality or unenforceability shall not affect
any other provision or any other jurisdiction, but this Agreement shall be
reformed, construed and enforced in such jurisdiction as if such invalid,
illegal or unenforceable provision had never been contained herein.
(i) Entire Agreement. Except as otherwise expressly set forth
herein, this document embodies the complete agreement and understanding among
the parties hereto with respect to the subject matter hereof and supersedes and
preempts any prior understandings,
-11-
<PAGE> 12
agreements or representations by or among the parties, written or oral, which
may have related to the subject matter hereof in any way.
(j) Time is of the Essence. Each of the parties to this
Agreement hereby agrees that time is of the essence in the performance of this
Agreement and with respect to all duties and periods specified herein.
(k) Counterparts. This Agreement may be executed in separate
counterparts each of which shall be an original and all of which taken together
shall constitute one and the same agreement.
(l) GOVERNING LAW. THE CORPORATE LAW OF THE STATE OF DELAWARE
WILL GOVERN ALL QUESTIONS CONCERNING THE RELATIVE RIGHTS OF THE COMPANY AND ITS
STOCKHOLDERS. ALL OTHER QUESTIONS CONCERNING THE CONSTRUCTION, VALIDITY AND
INTERPRETATION OF THIS AGREEMENT AND THE EXHIBITS HERETO WILL BE GOVERNED BY AND
CONSTRUED IN ACCORDANCE WITH THE DOMESTIC LAWS OF THE STATE OF NEW YORK, WITHOUT
GIVING EFFECT TO ANY CHOICE OF LAW OR CONFLICT OF LAW PROVISION OR RULE (WHETHER
OF THE STATE OF NEW YORK OR ANY OTHER JURISDICTION) THAT WOULD CAUSE THE
APPLICATION OF THE LAWS OF ANY JURISDICTION OTHER THAN THE STATE OF NEW YORK.
(m) Descriptive Headings. The descriptive headings of this
Agreement are inserted for convenience only and do not constitute a part of this
Agreement.
* * * * *
-12-
<PAGE> 13
IN WITNESS WHEREOF, the parties hereto have executed this
Agreement as of the date first above written.
PLAINWELL HOLDING COMPANY
By: ___________________________
Name:
Title:
CITICORP VENTURE CAPITAL, LTD.
By: ___________________________
Name:
Title:
<PAGE> 14
Exhibit A
Certificate of Incorporation
(see attached)
A-1
<PAGE> 15
Exhibit B
Form of Warrant
(see attached)
B-1
<PAGE> 1
Exhibit 10.6
SECURITIES TRANSFER AGREEMENT
THIS AGREEMENT is made and entered into as of January 31, 1998,
between 399 Venture Partners, Inc. ("Transferee") and Citicorp Venture Capital,
Ltd. ("Transferor").
WHEREAS, Transferor owns (i) 27,297.31shares of Series B Preferred
Stock, par value $.01 per share (the "Series B Preferred") of Plainwell Holdings
Company, a Delaware corporation (the "Company"), (ii) 765.00 shares of Class A
Common Stock, par value $.01 per share, of the Company ("Class A Common"), (iii)
74,460.00 shares of Class B Common Stock , par value $.01 per share, of the
Company (the "Class B Common" and, together with the Series B Preferred and the
Class A Common Stock (the "Shares"), and (iv) stock purchase warrants of the
Company (the "Warrants") exercisable for 257,334.62 shares of Class B Common, as
adjusted pursuant to the terms of the Warrants.
WHEREAS, Transferor desires to transfer such Shares and Warrants to
Transferee (the "Transfer"), and Transferee desires to acquire such Shares and
Warrants from Transferor pursuant to the terms and conditions of this Agreement.
WHEREAS, Transferee is an Affiliate (as defined in the Stockholders
Agreement, dated June 16, 1997, by and among the Company and certain other
parties thereto (the "Stockholders Agreement"), of the Transferor, and the
Transfer is, therefore, an permitted Transfer pursuant to Section 4(c)(iii) of
the Stockholders Agreement.
NOW, THEREFORE, the parties hereto agree as follows:
1. Transfer of Transferred Stock. Transferor hereby agrees to
transfer and assign to Transferee, and Transferee agrees to acquire from
Transferor, all of Transferor's right, title and interest in and to the Shares.
2. Transfer of Transferred Warrants. Transferor hereby agrees to
transfer and assign to Transferee, and Transferee agrees to acquire from
Transferor, all of Transferor's right, title and interest in and to the
Warrants.
3. Securities Purchase Agreement. Transferor hereby agrees to
assign, and Transferee hereby agrees to assume, 100% of the Transferor's rights
and obligations under the CVC Securities Purchase Agreement, dated as of June
16, 1997, by and between the Company and Citicorp Venture Capital, Ltd.
4. Representations and Warranties of Transferee. Transferee
represents and warrants to Transferor as follows: (a) Transferee is acquiring
the Shares for investment purposes and not with a view to the public sale or
distribution of any part thereof, and Transferee has no present intention of
selling, granting participation in, or otherwise distributing the Shares in
violation of any federal or state securities laws; (b) Transferee has been given
access to all information regarding the Company that it has requested from
Transferor; (c) Transferee is capable of evaluating and has
<PAGE> 2
evaluated the merits and risks of its purchase of the Shares and is able to bear
the economic risk of its investment in the Shares; and (d) Transferee
understands that the Shares have not been registered under the Securities Act of
1933 and that the sale provided for in this Agreement is exempt pursuant to
Sections 4(1) and 4(2) of the Act and that the reliance of Transferor on such
exemptions is predicated upon Transferee's representations set forth herein.
5. Counterparts. This Agreement may be executed in two or more
counterparts, each of which shall be deemed to be an original, but all of which
taken together shall constitute one and the same agreement.
* * * * * * *
<PAGE> 3
IN WITNESS WHEREOF, the parties have executed this Agreement on the
day and year first above written.
CITICORP VENTURE CAPITAL, LTD.
-----------------------------------------
By:
Its:
399 VENTURE PARTNERS, INC.
----------------------------------------
By:
Its:
<PAGE> 1
EXHIBIT 10.7
STOCKHOLDERS AGREEMENT
This STOCKHOLDERS AGREEMENT is dated as of June 16, 1997, by
and among Plainwell Holding Company, a Delaware corporation (the "Company"),
Citicorp Venture Capital, Ltd., a New York corporation ("CVC"), CCT II Partners,
L.P., a Delaware limited partnership ("CCT"), Brenton Halsey (the "Investor"),
Larkspur Capital Corporation ("Larkspur"), William L. New and any executives of
the Company and its Subsidiaries acquiring Common Stock (as defined below) from
the Company after the date hereof and executing a joinder hereto in the form
attached hereto as Exhibit A (collectively, the "Executives", and individually
as an "Executive"), and the persons set forth on the Individual Purchaser
Signature Page attached hereto (collectively referred to herein as the
"Individual Purchasers", and individually as an "Individual Purchaser"). CVC,
CCT, the Investor, Larkspur, the Individual Purchasers and each of the
Executives and their respective Permitted Transferees (as defined below) are
collectively referred to as the "Stockholders" and individually as a
"Stockholder".
CVC has purchased (i) shares of the Company's Class A Common
Stock, par value $.01 per share (the "Class A Common"), (ii) shares of the
Company's Class B Common Stock, par value $.01 per share (the "Class B Common"),
and (iii) stock purchase warrants to purchase shares of Class B Common (together
with all warrants issued in substitution or replacement therefor, the "CVC
Warrant"), pursuant to a CVC Securities Purchase Agreement, dated as of the date
hereof, by and between CVC and the Company (the "CVC Securities Purchase
Agreement").
Each Executive (other than William L. New) will purchase
shares of the Company's Class B Common, pursuant to certain purchase agreements
(collectively, the "Executive Securities Purchase Agreements"), dated as of the
date hereof, by and between such Executive and the Company.
William L. New has purchased shares of Class A Common and
shares of Class B Common pursuant to an Executive Stock Purchase Agreement,
dated as of the date hereof, by and between the Company and William L. New.
CCT will purchase shares of Class A Common and shares of Class
B Common pursuant to a Securities Purchase Agreement by and between CVC and CCT
(the "CCT Purchase Agreement").
The Individual Purchasers have purchased shares of Class A
Common and shares of Class B Common pursuant to a Securities Purchase Agreement,
dated as of the date hereof, by and among the Company and the Individual
Purchasers (the "Securities Purchase Agreement").
The Investor has purchased shares of Class A Common and shares
of Class B Common pursuant to an Investor Stock Purchase Agreement, dated as of
the date hereof, by and between the Company and the Investor.
<PAGE> 2
Larkspur has purchased shares of Class B Common pursuant to a
Stock Purchase Agreement, dated as of the date hereof, by and between the
Company and Larkspur (the "Larkspur Agreement").
The Company and the Stockholders desire to enter into this
Agreement for the purposes, among others, of (i) establishing the composition of
the Company's Board (as defined below), (ii) assuring continuity in the
management and ownership of the Company and (iii) limiting the manner and terms
by which the Stockholder Shares (as defined below) may be transferred.
NOW, THEREFORE, in consideration of the mutual covenants
contained herein and other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the parties hereby agree as
follows:
1. Definitions. As used herein, the following terms shall have
the following meanings:
"Affiliate" shall mean, as to any Person, any other Person
which directly or indirectly controls, or is under common control with, or is
controlled by, such Person. As used in this definition, "control" (including,
with its correlative meanings, "controlled by" and "under common control with")
shall mean possession, directly or indirectly, of power to direct or cause the
direction of management or policies (whether through ownership of securities or
partnership or other ownership interests, by contract or otherwise).
"Approved Sale" means the sale of the Company, in a single
transaction or a series of related transactions, to a third party (which is not
an Affiliate of the Approving Stockholders) (a) pursuant to which such third
party proposes to acquire all or substantially all of the outstanding Common
Stock (whether by merger, consolidation, recapitalization, reorganization,
purchase of the outstanding Common Stock or otherwise) or all or substantially
all of the consolidated assets of the Company, (b) which has been approved by
the Board and holders of a majority of the outstanding CVC Stockholder Shares,
voting together as a single class (the "Approving Stockholders"), and (c)
pursuant to which all holders of Common Stock receive with respect thereto
(whether in such transaction or, with respect to an asset sale, upon a
subsequent liquidation) the same form and amount of consideration per share of
Common Stock or, if any holders are given an option as to the form and amount of
consideration to be received, all holders are given the same option.
"Board" means the Company's board of directors.
"Common Stock" means, collectively, the Class A Common and the
Class B Common, and any other class of common stock of the Company and any other
class of securities of the Company which is not limited to a fixed sum or
percentage of par value or stated value in respect of the rights of the holders
thereof to participate in dividends and in the distribution of assets upon the
voluntary or involuntary liquidation, dissolution or winding up of the Company.
"CVC Stockholder Shares" means all Stockholder Shares issued
or issuable to CVC and its Affiliates.
-2-
<PAGE> 3
"Executive Shares" means Stockholder Shares owned by
Executives or their Permitted Transferees.
"Family Group" means, with respect to an individual
Stockholder, such Stockholder's spouse and descendants (whether natural or
adopted) and any trust solely for the benefit of such Stockholder and/or such
Stockholder's spouse, their respective ancestors and/or descendants (whether
natural or adopted).
"Other Stockholders" means, with respect to a Stockholder, all
Stockholders other than such Stockholder.
"Ownership Ratio" means, as to a Stockholder at the time of
determination, the percentage obtained by dividing the amount of shares of
Common Stock held by such Stockholder on a fully-diluted basis at such time by
the aggregate amount of shares of Common Stock outstanding on a fully-diluted
basis at such time.
"Person" means an individual, a partnership, a corporation, a
limited liability company, an association, a joint stock company, a trust, a
joint venture, an unincorporated organization or other business entity or a
governmental entity or any department, agency or political subdivision thereof.
"Plainwell" means Plainwell Paper Company, a Michigan
corporation and wholly owned subsidiary of the Company.
"Public Sale" means any sale of Stockholder Shares to the
public pursuant to an offering registered under the Securities Act or to the
public effected through a broker, dealer or market maker pursuant to the
provisions of Rule 144 under the Securities Act.
"Qualified Public Offering" means the sale, in an underwritten
public offering registered under the Securities Act, of shares of the Company's
Common Stock having an aggregate value of at least $25 million.
"Regulatory Problem" means any set of facts or circumstances
wherein it has been asserted by any governmental regulatory agency (or CVC or
any of its Affiliates believes that there is a substantial risk of such
assertion) that CVC is not entitled to hold, or exercise any significant right,
with respect to, the CVC Stockholder Shares.
"Securities Act" means the Securities Act of 1933, as amended
from time to time.
"Stockholder Shares" means (i) any Common Stock issued or
issuable to the Stockholders on the date hereof, including, without limitation,
any Common Stock acquired by, or issued or issuable to, the Stockholders upon
exercise of the CVC Warrant, (ii) any other equity securities of the Company
acquired by or issued or issuable to the Stockholders on the date hereof, and
(iii) any equity securities issued or issuable to the Stockholders directly or
indirectly with respect to the securities referred to in clauses (i) and (ii)
above by way of stock dividend or stock split in connection with a combination
of shares, recapitalization, merger, consolidation, or other
-3-
<PAGE> 4
reorganization. As to any particular shares constituting Stockholder Shares,
such shares will cease to be Stockholder Shares when they have been sold in a
Public Sale, an Approved Sale, or upon the consummation of a Qualified Public
Offering. For purposes of this Agreement, a Person will be deemed to be a holder
of Stockholder Shares whenever such Person has the right to acquire directly or
indirectly such Stockholder Shares (upon conversion or exercise in connection
with a transfer of securities or otherwise, but disregarding any restrictions or
limitations upon the exercise of such right), whether or not such acquisition
has actually been effected.
"Subsidiary" means, with respect to any Person, any
corporation, partnership, association or other business entity of which (i) if a
corporation, a majority of the total voting power of shares of 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 that Person or one or more of the other Subsidiaries
of that Person or a combination thereof, or (ii) if a partnership, association
or other business entity, a majority of the partnership or other similar
ownership interest thereof is at the time owned or controlled, directly or
indirectly, by any Person or one or more Subsidiaries of that Person or a
combination thereof. For purposes hereof, a Person or Persons shall be deemed to
have a majority ownership interest in a partnership, association or other
business entity if such Person or Persons shall be allocated a majority of
partnership, association or other business entity gains or losses or shall be or
control the managing director or a general partner of such partnership,
association or other business entity.
"Transaction Documents" means the following agreements, all of
which are dated as of the date hereof, as amended from time to time: this
Agreement, the Registration Rights Agreement by and among the parties hereto,
the CVC Securities Purchase Agreement, the Executive Securities Purchase
Agreements, the Securities Purchase Agreement, the Stock Purchase Agreement, the
CVC Warrant, the Investor Stock Purchase Agreement, the CCT Purchase Agreement,
and the Larkspur Agreement.
2. Board of Directors.
(a) Until the provisions of this Section 2 cease to be
effective, to the extent permitted by law, each Stockholder shall vote all
voting securities of the Company over which such Stockholder has voting control,
and shall take all other necessary or desirable actions within such
Stockholder's control (whether in such Stockholder's capacity as a stockholder,
director, member of a board committee or officer of the Company or otherwise,
and including, without limitation, attendance at meetings in Person or by proxy
for purposes of obtaining a quorum and execution of written consents in lieu of
meetings), and the Company shall take all necessary and desirable actions within
its control (including, without limitation, calling special board and
stockholder meetings), so that:
(i) the authorized number of directors on the Board shall be
established and maintained at five, and will be designated as follows:
(A) William L. New shall be a director of the
Company for so long as he is the duly
elected and acting Chief Executive Officer
of Plainwell, and thereafter such
directorship shall be held by the duly
elected
-4-
<PAGE> 5
Chief Executive Officer of Plainwell;
provided, that if there is not a duly
elected Chief Executive Officer of
Plainwell, such director shall be designated
by the holders of a majority of the Class A
Common;
(B) George E. Mangarelli shall be a director of
the Company for so long as he is the duly
elected and acting Chief Financial Officer
of Plainwell, and thereafter such
directorship shall be held by the duly
elected Chief Financial Officer of
Plainwell; provided, that if there is not a
duly elected Chief Financial Officer of
Plainwell, such director shall be designated
by the holders of a majority of the Class A
Common;
(C) Two directors to be designated by the
holders of the majority of the CVC
Stockholder Shares (the "CVC Directors");
and
(D) One director to be designated by the holders
of a majority of the Class A Common (the
"Outside Director");
(ii) the composition of the board of directors of each of the
Company's Subsidiaries (a "Sub Board") shall be the same as that of the
Board;
(iii) the Board and each Sub Board shall create a Compensation
Committee, which shall consist of the two CVC Directors and the Outside
Director;
(iv) any committees of the Board or a Sub Board (other than
the Compensation Committee) shall be created only upon the approval of
the CVC Directors and a majority of the voting power of the Board and
the composition of each such committee (if any) shall consist of not
more than three Persons, at least one of which will be a CVC Director;
(v) any director shall be removed from the Board, a Sub Board
or any committee thereof (with or without cause) at the written request
of the Stockholder or Stockholders which have the right to designate
such a director hereunder, but only upon such written request and under
no other circumstances (in each case, determined on the basis of a vote
or consent of the Stockholders referred to in clause (i)(A), (i)(B),
(i)(C), or (i)(D) as the case may be); provided however that in no case
may the directors referred to in clauses (i)(A) and (i)(B) be removed
from the Board or Sub Board as long as such directors are duly elected
and acting in the offices set forth in clauses (i)(A) and (i)(B),
respectively;
(vi) in the event that any representative designated hereunder
for any reason ceases to serve as a member of the Board or a Sub Board
or any committee thereof during such representative's term of office,
the resulting vacancy on the Board or such Sub Board or committee shall
be filled by a representative designated by the Stockholders referred
to in clause (i)(A), (i)(B), (i)(C), or (i)(D), as the case may be.
(b) The Company shall pay the reasonable out-of-pocket
expenses incurred by each director in connection with attending the meetings of
the Board or any Sub Board and any
-5-
<PAGE> 6
committee thereof. In addition, the Company shall pay such additional
compensation to directors who are not employees of the Company or any of its
Subsidiaries as the Board so determines; provided, that no such additional
compensation shall be paid to directors who are employees of CVC or its
Affiliates or employees or Affiliates of any other stockholder of the Company.
(c) The provisions of this Section 2 shall terminate
automatically and be of no further force and effect upon a Qualified Public
Offering.
(d) If any party fails to designate a representative to
fill a directorship pursuant to the terms of this Section 2, the election of a
Person to such directorship shall be accomplished in accordance with the
Company's bylaws, certificate of incorporation, and applicable law; provided,
that such party may replace such Person as a director with a representative
pursuant to this Section 2. In the event that any provision of the Company's
bylaws or certificate of incorporation is inconsistent with any provision of
this Section 2, the Stockholders shall take such action as may be necessary to
amend any such provision in the Company's bylaws or certificate of incorporation
to remedy such inconsistency.
3. Conflicting Agreements. Each Stockholder (i) represents
that such Stockholder has not granted and is not a party to any proxy, voting
trust or other agreement which is inconsistent with or conflicts with the
provisions of this Agreement, and (ii) agrees that (x) no holder of Stockholder
Shares shall grant any proxy or become party to any voting trust or other
agreement which is inconsistent with or conflicts with the provisions of this
Agreement, and (y) any such grant shall be void.
4. Restrictions on Transfer of Stockholder Shares.
(a) Tag Along Rights. Subject to Sections 4(c) and 4(d), at
least 15 days prior to any sale (other than a Public Sale), transfer,
assignment, pledge or other disposal (a "Transfer") of Stockholder Shares by a
Stockholder, the Stockholder making such a transfer (the "Transferring
Stockholder") shall deliver a written notice (the "Sale Notice") to the Company
and the Other Stockholders, specifying in reasonable detail the identity of the
prospective transferee(s) and the terms and conditions of the Transfer. The
Other Stockholders may elect to participate in the contemplated Transfer by
delivering written notice to the Transferring Stockholder within 10 days after
delivery of the Sale Notice. If any Other Stockholders have elected to
participate in such Transfer, each of the Transferring Stockholder and such
Other Stockholders shall be entitled to sell in the contemplated Transfer, at
the same price and on the same terms, a number of Stockholder Shares of any
class equal to the product of (i) the quotient determined by dividing the
percentage of Stockholder Shares owned by such Stockholder by the aggregate
percentage of Stockholder Shares owned by the Transferring Stockholder and the
Other Stockholders participating in such Transfer and (ii) the aggregate number
of Stockholder Shares to be sold in the contemplated Transfer. Each Stockholder
transferring Stockholder Shares pursuant to this Section 4(a) shall pay its pro
rata share (based on the number of Stockholder Shares to be sold) of the
expenses incurred by the Stockholders in connection with such transfer and shall
be obligated to join on a pro rata basis (based on the number of Stockholder
Shares to be sold) in any indemnification or other obligations that the
Transferring Stockholder agrees to provide in connection with such transfer
(other than any such obligations that relate specifically to a particular
Stockholder such as indemnification with respect
-6-
<PAGE> 7
to representations and warranties given by a Stockholder regarding such
Stockholder's title to and ownership of Stockholder Shares; provided, that no
Stockholder shall be obligated in connection with such Transfer to agree to
indemnify or hold harmless the transferees with respect to an amount in excess
of the net cash proceeds paid to such Stockholder in connection with such
Transfer).
(b) First Refusal Rights. Subject to Sections 4(c) and
4(d), at least 60 days prior to any Transfer of Stockholder Shares by any
Executive, or any of their Permitted Transferees (other than pursuant to an
Approved Sale), the Person making such Transfer (the "Offering Stockholder")
shall deliver a written notice (the "Transfer Notice") to the Company and CVC
specifying in reasonable detail the identity of the prospective transferee(s),
the number of shares proposed to be transferred, the proposed purchase price
(which shall be payable solely in cash) and the other terms and conditions of
the Transfer. The Company may elect to purchase all (but not less than all) of
the Stockholder Shares to be transferred, upon the same terms and conditions as
those set forth in the Transfer Notice, by delivering a written notice of such
election to the Offering Stockholder within 30 days after the Transfer Notice
has been delivered to the Company. If the Company has not elected to purchase
all of the Stockholder Shares to be transferred, CVC (or its designee) may elect
to purchase all (but not less than all) of the Stockholder Shares to be
transferred, upon the same terms and conditions as those set forth in the
Transfer Notice, by giving written notice of such election to the Offering
Stockholder within 30 days after the Transfer Notice has been given to CVC (the
"CVC Option Period"). If neither the Company nor CVC (or its designee) elects to
purchase all of the Stockholder Shares specified in the Transfer Notice, then
the Offering Stockholder may transfer the Stockholder Shares specified in the
Transfer Notice to the designated transferee at a price and on terms no more
favorable to the transferee(s) thereof than specified in the Transfer Notice
during the 60-day period immediately following the expiration of the CVC Option
Period. Any Stockholder Shares not transferred within such 60-day period will be
subject to the provisions of this Section 4(b) upon subsequent transfer.
(c) Permitted Transfers. The restrictions contained in this
Section 4 shall not apply with respect to any Transfer of Stockholder Shares by
any Stockholder (i) in the case of an individual Stockholder, pursuant to
applicable laws of descent and distribution or to any member of such
Stockholder's Family Group, (ii) in the case of Executive Shares, pursuant to a
redemption by the Company of such Executive Shares under the terms and
conditions of that certain Executive Employment and Stock Purchase Agreement by
and between the Company and such Stockholder, and (iii) in the case of CVC and
CCT, (A) among their Affiliates, employees and consultants, (B) to any employee,
prospective employee, director or prospective director of the Company or any
Affiliate of the Company, (C) to any former or prospective employee, director or
prospective director of CVC or any Affiliate of CVC, (D) to any Person in order
to resolve a Regulatory Problem or (E) to CVC (in the case of CCT) or CCT (in
the case of CVC); provided, that the restrictions contained in this Section 4
shall continue to be applicable to such Stockholder Shares after any such
Transfer; and provided further, that the transferees of such Stockholder Shares
shall have agreed in writing to be bound by the provisions of this Agreement
which affect the Stockholder Shares so transferred by executing a joinder in
substantially the form attached hereto as Exhibit A. All transferees permitted
under this Section 4(c) are collectively referred to herein as "Permitted
Transferees."
(d) Termination of Restrictions. The restrictions set forth
in this Section 4 shall continue with respect to each Stockholder Share until
the earlier of (i) the Transfer of such
-7-
<PAGE> 8
Stockholder Share in a Public Sale or an Approved Sale, or (ii) the consummation
of a Qualified Public Offering.
5. Sale of the Company.
(a) In the event of an Approved Sale, each Stockholder will
(i) consent to and raise no objections against the Approved Sale or the process
pursuant to which the Approved Sale was arranged, (ii) waive any dissenter's
rights and other similar rights, and (iii) if the Approved Sale is structured as
a sale of stock, each Stockholder will agree to sell its Stockholder Shares on
the terms and conditions of the Approved Sale. Each Stockholder will take all
necessary and desirable actions as directed by the Board and the Approving
Stockholders in connection with the consummation of any Approved Sale, including
without limitation executing the applicable purchase agreement and granting
identical indemnification rights (to the extent of the consideration received by
such Stockholder in connection with the Approved Sale). Each Stockholder
required to make indemnification payments in connection with any Approved Sale
shall have a right to recover from the Other Stockholders to the extent that the
amount required to be paid by such Stockholder was disproportionate to the
proportion of the total consideration received by all Stockholders, compared to
the consideration actually received by such Stockholder.
(b) If the Company or the holders of the Company's
securities enter into any negotiation or transaction for which Rule 506 (or any
similar rule then in effect) under the Securities Act may be available with
respect to such negotiation or transaction (including a merger, consolidation or
other reorganization), the Other Stockholders will, at the request of the
Company, appoint a purchaser representative (as such term is defined in Rule
501) reasonably acceptable to the Company. If any Other Stockholder appoints a
purchaser representative designated by the Company, the Company will pay the
fees of such purchaser representative, but if any Other Stockholder declines to
appoint the purchaser representative designated by the Company such holder will
appoint another purchaser representative (reasonably acceptable to the Company),
and such holder will be responsible for the fees of the purchaser representative
so appointed.
(c) All Stockholders will bear their pro rata share (based
upon the number of shares sold) of the reasonable costs of any sale of
Stockholder Shares pursuant to an Approved Sale to the extent such costs are
incurred for the benefit of all selling Stockholders and are not otherwise paid
by the Company or the acquiring party. Costs incurred by any Stockholder on its
own behalf will not be considered costs of the transaction hereunder.
(d) This Section 5 shall automatically terminate upon a
Qualified Public Offering.
6. Legend. In addition to any legend required by any other
Transaction Document, each certificate evidencing Stockholder Shares and each
certificate issued in exchange for or upon the transfer of any Stockholder
Shares (if such shares remain Stockholder Shares as defined herein after such
transfer) shall be stamped or otherwise imprinted with a legend in substantially
the following form:
"THE SECURITIES REPRESENTED BY THIS CERTIFICATE WERE
ORIGINALLY ISSUED ON JUNE __, 1997, AND HAVE
-8-
<PAGE> 9
NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS
AMENDED. THE TRANSFER OF THE SECURITIES REPRESENTED BY THIS
CERTIFICATE IS SUBJECT TO A STOCKHOLDERS AGREEMENT DATED AS OF
JUNE __, 1997, BY AND AMONG THE ISSUER OF SUCH SECURITIES (THE
"COMPANY") AND CERTAIN OF THE COMPANY'S STOCKHOLDERS. A COPY
OF SUCH STOCKHOLDERS AGREEMENT WILL BE FURNISHED WITHOUT
CHARGE BY THE COMPANY TO THE HOLDER HEREOF UPON WRITTEN
REQUEST."
The Company shall imprint such legend on certificates evidencing Stockholder
Shares outstanding prior to the date hereof. The legend set forth above shall be
removed from the certificates evidencing any shares which cease to be
Stockholder Shares.
7. Transfers in Violation of Agreement. Any Transfer or
attempted Transfer of any Stockholder Shares in violation of any provision of
this Agreement shall be null and void, and the Company shall not record such
Transfer on its books or treat any purported transferee of such Stockholder
Shares as the owner of such shares for any purpose.
8. Transfer of Stockholder Shares.
(a) Stockholder Shares are transferable only pursuant to (i)
public offerings registered under the Securities Act, (ii) subject to the
provisions of Section 4 above, Rule 144 or Rule 144A (or any similar rule or
rules then in effect) of the Securities and Exchange Commission if such rule is
available, and (iii) subject to Section 4 or 5 and Section 8(b) below, any other
legally available means of Transfer.
(b) In connection with the Transfer of any Stockholder
Shares other than a Transfer described in clause (i) or (ii) of Section 8(a)
above, the holder thereof shall deliver written notice to the Company describing
in reasonable detail the Transfer or proposed Transfer, together with an opinion
of counsel reasonably acceptable to the Company to the effect that such Transfer
of Stockholder Shares may be effected without registration of such Stockholder
Shares under the Securities Act. In addition, if the holder of the Stockholder
Shares delivers to the Company an opinion of counsel that no subsequent Transfer
of such Stockholder Shares shall require registration under the Securities Act,
the Company shall promptly upon such contemplated Transfer deliver new
certificates for such Stockholder Shares which do not bear the legend set forth
in Section 6 above. If the Company is not required to deliver new certificates
for such Stockholder Shares not bearing such legend, the holder thereof shall
not consummate a Transfer of the same until the prospective transferee has
confirmed to the Company in writing its agreement to be bound by the conditions
contained in this Section 8 and Section 6 above.
(c) Upon the request of a holder of Stockholder Shares, the
Company shall promptly supply to such Person or its prospective transferees all
information regarding the Company required to be delivered in connection with a
Transfer pursuant to Rule 144A (or any similar rule or rules then in effect) of
the Securities and Exchange Commission.
-9-
<PAGE> 10
(d) Upon the request of any holder of Stockholder Shares,
the Company shall remove the legend set forth in Section 6 above from the
certificates for such holder's Stockholder Shares; provided, that such
Stockholder Shares are eligible for sale pursuant to Rule 144(k) (or any similar
rule or rules then in effect) of the Securities and Exchange Commission.
9. Pre-emptive Rights. If the Company issues any shares of
Common Stock (other than shares of Common Stock issuable upon exercise of the
CVC Warrant and upon exercise of incentive stock options to be issued to certain
members of management of the Company) or any securities containing options or
rights to acquire any shares of Common Stock or any securities convertible or
exchangeable for Common Stock in each case, after the date hereof to CVC or any
Affiliate of CVC, the Company will offer to sell to each Other Stockholder a
number of such securities ("Offered Shares") so that the Ownership Ratio
immediately after the issuance of such securities for each Stockholder would be
equal to the Ownership Ratio for such Stockholder immediately prior to such
issuance of securities. The Company shall give each Stockholder at least 30 days
prior written notice of any proposed issuance, which notice shall disclose in
reasonable detail the proposed terms and conditions of such issuance (the
"Issuance Notice"). Each Stockholder will be entitled to purchase such
securities at the same price, on the same terms, and at the same time as the
securities are issued by delivery of written notice to the Company of such
election within 15 days after delivery of the Issuance Notice (the "Election
Notice"); provided, that if more than one type of security was issued, each
Stockholder shall, if it exercises its rights pursuant to this Section 9,
purchase such securities in the same ratio as issued. If any of the Stockholders
have elected to purchase any Offered Shares, the sale of such shares shall be
consummated as soon as practical (but in any event within 10 days) after the
delivery of the Election Notice. In the event that any Stockholder elects to
purchase Offered Shares, at such Stockholder's request (which request shall be
included in the Election Notice), the Company shall issue to such Stockholders,
in lieu of the securities constituting Offered Shares, nonvoting securities
which shall otherwise be identical in all respects to such securities
constituting Offered Shares, except that it (i) shall be nonvoting, (ii) shall
be convertible into a voting security (including the securities constituting
Offered Shares) on such terms as are requested by such Stockholder in light of
the applicable regulatory considerations then prevailing, and (iii) may not, at
Stockholder's request, be a common equity security. In the event any Stockholder
elects not to exercise its rights pursuant to this Section 9, no other
Stockholder shall have the right to purchase the securities offered to such
Stockholder.
10. Termination. This Agreement will automatically terminate
and be of no further force or effect immediately after the earlier of the
consummation of (i) an Approved Sale or (ii) a Qualified Public Offering.
11. Amendment and Waiver. Except as otherwise provided
herein, no modification, amendment or waiver of any provision of this Agreement
shall be effective against the Company or the Stockholders unless such
modification, amendment or waiver is approved in writing by the Company or the
holders of not less than 51% of the Stockholder Shares, respectively; provided,
that no such modification, amendment or waiver which adversely and prejudicially
affects an Executive or the Executives vis-a-vis all Other Stockholders shall be
effective against such Executive or Executives without the prior written consent
of the holders of not less than 51% of the Executive Shares. For the avoidance
of doubt, adding another party to this Agreement by execution of a joinder in
the form of Exhibit A and pursuant to the provisions of Section 4(c) above
without
-10-
<PAGE> 11
amending or modifying any material provision of this Agreement is not an action
which, in and of itself, affects any Stockholder adversely and prejudicially
vis-a-vis Other Stockholders. The failure of any party to enforce any of the
provisions of this Agreement shall in no way be construed as a waiver of such
provisions and shall not affect the right of such party thereafter to enforce
each and every provision of this Agreement in accordance with its terms.
12. Severability. Whenever possible, each provision of this
Agreement shall be interpreted in such manner as to be effective and valid under
applicable law, but if any provision of this Agreement is held to be invalid,
illegal or unenforceable in any respect under any applicable law or rule in any
jurisdiction, such invalidity, illegality or unenforceability shall not affect
any other provision or any other jurisdiction, but this Agreement shall be
reformed, construed and enforced in such jurisdiction as if such invalid,
illegal or unenforceable provision had never been contained herein.
13. Entire Agreement. Except as otherwise expressly set
forth herein, this document and the other Transaction Documents embody the
complete agreement and understanding among the parties hereto with respect to
the subject matter hereof and supersede and preempt any prior understandings,
agreements or representations by or among the parties, written or oral, which
may have related to the subject matter hereof in any way.
14. Successors and Assigns. Except as otherwise provided
herein, this Agreement shall bind and inure to the benefit of and be enforceable
by the Company and its successors and assigns and the Stockholders and any
subsequent holders of Stockholder Shares and the respective successors and
assigns of each of them, so long as they hold Stockholder Shares.
15. Counterparts. This Agreement may be executed in separate
counterparts each of which shall be an original and all of which taken together
shall constitute one and the same agreement.
16. Remedies. The parties hereto shall be entitled to
enforce their rights under this Agreement specifically to recover damages by
reason of any breach of any provision of this Agreement and to exercise all
other rights existing in their favor. The parties hereto agree and acknowledge
that money damages may not be an adequate remedy for any breach of the
provisions of this Agreement and that the Company, CVC and any Executive may in
his, hers, or its sole discretion apply to any court of law or equity of
competent jurisdiction for specific performance and/or injunctive relief
(without posting a bond or other security) in order to enforce or prevent any
violation of the provisions of this Agreement.
17. Notices. All notices, demands or other communications to
be given or delivered under or by reason of the provisions of this Agreement
will be in writing and will be deemed to have been given when delivered
personally, mailed by certified or registered mail, return receipt requested and
postage prepaid, or sent via a nationally recognized overnight courier, or sent
via facsimile to the recipient accompanied by a certified or registered mailing.
Such notices, demands and other communications will be sent to the address
indicated below:
-11-
<PAGE> 12
To the Company:
Plainwell Holding Company
c/o Simpson Plainwell Paper Company
200 Allegan Street
Plainwell, Michigan 49080
Attention: Chief Executive Officer
Telecopy No.: (616) 685-2597
With copies (which shall not constitute notice) to:
Citicorp Venture Capital, Ltd.
399 Park Avenue, 14th Floor
New York, New York 10043
Attention: John D. Weber
Telecopy No.: (212) 888-2940
Kirkland & Ellis
Citicorp Center
153 East 53rd Street
New York, New York 10022-4675
Attention: Kirk A. Radke, Esq.
Telecopy No.: (212) 446-4900
Godfrey & Kahn, S.C.
780 North Water Street
Milwaukee, WI 53202-3590
Attention: Thomas A. Myers, Esq.
Telecopy No.: (414) 273-5198
To CVC:
Citicorp Venture Capital, Ltd.
399 Park Avenue
14th Floor
New York, New York 10043
Attention: John D. Weber
Telecopy No.: (212) 888-2940
-12-
<PAGE> 13
With a copy (which shall not constitute notice) to:
Kirkland & Ellis
Citicorp Center
153 East 53rd Street
New York, New York 10022-4675
Attention: Kirk A. Radke, Esq.
Telecopy No.: (212) 446-4900
To CCT:
CCT II Partners, L.P.
399 Park Avenue, 14th Floor
New York, New York 10043
Attention: John D. Weber
Telecopier: (212) 888-2940
With a copy (which shall not constitute notice) to:
Kirkland & Ellis
Citicorp Center
153 East 53rd Street
New York, New York 10022-4675
Attention: Kirk A. Radke, Esq.
Telecopy No.: (212) 446-4900
To Larkspur:
Larkspur Capital Corporation
445 Park Avenue
New York, NY 10022
Attention: Robert L. Goodwin
Telecopy No.: (212) 376-5791
To the Investor:
Brenton Halsey
c/o James River Corp.
120 Tredegar Street
Richmond, VA 23219
To any of the Executives:
c/o Simpson Plainwell Paper Company
200 Allegan Street
Plainwell, Michigan 49080
-13-
<PAGE> 14
Attention: [EXECUTIVE'S NAME]
Telecopy No.: (616) 685-2597
With a copy (which shall not constitute notice) to:
Godfrey & Kahn, S.C.
780 North Water Street
Milwaukee, WI 53202-3590
Attention: Thomas A. Myers, Esq.
Telecopy No.: (414) 273-5198
or such other address or to the attention of such other person as the recipient
party shall have specified by prior written notice to the sending party.
18. GOVERNING LAW. THE CORPORATE LAW OF DELAWARE SHALL
GOVERN ALL ISSUES CONCERNING THE RELATIVE RIGHTS OF THE COMPANY AND ITS
STOCKHOLDERS. ALL OTHER QUESTIONS CONCERNING THE CONSTRUCTION, VALIDITY AND
INTERPRETATION OF THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED IN
ACCORDANCE WITH THE DOMESTIC LAWS OF THE STATE OF NEW YORK, WITHOUT GIVING
EFFECT TO ANY CHOICE OF LAW OR CONFLICT OF LAW PROVISION OR RULE (WHETHER OF THE
STATE OF NEW YORK OR ANY OTHER JURISDICTION) THAT WOULD CAUSE THE APPLICATION OF
THE LAWS OF ANY JURISDICTION OTHER THAN THE STATE OF NEW YORK.
19. WAIVER OF JURY TRIAL. THE COMPANY AND EACH
SECURITYHOLDER HEREBY WAIVE, TO THE EXTENT PERMITTED BY APPLICABLE LAW, TRIAL BY
JURY IN ANY LITIGATION IN ANY COURT WITH RESPECT TO, IN CONNECTION WITH, OR
ARISING OUT OF THIS AGREEMENT OR THE VALIDITY, PROTECTION, INTERPRETATION OR
ENFORCEMENT THEREOF. THE COMPANY AND EACH SECURITYHOLDER AGREE THAT THIS SECTION
IS A SPECIFIC AND MATERIAL ASPECT OF THIS AGREEMENT AND WOULD NOT ENTER INTO
THIS AGREEMENT IF THIS SECTION WERE NOT PART OF THIS AGREEMENT.
20. Time is of the Essence. Each of the parties to this
Agreement hereby agrees that time is of the essence in the performance of this
Agreement and with respect to all duties and periods specified herein.
21. Descriptive Headings. The descriptive headings of this
Agreement are inserted for convenience only and do not constitute a part of this
Agreement.
* * * * *
-14-
<PAGE> 15
IN WITNESS WHEREOF, the parties hereto have executed this
Stockholders Agreement as of the date first above written.
PLAINWELL HOLDING COMPANY
By:
-------------------------------------
Name:
Title:
CITICORP VENTURE CAPITAL, LTD.
By:
-------------------------------------
Name:
Title:
CCT II PARTNERS, L.P.
By: CCT I Corporation
Its: General Partner
By:
-------------------------------------
Name:
Title:
WILLIAM L. NEW
----------------------------------------
BRENTON HALSEY
----------------------------------------
<PAGE> 16
INDIVIDUAL PURCHASERS
SIGNATURE PAGE FOR
STOCKHOLDERS AGREEMENT
RICHARD CASHIN ALCHEMY, L.P.
By:
- --------------------------------- ---------------------------------
Name:
Title:
DAVID F. THOMAS JOHN D. WEBER
- --------------------------------- ------------------------------------
NATASHA PARTNERSHIP JAMES URRY
By:
----------------------------- ------------------------------------
Name:
Title:
JOSEPH SILVESTRI
- ---------------------------------
<PAGE> 17
SIGNATURE PAGE FOR
STOCKHOLDERS AGREEMENT
LARKSPUR CAPITAL CORPORATION
By:
-----------------------------------
Name:
-----------------------------------
Title:
----------------------------------
<PAGE> 18
EXHIBIT A
FORM OF JOINDER TO
STOCKHOLDERS AGREEMENT
THIS JOINDER to the Stockholders Agreement, dated as of June
__, 1997 by and among Plainwell Holding Company, a Delaware corporation (the
"Company"), and certain stockholders of the Company (the "Agreement"), is made
and entered into as of _________ by and between the Company and
_________________ ("Holder"). Capitalized terms used herein but not otherwise
defined shall have the meanings set forth in the Agreement.
WHEREAS, Holder has acquired certain shares of Common Stock
("Holder Stock"), and the Agreement and the Company requires Holder, as a holder
of Common Stock, to become a party to the Agreement, and Holder agrees to do so
in accordance with the terms hereof.
NOW, THEREFORE, in consideration of the mutual covenants
contained herein and other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the parties to this Joinder hereby
agree as follows:
1. Agreement to be Bound. Holder hereby agrees that upon
execution of this Joinder, it shall become a party to the Agreement and shall be
fully bound by, and subject to, all of the covenants, terms and conditions of
the Agreement as though an original party thereto and shall be deemed a
Stockholder [AND AN EXECUTIVE] for all purposes thereof. In addition, Holder
hereby agrees that all Common Stock held by Holder shall be deemed Stockholder
Shares for all purposes of the Agreement
2. Successors and Assigns. Except as otherwise provided
herein, this Joinder shall bind and inure to the benefit of and be enforceable
by the Company and its successors and assigns and Holder and any subsequent
holders of Holder Stock and the respective successors and assigns of each of
them, so long as they hold any shares of Holder Stock.
3. Counterparts. This Joinder may be executed in separate
counterparts each of which shall be an original and all of which taken together
shall constitute one and the same agreement.
4. Notices. For purposes of Section 17 of the Agreement, all
notices, demands or other communications to the Holder shall be directed to:
[Name]
[Address]
[Facsimile Number]
5. GOVERNING LAW. THE CORPORATE LAW OF DELAWARE SHALL GOVERN
ALL ISSUES CONCERNING THE RELATIVE RIGHTS OF THE COMPANY AND ITS STOCKHOLDERS.
ALL OTHER QUESTIONS CONCERNING THE CONSTRUCTION, VALIDITY AND INTERPRETATION OF
THIS JOINDER SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE DOMESTIC
LAWS OF THE STATE OF NEW YORK, WITHOUT GIVING
A-1
<PAGE> 19
EFFECT TO ANY CHOICE OF LAW OR CONFLICT OF LAW PROVISION OR RULE (WHETHER OF THE
STATE OF NEW YORK OR ANY OTHER JURISDICTION) THAT WOULD CAUSE THE APPLICATION OF
THE LAWS OF ANY JURISDICTION OTHER THAN THE STATE OF NEW YORK.
6. DESCRIPTIVE HEADINGS. The descriptive headings of this
Joinder are inserted for convenience only and do not constitute a part of this
Joinder.
* * * * *
A-2
<PAGE> 20
IN WITNESS WHEREOF, the parties hereto have executed this
Joinder as of the date first above written.
PLAINWELL HOLDING COMPANY
By:
----------------------------------
Name:
Title:
[HOLDER]
By:
----------------------------------
<PAGE> 1
Exhibit 10.8
JOINDER TO
STOCKHOLDERS AGREEMENT
THIS JOINDER to the Stockholders Agreement, dated as of June 16,
1997 by and among Plainwell Holding Company, a Delaware corporation (the
"Company"), and certain stockholders of the Company (the "Agreement"), is made
and entered into as of January 31, 1998 by and between the Company and 399
Venture Partners, Inc., a New York corporation ("Holder"). Capitalized terms
used herein but not otherwise defined shall have the meanings set forth in the
Agreement.
WHEREAS, Holder has acquired certain shares of Common Stock ("Holder
Stock"), and the Agreement and the Company requires Holder, as a holder of
Common Stock, to become a party to the Agreement, and Holder agrees to do so in
accordance with the terms hereof.
NOW, THEREFORE, in consideration of the mutual covenants contained
herein and other good and valuable consideration, the receipt and sufficiency of
which are hereby acknowledged, the parties to this Joinder hereby agree as
follows:
1. Agreement to be Bound. Holder hereby agrees that upon execution
of this Joinder, it shall become a party to the Agreement and shall be fully
bound by, and subject to, all of the covenants, terms and conditions of the
Agreement as though an original party thereto and shall be deemed a Stockholder
for all purposes thereof. In addition, Holder hereby agrees that all Common
Stock held by Holder shall be deemed Stockholder Shares for all purposes of the
Agreement
2. Successors and Assigns. Except as otherwise provided herein, this
Joinder shall bind and inure to the benefit of and be enforceable by the Company
and its successors and assigns and Holder and any subsequent holders of Holder
Stock and the respective successors and assigns of each of them, so long as they
hold any shares of Holder Stock.
3. Counterparts. This Joinder may be executed in separate
counterparts each of which shall be an original and all of which taken together
shall constitute one and the same agreement.
4. Notices. For purposes of Section 17 of the Agreement, all
notices, demands or other communications to the Holder shall be directed to:
399 Venture Partners, Inc.
399 Park Avenue
New York, NY 10143
Facsimile No.: (212) 888-2940
Attn: John D. Weber
<PAGE> 2
with a copy (which shall not constitute notice) to:
Kirkland & Ellis
Citicorp Center
153 East 53rd Street
New York, NY 10022
Facsimile No.: (212) 446-4900
Attn: Kirk A. Radke, Esq.
5. Governing Law. The corporate law of Delaware shall govern all
issues concerning the relative rights of the Company and its stockholders. All
other questions concerning the construction, validity and interpretation of this
Joinder shall be governed by and construed in accordance with the domestic laws
of the State of New York, without giving effect to any choice of law or conflict
of law provision or rule (whether of the State of New York or any other
jurisdiction) that would cause the application of the laws of any jurisdiction
other than the State of New York.
6. Descriptive Headings. The descriptive headings of this Joinder
are inserted for convenience only and do not constitute a part of this Joinder.
* * * * *
-2-
<PAGE> 3
IN WITNESS WHEREOF, the parties hereto have executed this Joinder as
of the date first above written.
PLAINWELL HOLDING COMPANY
By:
-------------------------------
Name:
Title:
399 VENTURE PARTNERS, INC.
By:
-------------------------------
Name:
Title:
<PAGE> 1
EXHIBIT 10.9
REGISTRATION RIGHTS AGREEMENT
This REGISTRATION RIGHTS AGREEMENT is dated as of June 10,
1997 by and among Plainwell Holding Company, a Delaware corporation (the
"Company"), Citicorp Venture Capital, Ltd., a New York corporation ("CVC"), CCT
II Partners, L.P., a Delaware limited partnership ("CCT"), Brenton Halsey (the
"Investor"), Larkspur Capital Corporation ("Larkspur"), William L. New and each
other executive of the Company or its subsidiaries who acquires Common Stock (as
defined below) from the Company after the date hereof and executes a joinder
hereto (collectively, the "Executives", and individually as an "Executive"), and
the Persons set forth on the Individual Purchaser Signature Page attached hereto
(collectively referred to herein as the "Individual Purchasers", and
individually as an "Individual Purchaser").
The Executives (other than William L. New) will purchase
shares of the Company's Class B Common Stock, par value $.01 per share (the
"Class B Common"), pursuant to certain purchase agreements with the Company.
William L. New has purchased, or will have purchased, shares
of the Company's Class A Common Stock, par value $.01 per share (the "Class A
Common") and shares of the Company's Class B Common, pursuant to a certain
purchase agreement with the Company.
CVC has purchased shares of the Company's Class A Common and
of the Company's Class B Common (together with all warrants issued in
substitution or replacement therefor, the "CVC Warrants"), pursuant to a CVC
Securities Purchase Agreement, dated as of the date hereof, between the Company
and CVC.
The Individual Purchasers have purchased shares of Class A
Common and of Class B Common pursuant to the Securities Purchase Agreement,
dated as of the date hereof, by and among the Company and the Individual
Purchasers.
NOW, THEREFORE, in consideration of the mutual covenants
contained herein and other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the parties to this Agreement
hereby agree as follows:
1. Definitions. As used herein, the following terms shall have
the following meanings.
"Common Stock" means, collectively, (i) the Class A Common and
the Class B Common, (ii) any other class of Common Stock, and (iii) any capital
stock of the Company issued or issuable with respect to the securities referred
to in clauses (i) or (ii) by way of stock split or in connection with a
combination of shares, recapitalization, merger, consolidation or other
reorganization.
"CVC Registrable Securities" means (i) any shares of Common
Stock issued or issuable to CVC or its affiliates upon exercise of the CVC
Warrants or acquired by, or issued or issuable to, CVC or its affiliates on or
after the date hereof, (ii) any capital stock of the Company
<PAGE> 2
acquired by CVC or its affiliates on or after the date hereof, and (iii) any
shares of capital stock of the Company issued or issuable with respect to the
securities referred to in clauses (i) or (ii) above by way of a stock dividend
or stock split or in connection with a combination of shares, recapitalization,
merger, consolidation or other reorganization. For purposes of this Agreement, a
Person will be deemed to be a holder of CVC Registrable Securities whenever such
Person has the right to acquire directly or indirectly such CVC Registrable
Securities (upon conversion or exercise in connection with a transfer of
securities or otherwise, but disregarding any restrictions or limitations upon
the exercise of such right), whether or not such acquisition has actually been
effected.
"Exchange Act" means the Securities Exchange Act of 1934, as
amended.
"Executive Registrable Securities" means (i) any shares of
Common Stock issued or issuable to the Executives on the date hereof or acquired
by, or issued or issuable to, the Executives after the date hereof and (ii) any
shares of capital stock of the Company issued or issuable with respect to the
securities referred to in clause (i) above by way of a stock dividend or stock
split or in connection with a combination of shares, recapitalization, merger,
consolidation or other reorganization, if and to the extent, in each case, such
shares of Common Stock referred to in clauses (i) and (ii) above have vested
pursuant to the terms of the Executive Stock Purchase Agreements executed by
such Executives and the Company. For purposes of this Agreement, a Person will
be deemed to be a holder of Executive Registrable Securities whenever such
Person has the right to acquire directly or indirectly such Executive
Registrable Securities (upon conversion or exercise in connection with a
transfer of securities or otherwise, but disregarding any restrictions or
limitations upon the exercise of such right), whether or not such acquisition
has actually been effected.
"Holders Securities" means any securities of CVC or any of its
affiliates which are exchangeable, convertible, or otherwise similarly
exercisable into Registrable Securities.
"Person" means an individual, a partnership, a corporation, an
association, a joint stock company, a limited liability company, a trust, a
joint venture, an unincorporated organization and a governmental entity or any
department, agency or political subdivision thereof.
"Purchaser Registrable Securities" means (i) any shares of
Common Stock acquired by, or issued or issuable to, CCT, the Individual
Purchasers, the Investor, or Larkspur on or after the date hereof, (ii) any
shares of capital stock of the Company acquired by CCT or the Individual
Purchasers on or after the date hereof, and (iii) any shares of capital stock of
the Company issued or issuable with respect to the securities referred to in
clauses (i) or (ii) above by way of a stock dividend or stock split or in
connection with a combination of shares, recapitalization, merger, consolidation
or other reorganization. For purposes of this Agreement, a Person will be deemed
to be a holder of Purchaser Registrable Securities whenever such Person has the
right to acquire directly or indirectly such Purchaser Registrable Securities
(upon conversion or exercise in connection with a transfer of securities or
otherwise, but disregarding any restrictions or limitations upon the exercise of
such right), whether or not such acquisition has actually been effected.
- 2 -
<PAGE> 3
"Qualified Public Offering" means the sale, in an underwritten
public offering registered under the Securities Act, of shares of the Company's
Common Stock having an aggregate value of at least $30 million.
"Registrable Securities" means, collectively, the CVC
Registrable Securities, the Purchaser Registrable Securities, and the Executive
Registrable Securities.
"Registration Expenses" means all expenses incident to the
Company's performance of or compliance with this Agreement, including without
limitation all registration and filing fees, fees and expenses of compliance
with securities or blue sky laws, printing expenses, messenger and delivery
expenses, and fees and disbursements of counsel for the Company and all
independent certified public accountants, underwriters (excluding discounts and
commissions) and other Persons retained by the Company.
"Rule 144" means Rule 144 under the Securities Act (or any
similar rule then in force).
"SEC" means the Securities and Exchange Commission.
"Securities Act" means the Securities Act of 1933, as amended.
2. Demand Registrations.
(a) Requests for Registration. Subject to Section 2(b) below,
at any time and from time to time, the holders of a majority of the CVC
Registrable Securities may request registration, whether underwritten or
otherwise, under the Securities Act of all or part of their Registrable
Securities on Form S-1 or any similar long-form registration ("Long-Form
Registrations") or on Form S-2 or S-3 or any similar short-form registration
("Short-Form Registrations") if available. In addition, subject to Section 2(g)
below, the holders of a majority of the CVC Registrable Securities may request
that the Company file with the SEC a registration statement under the Securities
Act on any applicable form pursuant to Rule 415 under the Securities Act (a "415
Registration"). Each request for a Long-Form Registration or Short-Form
Registration shall specify the approximate number of Registrable Securities
requested to be registered and the anticipated per share price range for such
offering. Within ten days after receipt of any such request for a Long-Form
Registration or Short-Form Registration, the Company will give written notice of
such requested registration to all other holders of Registrable Securities and
will include (subject to the provisions of this Agreement) in such registration,
all Registrable Securities with respect to which the Company has received
written requests for inclusion therein within 20 days after the receipt of the
Company's notice. All registrations requested pursuant to in this Section 2(a)
are referred to herein as "Demand Registrations". The Company acknowledges that
the holders of the CVC Registrable Securities may request a Demand Registration
in connection with a public offering of Holders Securities.
(b) Long-Form Registrations. The holders of a majority of the
CVC Registrable Securities will be entitled to request up to five (5) Long-Form
Registrations in which the Company will pay all Registration Expenses. A
registration will not count as the permitted Long-Form
- 3 -
<PAGE> 4
Registration until it has become effective and unless the holders of Registrable
Securities are able to register and sell at least 90% of the Registrable
Securities requested to be included in such registration.
(c) Short-Form Registrations. In addition to the Long-Form
Registrations provided pursuant to Section 2(b), the holders of the CVC
Registrable Securities will be entitled to request an unlimited number of
Short-Form Registrations in which the Company will pay all Registration
Expenses. Demand Registrations (other than 415 Registrations) will be Short-Form
Registrations whenever the Company is permitted to use any applicable short
form. After the Company has become subject to the reporting requirements of the
Exchange Act, the Company will use its best efforts to make Short-Form
Registrations available for the sale of Registrable Securities.
(d) Priority on Demand Registrations. The Company will not
include in any Long-Form Registration or Short-Form Registration any securities
which are not Registrable Securities without the prior written consent of the
holders of at least a majority of the Registrable Securities included in such
registration. If a Long-Form Registration or a Short-Form Registration is an
underwritten offering and the managing underwriters advise the Company in
writing that in their opinion the number of Registrable Securities and, if
permitted hereunder, other securities requested to be included in such offering
exceeds the number of Registrable Securities and other securities, if any, which
can be sold therein without adversely affecting the marketability of the
offering, the Company will include in such registration (i) first, the number of
Registrable Securities requested to be included in such registration pro rata,
if necessary, among the holders of Registrable Securities based on the number of
shares of Registrable Securities owned by each such holder and (ii) second, any
other securities of the Company requested to be included in such registration
pro rata, if necessary, on the basis of the number of shares of such other
securities owned by each such holder, and (iii) third, if Company Registrable
Securities are to be included in such registration, the number of Company
Registrable Securities to be included in such registration is that number of
Company Registrable Securities which is, after giving effect to the foregoing
clauses (i) and (ii), required to attain the $20 million threshold offering
amount set forth in Section 5(c).
(e) Restrictions on Demand Registrations. The Company will not
be obligated to effect any Demand Registration within six months after the
effective date of a previous Demand Registration.
(f) Selection of Underwriters. In the case of a Demand
Registration for an underwritten offering, the holders of a majority of the
Registrable Securities to be included in such Demand Registration will have the
right to select the investment banker(s) and manager(s) to administer the
offering, which investment banker(s) and manager(s) will be nationally
recognized, subject to the Company's approval which will not be unreasonably
withheld.
(g) 415 Registrations.
(i) The holders of a majority of the CVC Registrable
Securities will be entitled to request one (1) 415 Registration. Subject to the
availability of required financial information, within 45 days after the Company
receives written notice of a request for a 415 Registration, the Company shall
file with the SEC a registration statement under the Securities Act
-4-
<PAGE> 5
for the 415 Registration. The Company shall use its best efforts to cause the
415 Registration to be declared effective under the Securities Act as soon as
practical after filing, and once effective, the Company shall (subject to the
provisions of clause (ii) below) cause such 415 Registration to remain effective
for such time period as is specified in such request, but for no time period
longer than the period ending on the earlier of (i) the third anniversary of the
date of filing of the 415 Registration or (ii) the date on which all CVC
Registrable Securities have been sold pursuant to the 415 Registration or (iii)
the date as of which there are no longer any CVC Registrable Securities in
existence.
(ii) If the holders of a majority of the CVC Registrable
Securities notify the Company in writing that they intend to effect the sale of
all or substantially all of the CVC Registrable Securities held by such holders
pursuant to a single integrated offering pursuant to a then effective
registration statement for a 415 Registration (a "Takedown"), the Company and
each holder of Registrable Securities (other than the Individual Purchasers)
shall not effect any public sale or distribution of its equity securities, or
any securities convertible into or exchangeable or exercisable for its equity
securities, during the 90-day period beginning on the date such notice of a
Takedown is received.
(iii) If in connection with any Takedown the managing
underwriters (selected in accordance with clause (iv) below) advise the Company
that, in its opinion, the inclusion of any other securities other than CVC
Registrable Securities would adversely affect the marketability of the offering,
then no such securities shall be permitted to be included. Additionally, if in
connection with such an offering, the number of CVC Registrable Securities and
other securities (if any) requested to be included in such Takedown exceeds the
number of CVC Registrable Securities and other securities which can be sold in
such offering without adversely affecting the marketability of the offering, the
company shall include in such Takedown (i) first, the CVC Registrable Securities
requested to be included in such Takedown, pro rata among the holders of such
Registrable Securities on the basis of the number of CVC Registrable Securities
owned by each such holder, and (ii) second, other securities requested to be
included in such Takedown to the extent permitted hereunder.
(iv) The holders of a majority of the CVC Registrable
Securities shall have the right to retain and select an investment banker and
manager to administer the 415 Registration and any Takedown pursuant thereto,
subject to the Company's approval which will not be unreasonably withheld.
(v) In addition to the provisions in Section 6 below,
all expenses incurred in connection with the management of the 415 Registration
(whether incurred by the Company or the holders of the CVC Registrable
Securities) shall be borne by the Company (including, without limitation, all
fees and expenses of the investment banker and manager) (excluding discounts and
commissions).
(h) Other Registration Rights. Except as provided in this
Agreement, the Company will not grant to any Persons the right to request the
Company to register any equity securities of the Company, or any securities
convertible or exchangeable into or exercisable for such
-5-
<PAGE> 6
securities, without the prior written consent of the holders of a majority of
the CVC Registrable Securities.
3. Piggyback Registrations.
(a) Right to Piggyback. Whenever the Company proposes to
register any of its Common Stock under the Securities Act (other than pursuant
to a Demand Registration, and other than pursuant to a registration statement on
Form S-8 or S-4 or any similar form or in connection with a registration the
primary purpose of which is to register debt securities (i.e., in connection
with a so-called "equity kicker") and a registration form to be used may be used
for the registration of Registrable Securities (a "Piggyback Registration"), the
Company will give prompt written notice to all holders of Registrable Securities
of its intention to effect such a registration and will include in such
registration all Registrable Securities with respect to which the Company has
received written requests for inclusion therein within 20 days after the receipt
of the Company's notice. Notwithstanding the foregoing, in connection only with
the initial registered public offering of the Company's securities which
offering is a primary offering, no Registrable Securities shall be included in
such registration without the prior written consent of the holders of a majority
of CVC Registrable Securities.
(b) Priority on Primary Registrations. If a Piggyback
Registration is an underwritten primary registration on behalf of the Company,
the Company will include in such registration all securities requested to be
included in such registration; provided, that if the managing underwriters
advise the Company in writing that in their opinion the number of securities
requested to be included in such registration exceeds the number which can be
sold in such offering without adversely affecting the marketability of the
offering, the Company will include in such registration (i) first, the
securities the Company proposes to sell, (ii) second, the Registrable Securities
requested to be included in such registration, pro rata among the holders of
such Registrable Securities on the basis of the number of shares of Registrable
Securities owned by each such holder, and (iii) third, other securities, if any,
requested to be included in such registration.
(c) Priority on Secondary Registrations. If a Piggyback
Registration is an underwritten secondary registration on behalf of holders of
the Company's securities (which registration was consented to pursuant to
Section 2(h) above), and the managing underwriters advise the Company in writing
that in their opinion the number of securities requested to be included in such
registration exceeds the number which can be sold in such offering without
adversely affecting the marketability of the offering, the Company will include
in such registration (i) first, the securities requested to be included therein
by the holders requesting such registration, (ii) second, the Registrable
Securities requested to be included in such registration, pro rata among the
holders of such Registrable Securities on the basis of the number of shares of
Registrable Securities owned by each such holder, and (iii) third, other
securities requested to be included in such registration not covered by clause
(i) above.
(d) Selection of Underwriters. If any Piggyback Registration
is an underwritten offering, the investment banker(s) and manager(s) for the
offering will be selected by the Company.
-6-
<PAGE> 7
(e) Other Registrations. If the Company has previously filed a
registration statement with respect to Registrable Securities pursuant to this
Section 3, and if such previous registration has not been withdrawn or
abandoned, the Company will not file or cause to be effected any other
registration of any of its equity securities or securities convertible or
exchangeable into or exercisable for its equity securities under the Securities
Act (except on Forms S-4 or S-8 or any successor forms), whether on its own
behalf or at the request of any holder or holders of such securities, until a
period of at least six months has elapsed from the effective date of such
previous registration.
4. Holdback Agreements.
(a) Each holder of Registrable Securities (other than the
Individual Purchasers) hereby agrees not to effect any public sale or
distribution (including sales pursuant to Rule 144) of equity securities of the
Company, or any securities convertible into or exchangeable or exercisable for
such securities, during the seven days prior to and the 180-day period beginning
on the effective date of any Demand Registration (other than a 415 Registration)
or Piggyback Registration for a public offering to be underwritten on a firm
commitment basis in which Registrable Securities are included (except as part of
such underwritten registration), unless the underwriters managing the registered
public offering otherwise agree.
(b) The Company agrees (i) not to effect any public sale or
distribution of its equity securities, or any securities convertible into or
exchangeable or exercisable for such securities, during the seven days prior to
and during the 180-day period beginning on the effective date of any
underwritten Demand Registration (other than a 415 Registration) or Piggyback
Registration (except as part of such underwritten registration or pursuant to
registrations on Forms S-4 or S-8 or any successor forms), unless the
underwriters managing the registered public offering otherwise agree, and (ii)
to cause each holder of Registrable Securities (other than the Individual
Purchaser) and each other holder of at least 5% (on a fully diluted basis) of
Common Stock, or any securities convertible into or exchangeable or exercisable
for Common Stock, purchased from the Company at any time after the date of this
Agreement (other than in a registered public offering) to agree not to effect
any public sale or distribution (including sales pursuant to Rule 144) of any
such securities during such period (except as part of such underwritten
registration, if otherwise permitted), unless the underwriters managing the
registered public offering otherwise agree.
5. Registration Procedures. Whenever the holders of Registrable
Securities have requested that any Registrable Securities be registered pursuant
to this Agreement, the Company will use its best efforts to effect the
registration and the sale of such Registrable Securities in accordance with the
intended method of disposition thereof, and pursuant thereto the Company will as
expeditiously as possible:
(a) prepare and file with the SEC a registration statement
with respect to such Registrable Securities and use its best efforts to cause
such registration statement to become effective (provided that before filing a
registration statement or prospectus or any amendments or supplements thereto,
the Company will furnish to the counsel selected by the holders of a majority of
the Registrable Securities covered by such registration statement copies of all
such documents proposed to be filed);
-7-
<PAGE> 8
(b) prepare and file with the SEC such amendments and
supplements to such registration statement and the prospectus used in connection
therewith as may be necessary to keep such registration statement effective for
a period of not less than six months and comply with the provisions of the
Securities Act with respect to the disposition of all securities covered by such
registration statement during such period in accordance with the intended
methods of disposition by the sellers thereof set forth in such registration
statement;
(c) if requested by the holders of a majority of the CVC
Registrable Securities in connection with any Demand Registration requested by
such holders, use its best efforts to cause to be included in such registration
shares of the Company's Common Stock having an aggregate value (based on the
midpoint of the proposed offering price range specified in the registration
statement used to offer such securities) of up to $20 million ("Company
Registrable Securities"), to be offered in a primary offering of the Company's
securities contemporaneously with such offering of Registrable Securities;
(d) furnish to each seller of Registrable Securities such
number of copies of such registration statement, each amendment and supplement
thereto, the prospectus included in such registration statement (including each
preliminary prospectus) and such other documents as such seller may reasonably
request in order to facilitate the disposition of the Registrable Securities
owned by such seller;
(e) use its best efforts to register or qualify such
Registrable Securities under such other securities or blue sky laws of such
jurisdictions as any seller reasonably requests and do any and all other acts
and things which may be reasonably necessary or advisable to enable such seller
to consummate the disposition in such jurisdictions of the Registrable
Securities owned by such seller (provided that the Company will not be required
to (i) qualify generally to do business in any jurisdiction where it would not
otherwise be required to qualify but for this subsection, (ii) subject itself to
taxation in any such jurisdiction or (iii) consent to general service of process
(i.e., service of process which is not limited solely to securities law
violations) in any such jurisdiction);
(f) notify each seller of such Registrable Securities, at any
time when a prospectus relating thereto is required to be delivered under the
Securities Act, of the happening of any event as a result of which the
prospectus included in such registration statement contains an untrue statement
of a material fact or omits any fact necessary to make the statements therein
not misleading, and, at the request of any such seller, the Company will
promptly prepare a supplement or amendment to such prospectus so that, as
thereafter delivered to the purchasers of such Registrable Securities, such
prospectus will not contain an untrue statement of a material fact or omit to
state any fact necessary to make the statements therein not misleading;
(g) cause all such Registrable Securities to be listed on each
securities exchange on which similar securities issued by the Company are then
listed and, if not so listed, to be listed on the Nasdaq National Market
("Nasdaq Market") and, if listed on the Nasdaq Market, use its best efforts to
secure designation of all such Registrable Securities covered by such
registration statement as a Nasdaq "National Market System security" within the
meaning of Rule 11Aa2-1 of the SEC or, failing that, to secure Nasdaq Market
authorization for such Registrable Securities and, without
-8-
<PAGE> 9
limiting the generality of the foregoing, to arrange for at least two market
makers to register as such with respect to such Registrable Securities with the
National Association of Securities Dealers;
(h) provide a transfer agent and registrar for all such
Registrable Securities not later than the effective date of such registration
statement;
(i) enter into such customary agreements (including
underwriting agreements in customary form) and take all such other actions as
the holders of a majority of the Registrable Securities being sold or the
underwriters, if any, reasonably request in order to expedite or facilitate the
disposition of such Registrable Securities (including, without limitation,
effecting a stock split or a combination of shares);
(j) make available for inspection by any seller of Registrable
Securities, any underwriter participating in any disposition pursuant to such
registration statement and any attorney, accountant or other agent retained by
any such seller or underwriter, all financial and other records, pertinent
corporate documents and properties of the Company, and cause the Company's
officers, directors, employees and independent accountants to supply all
information reasonably requested by any such seller, underwriter, attorney,
accountant or agent in connection with such registration statement;
(k) otherwise use its best efforts to comply with all
applicable rules and regulations of the SEC, and make available to its security
holders, as soon as reasonably practicable, an earning statement covering the
period of at least twelve months beginning with the first day of the Company's
first full calendar quarter after the effective date of the registration
statement, which earning statement shall satisfy the provisions of Section 11(a)
of the Securities Act and Rule 158 promulgated thereunder;
(l) permit any holder of Registrable Securities which holder,
in its sole and exclusive judgment, might be deemed to be an underwriter or a
controlling person of the Company, to participate in the preparation of such
registration or comparable statement and to require the insertion therein of
material, furnished to the Company in writing, which in the reasonable judgment
of such holder and its counsel should be included;
(m) in the event of the issuance of any stop order suspending
the effectiveness of a registration statement, or of any order suspending or
preventing the use of any related prospectus or suspending the qualification of
any common stock included in such registration statement for sale in any
jurisdiction, the Company will use its reasonable best efforts promptly to
obtain the withdrawal of such order;
(n) use its best efforts to cause such Registrable Securities
covered by such registration statement to be registered with or approved by such
other governmental agencies or authorities as may be necessary to enable the
sellers thereof to consummate the disposition of such Registrable Securities;
and
(o) obtain a "cold comfort" letter from the Company's
independent public accountants in customary form and covering such matters of
the type customarily covered by "cold
-9-
<PAGE> 10
comfort" letters as the holders of a majority of the Registrable Securities
being sold reasonably request.
If any such registration or comparable statement refers to any holder by name or
otherwise as the holder of any securities of the Company and if, in its sole and
exclusive judgment, such holder is or might be deemed to be a controlling person
of the Company, such holder shall have the right to require (i) the insertion
therein of language, in form and substance satisfactory to such holder and
presented to the Company in writing, to the effect that the holding by such
holder of such securities is not to be construed as a recommendation by such
holder of the investment quality of the Company's securities covered thereby and
that such holding does not imply that such holder will assist in meeting any
future financial requirements of the Company, or (ii) in the event that such
reference to such holder by name or otherwise is not required by the Securities
Act or any similar Federal statute then in force, the deletion of the reference
to such holder; provided that with respect to this clause (ii) such holder shall
furnish to the Company an opinion of counsel to such effect, which opinion and
counsel shall be reasonably satisfactory to the Company.
6. Registration Expenses.
(a) All Registration Expenses will be borne by the Company.
(b) In connection with each Demand Registration, each
Piggyback Registration and each 415 Registration, the Company will reimburse the
holders of Registrable Securities covered by such registration for the
reasonable fees and disbursements of one counsel chosen by the holders of a
majority of the Registrable Securities initially requesting such registration.
7. Indemnification.
(a) The Company agrees to indemnify, to the extent permitted
by law, each holder of Registrable Securities, its officers and directors and
each Person who controls such holder (within the meaning of the Securities Act)
against all losses, claims, damages, liabilities and expenses arising out of or
based upon any untrue or alleged untrue statement of material fact contained in
any registration statement, prospectus or preliminary prospectus or any
amendment thereof or supplement thereto or any omission or alleged omission of a
material fact required to be stated therein or necessary to make the statements
therein not misleading, and shall reimburse such holder, director, officer or
controlling person for any legal or other expenses reasonably incurred by such
holder, director, officer or controlling person in connection with the
investigation or defense of such loss, claim, damage, liability or expense,
except insofar as the same are caused by or contained in any information
furnished in writing to the Company by such holder expressly for use therein or
by such holder's failure to deliver a copy of the registration statement or
prospectus or any amendments or supplements thereto after the Company has
furnished such holder with a sufficient number of copies of the same. In
connection with an underwritten offering, the Company will indemnify such
underwriters, their officers and directors and each Person who controls such
underwriters (within the meaning of the Securities Act) to the same extent as
provided above with respect to the indemnification of the holders of Registrable
Securities.
-10-
<PAGE> 11
(b) In connection with any registration statement in which a
holder of Registrable Securities is participating, each such holder will furnish
to the Company in writing such information and affidavits as the Company
reasonably requests for use in connection with any such registration statement
or prospectus and, to the extent permitted by law, will indemnify the Company,
its directors and officers and each Person who controls the Company (within the
meaning of the Securities Act) against any losses, claims, damages, liabilities
and expenses resulting from any untrue or alleged untrue statement of material
fact contained in the registration statement, prospectus or preliminary
prospectus or any amendment thereof or supplement thereto or any omission or
alleged omission of a material fact required to be stated therein or necessary
to make the statements therein not misleading, but only to the extent that such
untrue statement or omission is contained in any information or affidavit so
furnished in writing by such holder; provided, that the obligation to indemnify
will be individual to each holder and will be limited to the net amount of
proceeds received by such holder from the sale of Registrable Securities
pursuant to such registration statement.
(c) Any Person entitled to indemnification hereunder will (i)
give prompt written notice to the indemnifying party of any claim with respect
to which it seeks indemnification and (ii) unless in such indemnified party's
reasonable judgment a conflict of interest between such indemnified and
indemnifying parties may exist with respect to such claim, permit such
indemnifying party to assume the defense of such claim with counsel reasonably
satisfactory to the indemnified party. If such defense is assumed, the
indemnifying party will not be subject to any liability for any settlement made
by the indemnified party without its consent (but such consent will not be
unreasonably withheld). An indemnifying party who is not entitled to, or elects
not to, assume the defense of a claim will not be obligated to pay the fees and
expenses of more than one counsel for all parties indemnified by such
indemnifying party with respect to such claim, unless in the reasonable judgment
of any indemnified party a conflict of interest may exist between such
indemnified party and any other of such indemnified parties with respect to such
claim.
(d) The indemnification provided for under this Agreement will
remain in full force and effect regardless of any investigation made by or on
behalf of the indemnified party or any officer, director or controlling Person
of such indemnified party and will survive the transfer of securities. The
Company also agrees to make such provisions, as are reasonably requested by any
indemnified party, for contribution to such party in the event the Company's
indemnification is unavailable for any reason.
8. Participation in Underwritten Registrations. No Person may
participate in any registration hereunder which is underwritten unless such
Person (a) agrees to sell such Person's securities on the basis provided in any
underwriting arrangements approved by the Person or Persons entitled hereunder
to approve such arrangements and (b) completes and executes all customary
questionnaires, powers of attorney, indemnities, underwriting agreements and
other documents reasonably required under the terms of such underwriting
arrangements; provided, that no holder of Registrable Securities included in any
underwritten registration shall be required to make any representations or
warranties to the Company or the underwriters other than representations and
warranties regarding such holder and such holder's intended method of
distribution.
-11-
<PAGE> 12
9. Rule 144 Reporting. With a view to making available to the holders
of Registrable Securities the benefits of certain rules and regulations of the
SEC which may permit the sale of the Registrable Securities to the public
without registration, the Company agrees to use its best efforts to:
(a) make and keep current public information available, within the
meaning of Rule 144 or any similar or analogous rule promulgated under the
Securities Act, at all times after it has become subject to the reporting
requirements of the Exchange Act;
(b) file with the SEC, in a timely manner, all reports and other
documents required of the Company under the Securities Act and Exchange Act
(after it has become subject to such reporting requirements); and
(c) so long as any party hereto owns any Registrable Securities,
furnish to such Person forthwith upon request, a written statement by the
Company as to its compliance with the reporting requirements of said Rule 144
(at any time commencing 90 days after the effective date of the first
registration filed by the Company for an offering of its securities to the
general public), the Securities Act and the Exchange Act (at any time after it
has become subject to such reporting requirements); a copy of the most recent
annual or quarterly report of the Company; and such other reports and documents
as such Person may reasonably request in availing itself of any rule or
regulation of the SEC allowing it to sell any such securities without
registration.
10. Notices. All notices, demands or other communications to be given or
delivered under or by reason of the provisions of this Agreement will be in
writing and will be deemed to have been given when delivered personally, mailed
by certified or registered mail, return receipt requested and postage prepaid,
or sent via a nationally recognized overnight courier, or sent via facsimile to
the recipient. Such notices, demands and other communications will be sent to
the address indicated below:
To the Company:
Plainwell Holding Company
c/o Simpson Plainwell Paper Company
200 Allegan Street
Plainwell, Michigan 49080
Attention: Chief Executive Officer
Telecopy No.: (616) 685-2597
With copies (which shall not constitute notice) to:
Citicorp Venture Capital, Ltd.
399 Park Avenue, 14th Floor
New York, New York 10043
Attention: John D. Weber
Telecopy No.: (212) 888-2940
-12-
<PAGE> 13
Kirkland & Ellis
Citicorp Center
153 East 53rd Street
New York, New York 10022-4675
Attention: Kirk A. Radke, Esq.
Telecopy No.: (212) 446-4900
Godfrey & Kahn, S.C.
780 North Water Street
Milwaukee, WI 53202-3590
Attention: Thomas A. Myers, Esq.
Telecopy No.: (414) 273-5198
To CVC, any Individual Purchaser, or the Investor:
Citicorp Venture Capital, Ltd.
399 Park Avenue
14th Floor
New York, New York 10043
Attention: John Weber
Telecopy No.: (212) 888-2940
With a copy (which shall not constitute notice) to:
Kirkland & Ellis
Citicorp Center
153 East 53rd Street
New York, New York 10022-4675
Attention: Kirk A. Radke, Esq.
Telecopy No.: (212) 446-4900
To CCT:
CCT II Partners, L.P.
399 Park Avenue, 14th Floor
New York, New York 10043
Attention: John D. Weber
Telecopy No.: (212) 888-2940
-13-
<PAGE> 14
With a copy (which shall not constitute notice) to:
Kirkland & Ellis
Citicorp Center
153 East 53rd Street
New York, New York 10022-4675
Attention: Kirk A. Radke, Esq.
Telecopy No.: (212) 446-4900
To the Investor:
Brenton Halsey
c/o James River Corp.
120 Tredegar Street
Richmond, VA 23219
To Larkspur:
Larkspur Capital Corporation
445 Park Avenue
New York, New York 10022
Attention: Robert L. Goodwin
Telecopy No.: (212) 376-5791
To any of the Executives:
c/o Simpson Plainwell Paper Company
200 Allegan Street
Plainwell, Michigan 49080
Attention: [EXECUTIVE'S NAME]
Telecopy No.: (616) 685-2597
With a copy (which shall not constitute notice) to:
Godfrey & Kahn, S.C.
780 North Water Street
Milwaukee, WI 53202-3590
Attention: Thomas A. Myers, Esq.
Telecopy No.: (414) 273-5198
or such other address or to the attention of such other person as the recipient
party shall have specified by prior written notice to the sending party.
-14-
<PAGE> 15
11. Miscellaneous.
(a) No Inconsistent Agreements. The Company will not enter
into any agreement which is inconsistent with or violates the rights granted to
the holders of Registrable Securities in this Agreement.
(b) Remedies. Any Person having rights under any provision of
this Agreement will be entitled to enforce such rights specifically to recover
damages caused by reason of any breach of any provision of this Agreement and to
exercise all other rights granted by law. The parties hereto agree and
acknowledge that money damages may not be an adequate remedy for any breach of
the provisions of this Agreement and that any party may in its sole discretion
apply to any court of law or equity of competent jurisdiction (without posting
any bond or other security) for specific performance and for other injunctive
relief in order to enforce or prevent violation of the provisions of this
Agreement.
(c) Amendments and Waivers. Except as otherwise provided
herein, the provisions of this Agreement may be amended or waived only upon the
prior written consent of the Company and holders of a majority of the
Registrable Securities.
(d) Waiver of Jury Trial. The parties to this Agreement each
hereby waives, to the fullest extent permitted by law, any right to trial by
jury of any claim, demand, action, or cause of action (i) arising under this
Agreement or (ii) in any way connected with or related or incidental to the
dealings of the parties hereto in respect of this Agreement or any of the
transactions related hereto, in each case whether now existing or hereafter
arising, and whether in contract, tort, equity, or otherwise. Each of the
parties to this Agreement hereby agrees and consents that any claim, demand,
action, or cause of action shall be decided by court trial without a jury and
that the parties to this Agreement may file an original counterpart of a copy of
this Agreement with any court as written evidence of the consent of the parties
hereto to the waiver of their right to trial by jury.
(e) Time is of the Essence. Each of the parties to this
Agreement hereby agrees that time is of the essence in the performance of this
Agreement and with respect to all duties and periods specified herein.
(f) Successors and Assigns. All covenants and agreements in
this Agreement by or on behalf of any of the parties hereto will bind and inure
to the benefit of the respective successors and assigns of the parties hereto
whether so expressed or not. In addition, whether or not any express assignment
has been made, the provisions of this Agreement which are for the benefit of
purchasers or holders of Registrable Securities are also for the benefit of, and
enforceable by, any subsequent holder of Registrable Securities.
(g) Severability. Whenever possible, each provision of this
Agreement will be interpreted in such manner as to be effective and valid under
applicable law, but if any provision of this Agreement is held to be prohibited
by or invalid under applicable law, such provision will be ineffective only to
the extent of such prohibition or invalidity, without invalidating the remainder
of this Agreement.
-15-
<PAGE> 16
(h) Counterparts. This Agreement may be executed
simultaneously in two or more counterparts, any one of which need not contain
the signatures of more than one party, but all such counterparts taken together
will constitute one and the same Agreement.
(i) Descriptive Headings. The descriptive headings of this
Agreement are inserted for convenience only and do not constitute a part of this
Agreement.
(j) GOVERNING LAW. THE CORPORATE LAWS OF THE STATE OF DELAWARE
WILL GOVERN ALL QUESTIONS CONCERNING THE RELATIVE RIGHTS OF THE COMPANY AND ITS
STOCKHOLDERS. ALL OTHER QUESTIONS CONCERNING THE CONSTRUCTION, VALIDITY AND
INTERPRETATION OF THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED IN
ACCORDANCE WITH THE DOMESTIC LAWS OF THE STATE OF NEW YORK, WITHOUT GIVING
EFFECT TO ANY CHOICE OF LAW OR CONFLICT OF LAW PROVISION OR RULE (WHETHER OF THE
STATE OF NEW YORK OR ANY OTHER JURISDICTION) THAT WOULD CAUSE THE APPLICATION OF
THE LAWS OF ANY JURISDICTION OTHER THAN THE STATE OF NEW YORK.
* * * * *
- 16 -
<PAGE> 17
IN WITNESS WHEREOF, the parties hereto have executed this
Registration Rights Agreement as of the date first above written.
PLAINWELL HOLDING COMPANY
By:____________________________________
Name:
Title:
CITICORP VENTURE CAPITAL, LTD.
By:____________________________________
Name:
Title:
CCT II PARTNERS, L.P.
By: CCT I Corporation
Its: General Partner
By:____________________________________
Name:
Title:
WILLIAM L. NEW
_______________________________________
BRENTON HALSEY
_______________________________________
<PAGE> 18
INDIVIDUAL PURCHASERS
SIGNATURE PAGE FOR
REGISTRATION RIGHTS AGREEMENT
RICHARD CASHIN ALCHEMY, L.P.
_________________________________
By:___________________________________
Name:
Title:
DAVID F. THOMAS JOHN D. WEBER
_________________________________ ______________________________________
NATASHA PARTNERSHIP JAMES URRY
______________________________________
By:______________________________
Name:
Title:
JOSEPH SILVESTRI
_________________________________
<PAGE> 19
SIGNATURE PAGE FOR
REGISTRATION RIGHTS AGREEMENT
LARKSPUR CAPITAL CORPORATION
By:________________________________
Name:_____________________________
Title:______________________________
<PAGE> 20
EXHIBIT A
FORM OF JOINDER TO
REGISTRATION RIGHTS AGREEMENT
This JOINDER to the Registration Rights Agreement, dated as of June
__, 1997 by and among Plainwell Holding Company, a Delaware corporation (the
"Company"), and certain securityholders of the Company (the "Agreement"), is
made and entered into as of _________ by and between the Company and
_________________ ("Holder"). Capitalized terms used herein but not otherwise
defined shall have the meanings set forth in the Agreement.
WHEREAS, Holder has acquired certain shares of Common Stock, and the
Agreement and the Company contemplates that Holder, as a holder of Common Stock,
may be entitled to become a party to the Agreement, and Holder agrees to do so
in accordance with the terms hereof.
NOW, THEREFORE, in consideration of the mutual covenants contained
herein and other good and valuable consideration, the receipt and sufficiency of
which are hereby acknowledged, the parties to this Joinder hereby agree as
follows:
Agreement to be Bound. Holder hereby agrees that upon
execution of this Joinder, it shall become a party to the Agreement and shall be
fully bound by, and subject to, all of the covenants, terms and conditions of
the Agreement as though an original party thereto and shall be deemed a holder
of Executive Registrable Securities for all purposes thereof. In addition,
Holder hereby agrees that all Common Stock held by Holder shall be deemed
Executive Registrable Securities for all purposes of the Agreement.
1. Successors and Assigns. Except as otherwise provided herein,
this Joinder shall bind and inure to the benefit of and be enforceable by the
Company and its successors and assigns and Holder and any subsequent holders of
Common Stock and the respective successors and assigns of each of them, so long
as they hold any shares of Common Stock.
2. Counterparts. This Joinder may be executed in separate
counterparts each of which shall be an original and all of which taken together
shall constitute one and the same agreement.
3. Notices. For purposes of Section 10 of the Agreement, all
notices, demands or other communications to the Holder shall be directed to:
[Name]
[Address]
[Facsimile Number]
4. GOVERNING LAW. THE CORPORATE LAWS OF THE STATE OF DELAWARE
WILL GOVERN ALL QUESTIONS CONCERNING THE RELATIVE RIGHTS OF THE COMPANY AND ITS
STOCKHOLDERS. ALL OTHER QUESTIONS CONCERNING THE CONSTRUCTION, VALIDITY AND
INTERPRETATION OF THIS JOINDER SHALL BE
<PAGE> 21
GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE DOMESTIC LAWS OF THE STATE OF
NEW YORK, WITHOUT GIVING EFFECT TO ANY CHOICE OF LAW OR CONFLICT OF LAW
PROVISION OR RULE (WHETHER OF THE STATE OF NEW YORK OR ANY OTHER JURISDICTION)
THAT WOULD CAUSE THE APPLICATION OF THE LAWS OF ANY JURISDICTION OTHER THAN THE
STATE OF NEW YORK.
5. DESCRIPTIVE HEADINGS. The descriptive headings of this
Joinder are inserted for convenience only and do not constitute a part of this
Joinder.
* * * * *
<PAGE> 22
IN WITNESS WHEREOF, the parties hereto have executed this
Joinder as of the date first above written.
PLAINWELL HOLDING COMPANY
By:________________________________
Name:
Title:
[HOLDER]
By:_________________________________
<PAGE> 1
Exhibit 10.10
JOINDER TO
REGISTRATION RIGHTS AGREEMENT
This JOINDER to the Registration Rights Agreement, dated as of June
16, 1997 by and among Plainwell Holding Company, a Delaware corporation (the
"Company"), and certain securityholders of the Company (the "Agreement"), is
made and entered into as of January 31, 1998 by and between the Company and 399
Venture Partners, Inc., a New York corporation ("Holder"). Capitalized terms
used herein but not otherwise defined shall have the meanings set forth in the
Agreement.
WHEREAS, Holder has acquired certain shares of Common Stock, and the
Agreement and the Company contemplates that Holder, as a holder of Common Stock,
may be entitled to become a party to the Agreement, and Holder agrees to do so
in accordance with the terms hereof.
NOW, THEREFORE, in consideration of the mutual covenants contained
herein and other good and valuable consideration, the receipt and sufficiency of
which are hereby acknowledged, the parties to this Joinder hereby agree as
follows:
Agreement to be Bound. Holder hereby agrees that upon
execution of this Joinder, it shall become a party to the Agreement and shall be
fully bound by, and subject to, all of the covenants, terms and conditions of
the Agreement as though an original party thereto and shall be deemed a holder
of Executive Registrable Securities for all purposes thereof. In addition,
Holder hereby agrees that all Common Stock held by Holder shall be deemed
Executive Registrable Securities for all purposes of the Agreement.
1. Successors and Assigns. Except as otherwise provided herein, this
Joinder shall bind and inure to the benefit of and be enforceable by the Company
and its successors and assigns and Holder and any subsequent holders of Common
Stock and the respective successors and assigns of each of them, so long as they
hold any shares of Common Stock.
2. Counterparts. This Joinder may be executed in separate
counterparts each of which shall be an original and all of which taken together
shall constitute one and the same agreement.
3. Notices. For purposes of Section 10 of the Agreement, all
notices, demands or other communications to the Holder shall be directed to:
399 Venture Partners, Inc.
399 Park Avenue
New York, NY 10143
Facsimile Number: (212) 888-2940
Attn: John D. Weber
<PAGE> 2
with a copy (which shall not constitute notice) to:
Kirkland & Ellis
Citicorp Center
153 East 53rd Street
NewYork, NY 10022
Facsimile No.: (212) 446-4900
Attn: Kirk A. Radke, Esq.
4. Governing Law. The corporate laws of the State of Delaware will
govern all questions concerning the relative rights of the Company and its
stockholders. All other questions concerning the construction, validity and
interpretation of this Joinder shall be governed by and construed in accordance
with the domestic laws of the State of New York, without giving effect to any
choice of law or conflict of law provision or rule (whether of the State of New
York or any other jurisdiction) that would cause the application of the laws of
any jurisdiction other than the State of New York.
5. Descriptive Headings. The descriptive headings of this Joinder
are inserted for convenience only and do not constitute a part of this Joinder.
* * * * *
-2-
<PAGE> 3
IN WITNESS WHEREOF, the parties hereto have executed this Joinder as
of the date first above written.
PLAINWELL HOLDING COMPANY
By:
-------------------------------
Name:
Title:
399 VENTURE PARTNERS, INC.
By:
-------------------------------
Name:
Title:
<PAGE> 1
Exhibit 10.16
EXECUTIVE EMPLOYMENT AND STOCK PURCHASE AGREEMENT
This EXECUTIVE EMPLOYMENT AND STOCK PURCHASE AGREEMENT (this
"Agreement") is made as of June 16, 1997, by and among Plainwell Paper Company,
a Michigan corporation ("Plainwell"), Plainwell Holding Company, a Delaware
corporation (the "Company"), and William New ("Executive").
Plainwell and Executive desire to enter into an agreement pursuant
to which Plainwell will employ Executive as the President and Chief Executive
Officer of Plainwell.
The Company and Executive desire to enter into an agreement pursuant
to which Executive shall purchase, and the Company shall sell, 1,000 shares of
the Company's Class A Common Stock, par value $.01 per share (the "Class A
Common"), 69,512.82 shares of the Company's Class B Common Stock, par value $.01
per share (the "Class B Common"), and 1,794.87 shares of the Company's Preferred
Stock (as defined below). Certain definitions are set forth in Section 1 of this
Agreement.
The execution and delivery of this Agreement by the Company,
Plainwell and Executive is a condition to the purchase of shares of Common
Stock, Preferred Stock, and a warrant to purchase Common Stock, by Citicorp
Venture Capital, Ltd. (the "Investor") pursuant to a CVC Securities Purchase
Agreement dated as of the date hereof (the "Purchase Agreement"). Certain
provisions of this Agreement are intended for the benefit of, and shall be
enforceable by, the Investor and each other executive employee of the Company or
Plainwell who enters into an executive stock agreement substantially similar to
this Agreement (the "Other Executives").
The parties hereto agree as follows:
1. Definitions. As used herein, the following terms shall have the
following meanings.
"Available Shares" has the meaning set forth in paragraph 5(d).
"Base Salary" has the meaning set forth in paragraph 2(b)(i).
"Board" means the board of directors of either the Company or
Plainwell, as applicable.
"Cause" means (i) the commission of a felony or a crime involving
moral turpitude or the commission of any other act or omission involving
dishonesty, disloyalty or fraud with respect to the Company or any of its
Subsidiaries or any of their customers or suppliers, (ii) conduct tending to
bring the Company or any of its Subsidiaries into substantial public disgrace or
disrepute, (iii) substantial and repeated non-performance of duties as
reasonably directed by the Board if notice of such non-performance is given to
Executive and he fails to cure such non-performance within ten (10) days after
such notice, (iv) gross negligence or willful misconduct with respect to the
Company or any of its Subsidiaries, or (v) any other material breach of this
Agreement which is not cured within 15 days after written notice thereof to
Executive.
<PAGE> 2
"Class A Common" has the meaning set forth in the recitals.
"Code" means the Internal Revenue Code of 1986, as amended, and the
regulations promulgated thereunder.
"Common Stock" means, collectively, (a) the Class A Common and the
Class B Common, as adjusted for any unit split, unit dividend, or other
combination, exchange, conversion, recapitalization, merger, consolidation or
reorganization, (b) any other class of securities of the Company which is not
limited to a fixed sum or percentage of a stated value in respect of the rights
of the holders thereof to participate in distributions and in the distribution
of assets upon the voluntary or involuntary liquidation, and (c) if any of the
securities set forth above are exchanged for different interests or securities
of the Company, such other interests or securities.
"Confidential Information" has the meaning set forth in Section 8.
"Employment Period" has the meaning set forth in Section 2.
"Executive Stock" means, collectively, all Common Stock and
Preferred Stock held by the Executive on or after the date hereof.
"Fair Market Value" of each share of Vesting Stock means (i) the
average of the closing sales prices of the Common Stock on all domestic
securities exchanges on which the Common Stock is listed, or (ii) if there have
been no sales on any such exchange on any day, the average of the highest bid
and lowest asked prices on all such exchanges at the end of such day, or (iii)
if on any day the Common Stock is not so listed, the average of the
representative bid and asked prices quoted in the Nasdaq National Market as of
4:00 P.M., New York time, or (iv) if on any day the Common Stock is not quoted
in the Nasdaq National Market, the average of the highest bid and lowest asked
prices on such day in the domestic over-the-counter market as reported on the
Nasdaq interdealer quotation system, or any similar successor organization, in
each such case averaged over a period of 21 days consisting of the day as of
which the Fair Market Value is being determined and the 20 consecutive trading
days prior to such day. Notwithstanding the foregoing, if at any time of
determination either (x) the Common Stock is not registered pursuant to Section
12 of the Securities Exchange Act of 1934, as amended, and either listed on a
national securities exchange or authorized for quotation in the Nasdaq System,
or (y) less than 25% of the outstanding Common Stock is held by the public free
of transfer restrictions under the 1933 Act, the Fair Market Value shall mean
the price that would be paid per share for the entire common equity interest in
the Company in an orderly sale transactions between a willing buyer and a
willing seller, taking into account the appropriate lack of liquidity of the
Company's securities, using valuation techniques then prevailing in the
securities industry and assuming all relevant information and a reasonable
period of time for effectuating such sale. Fair Market Value shall be determined
by the Company's Board in its good faith judgment.
"Independent Third Party" means any person who, immediately prior to
the contemplated transaction, does not own in excess of 5% of the Company's
Common Stock on a fully-diluted basis, who is not controlling, controlled by or
under common control with any such 5%
-2-
<PAGE> 3
owner of the Company's Common Stock and who is not the spouse or descendent (by
birth or adoption) of any such 5% owner of the Company's Common Stock.
"Investor" has the meaning set forth in the recitals.
"1933 Act" means the Securities Act of 1933, as amended from time to
time.
"Noncompete Period" has the meaning set forth in paragraph 10(a).
"Option Notice" has the meaning set forth in paragraph 5(d).
"Original Cost" of each share of Common Stock purchased hereunder
shall be equal to $1.00 (as proportionately adjusted for all subsequent stock
splits, stock dividends and other recapitalizations).
"Other Executives" has the meaning set forth in the recitals.
"Preferred Stock" means the Company's Series B Preferred Stock, par
value $1.00 per share, and any other securities of the Company issued in
exchange, substitution or replacement thereof.
"Public Offering" has the meaning set forth in Section 11.
"Public Sale" means any sale pursuant to a registered public
offering under the 1933 Act or any sale to the public pursuant to Rule 144
promulgated under the 1933 Act effected through a broker, dealer or market
maker.
"Purchase Agreement" has the meaning set forth in the recitals.
"Repurchase Notice" has the meaning set forth in paragraph 5(c).
"Repurchase Option" has the meaning set forth in paragraph 5(a).
"Sale of the Company" means the sale of the Company, in a single
transaction or series of related transactions, to an Independent Third Party or
affiliated group of Independent Third Parties pursuant to which such party or
parties acquire all or substantially all of the outstanding Common Stock
(whether by merger, consolidation, recapitalization, reorganization, purchase of
outstanding Common Stock or otherwise) or (ii) all or substantially all of the
consolidated assets of the Company.
"Severance Period" has the meaning set forth in paragraph 2(c)(ii).
"Stockholders Agreement" has the meaning set forth in Section 6.
-3-
<PAGE> 4
"Subsidiary" means any corporation of which the Company owns
securities having a majority of the ordinary voting power in electing the board
of directors directly or through one or more subsidiaries.
"Supplemental Repurchase Notice" has the meaning set forth in
paragraph 5(d).
"Termination" has the meaning set forth in paragraph 5(a).
"Transfer" has the meaning set forth in Section 6.
"Unvested Shares" has the meaning set forth in paragraph 4(b).
"Vested Shares" has the meaning set forth in paragraph 4(b).
"Vesting Stock" has the meaning set forth in paragraph 4(a). For
purposes of this Agreement, Vesting Stock shall continue to be Vesting Stock in
the hands of any holder other than Executive (except for the Company and the
Investor and except for transferees in a Public Sale), and except as otherwise
provided herein, each such other holder of Vesting Stock shall succeed to all
rights and obligations attributable to Executive as a holder of Vesting Stock
hereunder. Vesting Stock shall also include shares of the Company's capital
stock issued with respect to Vesting Stock by way of a stock split, stock
dividend or other recapitalization. Notwithstanding the foregoing, all Unvested
Shares shall remain Vesting Stock after any Transfer thereof
"Work Product" has the meaning set forth in Section 9.
2. Employment. Plainwell shall employ Executive, and Executive hereby
accepts employment with Plainwell, upon the terms and conditions set forth in
this Agreement for the period beginning on the date hereof and ending as
provided in paragraph 2(c) hereof (the "Employment Period").
3. Position and Duties.
(a) During the Employment Period, Executive shall serve as the
President and Chief Executive Officer of Plainwell and shall have the normal
duties, responsibilities and authority of the President and Chief Executive
Officer, subject to the power of the Board to reasonably expand or limit such
duties, responsibilities and authority in good faith (provided such duties are
consistent with such titles, taking into account the size and nature of the
businesses of Plainwell and the Company) and to override actions of the
President and Chief Executive Officer.
(b) Executive shall report to the Board and Executive shall devote
his best efforts and business time and attention (except for permitted vacation
periods and reasonable periods of illness or other incapacity) to the business
and affairs of Plainwell (it being acknowledged that the Executive may serve on
the board of directors of other entities so long as he does not assume or
undertake any executive responsibilities with respect to such entities).
Executive shall perform his duties and responsibilities to the best of his
abilities in a diligent, trustworthy, businesslike and efficient manner.
-4-
<PAGE> 5
4. Base Salary, Bonus and Benefits.
(a) Base Salary and Benefits. During the Employment Period,
Executive's base salary shall be $250,000 per annum or such higher rate as the
Board may designate from time to time (the "Base Salary"), which salary shall be
payable in regular installments in accordance with Plainwell's general payroll
practices and shall be subject to customary withholding. In addition, during the
Employment Period, Executive shall be entitled to participate in all of
Plainwell's employee benefit programs for which senior executive employees of
Plainwell are generally eligible, which shall include benefits regarding
disability, health and life insurance at such levels and in such amounts as
determined in good faith by the Board.
(b) Bonus Plan. In addition to the Base Salary, the Board shall
establish a bonus plan for senior executives of Plainwell and the Company
pursuant to which Executive shall be eligible to participate and earn a bonus
following the end of each fiscal year during the Employment Period, which bonus,
if any, will be based upon, among other items, Executive's performance and
Plainwell's operating results during such year, as determined by the Board in
its discretion.
(c) Expenses. Plainwell shall reimburse Executive for all reasonable
expenses incurred by him in the course of performing his duties under this
Agreement which are consistent with Plainwell's policies in effect from time to
time with respect to travel, entertainment and other business expenses, subject
to Plainwell's requirements with respect to reporting and documentation of such
expenses.
5. Term.
(a) Unless renewed by the mutual agreement of Plainwell and
Executive, the Employment Period shall end on June 16, 2000; provided, that (A)
the Employment Period shall terminate prior to such date upon Executive's
resignation, death, permanent disability or incapacity (as determined by the
Board in its good faith judgment, taking into account any determinations made by
Plainwell's provider of disability insurance) and (B) the Employment Period may
be terminated by the Board at any time prior to such date for Cause or without
Cause.
(b) If Executive's employment with Plainwell is terminated by the
Board without Cause prior to the third anniversary of the date of this
Agreement, Executive shall be entitled to receive (A) his Base Salary, payable
in regular installments in accordance with Plainwell's general payroll practices
and subject to customary withholding, through the date which is 18 months after
the date of such termination (the "Severance Period"), if and for so long as
Executive has not breached the provisions of Sections 8, 9 and 10 hereof and (B)
his Base Salary through the date of termination.
(c) If the Employment Period is terminated without Cause or due to
Executive's death, disability or incapacity, the Executive shall be entitled to
receive his pro rata share of the annual bonus, if any, payable to Executive
determined as of the date of termination on a reasonable basis in good faith by
the Board. No bonus shall be payable to the Executive if the Executive resigns
or is terminated for Cause.
-5-
<PAGE> 6
(d) All of Executive's rights to fringe benefits and bonuses
hereunder (if any) which accrue after the termination of the Employment Period
shall cease upon such termination. Plainwell may offset any amounts Executive
owes it or its affiliates against any amounts it owes Executive hereunder.
6. Executive hereby agrees that except as expressly provided herein, no
salary, bonus or severance compensation of any kind, nature or amount shall be
payable to Executive.
7. Purchase and Sale of Executive Stock.
(a) Upon execution of this Agreement, Executive shall purchase, and the
Company shall sell, (i) 1,000 shares of Class A Common and 69,512.82 shares of
Class B Common at a price of $1.00 per share and (ii) 1,794.87 shares of
Preferred Stock at a price of $100.00 per share. The Company shall deliver to
Executive the certificate representing such shares of Common Stock, and
Executive shall deliver to the Company a check or a wire transfer of funds in
the aggregate amount of $250,000.00.
(b) Within 30 days after Executive purchases any Vesting Stock from the
Company, Executive shall make an effective election with the Internal Revenue
Service under Section 83(b) of the Code in the form of Annex A attached hereto.
(c) In connection with the purchase and sale of the Executive Stock
hereunder, Executive represents and warrants to the Company that:
(i) The Executive Stock to be acquired by Executive pursuant to this
Agreement shall be acquired for Executive's own account and not with a view to,
or intention of, distribution thereof in violation of the 1933 Act, or any
applicable state securities laws, and the Executive Stock shall not be disposed
of in contravention of the 1933 Act or any applicable state securities laws.
(ii) Executive is an executive officer of the Company, is
sophisticated in financial matters and is able to evaluate the risks and
benefits of the investment in the Executive Stock.
(iii) Executive is able to bear the economic risk of his investment
in the Executive Stock for an indefinite period of time because the Executive
Stock has not been registered under the 1933 Act and, therefore, cannot be sold
unless subsequently registered under the 1933 Act or an exemption from such
registration is available.
(iv) Executive has had an opportunity to ask questions and receive
answers concerning the terms and conditions of the offering of Executive Stock
and has had full access to such other information concerning the Company as he
has requested. Executive has reviewed, or has had an opportunity to review, a
copy of the Stock Purchase Agreement, dated March 12, 1997 between the Company
and Simpson Paper Company ("Seller"), as amended as of the date hereof, pursuant
to which the Company acquired all of the stock of Simpson Plainwell Paper
Company, and Executive is familiar with the transactions contemplated thereby.
Executive has also reviewed, or has had an opportunity to review, the following
documents: (A) the Company's Certificate of
-6-
<PAGE> 7
Incorporation and Bylaws; (B) the loan agreements, notes and related documents
with the Company's and Plainwell's lenders; and (C) Plainwell's pro forma
balance sheet dated as of April 30, 1997.
(v) This Agreement constitutes the legal, valid and binding
obligation of Executive, enforceable in accordance with its terms, and the
execution, delivery and performance of this Agreement by Executive do not and
shall not conflict with, violate or cause a breach of any agreement, contract or
instrument to which Executive is a party or any judgment, order or decree to
which Executive is subject.
(d) As an inducement to the Company to issue the Executive Stock to
Executive, as a condition thereto, Executive acknowledges and agrees that
neither the issuance of the Executive Stock to Executive nor any provision
contained herein shall entitle Executive to remain in the employment of the
Company and its Subsidiaries or affect the right of the Company to terminate
Executive's employment at any time.
(e) The Company and Executive acknowledge and agree that this Agreement
has been executed and delivered, and the Executive Stock has been issued
hereunder, in connection with and as a part of the compensation and incentive
arrangements between the Company and Executive.
8. Vesting Provisions.
(a) All of the shares of Class A Common and Preferred Stock, and 44,512.82
shares of Class B Common acquired by Executive pursuant to this Agreement are
not subject to the vesting provisions set forth in this Section 4. Except as
otherwise provided in paragraph 4(b) below, 25,000 shares of the Class B Common
acquired by Executive pursuant to this Agreement (the "Vesting Stock") shall
vest on the dates and in the amounts set forth on the schedule below; provided,
that as of each such date set forth below the Executive is employed by the
Company or any of its Subsidiaries:
<TABLE>
<CAPTION>
Cumulative Percentage of
Date Vesting Stock Vested
---- --------------------
<S> <C>
June 16, 1998 20%
June 16, 1999 20%
June 16, 2000 20%
June 16, 2001 20%
June 16, 2002 20%
</TABLE>
(b) If Executive ceases to be employed by the Company and its Subsidiaries
on any date after June 16, 1998 (other than any anniversary date thereof) and
prior to June 16, 2002, the cumulative percentage of Vesting Stock to become
vested shall be determined on a pro rata basis according to the number of days
elapsed since the prior anniversary date. Upon the consummation of a Sale of the
Company, all shares of Vesting Stock which have not yet become vested as of such
-7-
<PAGE> 8
date shall become vested. Shares of Vesting Stock which have become vested are
referred to herein as "Vested Shares", and all other shares of Vesting Stock are
referred to herein as "Unvested Shares".
9. Repurchase Option.
(a) In the event Executive ceases to be employed by the Company and its
Subsidiaries (the "Termination"), the Vesting Stock shall be subject to
repurchase by the Company and the Investor pursuant to the terms and conditions
set forth in this Section 5 (the "Repurchase Option").
(b) The purchase price for each Unvested Share shall be Executive's
Original Cost for such share (with shares having the lowest cost subject to
repurchase prior to shares with a higher cost), and the purchase price for each
Vested Share shall be the Fair Market Value for such share, unless Executive is
terminated for Cause, in which case the purchase price for each share of Vesting
Stock (whether Vested Shares or Unvested Shares) shall be Executive's Original
Cost for such share (with shares having the lowest cost subject to repurchase
prior to shares with a higher cost).
(c) The Board may elect to purchase all or any portion of the Unvested
Shares and the Vested Shares by delivering written notice (the "Repurchase
Notice") to the holder or holders of the Vesting Stock within 90 days after the
Termination. The Repurchase Notice shall set forth the number of Unvested Shares
and Vested Shares to be acquired from each holder of Vesting Stock, the
aggregate consideration to be paid for such shares (which shall be determined in
accordance with paragraph 5(b) above) and the time and place for the closing of
the transaction. The number of shares to be repurchased by the Company shall
first be satisfied to the extent possible from the shares of Vesting Stock held
by Executive at the time of delivery of the Repurchase Notice. If the number of
shares of Vesting Stock then held by Executive is less than the total number of
shares of Vesting Stock the Company has elected to purchase, the Company shall
purchase the remaining shares elected to be purchased from the other holder(s)
of Vesting Stock under this Agreement, pro rata according to the number of
shares of Vesting Stock held by such other holder(s) at the time of delivery of
such Repurchase Notice (determined as close as practicable to the nearest whole
shares). The number of Unvested Shares and Vested Shares to be repurchased
hereunder shall be allocated among Executive and the other holders of Vesting
Stock (if any) pro rata according to the number of shares of Vesting Stock to be
purchased from such persons.
(d) If for any reason the Company does not elect to purchase all of the
Vesting Stock pursuant to the Repurchase Option, the Investor (or its designee)
shall be entitled to exercise the Repurchase Option for the shares of Vesting
Stock the Company has not elected to purchase (the "Available Shares"). As soon
as practicable after the Company has determined that there will be Available
Shares, but in any event within 45 days after the Termination, the Company shall
give written notice (the "Option Notice") to the Investor setting forth the
number of Available Shares and the purchase price for the Available Shares. The
Investor (or its designee) may elect to purchase any or all of the Available
Shares by giving written notice to the Company within 30 days after the Option
Notice has been given by the Company. As soon as practicable, and in any event
within ten days after the expiration of the 30-day period set forth above, the
Company shall notify each holder of Vesting Stock as to the number of shares
being purchased from such holder by the Investor (or its designee) (the
"Supplemental Repurchase Notice"). At the time the Company delivers the
Supplemental Repurchase Notice to the holder(s) of Vesting Stock, the Company
shall also deliver
-8-
<PAGE> 9
written notice to the Investor (or its designee) setting forth the number of
shares the Investor (or its designee) is entitled to purchase, the aggregate
purchase price (which shall be determined in accordance with paragraph 5(b)
above) and the time and place of the closing of the transaction. The number of
Unvested Shares and Vested Shares to be repurchased hereunder shall be allocated
among the Company and the Investor pro rata according to the number of shares of
Vesting Stock to be purchased by each of them.
(e) The closing of the purchase of the Vesting Stock pursuant to the
Repurchase Option shall take place on the date designated by the Company in the
Repurchase Notice or Supplemental Repurchase Notice, which date shall not be
more than 60 days nor less than five days after the delivery of the later of
either such notice to be delivered. The Company and/or the Investor (or its
designee) shall pay for the Vesting Stock to be purchased pursuant to the
Repurchase Option by delivery of a check or wire transfer of funds. The
purchasers of Vesting Stock hereunder shall be entitled to receive customary
representations and warranties from the sellers regarding such sale of shares
(including representations and warranties regarding good title to such shares,
free and clear of any liens or encumbrances).
(f) The right of the Company and the Investor to repurchase Vested Stock
pursuant to this Section 5 shall terminate upon the Sale of the Company.
(g) Notwithstanding anything to the contrary contained in this Agreement,
all repurchases of Vesting Stock by the Company shall be subject to applicable
restrictions contained in the Delaware General Corporation Law and in the
Company's and its Subsidiaries debt and equity financing agreements. If any such
restrictions prohibit the repurchase of Vesting Stock hereunder which the
Company is otherwise entitled or required to make, the time periods provided in
this Section 5 shall be suspended, and the Company may make such repurchases as
soon as it is permitted to do so under such restrictions; provided, that for
purposes of calculating Fair Market Value, if the Company gives the Executive a
Repurchase Notice more than after one year of the date of Termination, Fair
Market Value shall be determined as of the date the Company gives such
Repurchase Notice.
10. Restrictions on Transfer. Executive shall not sell, transfer, assign,
pledge or otherwise dispose of (whether with or without consideration and
whether voluntarily or involuntarily or by operation of law) any interest in any
shares of Vesting Stock (a "Transfer"), except pursuant to the provisions of the
Stockholders Agreement, dated as of the date hereof, by and among the Company,
the Executive, the Investor, and certain other of the Company's stockholders (as
amended, restated or modified from time to time, the "Stockholders Agreement").
11. Additional Restrictions on Transfer.
(a) The certificates representing the Executive Stock shall bear the
following legend:
"THE SECURITIES REPRESENTED BY THIS CERTIFICATE WERE ORIGINALLY ISSUED ON
JUNE 16, 1997, HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933,
AS AMENDED (THE "ACT"), AND MAY NOT BE SOLD OR TRANSFERRED IN THE ABSENCE
OF AN
-9-
<PAGE> 10
EFFECTIVE REGISTRATION STATEMENT UNDER THE ACT OR AN EXEMPTION FROM
REGISTRATION THEREUNDER. THE SECURITIES REPRESENTED BY THIS CERTIFICATE
ARE ALSO SUBJECT TO ADDITIONAL RESTRICTIONS ON TRANSFER, CERTAIN
REPURCHASE OPTIONS AND CERTAIN OTHER AGREEMENTS SET FORTH IN AN EXECUTIVE
EMPLOYMENT AND STOCK PURCHASE AGREEMENT BETWEEN THE COMPANY AND WILLIAM L.
NEW DATED AS OF JUNE 16, 1997, AS AMENDED AND MODIFIED FROM TIME TO TIME.
A COPY OF SUCH AGREEMENT MAY BE OBTAINED BY THE HOLDER HEREOF AT THE
COMPANY'S PRINCIPAL PLACE OF BUSINESS WITHOUT CHARGE."
(b) No holder of Executive Stock may sell, transfer or dispose of any
Executive Stock (except pursuant to an effective registration statement under
the 1933 Act) without first delivering to the Company an opinion of counsel
(reasonably acceptable in form and substance to the Company) that neither
registration nor qualification under the 1933 Act and applicable state
securities laws is required in connection with such transfer.
12. Confidential Information. Executive acknowledges that the information,
observations and data obtained by him while employed by the Company and its
Subsidiaries concerning the business or affairs of the Company, Plainwell or any
other Subsidiary ("Confidential Information") are the property of the Company or
such Subsidiary. Therefore, Executive agrees that he shall not disclose to any
unauthorized person or use for his own purposes without the prior written
consent of the Board, (i) Work Product and (ii) during the Noncompete Period,
Confidential Information (unless and to the extent that the such information
become generally known to and available for use by the public other than as a
result of Executive's acts or omissions). Executive shall deliver to the Company
at the termination of his employment , or at any other time the Company may
request, all memoranda, notes, plans, records, reports, computer tapes,
printouts and software and other documents and data (and copies thereof)
relating to the Confidential Information, Work Product (as defined below) or the
business of the Company or any Subsidiary which he may then possess or have
under his control.
13. Inventions and Patents. Executive acknowledges that all inventions,
innovations, improvements, developments, methods, designs, analyses, drawings,
reports and all similar or related information (whether or not patentable) which
relate to the Company's or any of its Subsidiaries' actual or anticipated
business, research and development or existing or future products or services
and which are conceived, developed or made by Executive while employed by the
Company and its Subsidiaries ("Work Product") belong to the Company or such
Subsidiary. Executive shall promptly disclose such Work Product to the Board and
perform all actions reasonably requested by the Board (whether during or after
the Employment Period) to establish and confirm such ownership (including,
without limitation, assignments, consents, powers of attorney and other
instruments).
-10-
<PAGE> 11
14. Non-Compete, Non-Solicitation.
(a) In further consideration of the compensation to be paid to Executive
hereunder, Executive acknowledges that in the course of his employment with the
Company he shall become familiar with the Company's trade secrets and with other
Confidential Information concerning the Company and its Subsidiaries and that
his services shall be of special, unique and extraordinary value to the Company
and its Subsidiaries. Therefore, Executive agrees that for a period of eighteen
months following the Termination (the "Noncompete Period"), he shall not
directly or indirectly own any interest in, manage, control, participate in,
consult with, render services for, or in any manner engage in any business
competing with the businesses of the Company or its Subsidiaries, as such
businesses exist or are in process on the date of the termination of Executive's
employment, within any geographical area in which the Company or its
Subsidiaries engage or plan to engage in such businesses. Nothing herein shall
prohibit Executive from being a passive owner of not more than 2% of the
outstanding stock of any class of a corporation which is publicly traded, so
long as Executive has no active participation in the business of such
corporation.
(b) During the Noncompete Period, Executive shall not directly or
indirectly through another entity (i) induce or attempt to induce any employee
of the Company or any Subsidiary to leave the employ of the Company or such
Subsidiary, or in any way interfere with the relationship between the Company or
any Subsidiary and any employee thereof, (ii) hire any person who was an
employee of the Company or any Subsidiary at any time during the Employment
Period or (iii) induce or attempt to induce any customer, supplier, licensee,
licensor, franchisee or other business relation of the Company or any Subsidiary
to cease doing business with the Company or such Subsidiary, or in any way
interfere with the relationship between any such customer, supplier, licensee or
business relation and the Company or any Subsidiary (including, without
limitation, making any negative statements or communications about the Company
or its Subsidiaries).
(c) If, at the time of enforcement of this Section 10, a court shall hold
that the duration, scope or area restrictions stated herein are unreasonable
under circumstances then existing, the parties agree that the maximum duration,
scope or area reasonable under such circumstances shall be substituted for the
stated duration, scope or area and that the court shall be allowed to revise the
restrictions contained herein to cover the maximum period, scope and area
permitted by law. Executive agrees that the restrictions contained in this
Section 10 are reasonable.
(d) In the event of the breach or a threatened breach by Executive of any
of the provisions of this Section 10, the Company, in addition and supplementary
to other rights and remedies existing in its favor, may apply to any court of
law or equity of competent jurisdiction for specific performance and/or
injunctive or other relief in order to enforce or prevent any violations of the
provisions hereof (without posting a bond or other security). In addition, in
the event of an alleged breach or violation by Executive of this Section 10, the
Noncompete Period shall be tolled until such breach or violation has been duly
cured.
15. Initial Public Offering. In the event that the Board and the holders
of a majority of the CVC Stockholder Shares (as defined in the Stockholders
Agreement) then outstanding approve an initial public offering of Common Stock
(a "Public Offering") pursuant to an effective registration
-11-
<PAGE> 12
statement under the Securities Act, Executive shall take all necessary or
desirable actions in connection with the consummation of the Public Offering as
requested by the Company.
16. Code Section 280G. Notwithstanding any provision of this Agreement to
the contrary, if all or any portion of the payments or benefits received or
realized by Executive pursuant to this Agreement either alone or together with
other payments or benefits which Executive receives or realizes or is then
entitled to receive or realize from the Company or any of its affiliates would
constitute a "parachute payment" within the meaning of Section 280G of the Code
and/or any corresponding and applicable state law provision, such payments or
benefits provided to Executive shall be reduced by reducing the amount of
payments or benefits payable to Executive pursuant to this Agreement to the
extent necessary so that no portion of such payments or benefits shall be
subject to the excise tax imposed by Section 4999 of the Code and any
corresponding and/or applicable state law provision; provided that such
reduction shall only be made if, by reason of such reduction, Executive's net
after tax benefit shall exceed the net after tax benefit if such reduction were
not made. For purposes of this paragraph, "net after tax benefit" shall mean the
sum of (a) the total amount received or realized by Executive pursuant to this
Agreement that would constitute a "parachute payment" within the meaning of
Section 280G of the Code and any corresponding and applicable state law
provision, plus (b) all other payments or benefits which Executive receives or
realizes or is then entitled to receive or realize from the Company and any of
its affiliates that would constitute a "parachute payment" within the meaning of
Section 280G of the Code and any corresponding and applicable state law
provision, less (c) the amount of federal or state income taxes payable with
respect to the payments or benefits described in (a) and (b) above calculated at
the maximum marginal individual income tax rate for each year in which payments
or benefits shall be realized by Executive (based upon the rate in effect for
such year as set forth in the Code at the time of the first receipt or
realization of the foregoing), less (d) the amount of excise taxes imposed with
respect to the payments or benefits described in (a) and (b) above by Section
4999 of the Code and any corresponding and applicable state law provision.
17. Capitalization. The Company hereby represents and warrants to the
Executive that immediately following the Closing (as defined in the Purchase
Agreement), the authorized capital stock of the Company shall consist of:
(a) 560,000 shares of Class A Common, of which 3,000 shares shall be
issued and outstanding and 560,000 shares of Class B Common, of which 175,001.03
shares shall be issued and outstanding; 552,555.57 shares of Class A Common
shall be reserved for issuance upon conversion of the Class B Common; 377,554.14
shares of Class B Common shall be reserved for issuance upon exercise of (i)
stock purchase warrants issued to certain stockholders of the Company, and (ii)
incentive stock options expected to be given to certain members of management of
the Company pursuant to the terms and conditions of a stock option plan adopted
by the Company's board of directors; and
(b) 40,000 shares of the Company's Series A Preferred Stock, par
value $.01 per share, of which 40,000 shares shall be issued and outstanding,
and 40,000 shares of Series B Preferred Stock, par value $.01 per share, of
which 38,219.99 shares shall be issued and outstanding.
-12-
<PAGE> 13
Immediately following the consummation of the transactions contemplated hereby,
all of the outstanding shares of the Company's capital stock shall be validly
issued, fully paid and nonassessable.
18. Notices. Any notice provided for in this Agreement must be in writing
and must be either personally delivered, mailed by first class mail (postage
prepaid and return receipt requested) or sent by reputable overnight courier
service (charges prepaid) to the recipient at the address below indicated:
To Plainwell or the Company (as applicable):
200 Allegan Street
Plainwell, Michigan 49080
Attention: Chief Executive Officer
Telecopy No.: (616) 685-2597
With copies (which shall not constitute notice) to:
Citicorp Venture Capital, Ltd.
399 Park Avenue, 14th Floor
New York, New York 10043
Attention: John D. Weber
Telecopy No.: (212) 888-2940
Kirkland & Ellis
Citicorp Center
153 East 53rd Street
New York, New York 10022-4675
Attention: Kirk A. Radke, Esq.
Telecopy No.: (212) 446-4900
Godfrey & Kahn, S.C.
780 North Water Street
Milwaukee, WI 53202-3590
Attention: Thomas A. Myers, Esq.
Telecopy No.: (414) 273-5198
To the Investor:
Citicorp Venture Capital, Ltd.
399 Park Avenue, 14th Floor
New York, New York 10043
Attention: John Weber
Telecopy No.: (212) 888-2940
-13-
<PAGE> 14
With a copy (which shall not constitute notice) to:
Kirkland & Ellis
Citicorp Center
153 East 53rd Street
New York, New York 10022-4675
Attention: Kirk A. Radke, Esq.
Telecopy No.: (212) 446-4900
To the Executive:
c/o Plainwell Paper Company
200 Allegan Street
Plainwell, Michigan 49080
Attention: William L. New
Telecopy No.: (616) 685-2597
With a copy (which shall not constitute notice) to:
Godfrey & Kahn, S.C.
780 North Water Street
Milwaukee, WI 53202-3590
Attention: Thomas A. Myers, Esq.
Telecopy No.: (414) 273-5198
or such other address or to the attention of such other person as the recipient
party shall have specified by prior written notice to the sending party. Any
notice under this Agreement shall be deemed to have been given when so delivered
or sent or, if mailed, five days after deposit in the U.S. mail.
19. General Provisions.
(a) Transfers in Violation of Agreement. Any Transfer or attempted
Transfer of any Executive Stock in violation of any provision of this Agreement
shall be void, and the Company shall not record such Transfer on its books or
treat any purported transferee of such Executive Stock as the owner of such
stock for any purpose.
(b) Expenses. The parties here to acknowledge that the Company and
Plainwell have paid certain legal fees and expenses of Executive on the date
hereof.
(c) Severability. Whenever possible, each provision of this Agreement
shall be interpreted in such manner as to be effective and valid under
applicable law, but if any provision of this Agreement is held to be invalid,
illegal or unenforceable in any respect under any applicable law or rule in any
jurisdiction, such invalidity, illegality or unenforceability shall not affect
any other provision or any other jurisdiction, but this Agreement shall be
reformed, construed and enforced
-14-
<PAGE> 15
in such jurisdiction as if such invalid, illegal or unenforceable provision had
never been contained herein.
(d) Complete Agreement. This Agreement, those documents expressly referred
to herein and other documents of even date herewith embody the complete
agreement and understanding among the parties and supersede and preempt any
prior understandings, agreements or representations by or among the parties,
written or oral, which may have related to the subject matter hereof in any way.
(e) Counterparts. This Agreement may be executed in separate counterparts,
each of which is deemed to be an original and all of which taken together
constitute one and the same agreement.
(f) Successors and Assigns. Except as otherwise provided herein, this
Agreement shall bind and inure to the benefit of and be enforceable by
Executive, the Company, the Investor and their respective successors and assigns
(including subsequent holders of Executive Stock); provided that the rights and
obligations of Executive under this Agreement shall not be assignable except in
connection with a permitted transfer of Executive Stock hereunder.
(g) Choice of Law. The corporate law of the State of Delaware shall govern
all questions concerning the relative rights of the Company and its
stockholders. All other questions concerning the construction, validity,
enforcement and interpretation of this Agreement and the exhibits hereto shall
be governed by the internal law, and not the law of conflicts, of the State of
New York.
(h) Waiver of Jury Trial. The company and each securityholder hereby
waive, to the extent permitted by applicable law, trial by jury in any
litigation in any court with respect to, in connection with, or arising out of
this agreement or the validity, protection, interpretation or enforcement
thereof. The company and each securityholder agree that this section is a
specific and material aspect of this agreement and would not enter into this
agreement if this section were not part of this agreement.
(i) Remedies. Each of the parties to this Agreement (including the
Investor) shall be entitled to enforce its rights under this Agreement
specifically, to recover damages and costs (including reasonable attorney's
fees) caused by any breach of any provision of this Agreement and to exercise
all other rights existing in its favor. The parties hereto agree and acknowledge
that money damages would not be an adequate remedy for any breach of the
provisions of this Agreement and that any party may in its sole discretion apply
to any court of law or equity of competent jurisdiction (without posting any
bond or deposit) for specific performance and/or other injunctive relief in
order to enforce or prevent any violations of the provisions of this Agreement.
(j) Amendment and Waiver. The provisions of this Agreement may be amended
and waived only with the prior written consent of the Company, Executive and the
Investor.
(k) Third-Party Beneficiaries. Certain provisions of this Agreement are
entered into for the benefit of and shall be enforceable by the Investor as
provided herein.
-15-
<PAGE> 16
(l) Business Days. If any time period for giving notice or taking action
hereunder expires on a day which is a Saturday, Sunday or legal holiday in the
state in which the Company's chief executive office is located, the time period
shall be automatically extended to the business day immediately following such
Saturday, Sunday or holiday.
* * * *
-16-
<PAGE> 17
IN WITNESS WHEREOF, the parties hereto have executed this Agreement
on the date first written above.
PLAINWELL HOLDING COMPANY
By:________________________________________
Name:
Title:
PLAINWELL PAPER COMPANY
By:________________________________________
Name:
Title:
-------------------------------------------
WILLIAM L. NEW
Agreed and Accepted:
CITICORP VENTURE CAPITAL, LTD.
By:_________________________________
Name:
Title:
-17-
<PAGE> 18
CONSENT
The undersigned spouse of Executive hereby acknowledges that I have
read the foregoing Executive Stock Agreement and that I understand its contents.
I am aware that the Agreement provides for the repurchase of my spouse's shares
of Common Stock under certain circumstances and imposes other restrictions on
the transfer of such Common Stock. I agree that my spouse's interest in the
Common Stock is subject to this Agreement and any interest I may have in such
Common Stock shall be irrevocably bound by this Agreement and further that the
my community property interest, if any, shall be similarly bound by this
Agreement.
I am aware that the legal, financial and other matters contained in
this Agreement are complex and I am free to seek advice with respect thereto
from independent counsel. I have either sought such advice or determined after
carefully reviewing this Agreement that I will waive such right.
__________________
[Spouse]
__________________
Witness
-18-
<PAGE> 19
ANNEX A
June 16, 1997
ELECTION TO INCLUDE STOCK IN GROSS
INCOME PURSUANT TO SECTION 83(b) OF THE
INTERNAL REVENUE CODE
The undersigned purchased shares of Common Stock, par value $.01 per
share (the "Shares"), of Plainwell Holding Company (the "Company") on June 16,
1997. Under certain circumstances, the Company has the right to repurchase the
Shares at cost [or book value] from the undersigned (or from the holder of the
Shares, if different from the undersigned) should the undersigned cease to be
employed by the Company and its subsidiaries. Hence, the Shares are subject to a
substantial risk of forfeiture and are nontransferable. The undersigned desires
to make an election to have the Shares taxed under the provision of Code
ss.83(b) at the time he purchased the Shares.
Therefore, pursuant to Code ss.83(b) and Treasury Regulation
ss.1.83-2 promulgated thereunder, the undersigned hereby makes an election, with
respect to the Shares (described below), to report as taxable income for
calendar year 1997 the excess (if any) of the Shares' fair market value on June
16, 1997 over purchase price thereof.
The following information is supplied in accordance with Treasury
Regulation ss.1.83-2(e):
1. The name, address and social security number of the undersigned:
__________________________
__________________________
__________________________
__________________________
2. A description of the property with respect to which the election is being
made: 25,000 shares of Class B Common Stock, par value $.01 per share.
3. The date on which the property was transferred: June 16, 1997. The taxable
year for which such election is made: calendar 1997.
4. The restrictions to which the property is subject: If during the first five
years after the purchase of the Shares the undersigned ceases to be employed by
the Company or any of its subsidiaries, the unvested portion of the Shares shall
be subject to repurchase by the Company at cost, and if at any time prior to a
sale of the Company the undersigned ceases to be employed by the Company or any
of its subsidiaries, the vested portion of the Shares shall be subject to
repurchase
-19-
<PAGE> 20
by the Company at fair market value. One-fifth of the Shares shall become vested
shares on each of the first five anniversary dates of the purchase of the
Shares.
5. The fair market value on June 16, 1997 of the property with respect to which
the election is being made, determined without regard to any lapse restrictions:
$1.00 per share of Common Stock.
6. The amount paid for such property: $1.00 per share of Common Stock.
A copy of this election has been furnished to the Secretary of the
Company pursuant to Treasury Regulations ss.1.83-2(e)(7).
Dated: _________________ ____________________
WILLIAM L. NEW
-20-
<PAGE> 1
EXHIBIT 12.1
SPECIALTY PAPER DIVISION
COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES
(Amounts in Thousands, Except Ratio Data)
<TABLE>
<CAPTION>
Period Period
from from
December June 17,
30, 1996 1997
Fiscal Year through through
------------------------------------ June 16, December 31,
1993 1994 1995 1996 1997 1997
------ ------ ------ ------ -------- ------------
<S> <C> <C> <C> <C> <C> <C>
Income (loss) before
income taxes $4,505 $(1,659) $(8,348) $(1,310) $4,177 $ 627
Fixed charges 206 206 255 174 1,248
------ ------- ------- ------- ------ ------
Earnings $ $(1,453) $(8,142) $(1,055) $4,351 $1,875
====== ======= ======= ======= ====== ======
Interest expense $ 117 $ 146 $ 146 $ 144 $ 124 $1,063
Amortization of
deferred financing
costs -- -- -- -- -- 124
Interest portion of
rent expense 60 60 111 50 61
------ ------- ------- ------- ------ ------
Fixed charges $ $ 206 $ 206 $ 255 $ 174 $1,248
====== ======= ======= ======= ====== ======
Ratio of earnings
to fixed charges 20.2x Note 1 Note 1 Note 1 25.0x 1.5x
====== ======= ======= ======= ====== ======
</TABLE>
- --------------------------------------------------------------------------------
Note 1: Earnings were inadequate to cover fixed charges by $1,659, $8,348 and
$1,310 for fiscal years 1994, 1995 and 1996, respectively.
<PAGE> 1
Exhibit 23.1
Consent of Ernst & Young LLP, Independent Auditors
We consent to the references to our firm under the captions "Experts," "Summary
Historical Financial and Other Data of Specialty Paper Division" and "Selected
Historical Financial and Other Data of Specialty Paper Division" and to the use
of our reports dated March 19, 1998 and our report dated December 29, 1997, in
the Registration Statement (Form S-4) and related Prospectus of PLAINWELL INC.
for the registration of $130,000,000 11% Senior Subordinated Notes.
Milwaukee, Wisconsin ERNST & YOUNG LLP
May 4, 1998
<PAGE> 1
EXHIBIT 23.2
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the use of our
report, dated April 6, 1998, with respect to the financial statements of the
Consumer Products Division (an operating division of Pope & Talbot, Inc.)
included in this Form S-4 of PLAINWELL INC., and to all references to our Firm
included in or made a part of this registration statement.
/s/ ARTHUR ANDERSEN LLP
--------------------------------------
Portland, Oregon
May 5, 1998
<PAGE> 1
EXHIBIT 25.1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D. C. 20549
FORM T-1
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) _______
UNITED STATES TRUST COMPANY OF NEW YORK
(Exact name of trustee as specified in its charter)
New York 13-3818954
(Jurisdiction of incorporation or (I. R. S. Employer
organization if not a U. S. national bank) Identification Number)
114 West 47th Street 10036-1532
New York, New York (Zip Code)
(Address of principal
executive offices)
PLAINWELL INC.
(Exact name of OBLIGOR as specified in its charter)
Delaware 38-3391489
(State or other jurisdiction of (I. R. S. Employer
incorporation or organization) Identification No.)
200 Allegan Street 49080
Plainwell, MI (Zip code)
(Address of principal executive offices)
11% Senior Subordinated Note due 2008
(Title of the indenture securities)
<PAGE> 2
- 2 -
GENERAL
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.
Federal Reserve Bank of New York (2nd District), New York,
New York (Board of Governors of the Federal Reserve System).
Federal Deposit Insurance Corporation, Washington, D. C.
New York State Banking Department, Albany, New York
(b) Whether it is authorized to exercise corporate trust powers.
The trustee is authorized to exercise corporate trust powers.
2. Affiliations with the Obligor
If the obligor is an affiliate of the trustee, describe each such
affiliation.
None.
3,4,5,6,7,8,9,10,11,12,13,14 and 15.
The obligor is currently not in default under any of its outstanding
securities for which United States Trust Company of New York is Trustee.
Accordingly, responses to Items 3, 4, 5, 6, 7, 8, 9, 10, 11, 12, 13, 14
and 15 of Form T-1 are not required under General Instruction B.
16. List of Exhibits
T-1.1 -- Organization Certificate, as amended, issued by the
State of New York Banking Department to transact
business as a Trust Company, is incorporated by
reference to Exhibit T-1.1 to Form T-1 filed on
September 15, 1995 with the Commission pursuant to
the Trust Indenture Act of 1939, as amended by the
Trust Indenture Reform Act of 1990 (Registration No.
33-97056).
T-1.2 -- Included in Exhibit T-1.1.
T-1.3 -- Included in Exhibit T-1.1.
<PAGE> 3
- 3 -
16. List of Exhibits (continued)
T-1.4 -- The By-laws of the United States Trust Company of New York,
as amended, is incorporated by reference to Exhibit T-1.4 to
Form T-1 filed on September 15, 1995 with the Commission
pursuant to the Trust Indenture Act of 1939, as amended by the
Trust Indenture Reform Act of 1990 (Registration No.
33-97056).
T-1.6 -- The consent of the trustee required by Section 321(b) of
the Trust Indenture Act of 1939, as amended by the Trust
Indenture Reform Act of 1990.
T-1.7 -- A copy of the latest report of condition of the trustee
pursuant to law or the requirements of its supervising or
examining authority.
NOTE
As of May 1, 1998, the trustee had 2,999,020 shares of Common
Stock outstanding, all of which are owned by its parent company,
U. S. Trust Corporation. The term "trustee" in Item 2, refers to
each of United States Trust Company of New York and its parent
company, U. S. Trust Corporation.
In answering Item 2 in this statement of eligibility, as to matters
peculiarly within the knowledge of the obligor or its directors, the
trustee has relied upon information furnished to it by the obligor and
will rely on information to be furnished by the obligor and the trustee
disclaims responsibility for the accuracy or completeness of such
information.
Pursuant to the requirements of the Trust Indenture Act of 1939, the
trustee, United States Trust Company 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 1st day of May, 1998.
UNITED STATES TRUST COMPANY OF
NEW YORK, Trustee
By: /s/ Patricia Stermer
------------------------------
Patricia Stermer
Assistant Vice President
<PAGE> 4
EXHIBIT T-1.6
The consent of the trustee required by Section 321(b) of the Act.
United States Trust Company of New York
114 West 47th Street
New York, NY 10036
September 1, 1995
Securities and Exchange Commission
450 5th Street, N.W.
Washington, DC 20549
Gentlemen:
Pursuant to the provisions of Section 321(b) of the Trust Indenture Act of 1939,
as amended by the Trust Indenture Reform Act of 1990, and subject to the
limitations set forth therein, United States Trust Company of New York ("U.S.
Trust") hereby consents that reports of examinations of U.S. Trust by Federal,
State, Territorial or District authorities may be furnished by such authorities
to the Securities and Exchange Commission upon request therefor.
Very truly yours,
UNITED STATES TRUST COMPANY
OF NEW YORK
By: /s/ Gerard F. Ganey
------------------------------
Senior Vice President
<PAGE> 5
EXHIBIT T-1.7
UNITED STATES TRUST COMPANY OF NEW YORK
CONSOLIDATED STATEMENT OF CONDITION
DECEMBER 31, 1997
($ IN THOUSANDS)
<TABLE>
<S> <C>
ASSETS
Cash and Due from Banks $ 80,246
Short-Term Investments 386,006
Securities, Available for Sale 661,596
Loans 1,774,551
Less: Allowance for Credit Losses 16,202
----------
Net Loans 1,758,349
Premises and Equipment 61,477
Other Assets 124,499
----------
TOTAL ASSETS $3,072,173
==========
LIABILITIES
Deposits:
Non-Interest Bearing $ 686,507
Interest Bearing 1,773,254
----------
Total Deposits 2,459,761
Short-Term Credit Facilities 295,342
Accounts Payable and Accrued Liabilities 149,775
----------
TOTAL LIABILITIES $2,904,878
==========
STOCKHOLDER'S EQUITY
Common Stock 14,995
Capital Surplus 49,541
Retained Earnings 100,235
Unrealized Gains on Securities
Available for Sale (Net of Taxes) 2,524
----------
TOTAL STOCKHOLDER'S EQUITY 167,295
----------
TOTAL LIABILITIES AND
STOCKHOLDER'S EQUITY $3,072,173
==========
</TABLE>
I, Richard E. Brinkmann, Senior Vice President & Comptroller of the named bank
do hereby declare that this Statement of Condition has been prepared in
conformance with the instructions issued by the appropriate regulatory authority
and is true to the best of my knowledge and belief.
Richard E. Brinkmann, SVP & Controller
February 9, 1998
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JUN-17-1997
<PERIOD-END> DEC-31-1997
<CASH> 772
<SECURITIES> 0
<RECEIVABLES> 6,817
<ALLOWANCES> 344
<INVENTORY> 10,681
<CURRENT-ASSETS> 20,170
<PP&E> 25,360
<DEPRECIATION> 766
<TOTAL-ASSETS> 51,892
<CURRENT-LIABILITIES> 14,733
<BONDS> 0
0
0
<COMMON> 1
<OTHER-SE> 8,187
<TOTAL-LIABILITY-AND-EQUITY> 51,892
<SALES> 45,921
<TOTAL-REVENUES> 45,921
<CGS> 40,805
<TOTAL-COSTS> 45,294
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 23
<INTEREST-EXPENSE> 1,187
<INCOME-PRETAX> 627
<INCOME-TAX> 413
<INCOME-CONTINUING> 214
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 214
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
<PAGE> 1
Exhibit 99.1
LETTER OF TRANSMITTAL
TO TENDER FOR EXCHANGE
11% SENIOR SUBORDINATED NOTES DUE 2008
OF
PLAINWELL INC.
Pursuant to the Prospectus Dated ____________, 1998
THE EXCHANGE OFFER AND WITHDRAWAL RIGHTS WILL EXPIRE AT 5:00 P.M., NEW YORK CITY
TIME, ON _______________, 1998 UNLESS EXTENDED (THE "EXPIRATION DATE").
PLEASE READ CAREFULLY THE ATTACHED INSTRUCTIONS
If you desire to accept the Exchange Offer, this Letter of Transmittal should be
completed, signed, and submitted to the Exchange Agent:
<TABLE>
<CAPTION>
By Overnight Courier: By Hand: By Registered or Certified Mail:
- --------------------- -------- --------------------------------
<S> <C> <C>
United States Trust Company United States Trust Company United States Trust Company
of New York of New York of New York
770 Broadway, 13th Floor 111 Broadway P.O. Box 844
New York, New York 10003 Lower Level Cooper Station
Attn: Corporate Trust Services New York, New York 10006 New York, New York 10276-0844
Attn: Corporate Trust Services Attn: Corporate Trust Service
By Facsimile:
-------------
United States Trust Company
of New York
(212) 780-0592
Attn: Corporate Trust Services
</TABLE>
DELIVERY OF THIS LETTER OF TRANSMITTAL TO AN ADDRESS OTHER THAN AS SET
FORTH ABOVE WILL NOT CONSTITUTE A VALID DELIVERY.
FOR ANY QUESTIONS REGARDING THIS LETTER OF TRANSMITTAL OR FOR ANY
ADDITIONAL INFORMATION, YOU MAY CONTACT THE EXCHANGE AGENT BY TELEPHONE AT
800-548-6565, OR BY FACSIMILE AT 212-420-6152.
The undersigned hereby acknowledges receipt of the Prospectus dated
___________, 1998 (the "Prospectus") of PLAINWELL INC., a Delaware corporation
(the "Issuer"), and this Letter of Transmittal (the "Letter of Transmittal"),
that together constitute the Issuer's offer (the "Exchange Offer") to exchange
$1,000 in principal amount of its 11% Senior Subordinated Notes due 2008 (the
"Exchange Notes"), which have been registered under the Securities Act of 1933,
as amended (the "Securities Act"), pursuant to a Registration Statement, for
each $1,000 in principal amount of its outstanding 11% Senior Subordinated Notes
due 2008 (the "Notes"), of which $130,000,000 aggregate principal amount is
outstanding. Capitalized terms used but not defined herein have the meanings
ascribed to them in the Prospectus.
The undersigned hereby tenders the Notes described in Box 1 below (the
"Tendered Notes") pursuant to the terms and conditions described in the
Prospectus and this Letter of Transmittal. The undersigned is the registered
owner of all the Tendered Notes and the undersigned represents that it has
received from each beneficial owner of the Tendered Notes ("Beneficial Owners")
a duly completed and executed form of "Instruction to Registered Holder and/or
Book-Entry Transfer Facility Participant from Beneficial Owner" accompanying
this Letter of Transmittal, instructing the undersigned to take the action
described in this Letter of Transmittal.
<PAGE> 2
Subject to, and effective upon, the acceptance for exchange of the
Tendered Notes, the undersigned hereby exchanges, assigns, and transfers to, or
upon the order of, the Issuer, all right, title, and interest in, to, and under
the Tendered Notes.
Please issue the Exchange Notes exchanged for Tendered Notes in the
name(s) of the undersigned. Similarly, unless otherwise indicated under "Special
Delivery Instructions" below (Box 3), please send or cause to be sent the
certificates for the Exchange Notes (and accompanying documents, as appropriate)
to the undersigned at the address shown below in Box 1.
The undersigned hereby irrevocably constitutes and appoints the Exchange
Agent as the true and lawful agent and attorney in fact of the undersigned with
respect to the Tendered Notes, with full power of substitution (such power of
attorney being deemed to be an irrevocable power coupled with an interest), to
(i) deliver the Tendered Notes to the Issuer or cause ownership of the Tendered
Notes to be transferred to, or upon the order of, the Issuer, on the books of
the registrar for the Notes and deliver all accompanying evidences of transfer
and authenticity to, or upon the order of, the Issuer upon receipt by the
Exchange Agent, as the undersigned's agent, of the Exchange Notes to which the
undersigned is entitled upon acceptance by the Issuer of the Tendered Notes
pursuant to the Exchange Offer, and (ii) receive all benefits and otherwise
exercise all rights of beneficial ownership of the Tendered Notes, all in
accordance with the terms of the Exchange Offer.
The undersigned agrees that tenders of Notes pursuant to the
procedures described under the caption "The Exchange Offer" in the Prospectus
and in the instructions hereto will constitute a binding agreement between the
undersigned and the Issuer upon the terms and subject to the conditions of the
Exchange Offer, subject only to withdrawal of such tenders on the terms set
forth in the Prospectus under the caption "The Exchange Offer-Withdrawal of
Tenders." All authority herein conferred or agreed to be conferred shall survive
the death or incapacity of the undersigned and any Beneficial Owner(s), and
every obligation of the undersigned or any Beneficial Owners hereunder shall be
binding upon the heirs, representatives, successors, and assigns of the
undersigned and such Beneficial Owner(s).
The undersigned hereby represents and warrants that the undersigned has
full power and authority to tender, exchange, assign, and transfer the Tendered
Notes and that the Issuer will acquire good and unencumbered title thereto, free
and clear of all liens, restrictions, charges, encumbrances, and adverse claims
when the Tendered Notes are acquired by the Issuer as contemplated herein. The
undersigned and each Beneficial Owner will, upon request, execute and deliver
any additional documents reasonably requested by the Issuer or the Exchange
Agent as necessary or desirable to complete and give effect to the transactions
contemplated hereby.
The undersigned hereby represents and warrants that the information set
forth in Box 2 is true and correct.
By accepting the Exchange Offer, the undersigned hereby represents and
warrants that (i) except as otherwise disclosed in writing herewith, neither the
undersigned nor any Beneficial Owner is an "affiliate," as defined in Rule 405
under the Securities Act of 1933, as amended (together with the rules and
regulations promulgated thereunder, the "Securities Act"), of the Issuer, (ii)
the Exchange Notes to be acquired by the undersigned and any Beneficial Owner(s)
in connection with the Exchange Offer are being acquired by the undersigned and
any Beneficial Owner(s) in the ordinary course of business of the undersigned
and any Beneficial Owner(s), (iii) the undersigned and each Beneficial Owner are
not participating, do not intend to participate, and have no arrangement or
understanding with any person to participate, in the distribution of the
Exchange Notes, and (iv) the undersigned and each Beneficial Owner acknowledge
and agree that any person participating in the Exchange Offer with the intention
or for the purpose of distributing the Exchange Notes must comply with the
registration and prospectus delivery requirements of the Securities Act in
connection with a secondary resale of the Exchange Notes acquired by such person
and cannot rely on the position of the Staff of the Securities and Exchange
Commission (the "Commission") set forth in the no-action letters that are
discussed in the section of the Prospectus entitled "The Exchange Offer." In
addition, by accepting the Exchange Offer, the undersigned hereby (i) represents
and warrants that, if the undersigned or any Beneficial Owner of the Notes is a
Participating Broker-Dealer, such Participating Broker-Dealer acquired the Notes
for
2
<PAGE> 3
its own account as a result of market-making activities or other trading
activities and has not entered into any arrangement or understanding with the
Company or any affiliate of the Company (within the meaning of Rule 405 under
the Securities Act) to distribute the New Notes to be received in the Exchange
Offer, and (ii) acknowledges that, by receiving New Notes for its own account in
exchange for Notes, where such Notes were acquired as a result of market-making
activities or other trading activities, such Participating Broker-Dealer will
deliver a prospectus meeting the requirements of the Securities Act in
connection with any resale of such New Notes received in respect of such Notes
pursuant to the Exchange Offer.
[] CHECK HERE IF TENDERED NOTES ARE BEING DELIVERED HEREWITH.
[] CHECK HERE IF TENDERED NOTES ARE BEING DELIVERED PURSUANT TO A NOTICE OF
GUARANTEED DELIVERY PREVIOUSLY DELIVERED TO THE EXCHANGE AGENT AND
COMPLETE "Use of Guaranteed Delivery" BELOW (Box 4).
[] CHECK HERE IF TENDERED NOTES ARE BEING DELIVERED BY BOOK-ENTRY TRANSFER
MADE TO THE ACCOUNT MAINTAINED BY THE EXCHANGE AGENT WITH THE BOOK-ENTRY
TRANSFER FACILITY AND COMPLETE "Use of Book-Entry Transfer" BELOW (Box 5).
PLEASE READ THIS ENTIRE LETTER OF TRANSMITTAL
CAREFULLY BEFORE COMPLETING THE BOXES
BOX 1
DESCRIPTION OF NOTES TENDERED
(Attach additional signed pages, if necessary)
<TABLE>
<CAPTION>
Aggregate
Name(s) and Address(es) of Registered Note Holder(s), Certificate Principal Amount Aggregate
exactly a name(s) appear(s) on Note Certificate(s) Number(s) of Represented by Principal Amount
(Please fill in, if blank) Notes* Certificate(s) Tendered**
- -----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
- -----------------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------------
TOTAL
- -----------------------------------------------------------------------------------------------------------------------
</TABLE>
* Need not be completed by persons tendering by book-entry transfer.
** The minimum permitted tender is $1,000 in principal amount of Notes. All
other tenders must be in integral multiples of $1,000 of principal amount.
Unless otherwise indicated in this column, the principal amount of all
Note Certificates identified in this Box 1 or delivered to the Exchange
Agent herewith shall be deemed tendered. See Instruction 4.
3
<PAGE> 4
BOX 2
BENEFICIAL OWNER(S)
<TABLE>
<CAPTION>
STATE OF PRINCIPAL RESIDENCE OF EACH PRINCIPAL AMOUNT OF TENDERED NOTES
BENEFICIAL OWNER OF TENDERED NOTES HELD FOR ACCOUNT OF BENEFICIAL OWNER
- --------------------------------------------------------------------------------
<S> <C>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
</TABLE>
BOX 3
SPECIAL DELIVERY INSTRUCTIONS
(SEE INSTRUCTIONS 5, 6 AND 7)
TO BE COMPLETED ONLY IF EXCHANGE NOTES EXCHANGED FOR NOTES AND UNTENDERED NOTES
ARE TO BE SENT TO SOMEONE OTHER THAN THE UNDERSIGNED, OR TO THE UNDERSIGNED AT
AN ADDRESS OTHER THAN THAT SHOWN ABOVE.
Mail Exchange Note(s) and any untendered Notes to:
Name(s):
- --------------------------------------------------------------------------------
(please print)
Address:
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
(include Zip Code)
Tax Identification or
Social Security No.:
- --------------------------------------------------------------------------------
4
<PAGE> 5
BOX 4
USE OF GUARANTEED DELIVERY
(SEE INSTRUCTION 2)
TO BE COMPLETED ONLY IF NOTES ARE BEING TENDERED BY MEANS OF A NOTICE OF
GUARANTEED DELIVERY.
Name(s) of Registered Holder(s):
________________________________________________________________________________
Date of Execution of Notice of Guaranteed Delivery:_____________________________
Name of Institution which Guaranteed Delivery:__________________________________
BOX 5
USE OF BOOK-ENTRY TRANSFER
(SEE INSTRUCTION 1)
TO BE COMPLETED ONLY IF DELIVERY OF TENDERED NOTES IS TO BE MADE BY BOOK-ENTRY
TRANSFER.
Name of Tendering Institution:__________________________________________________
Account Number:_________________________________________________________________
Transaction Code Number:________________________________________________________
5
<PAGE> 6
BOX 6
TENDERING HOLDER SIGNATURE
(SEE INSTRUCTIONS 1 AND 5)
IN ADDITION, COMPLETE SUBSTITUTE FORM W-9
- --------------------------------------------------------------------------------
X______________________________________
X______________________________________
(Signature of Registered Holder(s) or
Authorized Signatory)
Note: The above lines must be signed by the registered holder(s) of Notes as
their name(s) appear(s) on the Notes or by persons(s) authorized to become
registered holder(s) (evidence of which authorization must be transmitted with
this Letter of Transmittal). If signature is by a trustee, executor,
administrator, guardian, attorney-in-fact, officer, or other person acting in a
fiduciary or representative capacity, such person must set forth his or her full
title below. See Instruction 5.
Name(s): _______________________________________________________________________
_______________________________________________________________________
Capacity:_______________________________________________________________________
_______________________________________________________________________
Street Address: ________________________________________________________________
_______________________________________________________________________
_______________________________________________________________________
(include Zip Code)
Area Code and Telephone Number:
___________________________________________________________
Tax Identification or Social Security Number:
___________________________________________________________
Signature-Guarantee
(If required by Instruction 5)
Authorized-Signature
X ______________________________________________________________________________
Name:___________________________________________________________________________
(please print)
Title:__________________________________________________________________________
Name of Firm:___________________________________________________________________
(Must be an Eligible Institution as
defined in Instruction 2)
Address:________________________________________________________________________
________________________________________________________________________
________________________________________________________________________
(include Zip Code)
Area-Code-and-Telephone-Number:
________________________________________________________________________
Dated: ________________________________________________________________________
BOX 7
BROKER-DEALER STATUS
- --------------------------------------------------------------------------------
[] Check this box if the Beneficial Owner of the Notes is a Participating
Broker-Dealer and such Participating Broker-Dealer acquired the Notes for
its own account as a result of market-making activities or other trading
activities.
- --------------------------------------------------------------------------------
6
<PAGE> 7
- --------------------------------------------------------------------------------
PAYOR'S NAME: PLAINWELL INC.
- --------------------------------------------------------------------------------
SUBSTITUTE
FORM W-9
Department of the Treasury
Internal Revenue Service
- --------------------------------------------------------------------------------
Name (if joint names, list first and circle the name of the person or entity
whose number you enter in Part 1 below. See instructions if your name has
changed.)
- --------------------------------------------------------------------------------
Address
- --------------------------------------------------------------------------------
City, State and ZIP Code
- --------------------------------------------------------------------------------
List account number(s) here (optional)
- --------------------------------------------------------------------------------
PART 1--PLEASE PROVIDE YOUR TAXPAYER IDENTIFICATION
NUMBER ("TIN") IN THE BOX AT RIGHT AND CERTIFY BY SIGNING
AND DATING BELOW
- --------------------------------------------------------------------------------
Social Security
Number or TIN
- --------------------------------------------------------------------------------
PART 2--Check the box if you are NOT subject to backup withholding under the
provisions of section 3406(a)(1)(C) of the Internal Revenue Code because (1) you
have not been notified that you are subject to backup withholding as a result of
failure to report all interest or dividends or (2) the
Internal Revenue Service has notified you that you are no longer subject to
backup withholding. [ ]
- --------------------------------------------------------------------------------
CERTIFICATION--UNDER THE PENALTIES OF PERJURY, I CERTIFY THAT THE
INFORMATION PROVIDED ON THIS FORM IS TRUE, CORRECT AND COMPLETE.
SIGNATURE _________________ DATE ____________________
- --------------------------------------------------------------------------------
PART 3--
Awaiting TIN [ ]
- --------------------------------------------------------------------------------
NOTE: FAILURE TO COMPLETE AND RETURN THIS FORM MAY RESULT IN BACKUP WITHHOLDING
OF 31% OF ANY PAYMENTS MADE TO YOU PURSUANT TO THE EXCHANGE OFFER. PLEASE
REVIEW THE ENCLOSED GUIDELINES FOR CERTIFICATION OF TAXPAYER
IDENTIFICATION NUMBER ON SUBSTITUTE FORM W-9 FOR ADDITIONAL DETAILS.
7
<PAGE> 8
INSTRUCTIONS TO LETTER OF TRANSMITTAL
FORMING PART OF THE TERMS AND CONDITIONS
OF THE EXCHANGE OFFER
1. DELIVERY OF THIS LETTER OF TRANSMITTAL AND NOTES. A properly completed
and duly executed copy of this Letter of Transmittal, including Substitute Form
W-9, and any other documents required by this Letter of Transmittal must be
received by the Exchange Agent at its address set forth herein, and either
certificates for Tendered Notes must be received by the Exchange Agent at its
address set forth herein or such Tendered Notes must be transferred pursuant to
the procedures for book-entry transfer described in the Prospectus under the
caption "The Exchange Offer--Procedures for Tendering" (and a confirmation of
such transfer received by the Exchange Agent), in each case prior to 5:00 p.m.,
New York City time, on the Expiration Date. The method of delivery of
certificates for Tendered Notes, this Letter of Transmittal and all other
required documents to the Exchange Agent is at the election and risk of the
tendering holder and the delivery will be deemed made only when actually
received by the Exchange Agent. If delivery is by mail, registered mail with
return receipt requested, properly insured, is recommended. Instead of delivery
by mail, it is recommended that the Holder use an overnight or hand delivery
service. In all cases, sufficient time should be allowed to assure timely
delivery. No Letter of Transmittal or Notes should be sent to the Company.
Neither the Issuer nor the registrar is under any obligation to notify any
tendering holder of the Issuer's acceptance of Tendered Notes prior to the
closing of the Exchange Offer.
2. GUARANTEED DELIVERY PROCEDURES. Holders who wish to tender their Notes
but whose Notes are not immediately available, and who cannot deliver their
Notes, this Letter of Transmittal or any other documents required hereby to the
Exchange Agent prior to the Expiration Date must tender their Notes according to
the guaranteed delivery procedures set forth below, including completion of Box
4. Pursuant to such procedures: (i) such tender must be made by or through a
firm which is a member of a recognized Medallion Program approved by the
Securities Transfer Association Inc. (an "Eligible Institution") and the Notice
of Guaranteed Delivery must be signed by the holder; (ii) prior to the
Expiration Date, the Exchange Agent must have received from the holder and the
Eligible Institution a properly completed and duly executed Notice of Guaranteed
Delivery (by mail or hand delivery) setting forth the name and address of the
holder, the certificate number(s) of the Tendered Notes and the principal amount
of Tendered Notes, stating that the tender is being made thereby and
guaranteeing that, within five New York Stock Exchange trading days after the
Expiration Date, this Letter of Transmittal together with the certificate(s)
representing the Notes and any other required documents will be deposited by the
Eligible Institution with the Exchange Agent; and (iii) such properly completed
and executed Letter of Transmittal, as well as all other documents required by
this Letter of Transmittal and the certificate(s) representing all Tendered
Notes in proper form for transfer, must be received by the Exchange Agent within
five New York Stock Exchange trading days after the Expiration Date. Any holder
who wishes to tender Notes pursuant to the guaranteed delivery procedures
described above must ensure that the Exchange Agent receives the Notice of
Guaranteed Delivery relating to such Notes prior to 5:00 p.m., New York City
time, on the Expiration Date. Failure to complete the guaranteed delivery
procedures outlined above will not, of itself, affect the validity or effect a
revocation of any Letter of Transmittal form properly completed and executed by
an Eligible Holder who attempted to use the guaranteed delivery process.
3. BENEFICIAL OWNER INSTRUCTIONS TO REGISTERED HOLDERS. Only a holder in
whose name Tendered Notes are registered on the books of the registrar (or the
legal representative or attorney-in-fact of such registered holder) may execute
and deliver this Letter of Transmittal. Any Beneficial Owner of Tendered Notes
who is not the registered holder must arrange promptly with the registered
holder to execute and deliver this Letter of Transmittal on his or her behalf
through the execution and delivery to the registered holder of the Instructions
to Registered Holder and/or Book-Entry Transfer Facility Participant from
Beneficial Owner form accompanying this Letter of Transmittal.
4. PARTIAL TENDERS. Tenders of Notes will be accepted only in integral
multiples of $1,000 in principal amount. If less than the entire principal
amount of Notes held by the holder is tendered, the tendering holder
8
<PAGE> 9
should fill in the principal amount tendered in the column labeled "Aggregate
Principal Amount Tendered" of the box entitled "Description of Notes Tendered"
(Box 1) above. The entire principal amount of Notes delivered to the Exchange
Agent will be deemed to have been tendered unless otherwise indicated. If the
entire principal amount of all Notes held by the holder is not tendered, then
Notes for the principal amount of Notes not tendered and Exchange Notes issued
in exchange for any Notes tendered and accepted will be sent to the Holder at
his or her registered address, unless a different address is provided in the
appropriate box on this Letter of Transmittal, as soon as practicable following
the Expiration Date.
5. SIGNATURES ON THE LETTER OF TRANSMITTAL; BOND POWERS AND ENDORSEMENTS;
GUARANTEE OF SIGNATURES. If this Letter of Transmittal is signed by the
registered holder(s) of the Tendered Notes, the signature must correspond with
the name(s) as written on the face of the Tendered Notes without alteration,
enlargement or any change whatsoever.
If any of the Tendered Notes are owned of record by two or more joint
owners, all such owners must sign this Letter of Transmittal. If any Tendered
Notes are held in different names, it will be necessary to complete, sign and
submit as many separate copies of the Letter of Transmittal as there are
different names in which Tendered Notes are held.
If this Letter of Transmittal is signed by the registered holder(s) of
Tendered Notes, and Exchange Notes issued in exchange therefor are to be issued
(and any untendered principal amount of Notes is to be reissued) in the name of
the registered holder(s), then such registered holder(s) need not and should not
endorse any Tendered Notes, nor provide a separate bond power. In any other
case, such registered holder(s) must either properly endorse the Tendered Notes
or transmit a properly completed separate bond power with this Letter of
Transmittal, with the signature(s) on the endorsement or bond power guaranteed
by an Eligible Institution.
If this Letter of Transmittal is signed by a person other than the
registered holder(s) of any Tendered Notes, such Tendered Notes must be endorsed
or accompanied by appropriate bond powers, in each case, signed as the name(s)
of the registered holder(s) appear(s) on the Tendered Notes, with the
signature(s) on the endorsement or bond power guaranteed by an Eligible
Institution.
If this Letter of Transmittal or any Tendered 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
Issuer, evidence satisfactory to the Issuer of their authority to so act must be
submitted with this Letter of Transmittal.
Endorsements on Tendered Notes or signatures on bond powers required by
this Instruction 5 must be guaranteed by an Eligible Institution.
Signatures on this Letter of Transmittal must be guaranteed by an Eligible
Institution unless the Tendered Notes are tendered (i) by a registered holder
who has not completed the box set forth herein entitled "Special Delivery
Instructions" (Box 3) or (ii) by an Eligible Institution.
6. SPECIAL DELIVERY INSTRUCTIONS. Tendering holders should indicate, in
the applicable box (Box 3), the name and address to which the Exchange Notes
and/or substitute Notes for principal amounts not tendered or not accepted for
exchange are to be sent, if different from the name and address of the person
signing this Letter of Transmittal. In the case of issuance in a different name,
the taxpayer identification or social security number of the person named must
also be indicated.
7. TRANSFER TAXES. The Issuer will pay all transfer taxes, if any,
applicable to the exchange of Tendered Notes pursuant to the Exchange Offer. If,
however, a transfer tax is imposed for any reason other than the transfer and
exchange of Tendered Notes pursuant to the Exchange Offer, then the amount of
any such transfer taxes (whether imposed on the registered holder or on any
other person) will be payable by the tendering holder. If satisfactory evidence
of payment of such taxes or exemption therefrom is not submitted with this
Letter of Transmittal, the amount of such transfer taxes will be billed directly
to such tendering holder.
9
<PAGE> 10
Except as provided in this Instruction 7, it will not be necessary for
transfer tax stamps to be affixed to the Tendered Notes listed in this Letter of
Transmittal.
8. TAX IDENTIFICATION NUMBER. Federal income tax law requires that the
holder(s) of any Tendered Notes which are accepted for exchange must provide the
Issuer (as payor) with its correct taxpayer identification number ("TIN"),
which, in the case of a holder who is an individual, is his or her social
security number. If the Issuer is not provided with the correct TIN, the Holder
may be subject to backup withholding and a $50 penalty imposed by the Internal
Revenue Service. (If withholding results in an over-payment of taxes, a refund
may be obtained.) Certain holders (including, among others, all corporations and
certain foreign individuals) are not subject to these backup withholding and
reporting requirements. See the enclosed "Guidelines for Certification of
Taxpayer Identification Number on Substitute Form W-9" for additional
instructions.
To prevent backup withholding, each holder of Tendered Notes must provide
such holder's correct TIN by completing the Substitute Form W-9 set forth
herein, certifying that the TIN provided is correct (or that such holder is
awaiting a TIN), and that (i) the holder has not been notified by the Internal
Revenue Service that such holder is subject to backup withholding as a result of
failure to report all interest or dividends or (ii) the Internal Revenue Service
has notified the holder that such holder is no longer subject to backup
withholding. If the Tendered Notes are registered in more than one name or are
not in the name of the actual owner, consult the "Guidelines for Certification
of Taxpayer Identification Number on Substitute Form W-9" for information on
which TIN to report.
The Issuer reserves the right in its sole discretion to take whatever
steps are necessary to comply with the Issuer's obligation regarding backup
withholding.
9. VALIDITY OF TENDERS. All questions as to the validity, form,
eligibility (including time of receipt), acceptance and withdrawal of Tendered
Notes will be determined by the Issuer in its sole discretion, which
determination will be final and binding. The Issuer reserves the right to reject
any and all Notes not validly tendered or any Notes the Issuer's acceptance of
which would, in the opinion of the Issuer or their counsel, be unlawful. The
Issuer also reserves the right to waive any conditions of the Exchange Offer or
defects or irregularities in tenders of Notes as to any ineligibility of any
holder who seeks to tender Notes in the Exchange Offer. The interpretation of
the terms and conditions of the Exchange Offer (including this Letter of
Transmittal and the instructions hereto) by the Issuer shall be final and
binding on all parties. Unless waived, any defects or irregularities in
connection with tenders of Notes must be cured within such time as the Issuer
shall determine. Neither the Issuer, the Exchange Agent nor any other person
shall be under any duty to give notification of defects or irregularities with
respect to tenders of Notes, nor shall any of them incur any liability for
failure to give such notification. Tenders of Notes will not be deemed to have
been made until such defects or irregularities have been cured or waived. Any
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 this Letter of Transmittal, as soon as practicable following the
Expiration Date.
10. WAIVER OF CONDITIONS. The Company reserves the absolute right to
amend, waive or modify any of the conditions in the Exchange Offer in the case
of any Tendered Notes.
11. NO CONDITIONAL TENDER. No alternative, conditional, irregular, or
contingent tender of Notes or transmittal of this Letter of Transmittal will be
accepted.
12. MUTILATED, LOST, STOLEN OR DESTROYED NOTES. Any tendering Holder whose
Notes have been mutilated, lost, stolen or destroyed should contact the Exchange
Agent at the address indicated herein for further instructions.
13. REQUESTS FOR ASSISTANCE OR ADDITIONAL COPIES. Questions and requests
for assistance and requests for additional copies of the Prospectus or this
Letter of Transmittal may be directed to the Exchange Agent at
10
<PAGE> 11
the address indicated herein. Holders may also contact their broker, dealer,
commercial bank, trust company or other nominee for assistance concerning the
Exchange Offer.
14. ACCEPTANCE OF TENDERED NOTES AND ISSUANCE OF NOTES; RETURN OF NOTES.
Subject to the terms and conditions of the Exchange Offer, the Issuer will
accept for exchange all validly tendered Notes as soon as practicable after the
Expiration Date and will issue Exchange Notes therefor as soon as practicable
thereafter. For purposes of the Exchange Offer, the Issuer shall be deemed to
have accepted tendered Notes when, as and if the Issuer has given written or
oral notice (immediately followed in writing) thereof to the Exchange Agent. If
any Tendered Notes are not exchanged pursuant to the Exchange Offer for any
reason, such unexchanged Notes will be returned, without expense, to the
undersigned at the address shown in Box 1 or at a different address as may be
indicated herein under "Special Delivery Instructions" (Box 3).
15. WITHDRAWAL. Tenders may be withdrawn only pursuant to the procedures
set forth in the Prospectus under the caption "The Exchange Offer."
11
<PAGE> 1
Exhibit 99.2
NOTICE OF GUARANTEED DELIVERY
WITH RESPECT TO
11% SENIOR SUBORDINATED NOTES DUE 2008
OF
PLAINWELL INC.
Pursuant to the Prospectus Dated _______________, 1998
This form must be used by a holder of 11% Senior Subordinated Notes due
2008 (the "Notes") of PLAINWELL INC., a Delaware corporation (the "Company"),
who wishes to tender Notes to the Exchange Agent pursuant to the guaranteed
delivery procedures described in "The Exchange Offer - Guaranteed Delivery
Procedures" of the Company's Prospectus, dated ____________, 1998 (the
"Prospectus") and in Instruction 2 to the related Letter of Transmittal. Any
holder who wishes to tender Notes pursuant to such guaranteed delivery
procedures must ensure that the Exchange Agent receives this Notice of
Guaranteed Delivery prior to the Expiration Date of the Exchange Offer.
Capitalized terms used but not defined herein have the meanings ascribed to them
in the Prospectus or the Letter of Transmittal.
THE EXCHANGE OFFER AND WITHDRAWAL RIGHTS WILL EXPIRE AT 5:00 P.M., NEW YORK CITY
TIME, ON ________________, 1998 UNLESS EXTENDED (THE "EXPIRATION DATE").
United States Trust Company of New York
(the "Exchange Agent")
<TABLE>
<CAPTION>
By Overnight Courier: By Hand: By Registered or Certified Mail:
- --------------------- -------- --------------------------------
<S> <C> <C>
United States Trust Company United States Trust Company United States Trust Company
of New York of New York of New York
770 Broadway, 13th Floor 111 Broadway P.O. Box 844
New York, New York 10003 Lower Level Cooper Station
Attn: Corporate Trust Services New York, New York 10006 New York, New York 10276-0844
Attn: Corporate Trust Services Attn: Corporate Trust Services
By Facsimile:
-------------
United States Trust Company
of New York
(212) 780-0592
Attn: Corporate Trust Services
</TABLE>
DELIVERY OF THIS INSTRUMENT TO AN ADDRESS OTHER THAN AS SET FORTH ABOVE
WILL NOT CONSTITUTE A VALID DELIVERY.
<PAGE> 2
This form is not to be used to guarantee signatures. If a signature on a
Letter of Transmittal is required to be guaranteed by an "Eligible Institution"
under the instructions thereto, such signature guarantee must appear in the
applicable space provided in the signature box on the Letter of Transmittal.
Ladies and Gentlemen:
The undersigned hereby tenders to the Company, upon the terms and subject
to the conditions set forth in the Prospectus and the related Letter of
Transmittal, receipt of which is hereby acknowledged, the principal amount of
Notes set forth below pursuant to the guaranteed delivery procedures set forth
in the Prospectus and in Instruction 2 of the Letter of Transmittal.
The undersigned hereby tenders the Notes listed below:
<TABLE>
<CAPTION>
CERTIFICATE NUMBER(S) (IF KNOWN) OF NOTES OR AGGREGATE PRINCIPAL AGGREGATE PRINCIPAL
ACCOUNT NUMBER AT THE BOOK-ENTRY FACILITY AMOUNT REPRESENTED AMOUNT TENDERED
- ----------------------------------------------------------------------------------------------------------
<S> <C> <C>
- ----------------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------
</TABLE>
2
<PAGE> 3
PLEASE SIGN AND COMPLETE
<TABLE>
<S> <C>
Signatures of Registered Holder(s) or
Authorized Signatory:______________________ Date: ___________________, 1998
___________________________________________ Address:_________________________________
___________________________________________ _________________________________________
Name(s) of Registered Holder(s):___________ Area Code and Telephone No.______________
___________________________________________
___________________________________________
</TABLE>
This Notice of Guaranteed Delivery must be signed by the Holder(s) exactly
as their name(s) appear on certificates for Notes or on a security position
listing as the owner of Notes, or by person(s) authorized to become Holder(s) by
endorsements and documents transmitted with this Notice of Guaranteed Delivery.
If signature is by a trustee, executor, administrator, guardian,
attorney-in-fact, officer or other person acting in a fiduciary or
representative capacity, such person must provide the following information.
Please print name(s) and address(es)
Name(s): _______________________________________________________________________
________________________________________________________________________________
Capacity: ______________________________________________________________________
Address(es):____________________________________________________________________
________________________________________________________________________________
3
<PAGE> 4
GUARANTEE
(NOT TO BE USED FOR SIGNATURE GUARANTEE)
The undersigned, a firm which is a member of a registered national
securities exchange or of the National Association of Securities Dealers, Inc.,
or is a commercial bank or trust company having an office or correspondent in
the United States, or is otherwise an "eligible guarantor institution" within
the meaning of Rule 17Ad-15 under the Securities Exchange Act of 1934, as
amended, guarantees deposit with the Exchange Agent of the Letter of Transmittal
(or facsimile thereof), together with the Notes tendered hereby in proper form
for transfer (or confirmation of the book-entry transfer of such Notes into the
Exchange Agent's account at the Book-Entry Transfer Facility described in the
prospectus under the caption "The Exchange Offer -- Guaranteed Delivery
Procedures" and in the Letter of Transmittal) and any other required documents,
all by 5:00 p.m., New York City time, on the fifth New York Stock Exchange
trading day following the Expiration Date.
<TABLE>
<S> <C>
Name of firm_____________________________ _________________________________________
(Authorized Signature)
Address__________________________________ Name_____________________________________
(Please Print)
________________________________________ Title____________________________________
(Include Zip Code)
Area Code and Tel. No. ___________________ Dated______________________________, 1996
</TABLE>
DO NOT SEND SECURITIES WITH THIS FORM. ACTUAL SURRENDER OF SECURITIES
MUST BE MADE PURSUANT TO, AND BE ACCOMPANIED BY, AN EXECUTED LETTER OF
TRANSMITTAL.
4
<PAGE> 5
INSTRUCTIONS FOR NOTICE OF GUARANTEED DELIVERY
1. Delivery of this Notice of Guaranteed Delivery. A properly completed and
duly executed copy of this Notice of Guaranteed Delivery and any other documents
required by this Notice of Guaranteed Delivery must be received by the Exchange
Agent at its address set forth herein prior to the Expiration Date. The method
of delivery of this Notice of Guaranteed Delivery and any other required
documents to the Exchange Agent is at the election and sole risk of the holder,
and the delivery will be deemed made only when actually received by the Exchange
Agent. If delivery is by mail, registered mail with return receipt requested,
properly insured, is recommended. As an alternative to delivery by mail, the
holders may wish to consider using an overnight or hand delivery service. In all
cases, sufficient time should be allowed to assure timely delivery. For a
description of the guaranteed delivery procedures, see Instruction 2 of the
Letter of Transmittal.
2. Signatures on this Notice of Guaranteed Delivery. If this Notice of
Guaranteed Delivery is signed by the registered holder(s) of the Notes referred
to herein, the signature must correspond with the name(s) written on the face of
the Notes without alteration, enlargement, or any change whatsoever. If this
Notice of Guaranteed Delivery is signed by a participant of the Book-Entry
Transfer Facility whose name appears on a security position listing as the owner
of the Notes, the signature must correspond with the name shown on the security
position listing as the owner of the Notes.
If this Notice of Guaranteed Delivery is signed by a person other than
the registered holder(s) of any Notes listed or a participant of the Book-Entry
Transfer Facility, this Notice of Guaranteed Delivery must be accompanied by
appropriate bond powers, signed as the name of the registered holder(s) appears
on the Notes or signed as the name of the participant shown on the Book-Entry
Transfer Facility's security position listing.
If this Notice of Guaranteed Delivery is signed by a trustee, executor,
administrator, guardian, attorney-in-fact, officer of a corporation, or other
person acting in a fiduciary or representative capacity, such person should so
indicate when signing and submit with the Letter of Transmittal evidence
satisfactory to the Company of such person's authority to so act.
3. Requests for Assistance or Additional Copies. Questions and requests for
assistance and requests for additional copies of the Prospectus may be directed
to the Exchange Agent at the address specified in the Prospectus. Holders may
also contact their broker, dealer, commercial bank, trust company, or other
nominee for assistance concerning the Exchange Offer.
5
<PAGE> 1
Exhibit 99.3
INSTRUCTIONS TO REGISTERED HOLDER AND/OR
BOOK-ENTRY TRANSFER FACILITY PARTICIPANT FROM BENEFICIAL OWNER
OF
PLAINWELL INC.
11% SENIOR SUBORDINATED NOTES DUE 2008
To Registered Holder and/or Participant of the Book-Entry Transfer
Facility:
The undersigned hereby acknowledges receipt of the Prospectus, dated
, 1998 (the "Prospectus") of PLAINWELL INC., a Delaware
corporation (the "Company"), and the accompanying Letter of Transmittal (the
"Letter of Transmittal"), that together constitute the Company's offer (the
"Exchange Offer"). Capitalized terms used but not defined herein have the
meanings ascribed to them in the Prospectus.
This will instruct you, the registered holder and/or book-entry transfer
facility participant, as to action to be taken by you relating to the Exchange
Offer with respect to the 11% Senior Subordinated Notes due 2008 (the "Notes")
held by you for the account of the undersigned.
The aggregate face amount of the Notes held by you for the account of the
undersigned is (FILL IN AMOUNT):
$ of the 11% Senior Subordinated Notes due 2008.
With respect to the Exchange Offer, the undersigned hereby instructs you
(CHECK APPROPRIATE BOX):
[ ] TO TENDER the following Notes held by you for the account of the
undersigned (INSERT PRINCIPAL AMOUNT OF NOTES TO BE TENDERED, IF ANY):
$
[ ] NOT TO TENDER any Notes held by you for the account of the undersigned.
If the undersigned instruct you to tender the Notes held by you for the
account of the undersigned, it is understood that you are authorized (a) to
make, on behalf of the undersigned (and the undersigned, by its signature below,
hereby makes to you), the representation and warranties contained in the Letter
of Transmittal that are to be made with respect to the undersigned as a
beneficial owner, including but not limited to the representations that (i) the
undersigned's principal residence is in the state of (FILL IN STATE)
, (ii) the undersigned is acquiring the Exchange Notes
in the ordinary course of business of the undersigned, (iii) the undersigned is
not participating, does not participate, and has no arrangement or understanding
with any person to participate in the distribution of the Exchange Notes, (iv)
the undersigned acknowledges that any person participating in the Exchange Offer
for the purpose of distributing the Exchange Notes must comply with the
registration and prospectus delivery requirements of the Securities Act of 1933,
as amended (the "Act"), in connection with a secondary resale transaction of the
Exchange Notes acquired by such person and cannot rely on the position of the
Staff of the Securities and Exchange Commission set forth in no-action letters
that are discussed in the section of the Prospectus entitled "The Exchange
Offer -- Resales of the Exchange Notes," and (v) the undersigned is not an
"affiliate," as defined in Rule 405 under the Act, of the Company; (b) to agree,
on behalf of the undersigned, as set forth in the Letter of Transmittal; and (c)
to take such other action as necessary under the Prospectus or the Letter of
Transmittal to effect the valid tender of such Notes.
SIGN HERE
Name of beneficial owner(s):
- --------------------------------------------------------------------------------
Signature(s):
- --------------------------------------------------------------------------------
Name (please print):
- --------------------------------------------------------------------------------
Address:
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Telephone number:
- --------------------------------------------------------------------------------
Taxpayer Identification or Social Security Number:
- ----------------------------------------------------------------------
Date:
- --------------------------------------------------------------------------------
