<PAGE> 1
FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
/X/ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the quarterly period ended September 30, 1999
OR
/ / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from to .
Commission file number 333-51857
- --------------------------------------------------------------------------------
PLAINWELL INC.
(Exact name of registrant 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
Plainwell, Michigan 49080
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: 616-685-2500
Not Applicable
(Former name, former address, and former fiscal year,
if changed since last report)
- --------------------------------------------------------------------------------
Indicate by check mark whether the Registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the Registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes / X/ No / /.
Indicate the number of shares outstanding of each of the issuer's classes of
common stock as of October 29, 1999: 500 shares, $1 par value Common Stock
outstanding.
<PAGE> 2
PLAINWELL INC.
FORM 10-Q
INDEX
PAGE
- --------------------------------------------------------------------------------
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements (Unaudited)
Condensed Statements of Operations for the three and nine months
ended September 30, 1999 and 1998 3
Condensed Balance Sheets at September 30, 1999 and December 31,
1998 4
Condensed Statements of Cash Flows for the nine months ended
September 30, 1999 and 1998 5
Notes to Condensed Financial Statements - September 30, 1999 6
Item 2. Management's Discussion and Analysis of Financial Position
and Results of Operations 11
Item 3. Quantitative and Qualitative Disclosures About Market Risk 16
PART II. OTHER INFORMATION
Item 1. Legal Proceedings 17
Item 4. Submission of Matters to a Vote of Security Holders 17
Item 6. Exhibits and Reports on Form 8-K 17
Signatures 18
Exhibit Index 19
2
<PAGE> 3
PART I
PLAINWELL INC.
CONDENSED STATEMENTS OF OPERATIONS
(Thousands of Dollars)
(Unaudited)
<TABLE>
<CAPTION>
Three months ended Nine months ended
September 30, September 30,
------------------------ ------------------------
1999 1998 1999 1998
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
Net sales $ 52,802 $ 55,797 $ 159,026 $ 140,924
Cost of sales 46,896 48,552 140,248 122,605
--------- --------- --------- ---------
Gross profit 5,906 7,245 18,778 18,319
Selling, general and
administrative expenses 4,942 4,654 14,005 11,717
--------- --------- --------- ---------
Operating income 964 2,591 4,773 6,602
Interest expense 4,526 4,147 13,152 10,064
--------- --------- --------- ---------
Loss before taxes
and extraordinary item (3,562) (1,556) (8,379) (3,462)
Income tax benefit (1,073) (279) (2,329) (818)
--------- --------- --------- ---------
Loss before extraordinary item (2,489) (1,277) (6,050) (2,644)
Extraordinary item, net of tax -- -- -- (597)
--------- --------- --------- ---------
Net loss $ (2,489) $ (1,277) $ (6,050) $ (3,241)
========= ========= ========= =========
</TABLE>
See accompanying notes to condensed financial statements.
3
<PAGE> 4
PLAINWELL INC.
CONDENSED BALANCE SHEETS
(Thousands of Dollars, Except Share Amounts)
<TABLE>
<CAPTION>
September 30, 1999 December 31, 1998
------------------ -----------------
(Unaudited)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 1,334 $ 1,846
Accounts receivable, net 24,449 19,387
Inventories 28,744 27,750
Other 8,471 5,599
------------------ -----------------
Total current asset 62,998 54,582
Property, plant and equipment 153,187 148,630
Accumulated depreciation (19,644) (11,220)
------------------ -----------------
Net property, plant and equipment 133,543 137,410
Other Assets 33,111 33,240
------------------ -----------------
Total assets $ 229,652 $ 225,232
================== =================
LIABILITIES AND STOCKHOLDER'S EQUITY
Current liabilities:
Accounts payable $ 17,209 $ 14,642
Accrued liabilities 12,618 18,093
Notes payable 150 150
------------------ -----------------
Total current liabilities 29,977 32,885
Long-term debt 169,864 152,915
Other long-term liabilities 16,380 15,951
------------------ -----------------
Total liabilities 216,221 201,751
Commitments and Contingencies (Notes 4 and 5)
Stockholder's equity:
Common stock $1 par value, authorized 1,000
shares, issued and outstanding 500
shares 1 1
Paid-in capital 28,319 28,319
Accumulated deficit (14,889) (4,839)
------------------ -----------------
Total stockholder's equity 13,431 23,481
------------------ -----------------
Total liabilities and stockholder's
equity $ 229,652 $ 225,232
================== =================
</TABLE>
See accompanying notes to condensed financial statements.
4
<PAGE> 5
PLAINWELL INC.
CONDENSED STATEMENTS OF CASH FLOWS
(Thousands of Dollars)
(Unaudited)
<TABLE>
<CAPTION>
Nine months ended
September 30,
------------------------
1999 1998
--------- ---------
<S> <C> <C>
OPERATING ACTIVITIES:
Net loss $ (6,050) $ (3,241)
Adjustments to reconcile net loss to net
cash used in operating activities:
Depreciation and amortization 10,446 8,059
Deferred income taxes (2,329) (1,209)
Changes in operating assets and liabilities (9,847) (3,070)
--------- ---------
Net cash provided by (used in) operating
activities (7,780) 539
INVESTING ACTIVITIES:
Capital expenditures (5,681) (2,888)
Purchase of Consumer Products Division -- (122,317)
--------- ---------
Net cash used in investing activities (5,681) (125,205)
FINANCING ACTIVITIES:
Net borrowings (payments) under
Revolving lines of credit 16,949 (4,095)
Repayment of term loan -- (13,500)
Issuance of long-term debt -- 130,000
Deferred financing costs -- (7,206)
Capital contribution -- 24,634
Dividends paid (4,000) (4,288)
--------- ---------
Net cash provided by financing
activities 12,949 125,545
--------- ---------
Net increase (decrease) in cash and cash equivalents (512) 879
Cash and cash equivalents at beginning of period 1,846 772
--------- ---------
Cash and cash equivalents at end of period $ 1,334 $ 1,651
========= =========
</TABLE>
See accompanying notes to condensed financial statements.
5
<PAGE> 6
PLAINWELL INC.
NOTES TO CONDENSED FINANCIAL STATEMENTS (UNAUDITED)
SEPTEMBER 30, 1999
NOTE 1. BASIS OF PRESENTATION
PLAINWELL INC. (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: the Consumer Products Division,
which produces private label consumer tissue products such as bath tissue, paper
towels, napkins and facial tissue and the Specialty Paper Division, which
produces premium coated and uncoated printing papers and release and other
technical/specialty papers.
The Company is a wholly owned subsidiary of Plainwell Holding Company
("Holdings"). Holdings and two affiliated entities, Shasta Holdings Company and
Shasta Paper Company are wholly owned subsidiaries of Plainwell Shasta Holdings
Inc. Effective March 6, 1998, Plainwell Paper Company merged with and into the
Company and its business operates as the Specialty Paper Division of the
Company. Also effective March 6, 1998, the Company purchased substantially all
of the assets, properties and rights and assumed certain related liabilities of
the tissue business of Pope & Talbot, Inc., which operates as the Consumer
Products Division of the Company (see Note 2).
The historical information of the Company for the nine months ended September
30, 1998 includes the results of the Consumer Products Division beginning with
the acquisition date (March 6, 1998).
The balance sheet at December 31, 1998 has been derived from the audited
financial statements at that date but does not include all the information and
footnotes required by generally accepted accounting principles for complete
financial statements.
The accompanying unaudited condensed financial statements have been prepared in
accordance with generally accepted accounting principles for interim financial
information and the instructions to Form 10-Q and Article 10 of Regulation S-X.
Accordingly, they do not include all the information and notes required by
generally accepted accounting principles for complete financial statements. In
the opinion of management, all adjustments (consisting only of adjustments of a
normal and recurring nature) considered necessary for a fair presentation of the
financial position and results of operations have been included. Operating
results for the three and nine months ended September 30, 1999 are not
necessarily indicative of the results that might be expected for the year ending
December 31, 1999. For further information, refer to the financial statements
and footnotes for the year ended December 31, 1998 included in the Company's
Report on Form 10-K, filed March 31, 1999.
NOTE 2. ACQUISITIONS
Effective March 6, 1998, the Company purchased substantially all of the assets,
properties and rights and assumed certain related liabilities of the tissue
business of Pope & Talbot, Inc. The total purchase price, including the costs of
the acquisition, was $122,317,000.
6
<PAGE> 7
PLAINWELL INC.
NOTES TO CONDENSED FINANCIAL STATEMENTS (UNAUDITED)
The following unaudited pro forma results of operations for the nine months
ended September 30, 1998 assumes the acquisition, merger and related
transactions occurred as of January 1, 1998 (in thousands of dollars):
<TABLE>
<CAPTION>
Nine Months Ended
September 30, 1998
------------------------
<S> <C>
Net sales $163,893
Loss before extraordinary item (3,529)
</TABLE>
This pro forma information does not purport to be indicative of the results that
actually would have been obtained if the combined operations had been conducted
during the periods presented and is not intended to be a projection of future
results.
NOTE 3. INVENTORIES
Inventories consist of the following (in thousands of dollars):
<TABLE>
<CAPTION>
September 30, 1999 December 31, 1998
------------------------ ------------------------
<S> <C> <C>
Finished goods $18,291 $17,173
Work-in-process 4,756 4,444
Materials and supplies 5,697 6,133
------- -------
Total $28,744 $27,750
======= =======
</TABLE>
NOTE 4. COMMITMENTS AND CONTINGENCIES
The Company is involved in various legal proceedings in the ordinary course of
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, the Company presently believes that the ultimate outcome
from these proceedings would not have a material adverse effect on the current
financial position or on the operations of the Company; however, in any given
future reporting period such proceedings or matters could have a material effect
on the results of operations.
NOTE 5. ENVIRONMENTAL REMEDIATION
The Company is committed to abiding by the Environmental, Health and Safety
Principles of the American Forest & Paper Association. Each capital project has
been planned to comply with applicable environmental regulations and to enhance
environmental protection at existing facilities. The Company faces increasing
capital expenditures and operating costs to comply with expanding and more
stringent environmental regulations, although compliance with existing
environmental regulations is not expected to have a materially adverse effect on
the Company's earnings, financial position, or competitive position.
7
<PAGE> 8
PLAINWELL INC.
NOTES TO CONDENSED FINANCIAL STATEMENTS (UNAUDITED)
The Comprehensive Environmental Response, Compensation and Liability Act
(CERCLA) and similar state "Superfund" laws impose liability, without regard to
fault or to the legality of the original action, on certain classes of persons
(referred to as potentially responsible parties or PRPs) associated with a
release or threat of a release of hazardous substances into the environment.
Financial responsibility for the cleanup or other remediation of contaminated
property or for natural resource damages can extend to previously owned or used
properties, waterways, and properties owned by third parties, as well as to
properties currently owned and used by a company even if contamination is
attributable entirely to prior owners. The Company has been identified by
certain governmental entities or other parties as a potentially responsible
party with respect to possible investigation and cleanup costs associated with
certain contaminated sites. The Company has recorded a liability for the
estimated work at the locations and a receivable for remediation costs
recoverable under related indemnification agreements.
The Company owns and operates a landfill in Washington Township, Wisconsin, for
disposal of its papermaking sludge. The Company has closed two of the three
sections of the landfill and is currently monitoring those sections in
accordance with requirements of state environmental laws. The Company expects to
begin closure of the third section by 2002. Estimated closure costs of $1.3
million are being accrued over the operating life of the landfill. Monitoring
costs are estimated at $80,000 per year and will be required for 40 years
following the closure of the landfill. The Company is also considered a PRP with
respect to the Blue Valley Landfill Superfund Site in Eau Claire, Wisconsin.
Based on the amount of material sent to the Blue Valley Landfill and the
Company's indemnification with a predecessor company, the Company does not
anticipate that its costs associated with the site will have a material adverse
effect on its operations, liquidity or financial condition.
In 1998, the EPA published regulations establishing standards and limitations
for non-combustion sources under the Clean Air Act and revised regulations under
the Clean Water Act. The new rules require more stringent controls on air
emissions and wastewater discharges from the Company's paper and tissue mills.
These regulations are collectively referred to as the "Cluster Rules." The
Company estimates that future capital spending to comply with the Cluster Rules
could be up to $5.0 million.
NOTE 6. PAID-IN CAPITAL AND STOCKHOLDER'S EQUITY
In January 1999, Shasta Paper Company acquired the pulp and paper operations of
Simpson Paper Company located in Anderson, California. The Company paid a
dividend of $4.0 million to finance the transaction. The Company has various
transactions with Shasta Paper Company, including intercompany sales, shared
sales and marketing costs, shared corporate administrative costs, and shared
information services costs.
8
<PAGE> 9
PLAINWELL INC.
NOTES TO CONDENSED FINANCIAL STATEMENTS (UNAUDITED)
NOTE 7. BUSINESS SEGMENT INFORMATION
Financial information by business segment follows (in thousands of dollars):
<TABLE>
<CAPTION>
Consumer Specialty
Products Paper
Division Division Corporate Total
----------- ---------- ---------- ---------
<S> <C> <C> <C> <C>
Three months ended September 30, 1999:
Net sales $ 31,816 $ 20,986 $ - $ 52,802
Income (loss) before interest, income
taxes and extraordinary item 464 948 (448) 964
Interest expense 314 37 4,175 4,526
Depreciation and amortization 3,042 369 -- 3,411
Capital expenditures 2,021 237 281 2,539
Total assets 159,314 55,575 14,763 229,652
Three months ended September 30, 1998:
Net sales $ 36,100 $ 19,697 $ - $ 55,797
Income (loss) before interest, income
taxes and extraordinary item 2,934 156 (499) 2,591
Interest expense 203 67 3,877 4,147
Depreciation and amortization 2,920 368 - 3,288
Capital expenditures 1,392 398 - 1,790
Total assets 163,485 51,004 9,840 224,329
Nine months ended September 30, 1999:
Net sales $ 98,349 $ 60,677 $ - $159,026
Income (loss) before interest, income
taxes and extraordinary item 3,087 2,808 (1,122) 4,773
Interest expense 748 110 12,294 13,152
Depreciation and amortization 8,754 1,107 - 9,861
Capital expenditures 4,382 537 762 5,681
Nine months ended September 30, 1998:
Net sales $ 81,691 $ 59,233 $ - $140,924
Income (loss) before interest, income
taxes and extraordinary item 6,523 1,119 (1,040) 6,602
Interest expense 476 146 9,442 10,064
Depreciation and amortization 6,503 1,104 - 7,607
Capital expenditures 2,136 752 - 2,888
</TABLE>
9
<PAGE> 10
PLAINWELL INC.
NOTES TO CONDENSED FINANCIAL STATEMENTS (UNAUDITED)
NOTE 8. SUBSEQUENT EVENT
In November 1999, the Company replaced its senior credit facility with Fleet
Business Credit Corporation (formerly Sanwa Business Credit Corporation) (the
"Fleet Facility") with a new senior facility between PLAINWELL INC. and Congress
Financial Corporation (the "Congress Facility"). The Congress Facility has a
three year term and provides for a maximum credit capacity of $55.0 million. The
availability under the Congress Facility is based on the sum of (1) 85% of
eligible accounts receivable (as defined within the agreement) plus, (2) the
lesser of 60% of eligible inventory (as defined within the agreement), and $25
million, plus (3) $25 million (such amount will be reduced ratably over a 60
month period). The $55.0 million Congress Facility may also be utilized for
letter of credit guaranties not to exceed $30 million outstanding at anytime.
Interest on the Congress Facility is payable monthly at either (i) the Prime
Rate plus one half percent per annum or (ii) two and one half percent per annum
in excess of the adjusted Eurodollar rate. The Company used the proceeds of the
Congress Facility to repay the outstanding revolver balances and accrued
interest due under the Fleet Facility and to fund a $0.7 million penalty in
connection with the early termination of the Fleet Facility. The Company also
utilized $20 million under the Congress Facility to back-up its current letter
of credit guaranty related to its Eau Claire Industrial Revenue Bonds. During
the fourth quarter of 1999, the Company will record as an extraordinary charge,
net of taxes, the $0.7 million early termination penalty and $0.6 million of
unamortized deferred debt costs related to the Fleet Facility.
10
<PAGE> 11
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
RESULTS OF OPERATIONS
The Company acquired the Consumer Products Division on March 6, 1998. The
historical financial information of the Company for the nine months ended
September 30, 1998 includes the results of the Consumer Products Division since
the date of acquisition March 6, 1998.
THREE MONTHS ENDED SEPTEMBER 30, 1999 COMPARED TO THE THREE MONTHS ENDED
SEPTEMBER 30, 1998
NET SALES
The Company's net sales decreased slightly to $52.8 million for the three months
ended September 30, 1999 compared to $55.8 million for the three months ended
September 30, 1998. This decline reflects a $4.3 million reduction in net sales
at the Consumer Products Division partially offset by a $1.3 million increase in
net sales at the Specialty Paper Division.
The decrease in net sales at the Consumer Products Division reflects an 11.0%
reduction in sales volume and a 2.0% decline in the average net selling price
per unit compared to the third quarter of 1998. The reduction in sales volume is
primarily due to management's decision during the third quarter of 1999 to
discontinue certain incremental business not currently considered profitable.
Although the Consumer Products Division produces much of the paper used in its
conversion operations, the division has historically purchased additional paper
from third parties to take advantage of available converting capacity. Rising
pulp and paper prices coupled with downward market pressure on selling prices,
made this incremental converting business unattractive.
The $1.3 million increase in net sales at the Specialty Paper Division reflects
an 11.1% increase in sales volume partially offset by a 4.2% decrease in the
average net selling price per unit sold. The Specialty Paper Division has
continued to capitalize on sales and marketing synergies created through its
affiliation with Shasta Paper Company to increase sales volume. The decrease in
average sales price primarily reflects changes in the division's sales mix.
COST OF SALES AND GROSS PROFIT
Cost of sales decreased slightly to $46.9 million for the three months ended
September 30, 1999 compared with $48.6 million during the same period of 1998
primarily due to various cost savings initiatives put in place during 1999 and
lower overall production volume. Increasing fiber prices during the end of the
second quarter and continuing through the third quarter of 1999, coupled with
the reduction in average net selling prices discussed above, resulted in a
decrease in the Company's gross profit percentage to approximately 11.2%
compared to 13.0% during the third quarter of 1998.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES
Selling, general and administrative expenses remained relatively flat at $4.9
million for the three months ended September 30, 1999 compared to $4.7 million
for the quarter ended September 30, 1998.
11
<PAGE> 12
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS, CONTINUED
INCOME TAXES
The Company has recorded federal tax benefits related to the Company's
consolidated net loss before taxes during the third quarter of 1999 and 1998.
The federal tax benefit is partially offset by applicable state tax provisions.
Due to the increase in the Company's net loss before taxes, the effective net
tax benefit rose to 30.1% in the third quarter of 1999 compared to 17.9% in the
third quarter of 1998.
NINE MONTHS ENDED SEPTEMBER 30, 1999 COMPARED TO THE NINE MONTHS ENDED SEPTEMBER
30, 1998
NET SALES
During the nine months ended September 30, 1999, the Company had net sales of
$159.0 million compared to $140.9 million in the same period of 1998. The
Company's net sales for the nine months ended September 30, 1998, include the
results of the Consumer Products Division beginning with its acquisition date of
March 6, 1998, or approximately seven months, compared to nine months in 1999.
Net sales at the Consumer Products Division was $98.3 million during the first
nine months of 1999 compared to $81.7 million during 1998. The rise in net sales
reflects a 25.5% increase in sales volume due primarily to the two additional
months of operations, partially offset by a 4.1% decrease in average selling
prices.
Net sales at the Specialty Paper Division increased $1.5 million to $60.7
million during the first nine months of 1999 compared to $59.2 million in the
same period of 1998. Improved net sales at the division reflect a 6.7% increase
in volume partially offset by a 3.0% decrease in average selling prices.
COST OF SALES AND GROSS PROFIT
Cost of sales increased to $140.2 million for the nine months ended September
30, 1999 compared to $122.6 million for the nine months ended September 30,
1998. As discussed above, the 1998 cost of sales includes approximately seven
months of costs associated with the Consumer Products Division compared to a
full nine months in 1999.
The Consumer Products Division contributed $78.9 million in cost of sales during
the first nine months of 1999 compared to $63.4 million during 1998. The rise in
cost of goods sold primarily reflects the impact of two additional months of
operations during 1999.
The cost of goods sold at the Specialty Products Division remained relatively
flat at $53.1 million during the first nine months of 1999 compared to $52.7
million during the same period of 1998, despite an increase in sales volume of
approximately 7.0%. The effect of higher volume and rising raw material prices
has been minimized by various cost savings initiatives put into place in late
1998 and early 1999, resulting in a decrease in the average cost of goods sold
on a per ton basis.
Although minimized by lower cost of goods sold on a per ton basis, the impact of
lower selling prices did result in a slight decrease in the Company's gross
profit margin to 17.0% during the first nine months of 1999 compared to 17.6% in
the same period a year ago.
12
<PAGE> 13
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS, CONTINUED
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES
Selling, general and administrative expenses increased $2.3 million to $14.0
million for the nine months ended September 30, 1999 compared to $11.7 million
for the same period in 1998. This increase was primarily attributable to the
March 1998 acquisition of the Consumer Products Division, whereby nine months of
expenses are included during 1999 versus seven months (since date of
acquisition) in 1998.
INTEREST EXPENSE
Interest expense increased $3.1 million to $13.2 million during the first nine
months of 1999 compared to $10.1 million in the same period of 1998. This
increase is primarily attributable to the Company's issuance of $130.0 million,
11% Senior Subordinated Notes in March 1998.
INCOME TAX EXPENSE
The Company's effective income tax rate was 27.8% and 23.6%, during the first
nine months of 1999 and 1998, respectively. The difference between the Company's
effective income tax rate and the statutory federal income tax rate are
primarily due to state income taxes.
FINANCIAL CONDITION
ACCOUNTS RECEIVABLE
Accounts receivable increased $5.1 million to $24.4 million at September 30,
1999, compared to $19.4 million at December 31, 1998. This change reflects an
increase in net sales at the Specialty Paper Division during August and
September of 1999 compared to net sales during the last two months of 1998. In
addition, a change in customer mix at the Specialty Paper Division has resulted
in a slightly slower accounts receivable turnover rate and related increase in
month end receivable balances.
ACCRUED LIABILITIES
Accrued liabilities decreased $5.5 million to $12.6 million at September 30,
1999, compared to $18.1 million at December 31, 1998. This decrease is primarily
due to the timing of the semi-annual interest payments related to the Company's
$130 million 11% Senior Subordinated Notes (the "Senior Subordinated Notes").
Accrued interest related to the Senior Subordinated Notes is due and payable on
the first day of September and March of each year.
LONG TERM DEBT
Long term debt increased $17.0 million, to $169.9 million at September 30, 1999,
compared to $152.9 million at December 31, 1998, reflecting an increase in
outstanding indebtedness under the Company's revolving credit facility.
13
<PAGE> 14
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS, CONTINUED
LIQUIDITY AND CAPITAL RESOURCES.
The Company's primary capital requirements are for working capital, capital
expenditures and possible acquisitions. Management believes that cash generated
from operations, together with borrowings under its revolving credit facility,
will be sufficient to meet the Company's capital needs in the foreseeable
future.
EBITDA, a measure of internal cash flow combining earnings before interest and
income taxes plus non-cash charges for depreciation and amortization, was $14.6
million for the first nine months of 1999 compared to $14.2 million in the same
period of 1998.
OPERATING ACTIVITIES
Net cash used in operating activities for the first nine months of 1999 was $8.4
million compared to cash provided by operations of $87,000 in the same period of
1998. This change in cash used in operating activities is primarily due to
interest payments associated with the Company's Senior Subordinated Notes issued
in March 1998. Accrued interest on the Senior Subordinated Notes is due and
payable semi-annually on the first day of March and September each year.
INVESTING ACTIVITIES
Capital expenditures were $5.7 million and $2.9 million for the nine months
ended September 30, 1999 and 1998, respectively. The Company anticipates
remaining capital expenditures during 1999 of approximately $2.0 million
primarily to support various strategic initiatives. These initiatives include
new tissue converting equipment at the Consumer Products Division's facilities,
structural improvements at several facilities and enhancements of the Company's
information systems. These projects are consistent with the Company's strategy
of expanding the Specialty Paper and Consumer Products businesses, reducing
costs, and spending capital to generate a higher return on investment. Capital
expenditures are expected to be financed with internally generated cash or
through available borrowings. The Company further estimates that it will cost
approximately $5.0 million for capital improvements to bring operations into
compliance with the environmental cluster rules. The Company cannot predict if
or when the cluster rules will be promulgated in a form that will require the
Company to make such expenditures. The Company is indemnified under various
agreements with respect to certain contingent environmental liabilities.
FINANCING ACTIVITIES
The Company had $169.9 million in long-term debt outstanding at September 30,
1999, compared to $155.0 million at September 30, 1998, reflecting an increase
in borrowings under the Company's revolving credit facility. The Company had
utilized $17.6 million of the $35.0 million revolving credit facility at
September 30, 1999.
In January 1999, the Company's affiliate, Shasta Paper Company ("Shasta"),
acquired the pulp and paper operations of Simpson Paper Company. The Company
paid a dividend of $4.0 million to Shasta to finance the transaction.
Pursuant to the terms of the Amended and Restated Loan and Security Agreement
(the "Revolving Credit Facility") between the Company and Fleet Business Credit
Corporation, the Company is required to comply with various financial covenants,
including a covenant to maintain a fixed charge coverage ratio, as defined and
14
<PAGE> 15
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS, CONTINUED
calculated in accordance with the Revolving Credit Facility. During the second
quarter of 1999, the Revolving Credit Facility was amended to reduce the minimum
fixed charge coverage ratio. At September 30, 1999, the Company was in
compliance with the covenants of the revolving credit facility, as amended.
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.
CONTINGENT MATTERS.
Refer to Notes 4 and 5 of the Notes to the Condensed Financial Statements for a
discussion of contingencies.
YEAR 2000 ISSUES.
The "Year 2000" refers generally to the problems that some software may have in
determining the correct century for the year. For example, software with date
sensitive functions that is not Year 2000 compliant may not be able to
distinguish whether "00" means 1900 or 2000, which may result in failures or the
creation of erroneous results. Currently, many computer systems and software
products are coded to accept only two-digit entries to distinguish the 21st
century dates from 20th century dates. As a result, many companies' software and
computer systems may need to be upgraded or replaced in order to comply with
such "Year 2000" requirements. If the Company or third parties with which the
Company does business, fail to comply with Year 2000 requirements, the integrity
and reliability of our information databases may also be adversely affected.
In connection with the March 1998 acquisition of the Consumer Products Division,
the Company entered into an 18-month Transition Services Agreement with Pope &
Talbot, Inc. for the purposes of supporting and enhancing the Consumer Products
Division's information systems and applications, including the identification,
remediation, and testing of non-Year 2000 compliant software. An additional
third party has been engaged by the Company to identify and address any Year
2000 issues at the Specialty Paper Division.
The Company has queried its significant suppliers and subcontractors which it
does not share information systems. To date, the Company is not aware of any
such third party with a Year 2000 issue that would materially impact results of
operations, liquidity, or capital resources. However, the Company has no means
of ensuring that third parties with whom the Company does business will be Year
2000 compliant. The inability of third parties to complete their Year 2000
resolution process in a timely fashion could have a material impact on the
Company's operations. The effect of non-compliance by such third parties is
presently not determinable.
Management believes that the Company has completed the necessary assessment,
remediation and testing of all business critical systems to resolve Year 2000
issues. To further reduce risk of potential Year 2000 system issues, the Company
has developed informal contingency plans for critical business applications and
is working
15
<PAGE> 16
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS, CONTINUED
on additional plans for others. These contingency plans involve, among other
actions, manual workarounds and adjusting staffing strategies on a short-term
basis. The Company cannot, however, ensure that there will not be disruptions in
the economy generally resulting from the Year 2000 issues, which could
materially adversely affect the Company's operations. The amount of potential
liability and lost revenue from such disruptions cannot be reasonably estimated
at this time.
FORWARD-LOOKING INFORMATION
Certain statements in the Management's Discussion and Analysis of Financial
Condition and Results of Operation for the three and nine months ended September
30, 1999 compared to the three and nine months ended September 30, 1998 may
constitute forward-looking statements within the meaning of the Private
Securities Litigation Reform Act of 1995. Because these forward-looking
statements include risks and uncertainties, actual future results may differ
materially from those expressed in or implied by the statements. Factors that
could cause actual results to differ include, among other things; (1) Increased
competition from either domestic or foreign paper producers, including increases
in more competitive capacity through construction of new mills or conversion of
older facilities to produce competitive products; (2) variations in demand for
our products; (3) changes in the cost or availability of the raw materials that
we use, particularly market pulp; (4) costs of compliance with new environmental
laws and regulations; (5) any decisions by us to make a significant acquisition
or a significant increase in production capacity
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The Company is exposed to market risks related to changes in interest rates. The
Company does not use derivative financial instruments for speculative or trading
purposes.
Interest Rate Sensitivity. The Company's earnings are affected by changes in
short-term interest rates as a result of its borrowings under its revolving
credit facility. If market interest rates for such borrowings had averaged 1%
more during the nine months ended September 30, 1999, the Company's interest
expense would have increased, and income before income taxes would have
decreased by approximately $82.0 thousand. This analysis does not consider the
effects of the reduced level of overall economic activity that could exist in
such an environment. Further, in the event of a change of a significant change
in short-term interest rates, management could take actions to further mitigate
its exposure to the change. However, due to the uncertainty of the specific
actions that would be taken and their possible effects, the sensitivity analysis
assumes no changes in the Company's financial structure.
16
<PAGE> 17
PART II
ITEM 1. LEGAL PROCEEDINGS
Reference is made to Note 7 of the Notes to Financial Statements included with
the Company's Annual Report on Form 10-K filed March 31, 1999.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
(1) None
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
The following exhibit is filed in response to Item 601 of Regulation S-K:
Exhibit No. Description
10 Loan and Security Agreement by and between CONGRESS FINANCIAL
CORPORATION (CENTRAL) as lender and PLAINWELL INC. as
borrower, dated November 5, 1999
27 Financial Data Schedule (filed herewith)
(b) Reports on Form 8-K
None
17
<PAGE> 18
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
PLAINWELL INC.
(Registrant)
November 12, 1999 By: /s/ Jeffrey A. Arnesen
- ----------------------------------- ------------------------------------
Date Jeffrey A. Arnesen
Chief Financial Officer
(Principal Financial Officer)
November 12, 1999 By: /s/ William L. New
- ----------------------------------- ------------------------------------
Date William L. New
Chairman and Chief Executive Officer
18
<PAGE> 19
EXHIBIT INDEX
Exhibit No. Description
10 Loan and Security Agreement by and between CONGRESS FINANCIAL
CORPORATION (CENTRAL) as lender and PLAINWELL INC. as borrower, dated
November 5, 1999.
27 Financial Data Schedule
19
<PAGE> 1
EXHIBIT 10
Loan and Security Agreement
by and between
CONGRESS FINANCIAL CORPORATION (CENTRAL)
as Lender
and
PLAINWELL INC.
as Borrower
Dated: November 5, 1999
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
<S> <C> <C>
SECTION 1. DEFINITIONS........................................................................ -1-
SECTION 2. CREDIT FACILITIES.................................................................. -14-
2.1 Revolving Loans.................................................................... -14-
2.2 Letter of Credit Accommodations.................................................... -16-
2.3 Availability Reserves.............................................................. -18-
SECTION 3. INTEREST AND FEES.................................................................. -18-
3.1 Interest........................................................................... -18-
3.2 Closing Fee........................................................................ -19-
3.3 Servicing Fee...................................................................... -19-
3.4 Unused Line Fee.................................................................... -19-
3.5 Changes in Laws and Increased Costs of Loans....................................... -20-
SECTION 4. CONDITIONS PRECEDENT............................................................... -20-
4.1 Conditions Precedent to Initial Loans and Letter of Credit Accommodations.......... -20-
4.2 Conditions Precedent to All Loans and Letter of Credit Accommodations.............. -22-
SECTION 5. GRANT OF SECURITY INTEREST......................................................... -23-
SECTION 6. COLLECTION AND ADMINISTRATION...................................................... -24-
6.1 Borrower's Loan Account............................................................ -24-
6.2 Statements......................................................................... -24-
6.3 Collection of Accounts............................................................. -24-
6.4 Payments........................................................................... -25-
6.5 Authorization to Make Loans........................................................ -25-
6.6 Use of Proceeds.................................................................... -26-
SECTION 7. COLLATERAL REPORTING AND COVENANTS................................................. -26-
7.1 Collateral Reporting............................................................... -26-
7.2 Accounts Covenants................................................................. -26-
7.3 Inventory Covenants................................................................ -28-
7.4 Equipment and Real Property Covenants.............................................. -29-
7.5 Power of Attorney.................................................................. -29-
7.6 Right to Cure...................................................................... -30-
7.7 Access to Premises................................................................. -30-
SECTION 8. REPRESENTATIONS AND WARRANTIES..................................................... -30-
8.1 Corporate Existence, Power and Authority; Subsidiaries............................. -31-
8.2 Financial Statements; No Material Adverse Change................................... -31-
</TABLE>
(i)
<PAGE> 3
<TABLE>
<S> <C>
8.3 Chief Executive Office; Collateral Locations....................................... -31-
8.4 Priority of Liens; Title to Properties............................................. -31-
8.5 Tax Returns........................................................................ -31-
8.6 Litigation......................................................................... -32-
8.7 Compliance with Other Agreements and Applicable Laws............................... -32-
8.8 Environmental Compliance........................................................... -32-
8.9 Bank Accounts...................................................................... -33-
8.10 Accuracy and Completeness of Information........................................... -33-
8.11 Survival of Warranties; Cumulative................................................. -33-
SECTION 9. AFFIRMATIVE AND NEGATIVE COVENANTS................................................ -34-
9.1 Maintenance of Existence........................................................... -34-
9.2 New Collateral Locations........................................................... -34-
9.3 Compliance with Laws, Regulations, Etc............................................. -34-
9.4 Payment of Taxes and Claims........................................................ -35-
9.5 Insurance.......................................................................... -36-
9.6 Financial Statements and Other Information......................................... -37-
9.7 Sale of Assets, Consolidation, Merger, Dissolution, Etc............................ -38-
9.8 Encumbrances....................................................................... -38-
9.9 Indebtedness....................................................................... -39-
9.10 Loans, Investments, Guarantees, Etc................................................ -39-
9.11 Dividends and Redemptions.......................................................... -40-
9.12 Transactions with Affiliates....................................................... -40-
9.13 Additional Bank Accounts........................................................... -40-
9.14 Adjusted Net Worth................................................................. -41-
9.15 After Acquired Real Property....................................................... -41-
9.16 Costs and Expenses................................................................. -41-
9.17 Year 2000 Compliance............................................................... -42-
9.18 Further Assurances................................................................. -42-
SECTION 10. EVENTS OF DEFAULT AND REMEDIES..................................................... -43-
10.1 Events of Default.................................................................. -43-
10.2 Remedies........................................................................... -44-
SECTION 11. JURY TRIAL WAIVER; OTHER WAIVERS
AND CONSENTS; GOVERNING LAW...................................... -46-
11.1 Governing Law; Choice of Forum; Service of Process; Jury Trial Waiver.............. -46-
11.2 Waiver of Notices.................................................................. -47-
11.3 Amendments and Waivers............................................................. -47-
11.4 Waiver of Counterclaims............................................................ -47-
11.5 Indemnification.................................................................... -47-
SECTION 12. TERM OF AGREEMENT; MISCELLANEOUS................................................... -48-
12.1 Term............................................................................... -48-
12.2 Notices............................................................................ -49-
</TABLE>
(ii)
<PAGE> 4
<TABLE>
<S> <C>
12.3 Partial Invalidity................................................................ -50-
12.4 Successors........................................................................ -50-
12.5 Entire Agreement.................................................................. -50-
</TABLE>
(iii)
<PAGE> 5
INDEX TO
EXHIBITS AND SCHEDULES
----------------------
Exhibit A Information Certificate
Schedule 1.56 Shelby Equipment
Schedule 8.4 Existing Liens
Schedule 8.8 Environmental Matters
Schedule 8.9 Bank Accounts
Schedule 9.9 Existing Indebtedness
Schedule 9.10 Existing Loans, Advances and Guarantees
(i)
<PAGE> 6
LOAN AND SECURITY AGREEMENT
---------------------------
This Loan and Security Agreement dated November 5, 1999 is entered into by
and between Congress Financial Corporation (Central), an Illinois corporation
("Lender") and Plainwell Inc, a Delaware corporation ("Borrower").
W I T N E S E T H:
------------------
WHEREAS, Borrower has requested that Lender enter into certain
financing arrangements with Borrower pursuant to which Lender may make loans and
provide other financial accommodations to Borrower; and
WHEREAS, Lender is willing to make such loans and provide such financial
accommodations on the terms and conditions set forth herein;
NOW, THEREFORE, in consideration of the mutual conditions and agreements
set forth herein, and for other good and valuable consideration, the receipt and
sufficiency of which is hereby acknowledged, the parties hereto agree as
follows:
SECTION 1. DEFINITIONS
All terms used herein which are defined in Article 1 or Article 9 of the
Uniform Commercial Code shall have the meanings given therein unless otherwise
defined in this Agreement. All references to the plural herein shall also mean
the singular and to the singular shall also mean the plural unless the context
otherwise requires. All references to Borrower and Lender pursuant to the
definitions set forth in the recitals hereto, or to any other person herein,
shall include their respective successors and assigns. The words "hereof",
"herein", "hereunder", "this Agreement" and words of similar import when used in
this Agreement shall refer to this Agreement as a whole and not any particular
provision of this Agreement and as this Agreement now exists or may hereafter be
amended, modified, supplemented, extended, renewed, restated or replaced. The
word "including" when used in this Agreement shall mean "including, without
limitation". An Event of Default shall exist or continue or be continuing until
such Event of Default is waived in accordance with Section 11.3 or is cured in a
manner satisfactory to Lender, if such Event of Default is capable of being
cured as determined by Lender. Any accounting term used herein unless otherwise
defined in this Agreement shall have the meanings customarily given to such term
in accordance with GAAP. For purposes of this Agreement, the following terms
shall have the respective meanings given to them below:
1.1 "Accounts" shall mean all present and future rights of Borrower to
payment for goods sold or leased or for services rendered, which are not
evidenced by instruments or chattel paper, and whether or not earned by
performance.
1.2 "Adjusted Eurodollar Rate" shall mean, with respect to each
Interest Period for any Eurodollar Rate Loan, the rate per annum (rounded
upwards, if necessary, to the next one-sixteenth
<PAGE> 7
(1/16) of one (1%) percent) determined by dividing (a) the Eurodollar Rate for
such Interest Period by (b) percentage equal to: (i) one (1) minus (ii) the
Reserve Percentage. For purposes hereof, "Reserve Percentage" shall mean the
reserve percentage, expressed as a decimal, prescribed by any United States or
foreign banking authority for determining the reserve requirement which is or
would be applicable to deposits of United States dollars in a non-United States
or an international banking office of Reference Bank used to fund a Eurodollar
Rate Loan or any Eurodollar Rate Loan made with the proceeds of such deposit,
whether or not the Reference Bank actually holds or has made any such deposits
or loans. The Adjusted Eurodollar Rate shall be adjusted on and as of the
effective day of any change in the Reserve Percentage.
1.3 "Adjusted Net Worth" shall mean as to any Person, at any time, in
accordance with GAAP (except as otherwise specifically set forth below), on a
consolidated basis for such Person and its subsidiaries (if any), the amount
equal to the difference between: (a) the aggregate net book value of all assets
of such Person and its subsidiaries, calculating the book value of inventory for
this purpose on a first-in-first-out basis, after deducting from such book
values all appropriate reserves in accordance with GAAP (including all reserves
for doubtful receivables, obsolescence, depreciation and amortization) and (b)
the aggregate amount of the indebtedness and other liabilities of such Person
and its subsidiaries (including tax and other proper accruals).
1.4 "Availability Reserves" shall mean, as of any date of determination,
such amounts as Lender may from time to time establish and revise in good faith
reducing the amount of Revolving Loans and Letter of Credit Accommodations which
would otherwise be available to Borrower under the lending formula(s) provided
for herein: (a) to reflect events, conditions, contingencies or risks which, as
determined by Lender in good faith, do or may affect either (i) the Collateral
or any other property which is security for the Obligations or its value, (ii)
the assets, business or prospects of Borrower or any Obligor or (iii) the
security interests and other rights of Lender in the Collateral (including the
enforceability, perfection and priority thereof) or (b) to reflect Lender's good
faith belief that any collateral report or financial information furnished by or
on behalf of Borrower or any Obligor to Lender is or may have been incomplete,
inaccurate or misleading in any material respect or (c) to reflect outstanding
Letter of Credit Accommodations as provided in Section 2.2 hereof or (d) in
respect of any state of facts which Lender determines in good faith constitutes
an Event of Default or may, with notice or passage of time or both, constitute
an Event of Default.
1.5 "Blocked Accounts" shall have the meaning set forth in Section 6.3
hereof.
1.6 "Bond Agreements" shall mean, collectively, the following (as the same
now exist or may hereafter be amended, modified, supplemented, extended,
renewed, restated or replaced): the Indenture, the Bonds issued by Borrower
pursuant to the Indenture, and all agreements, documents and instruments at any
time executed and/or delivered by any Borrower or Guarantor in connection with
any of the foregoing.
1.7 "Bonds" shall mean, collectively, the 11% Series A Senior
Subordinated Notes due 2008 and the 11% Series B Senior Subordinated Notes due
2008 issued by Borrower pursuant to the Indenture in the aggregate original
principal amount of $130,000,000, as the same now exist or may hereafter be
amended, modified, supplemented, extended, renewed, restated or replaced.
-2-
<PAGE> 8
1.8 "Bond Trustee" shall mean United States Trust Company of New York, in
its capacity as trustee under the Indenture for the holders of the Bonds and any
successor, replacement or additional trustee under the Indenture, and their
respective successors and assigns.
1.9 "Business Day" shall mean any day other than a Saturday, Sunday, or
other day on which commercial banks are authorized or required to close under
the laws of the State of Illinois or the State of North Carolina, and a day on
which the Reference Bank and Lender are open for the transaction of business,
except that if a determination of a Business Day shall relate to any Eurodollar
Rate Loans, the term Business Day shall also exclude any day on which banks are
closed for dealings in dollar deposits in the London interbank market or other
applicable Eurodollar Rate market.
1.10 "Collateral" shall have the meaning set forth in Section 5 hereof.
1.11 "Current Asset Revolving Loan Sublimit" shall mean the greater of (a)
the sum of the Revolving Loans available from time to time under the lending
formulas set forth in Sections 2.1(a)(i) and (ii) below, and (b) $35,000,000.
1.12 "Eligible Accounts" shall mean Accounts created by Borrower which are
and continue to be acceptable to Lender based on the criteria set forth below.
In general, Accounts shall be Eligible Accounts if:
(a) such Accounts arise from the actual and bona fide sale and
delivery of goods by Borrower or rendition of services by Borrower in the
ordinary course of its business which transactions are completed in accordance
with the terms and provisions contained in any documents related thereto;
(b) such Accounts are not unpaid more than the earlier to occur of (i)
sixty (60) days after the original due date for them and (ii) one hundred twenty
(120) days after the date of the original invoice for them, provided that, such
Accounts that remain unpaid more than ninety (90) days and not in excess of one
hundred twenty (120) days after the date of the original invoice for them and
which Lender may deem acceptable for advance purposes shall not exceed, in the
aggregate at any time, $500,000;
(c) such Accounts comply with the terms and conditions contained in
Section 7.2(c) of this Agreement;
(d) such Accounts do not arise from sales on consignment, guaranteed
sale, sale and return, sale on approval, or other terms under which payment by
the account debtor may be conditional or contingent;
(e) the chief executive office of the account debtor with respect to
such Accounts is located in the United States of America, or, at Lender's
option, if either: (i) the account debtor has delivered to Borrower an
irrevocable letter of credit issued or confirmed by a bank satisfactory to
Lender and payable only in the United States of America and in U.S. dollars,
sufficient to cover such Account, in form and substance satisfactory to Lender
and, if required by Lender, the original of
-3-
<PAGE> 9
such letter of credit has been delivered to Lender or Lender's agent and the
issuer thereof notified of the assignment of the proceeds of such letter of
credit to Lender, or (ii) such Account is subject to credit insurance payable to
Lender issued by an insurer and on terms and in an amount acceptable to Lender,
or (iii) such Account is otherwise acceptable in all respects to Lender (subject
to such lending formula with respect thereto as Lender may determine);
(f) such Accounts do not consist of progress billings, bill and hold
invoices or retainage invoices, except as to bill and hold invoices, if Lender
shall have received an agreement in writing from the account debtor, in form and
substance satisfactory to Lender, confirming the unconditional obligation of the
account debtor to take the goods related thereto and pay such invoice;
(g) the account debtor with respect to such Accounts has not asserted a
counterclaim, defense or dispute and does not have, and does not engage in
transactions which may give rise to, any right of setoff against such Accounts
(but the portion of the Accounts of such account debtor in excess of the amount
at any time and from time to time owed by Borrower to such account debtor or
claimed owed by such account debtor may be deemed Eligible Accounts);
(h) there are no facts, events or occurrences which would impair the
validity, enforceability or collectibility of such Accounts or reduce the amount
payable or delay payment thereunder;
(i) such Accounts are subject to the first priority, valid and
perfected security interest of Lender and any goods giving rise thereto are not,
and were not at the time of the sale thereof, subject to any liens except those
permitted in this Agreement;
(j) neither the account debtor nor any officer or employee of the
account debtor with respect to such Accounts is an officer, employee or agent of
or affiliated with Borrower directly or indirectly by virtue of family
membership, ownership, control, management or otherwise;
(k) the account debtors with respect to such Accounts are not any
foreign government, the United States of America, any State, political
subdivision, department, agency or instrumentality thereof, unless, if the
account debtor is the United States of America, any State, political
subdivision, department, agency or instrumentality thereof, upon Lender's
request, the Federal Assignment of Claims Act of 1940, as amended or any similar
State or local law, if applicable, has been complied with in a manner
satisfactory to Lender;
(l) there are no proceedings or actions which are threatened or pending
against the account debtors with respect to such Accounts which might result in
any material adverse change in any such account debtor's financial condition;
(m) such Accounts of a single account debtor or its affiliates do not
constitute more than ten (10%) percent of all otherwise Eligible Accounts (but
the portion of the Accounts not in excess of such percentage may be deemed
Eligible Accounts);
-4-
<PAGE> 10
(n) such Accounts are not owed by an account debtor who has Accounts
unpaid more than ninety (90) days after the date of the original invoice for
them which constitute more than fifty (50%) percent of the total Accounts of
such account debtor;
(o) such Accounts are owed by account debtors whose total indebtedness
to Borrower does not exceed the credit limit with respect to such account
debtors as determined by Lender from time to time (but the portion of the
Accounts not in excess of such credit limit may be deemed Eligible Accounts);
and
(p) such Accounts are owed by account debtors deemed creditworthy at
all times by Lender, as determined by Lender.
General criteria for Eligible Accounts may be established and revised from time
to time by Lender in good faith. Any Accounts which are not Eligible Accounts
shall nevertheless be part of the Collateral.
1.13 "Eligible Existing Equipment" shall mean Existing Equipment that
meets all of the following criteria:
(a) Lender shall have a perfected first-and-only priority lien on and
security interest in such Equipment;
(b) such Equipment shall be located at premises owned or leased by
Borrower, provided that, if such Equipment is located at premises leased by
Borrower, Lender shall have received an agreement in writing from the owner of
such premises in form and substance satisfactory to Lender acknowledging
Lender's first priority security interest in the Equipment, waiving security
interests and claims by such person against the Equipment and permitting Lender
access to, and the right to remain on, the premises so as to exercise Lender's
rights and remedies and otherwise deal with the Equipment; and
(c) such Equipment is acceptable to Lender in good faith as
Collateral. The criteria for Eligible Existing Equipment shall be subject to
Lender's continuing satisfaction and may be revised by Lender from time to time
in its sole judgment. Any Existing Equipment that is not Eligible Existing
Equipment shall nevertheless be and remain at all times part of the Collateral.
1.14 "Eligible Inventory" shall mean Inventory consisting of finished goods
held for resale in the ordinary course of the business of Borrower and raw
materials for such finished goods which are acceptable to Lender based on the
criteria set forth below, which raw materials shall include, without limitation,
roll stock and jumbo rolls that, on any date of determination, are not then
located in or upon any of Borrower's Equipment and are not being processed into
finished Inventory. In general, Eligible Inventory shall not include (a)
work-in-process, including, without limitation, roll stock and jumbo rolls that,
on any date of determination, are then located in or upon any of Borrower's
Equipment and are being processed into finished Inventory; (b) components which
are not part of finished goods; (c) spare parts for equipment; (d) packaging and
shipping materials; (e) supplies used or consumed in Borrower's business; (f)
Inventory at premises other than those owned and controlled by Borrower, except
if Lender shall have received an agreement in writing from the
-5-
<PAGE> 11
person in possession of such Inventory and/or the owner or operator of such
premises in form and substance satisfactory to Lender acknowledging Lender's
first priority security interest in the Inventory, waiving security interests
and claims by such person against the Inventory and permitting Lender access to,
and the right to remain on, the premises so as to exercise Lender's rights and
remedies and otherwise deal with the Collateral; (g) Inventory subject to a
security interest or lien in favor of any person other than Lender except those
permitted in this Agreement; (h) bill and hold goods; (i) unserviceable,
obsolete or slow moving Inventory; (j) Inventory which is not subject to the
first priority, valid and perfected security interest of Lender; (k) returned,
damaged and/or defective Inventory; and (l) Inventory purchased or sold on
consignment, except if any Inventory sold on consignment by Borrower to a single
customer (x) is subject to a valid and enforceable consignment agreement, in
form and substance acceptable to Lender, (y) is subject to a first priority
security interest in favor of Borrower, which consignment agreement and security
interest shall have been duly assigned to Lender and (z) has a Value (determined
on a combined basis with the Value of any Inventory sold on consignment to such
customer by Borrower's affiliate, Shasta Paper Company) of at least $500,000
(the "Combined Consigned Inventory Value"), such Inventory shall be Eligible
Inventory ("Eligible Consigned Inventory"), except that if any Inventory sold on
consignment is located at any location where the Combined Consigned Inventory
Value is less than $100,000, such Inventory at such location shall not be
Eligible Consigned Inventory. General criteria for Eligible Inventory may be
established and revised from time to time by Lender in good faith. Any Inventory
which is not Eligible Inventory shall nevertheless be part of the Collateral.
1.15 "Eligible New Equipment" shall mean Equipment, which converts roll
stock inventory into finished goods, purchased by Borrower from and after the
date hereof that meets all of the following criteria:
(a) the Equipment shall be described (by model, make, manufacturer,
serial no. and/or such other identifying information as may be appropriate, as
determined by Lender) in a schedule to be submitted by Borrower to Lender and
shall have a Hard Cost of not less than $100,000;
(b) Lender shall have a perfected first-and-only priority lien on and
security interest in such Equipment;
(c) such Equipment shall be located at a premises owned or leased by
Borrower, provided that, if such Equipment is located at premises leased by
Borrower, Lender shall have received an agreement in writing from the owner of
such premises in form and substance satisfactory to Lender acknowledging
Lender's first priority security interest in the Equipment, waiving security
interests and claims by such person against the Equipment and permitting Lender
access to, and the right to remain on, the premises so as to exercise Lender's
rights and remedies and otherwise deal with the Equipment;
(d) such Equipment is acceptable to Lender in good faith as
Collateral; and
(e) Borrower shall have delivered to Lender a copy of a bill of sale,
invoice or other instrument evidencing that the vendor of such Equipment has
transferred good and absolute title thereto to Borrower for the purchase price
set forth therein, and if applicable, any deferred payment terms given to
Borrower in connection with such sale. The criteria for Eligible New Equipment
shall
-6-
<PAGE> 12
be subject to Lender's continuing satisfaction and may be revised by Lender from
time to time in its sole judgment. Any Equipment that is not Eligible New
Equipment shall nevertheless be and remain at all times part of the Collateral.
1.16 "Eligible New Equipment Availability" shall mean, as of any Eligible
New Equipment Availability Date, an amount equal to the seventy (70%) percent of
the Hard Cost of the applicable Eligible New Equipment (with respect to such
Eligible New Equipment, the "Original New Equipment Availability"). The Original
New Equipment Availability shall be reduced on a monthly basis, commencing on
the first day of each month immediately following the applicable Eligible New
Equipment Availability Date, by an amount equal to 1/60th of such Original New
Equipment Availability.
1.17 "Eligible New Equipment Availability Date" shall mean the first date
following the date hereof that Lender determines that Borrower has Eligible New
Equipment having a Hard Cost in an aggregate amount equal to or greater than
$500,000, and, thereafter, each subsequent date that Lender determines that
Borrower has, without duplication, additional Eligible New Equipment having a
Hard Cost in an aggregate amount equal to or greater than $500,000.
1.18 "Eligible Real Property" shall mean all Real Property that is owned by
Borrower and that meets all of the following criteria:
(a) Lender shall have received updated environmental audits of such
Real Property conducted by an independent environmental engineering firm
reasonably acceptable to Lender, and in form, scope and methodology reasonably
satisfactory to Lender, confirming (i) Borrower is in compliance with all
material applicable Environmental Laws or, to the extent that such audit
reflects that Borrower is not in full compliance therewith, Lender shall have
determined that such non-compliance has not had, and cannot reasonably be
expected to have, a material adverse effect on Borrower or on its business,
operations or assets, and (ii) the absence of any material environmental
problems;
(b) Lender shall have a valid and perfected first priority Mortgage
upon such Real Property, which Real Property shall only be subject to the
security interests and liens permitted herein;
(c) Lender shall have received, in form and substance satisfactory to
Lender, a valid and effective title insurance policy issued by a company and
agent and in an amount reasonably acceptable to Lender (i) insuring the priority
and sufficiency of the Mortgage granted to Lender with respect to such Real
Property, (ii) insuring against matters that would be disclosed by surveys, and
(iii) containing any legally available endorsements, assurances or affirmative
coverage requested by Lender for protection of its interests under and to the
Mortgage insured thereby;
(d) Lender shall have received a written appraisal with respect to
such Real Property in form and substance, and performed by independent
appraisers, acceptable to Lender;
(e) Lender shall have received, in form and substance reasonably
satisfactory to Lender, all consents, waivers, acknowledgements and agreements
from other third parties which Lender may
-7-
<PAGE> 13
deem necessary or desirable in order to permit, protect and perfect the mortgage
and liens upon, and security interests of Lender in such Real Property and
related assets subject to the Mortgage with respect thereto; and
(f) such Real Property is acceptable to Lender for purposes of making
Loans with respect thereto under this Agreement.
Any Real Property that is not Eligible Real Property shall nevertheless be and
at all times remain part of the Collateral.
1.19 "Environmental Laws" shall mean all applicable Federal, State and
local laws (including common law), rules, codes, licenses, permits (including
any conditions imposed therein), authorizations, judicial or administrative
decisions, injunctions or agreements between Borrower and any Governmental
Authority, (a) relating to pollution and the protection, preservation or
restoration of the environment (including air, water vapor, surface water,
ground water, drinking water, drinking water supply, surface land, subsurface
land, plant and animal life or any other natural resource), or to human health
or safety, (b) relating to the exposure to, or the use, storage, recycling,
treatment, generation, manufacture, processing, distribution, transportation,
handling, labeling, production, release or disposal, or threatened release, of
Hazardous Materials, or (c) relating to recordkeeping, notification, disclosure
and reporting requirements respecting Hazardous Materials. The term
"Environmental Laws" includes (i) the Federal Comprehensive Environmental
Response, Compensation and Liability Act of 1980, as amended by the Federal
Superfund Amendments and Reauthorization Act of 1986, the Federal Water
Pollution Control Act of 1972, as amended by the Federal Clean Water Act of
1977, the Federal Clean Air Act, the Federal Solid Waste Disposal Act, as
amended by the Federal Resource Conservation and Recovery Act of 1976 (including
the Hazardous and Solid Waste Amendments of 1984), and the Federal Toxic
Substances Control Act of 1976, the Federal Insecticide, Fungicide and
Rodenticide Act, and the Federal Safe Drinking Water Act of 1974, (ii)
applicable state counterparts to such laws, and (iii) any common law or
equitable doctrine that may impose liability or obligations for injuries or
damages due to, or threatened as a result of, the presence of or exposure to any
Hazardous Materials.
1.20 "Equipment" shall mean all of Borrower's now owned and hereafter
acquired equipment, machinery, computers and computer hardware and software
(whether owned or licensed), vehicles, tools, furniture, fixtures, all
attachments, accessions and property now or hereafter affixed thereto or used in
connection therewith, and substitutions and replacements thereof, wherever
located.
1.21 "Eurodollar Rate" shall mean with respect to the Interest Period for a
Eurodollar Rate Loan, the interest rate per annum equal to the arithmetic
average of the rates of interest per annum (rounded upwards, if necessary, to
the next one-sixteenth (1/16) of one (1%) percent) at which Reference Bank is
offered deposits of United States dollars in the London interbank market (or
other Eurodollar Rate market selected by Borrower and approved by Lender) on or
about 9:00 a.m. (Chicago, Illinois time) two (2) Business Days prior to the
commencement of such Interest Period in amounts substantially equal to the
principal amount of the Eurodollar Rate Loans requested by and available to
Borrower in accordance with this Agreement, with a maturity of comparable
duration to the Interest Period selected by Borrower.
-8-
<PAGE> 14
1.22 "Eurodollar Rate Loans" shall mean any Loans or portion thereof on
which interest is payable based on the Adjusted Eurodollar Rate in accordance
with the terms hereof.
1.23 "Excess Availability" shall mean the amount, as determined by Lender,
calculated at any time, equal to: (a) the lesser of: (i) the amount of the
Revolving Loans available to Borrower as of such time based on the applicable
lending formulas multiplied by the Net Amount of Eligible Accounts, the Value of
Eligible Inventory, the Orderly Liquidation Value of the Eligible Existing
Equipment, the Fair Market Value of the Eligible Real Property and the Hard Cost
of Eligible New Equipment , each as determined by Lender, and subject to the
sublimits and Availability Reserves from time to time established by Lender
hereunder, and (ii) the Maximum Credit, minus (b) the sum of: (i) the amount of
all then outstanding and unpaid Obligations, plus (ii) the aggregate amount of
all then outstanding and unpaid trade payables of Borrower which are more than
sixty (60) days past due as of such time, plus (iii) the amount of checks issued
by Borrower to pay trade payables which are more than sixty (60) days past due,
but not yet sent.
1.24 "Event of Default" shall mean the occurrence or existence of any event
or condition described in Section 10.1 hereof.
1.25 "Existing Equipment" shall mean Equipment owned by Borrower on the
date hereof.
1.26 "Fair Market Value" shall mean the fair market value of the
Borrower's Eligible Real Property as determined by an independent appraiser
acceptable to Lender and as reflected in a written appraisal prepared by such
appraiser, at Borrower's cost and expense, and delivered to Lender.
1.27 "Financing Agreements" shall mean, collectively, this Agreement and
all notes, guarantees, security agreements and other agreements, documents and
instruments now or at any time hereafter executed and/or delivered by Borrower
or any Obligor in connection with this Agreement, as the same now exist or may
hereafter be amended, modified, supplemented, extended, renewed, restated or
replaced.
1.28 "Fixed Asset Sublimit" shall mean $25,000,000.
1.29 "GAAP" shall mean generally accepted accounting principles in the
United States of America as in effect from time to time as set forth in the
opinions and pronouncements of the Accounting Principles Board and the American
Institute of Certified Public Accountants and the statements and pronouncements
of the Financial Accounting Standards Board which are applicable to the
circumstances as of the date of determination consistently applied, except that,
for purposes of Section 9.14 hereof, GAAP shall be determined on the basis of
such principles in effect on the date hereof and consistent with those used in
the preparation of the audited financial statements delivered to Lender prior to
the date hereof.
1.30 "Governmental Authority" shall mean the United States of America, any
State of the United States of America, or a district, county or municipality or
other political subdivision, and any North American Indian nation or tribe, or
any body, department, authority, agency, public corporation or instrumentality,
of any of the foregoing.
-9-
<PAGE> 15
1.31 "Hard Cost" shall mean, with respect to the purchase by Borrower of an
item of Eligible New Equipment, the net cash amount actually paid to acquire
title to such item, net of all incentives, discounts and rebates, and exclusive
of freight, delivery charges, installation costs and charges, trade-in
allowances, software costs, charges and fees, warranty costs, taxes, insurance
and other incidental costs or expenses and all indirect costs or expenses of any
kind.
1.32 "Hazardous Materials" shall mean any hazardous, toxic or dangerous
substances, materials and wastes, including hydrocarbons (including naturally
occurring or man-made petroleum and hydrocarbons), flammable explosives,
asbestos, urea formaldehyde insulation, radioactive materials, biological
substances, polychlorinated biphenyls, pesticides, herbicides and any other kind
and/or type of pollutants or contaminants (including materials which include
hazardous constituents), sewage, sludge, industrial slag, solvents and/or any
other similar substances, materials, or wastes, that are regulated under any
Environmental Law (including any that are classified as hazardous or toxic under
any Environmental Law).
1.33 "Indenture" shall mean the Indenture dated as of March 6, 1998 between
Borrower and the Bond Trustee, pursuant to which Borrower issued the Bonds on
and subject to the terms and conditions set forth therein, a copy of which
Indenture, together with a Certificate of Borrower's Secretary certifying to
Lender that such copy constitutes a true, correct and complete copy of the
Indenture (and all amendments thereto, if any), as in effect on the date hereof,
shall be delivered to Lender on the date hereof.
1.34 "Information Certificate" shall mean the Information Certificate of
Borrower constituting Exhibit A hereto containing material information with
respect to Borrower, its business and assets provided by or on behalf of
Borrower to Lender in connection with the preparation of this Agreement and the
other Financing Agreements and the financing arrangements provided for herein.
1.35 "Interest Period" shall mean for any Eurodollar Rate Loan, a period of
approximately one (1), two (2), or three (3) months duration as Borrower may
elect, the exact duration to be determined in accordance with the customary
practice in the applicable Eurodollar Rate market; provided, that, Borrower may
not elect an Interest Period which will end after the last day of the
then-current term of this Agreement.
1.36 "Interest Rate" shall mean, as to Prime Rate Loans, a rate equal to
one half (.50%) percent per annum in excess of the Prime Rate and, as to
Eurodollar Rate Loans, a rate of two and one half (2.50%) percent per annum in
excess of the Adjusted Eurodollar Rate (based on the Eurodollar Rate applicable
for the Interest Period selected by Borrower as in effect three (3) Business
Days after the date of receipt by Lender of the request of Borrower for such
Eurodollar Rate Loans in accordance with the terms hereof, whether such rate is
higher or lower than any rate previously quoted to Borrower); provided, that,
notwithstanding anything to the contrary contained herein, the Interest Rate
shall mean the rate of two and one half (2.50%) percent per annum in excess of
the Prime Rate as to Prime Rate Loans and the rate of four and one half (4.50%)
percent per annum in excess of the Adjusted Eurodollar Rate as to Eurodollar
Rate Loans, at Lender's option, without notice, (a) either (i) for the period on
and after the date of termination or non-renewal hereof until such time as all
Obligations are indefeasibly paid and satisfied in full, or (ii) for the period
from and after the date of the occurrence of any Event of Default, and for so
long as such Event of Default
-10-
<PAGE> 16
is continuing as determined by Lender and (b) on the Revolving Loans at any time
outstanding in excess of the amounts available to Borrower under Section 2
(whether or not such excess(es) arise or are made with or without Lender's
knowledge or consent and whether made before or after an Event of Default).
1.37 "Inventory" shall mean all of Borrower's now owned and hereafter
existing or acquired raw materials, work in process, finished goods and all
other inventory of whatsoever kind or nature, wherever located.
1.38 "Letter of Credit Accommodations" shall mean the letters of credit,
merchandise purchase or other guaranties, including the Standby L/C, which are
from time to time either (a) at the request of Borrower, issued or opened by
Lender for the account of Borrower or any Obligor or (b) with respect to which
Lender has agreed to indemnify the issuer or guaranteed to the issuer the
performance by Borrower of its obligations to such issuer.
1.39 "Loans" shall mean the Revolving Loans.
1.40 "Maximum Credit" shall mean the amount of $55,000,000. So long as no
Event of Default exists and is continuing, the Maximum Credit may, at the option
of Borrower, be reduced, without penalty or premium, to $30,000,000 in
connection with the consummation of a public equity offering by Borrower, which
equity offering shall be registered under the Securities Act of 1933, as
amended, provided that (a) Lender shall have received not less than five (5)
Business Days prior written notice of the exercise by Borrower of such option
and (b) as of the date of such reduction and after giving effect thereto, the
aggregate amount of the Loans and Letter of Credit Accommodations outstanding
shall be less than the Maximum Credit as so reduced. Any reduction in the
Maximum Credit hereunder shall not be effective until the execution of a written
agreement duly executed by Lender and Borrower.
1.41 "Mortgages" shall mean, individually and collectively, the mortgage,
deed of trust or similar instrument, each dated of even date herewith, by
Borrower in favor of Lender with respect to the Real Property and related assets
of Borrower located in Plainwell, Michigan, Eau Claire, Wisconsin, Ransom,
Pennsylvania and Pittston, Pennsylvania, respectively.
1.42 "Net Amount of Eligible Accounts" shall mean the gross amount of
Eligible Accounts less (a) sales, excise or similar taxes included in the amount
thereof and (b) returns, discounts, claims, credits and allowances of any nature
at any time issued, owing, granted, outstanding, available or claimed with
respect thereto.
1.43 "Obligations" shall mean any and all Revolving Loans, Letter of Credit
Accommodations and all other obligations, liabilities and indebtedness of every
kind, nature and description owing by Borrower to Lender and/or its affiliates,
including principal, interest, charges, fees, costs and expenses, however
evidenced, whether as principal, surety, endorser, guarantor or otherwise,
whether arising under this Agreement or otherwise, whether now existing or
hereafter arising, whether arising before, during or after the initial or any
renewal term of this Agreement or after the commencement of any case with
respect to Borrower under the United States Bankruptcy Code or any similar
statute (including the payment of interest and other amounts which would accrue
-11-
<PAGE> 17
and become due but for the commencement of such case, whether or not such
amounts are allowed or allowable in whole or in part in such case), whether
direct or indirect, absolute or contingent, joint or several, due or not due,
primary or secondary, liquidated or unliquidated, secured or unsecured, and
however acquired by Lender.
1.44 "Obligor" shall mean any guarantor, endorser, acceptor, surety or
other person liable on or with respect to the Obligations or who is the owner of
any property which is security for the Obligations, other than Borrower.
1.45 "Orderly Liquidation Value" shall mean the orderly liquidation
value of the Borrower's Eligible Existing Equipment as determined by an
independent appraiser acceptable to Lender and as reflected in a written
appraisal prepared by such appraiser, at Borrower's cost and expense, and
delivered to Lender.
1.46 "Payment Account" shall have the meaning set forth in Section 6.3
hereof.
1.47 "Person" or "person" shall mean any individual, sole proprietorship,
partnership, corporation (including any corporation which elects subchapter S
status under the Internal Revenue Code of 1986, as amended), limited liability
company, limited liability partnership, business trust, unincorporated
association, joint stock corporation, trust, joint venture or other entity or
any government or any agency or instrumentality or political subdivision
thereof.
1.48 "Prime Rate" shall mean the rate from time to time publicly announced
by First Union National Bank, or its successors, as its prime rate, whether or
not such announced rate is the best rate available at such bank.
1.49 "Prime Rate Loans" shall mean any Loans or portion thereof on which
interest is payable based on the Prime Rate in accordance with the terms
thereof.
1.50 "Real Property" shall mean all now owned and hereafter acquired real
property of Borrower, including leasehold interests, together with all
buildings, structures, and other improvements located thereon and all licenses,
easements and appurtenances relating thereto, wherever located, including the
real property and related assets more particularly described in the Mortgages
located in Plainwell, Michigan, Eau Claire, Wisconsin, Ransom, Pennsylvania and
Pittston, Pennsylvania.
1.51 "Records" shall mean all of Borrower's present and future books of
account of every kind or nature, purchase and sale agreements, invoices, ledger
cards, bills of lading and other shipping evidence, statements, correspondence,
memoranda, credit files and other data relating to the Collateral or any account
debtor, together with the tapes, disks, diskettes and other data and software
storage media and devices, file cabinets or containers in or on which the
foregoing are stored (including any rights of Borrower with respect to the
foregoing maintained with or by any other person).
1.52 "Reference Bank" shall mean First Union National Bank, or such other
bank as Lender may from time to time designate.
-12-
<PAGE> 18
1.53 "Revolving Loans" shall mean the loans now or hereafter made by Lender
to or for the benefit of Borrower on a revolving basis (involving advances,
repayments and readvances) as set forth in Section 2.1 hereof.
1.54 "Sale/Leaseback" shall have the meaning set forth in Section 9.7(b)
hereof.
1.55 "Shasta Loan Agreement" shall mean that certain Loan and Security
Agreement dated of even date herewith between Lender and Shasta Paper Company,
as the same may be amended, modified, supplemented, renewed or extended from
time to time.
1.56 "Shelby Equipment" shall mean the specific equipment as more
particularly described on Schedule 1.56 hereto, which equipment relates to the
Borrower's napkin converting line and towel converting line.
1.57 "Standby L/C" shall mean that certain Irrevocable Letter of Credit in
the principal amount of $20,052,000 issued at Borrower's request pursuant to
Section 2.2 hereof by First Union National Bank in respect of Borrower's
obligations, liabilities and indebtedness under the Bond Agreements for the
benefit of either Fleet Business Credit Corporation or the "Trustee" under, and
as such quoted term is defined in, the Indenture, as amended, extended, renewed
or replaced from time to time.
1.58 "Value" shall mean, as determined by Lender in good faith, with
respect to Inventory, the lower of (a) cost computed on a first-in-first-out
basis in accordance with GAAP or (b) market value.
SECTION 2.CREDIT FACILITIES
2.1 Revolving Loans.
(a) Subject to and upon the terms and conditions contained herein,
Lender agrees to make Revolving Loans to Borrower from time to time in amounts
requested by Borrower up to the amount equal to the sum of:
(i) eighty five (85%) percent of the Net Amount of Eligible
Accounts, plus
(ii) the lesser of: (A) the sum of sixty (60%) percent of the Value
of Eligible Inventory or (B) $25,000,000; plus
(iii) $25,000,000 ("Closing Existing Equipment/Real Estate
Availability"); which amount shall be reduced on a monthly basis, commencing
December 1,1999 and on the first day of each month thereafter, by an amount
equal to 1/60th of the Closing Existing Equipment/Real Estate Availability; plus
(iv) the aggregate amount of Eligible New Equipment Availability,
less
-13-
<PAGE> 19
(v) the face principal amount of the Standby L/C, less
(vi) any Availability Reserves.
(b) Lender may, in its discretion, from time to time, upon not less than
five (5) days prior notice to Borrower, (i) reduce the lending formula with
respect to Eligible Accounts to the extent that Lender determines in good faith
that: (A) the dilution with respect to the Accounts for any period (based on the
ratio of (1) the aggregate amount of reductions in Accounts other than as a
result of payments in cash to (2) the aggregate amount of total sales) has
increased in any material respect or may be reasonably anticipated to increase
in any material respect above historical levels, or (B) the general
creditworthiness of account debtors has declined or (ii) reduce the lending
formula(s) with respect to Eligible Invent ory to the extent that Lender
determines that: (A) the number of days of the turnover of the Inventory for any
period has changed in any material respect or (B) the liquidation value of the
Eligible Inventory, or any category thereof, has decreased, or (C) the nature
and quality of the Inventory has deteriorated. In determining whether to reduce
the lending formula(s), Lender may consider events, conditions, contingencies or
risks which are also considered in determining Eligible Accounts, Eligible
Inventory or in establishing Availability Reserves.
(c) Except in Lender's discretion, the aggregate amount of the Loans and
the Letter of Credit Accommodations outstanding at any time shall not exceed the
Maximum Credit. In the event that the outstanding amount of any component of the
Loans, or the aggregate amount of the outstanding Loans and Letter of Credit
Accommodations, exceed the amounts available under the lending formulas, the
sublimits for Letter of Credit Accommodations set forth in Section 2.2(d) or the
Maximum Credit, as applicable, such event shall not limit, waive or otherwise
affect any rights of Lender in that circumstance or on any future occasions and
Borrower shall, upon demand by Lender, which may be made at any time or from
time to time, immediately repay to Lender the entire amount of any such
excess(es) for which payment is demanded.
To the extent Lender shall have established an Availability Reserve which
is sufficient to address any event, condition or matter in a manner satisfactory
to Lender in good faith, Lender shall not exercise its rights under Section
2.1(b) to reduce the lending formulas to address such event, condition or
matter. The amount of any reduction in the lending formula by Lender pursuant to
Section 2.1(b) or the establishment of any Availability Reserve shall have a
reasonable relationship to the matter which is the basis for such a reduction or
such Availability Reserve, as the case may be.
(d) For purposes only of applying the sublimit on Revolving Loans based on
Eligible Inventory pursuant to Section 2.1(a)(ii)(B), Lender may treat the then
undrawn amounts of outstanding Letter of Credit Accommodations for the purpose
of purchasing Eligible Inventory as Revolving Loans to the extent Lender is in
effect basing the issuance of the Letter of Credit Accommodations on the Value
of the Eligible Inventory being purchased with such Letter of Credit
Accommodations. In determining the actual amounts of such Letter of Credit
Accommodations to be so treated for purposes of the sublimit, the outstanding
Revolving Loans and Availability Reserves shall be attributed first to any
components of the lending formulas in Section 2.1(a) that
-14-
<PAGE> 20
are not subject to such sublimit, before being attributed to the components of
the lending formulas subject to such sublimit.
(e) The maximum amount of Revolving Loans made in the aggregate
in respect of Eligible Real Estate, Eligible Existing Equipment and Eligible New
Equipment pursuant to Sections 2.1(a)(iii) and (iv) above shall in no event
exceed the Fixed Asset Sublimit.
(f) The maximum aggregate amount of Revolving Loans made in
respect of Eligible Consigned Inventory (as defined in Section 1.14(l) above)
shall in no event exceed, at any one time outstanding, $3,000,000.
(g) So long as any obligations under the Indenture, Bonds and/or
the Bond Agreements remain outstanding, (i) the maximum amount of Revolving
Loans shall in no event exceed, at any given time, the sum of (i) the Current
Asset Revolving Loan Sublimit plus (ii) $10,000,000, and (ii) Borrower shall not
be permitted to reduce the sublimit set forth in clause (b) of the definition of
Current Asset Revolving Loan Sublimit with the "Net Proceeds of Asset Sales" (as
said quoted term is defined in the Indenture, as in effect on the date hereof)
that are at any time and from time to time remitted to and applied by Lender to
the then outstanding Revolving Loans in accordance with this Agreement.
2.2 Letter of Credit Accommodations.
(a) Subject to and upon the terms and conditions contained
herein, at the request of Borrower, Lender agrees to provide or arrange for
Letter of Credit Accommodations for the account of Borrower containing terms and
conditions acceptable to Lender and the issuer thereof. Any payments made by
Lender to any issuer thereof and/or related parties in connection with the
Letter of Credit Accommodations shall constitute additional Revolving Loans to
Borrower pursuant to this Section 2.
(b) In addition to any charges, fees or expenses charged by any
bank or issuer in connection with the Letter of Credit Accommodations, Borrower
shall pay to Lender a letter of credit fee at a rate equal to one and one-half
(1.50%) percent per annum on the daily outstanding balance of the Letter of
Credit Accommodations for the immediately preceding month (or part thereof),
payable in arrears as of the first day of each succeeding month, except that
Borrower shall pay to Lender such letter of credit fee, at Lender's option,
without notice, at a rate equal to three and one-half (3.50%) percent per annum
on such daily outstanding balance for: (i) the period from and after the date of
termination or non-renewal hereof until Lender has received full and final
payment of all Obligations (notwithstanding entry of a judgment against
Borrower) and (ii) the period from and after the date of the occurrence of an
Event of Default for so long as such Event of Default is continuing as
determined by Lender. Such letter of credit fee shall be calculated on the basis
of a three hundred sixty (360) day year and actual days elapsed and the
obligation of Borrower to pay such fee shall survive the termination or
non-renewal of this Agreement.
(c) No Letter of Credit Accommodations shall be available unless
on the date of the proposed issuance of any Letter of Credit Accommodations, the
Revolving Loans available to Borrower (subject to the Maximum Credit and any
Availability Reserves) are equal to or greater
-15-
<PAGE> 21
than: (i) if the proposed Letter of Credit Accommodation is for the purpose of
purchasing Eligible Inventory, the sum of (A) the percentage equal to one
hundred (100%) percent minus the then applicable percentage set forth in Section
2.1(a)(ii)(A) above of the Value of such Eligible Inventory, plus (B) freight,
taxes, duty and other amounts which Lender estimates must be paid in connection
with such Inventory upon arrival and for delivery to one of Borrower's locations
for Eligible Inventory within the United States of America and (ii) if the
proposed Letter of Credit Accommodation is for any other purpose, an amount
equal to one hundred (100%) percent of the face amount thereof and all other
commitments and obligations made or incurred by Lender with respect thereto.
Effective on the issuance of each Letter of Credit Accommodation, an
Availability Reserve shall be established in the applicable amount set forth in
Section 2.2(c)(i) or Section 2.2(c)(ii).
(d) Except in Lender's discretion, the amount of all outstanding
Letter of Credit Accommodations and all other commitments and obligations made
or incurred by Lender in connection therewith shall not at any time exceed
$30,000,000. At any time an Event of Default exists or has occurred and is
continuing, upon Lender's request, Borrower will either furnish cash collateral
to secure the reimbursement obligations to the issuer in connection with any
Letter of Credit Accommodations or furnish cash collateral to Lender for the
Letter of Credit Accommodations, and in either case, the Revolving Loans
otherwise available to Borrower shall not be reduced as provided in Section
2.2(c) to the extent of such cash collateral.
(e) Borrower shall indemnify and hold Lender harmless from and
against any and all losses, claims, damages, liabilities, costs and expenses
which Lender may suffer or incur in connection with any Letter of Credit
Accommodations and any documents, drafts or acceptances relating thereto,
including any losses, claims, damages, liabilities, costs and expenses due to
any action taken by any issuer or correspondent with respect to any Letter of
Credit Accommodation ,except for any losses, claims, damages, liabilities, costs
and expenses as a result of the gross negligence or willful misconduct of Lender
as determined pursuant to a final non-appealable order of a court of competent
jurisdiction.. Borrower assumes all risks with respect to the acts or omissions
of the drawer under or beneficiary of any Letter of Credit Accommodation and for
such purposes the drawer or beneficiary shall be deemed Borrower's agent.
Borrower assumes all risks for, and agrees to pay, all foreign, Federal, State
and local taxes, duties and levies relating to any goods subject to any Letter
of Credit Accommodations or any documents, drafts or acceptances thereunder.
Borrower hereby releases and holds Lender harmless from and against any acts,
waivers, errors, delays or omissions, whether caused by Borrower, by any issuer
or correspondent or otherwise with respect to or relating to any Letter of
Credit Accommodation ,except for any losses, claims, damages, liabilities, costs
and expenses as a result of the gross negligence or willful misconduct of Lender
as determined pursuant to a final non-appealable order of a court of competent
jurisdiction.. The provisions of this Section 2.2(e) shall survive the payment
of Obligations and the termination or non-renewal of this Agreement.
(f) Nothing contained herein shall be deemed or construed to
grant Borrower any right or authority to pledge the credit of Lender in any
manner. Lender shall have no liability of any kind with respect to any Letter of
Credit Accommodation provided by an issuer other than Lender unless Lender has
duly executed and delivered to such issuer the application or a guarantee or
indemnification in writing with respect to such Letter of Credit Accommodation.
Borrower shall be bound by any interpretation made in good faith by Lender, or
any other issuer or correspondent
-16-
<PAGE> 22
under or in connection with any Letter of Credit Accommodation or any documents,
drafts or acceptances thereunder, notwithstanding that such interpretation may
be inconsistent with any instructions of Borrower. Lender shall have the sole
and exclusive right and authority to, and Borrower shall not: (i) at any time an
Event of Default exists or has occurred and is continuing, (A) approve or
resolve any questions of non-compliance of documents, (B) give any instructions
as to acceptance or rejection of any documents or goods or (C) execute any and
all applications for steamship or airway guaranties, indemnities or delivery
orders, and (ii) at all times, (A) grant any extensions of the maturity of, time
of payment for, or time of presentation of, any drafts, acceptances, or
documents, and (B) agree to any amendments, renewals, extensions, modifications,
changes or cancellations of any of the terms or conditions of any of the
applications, Letter of Credit Accommodations, or documents, drafts or
acceptances thereunder or any letters of credit included in the Collateral.
Lender may take such actions either in its own name or in Borrower's name.
(g) Any rights, remedies, duties or obligations granted or
undertaken by Borrower to any issuer or correspondent in any application for any
Letter of Credit Accommodation, or any other agreement in favor of any issuer or
correspondent relating to any Letter of Credit Accommodation, shall be deemed to
have been granted or undertaken by Borrower to Lender. Any duties or obligations
undertaken by Lender to any issuer or correspondent in any application for any
Letter of Credit Accommodation, or any other agreement by Lender in favor of any
issuer or correspondent relating to any Letter of Credit Accommodation, shall be
deemed to have been undertaken by Borrower to Lender and to apply in all
respects to Borrower.
2.3 Availability Reserves. All Revolving Loans otherwise
available to Borrower pursuant to the lending formulas and subject to the
Maximum Credit and other applicable limits hereunder shall be subject to
Lender's continuing right to establish and revise Availability Reserves.
SECTION 3. INTEREST AND FEES
3.1 Interest.
(a) Borrower shall pay to Lender interest on the outstanding
principal amount of the Loans at the Interest Rate. All interest accruing
hereunder on and after the date of any Event of Default or termination or
non-renewal hereof shall be payable on demand.
(b) Borrower may from time to time request that Prime Rate Loans
be converted to Eurodollar Rate Loans or that any existing Eurodollar Rate Loans
continue for an additional Interest Period. Such request from Borrower shall
specify the amount of the Prime Rate Loans which will constitute Eurodollar Rate
Loans (subject to the limits set forth below) and the Interest Period to be
applicable to such Eurodollar Rate Loans. Subject to the terms and conditions
contained herein, two (2) Business Days after receipt by Lender of such a
request from Borrower, such Prime Rate Loans shall be converted to Eurodollar
Rate Loans or such Eurodollar Rate Loans shall continue, as the case may be,
provided, that, (i) no Event of Default, or act, condition or event which with
notice or passage of time or both would constitute an Event of Default shall
exist or have occurred and be continuing, (ii) no party hereto shall have sent
any notice of termination or non-renewal of this Agreement, (iii) Borrower shall
have complied with such customary procedures as are established by Lender and
specified by Lender to Borrower from time to time for requests by Borrower for
-17-
<PAGE> 23
Eurodollar Rate Loans, (iv) no more than four (4) Interest Periods may be in
effect at any one time, (v) the aggregate amount of the Eurodollar Rate Loans
must be in an amount not less than $5,000,000 or an integral multiple of
$1,000,000 in excess thereof, and (vi) Lender shall have determined that the
Interest Period or Adjusted Eurodollar Rate is available to Lender through the
Reference Bank and can be readily determined as of the date of the request for
such Eurodollar Rate Loan by Borrower. Any request by Borrower to convert Prime
Rate Loans to Eurodollar Rate Loans or to continue any existing Eurodollar Rate
Loans shall be irrevocable. Notwithstanding anything to the contrary contained
herein, Lender and Reference Bank shall not be required to purchase United
States Dollar deposits in the London interbank market or other applicable
Eurodollar Rate market to fund any Eurodollar Rate Loans, but the provisions
hereof shall be deemed to apply as if Lender and Reference Bank had purchased
such deposits to fund the Eurodollar Rate Loans.
(c) Any Eurodollar Rate Loans shall automatically convert to
Prime Rate Loans upon the last day of the applicable Interest Period, unless
Lender has received and approved a request to continue such Eurodollar Rate Loan
at least two (2) Business Days prior to such last day in accordance with the
terms hereof. Any Eurodollar Rate Loans shall, at Lender's option, upon notice
by Lender to Borrower, convert to Prime Rate Loans in the event that this
Agreement shall terminate or not be renewed. Borrower shall pay to Lender,
within fifteen (15) days after delivery of the certificate described in the last
sentence of this Section 3.1(c) and demand by Lender (or Lender may, at its
option, charge any loan account of Borrower), any amounts required to compensate
Lender, the Reference Bank or any participant with Lender for any loss
(including loss of anticipated profits), cost or expense incurred by such
person, as a result of the conversion of Eurodollar Rate Loans to Prime Rate
Loans pursuant to any of the foregoing, including, without limitation, any such
loss, cost or expense incurred by reason of the liquidation or reemployment of
deposits or other funds acquired by such person to make or maintain the
Eurodollar Rate Loans or any portion thereof. A certificate of Lender setting
forth the basis for the determination of such amount necessary to
compensate Lender as aforesaid shall be delivered to Borrower and shall be
conclusive, absent manifest error.
(d) Interest shall be payable by Borrower to Lender monthly in
arrears not later than the first day of each calendar month and shall be
calculated on the basis of a three hundred sixty (360) day year and actual days
elapsed. The interest rate on non-contingent Obligations (other than Eurodollar
Rate Loans) shall increase or decrease by an amount equal to each increase or
decrease in the Prime Rate effective on the first day of the month after any
change in such Prime Rate is announced based on the Prime Rate in effect on the
last day of the month in which any such change occurs. In no event shall charges
constituting interest payable by Borrower to Lender exceed the maximum amount or
the rate permitted under any applicable law or regulation, and if any such part
or provision of this Agreement is in contravention of any such law or
regulation, such part or provision shall be deemed amended to conform thereto.
3.2 Closing Fee; Syndication Fee. Borrower shall pay to Lender (a) as a
closing fee the amount of $275,00 and (b) as a syndication fee the amount of
$137,500, both of which fees shall be fully earned as of and payable on the date
hereof.
-18-
<PAGE> 24
3.3 Servicing Fee. Borrower shall pay to Lender monthly a servicing
fee in an amount equal to $3,000 in respect of Lender's services for each month
(or part thereof) while this Agreement remains in effect and for so long
thereafter as any of the Obligations are outstanding, which fee shall be fully
earned as of and payable in advance on the date hereof and on the first day of
each month hereafter.
3.4 Unused Line Fee. Borrower shall pay to Lender monthly an unused
line fee at a rate equal to three-eighths of one (3/8%) percent per annum
calculated upon the amount by which $45,000,000 exceeds the average daily
principal balance of the outstanding Revolving Loans and Letter of Credit
Accommodations during the immediately preceding month (or part thereof) while
this Agreement is in effect and for so long thereafter as any of the Obligations
are outstanding, which fee shall be payable on the first day of each month in
arrears.
3.5 Changes in Laws and Increased Costs of Loans.
(a) Notwithstanding anything to the contrary contained herein,
all Eurodollar Rate Loans shall, upon notice by Lender to Borrower, convert to
Prime Rate Loans in the event that (i) any change in applicable law or
regulation (or the interpretation or administration thereof) shall either (A)
make it unlawful for Lender, Reference Bank or any participant with Lender to
make or maintain Eurodollar Rate Loans or to comply with the terms hereof in
connection with the Eurodollar Rate Loans, or (B) shall result in the increase
in the costs to Lender, Reference Bank or any participant of making or
maintaining any Eurodollar Rate Loans by an amount deemed by Lender to be
material, or (C) reduce the amounts received or receivable by Lender in respect
thereof, by an amount deemed by Lender to be material or (ii) the cost to
Lender, Reference Bank or any participant of making or maintaining any
Eurodollar Rate Loans shall otherwise increase by an amount deemed by Lender to
be material. Borrower shall pay to Lender, upon demand by Lender (or Lender may,
at its option, charge any loan account of Borrower) any amounts required to
compensate Lender, the Reference Bank or any participant with Lender for any
loss (including loss of anticipated profits), cost or expense incurred by such
person as a result of the foregoing, including, without limitation, any such
loss, cost or expense incurred by reason of the liquidation or reemployment of
deposits or other funds acquired by such person to make or maintain the
Eurodollar Rate Loans or any portion thereof. A certificate of Lender setting
forth the basis for the determination of such amount necessary to compensate
Lender as aforesaid shall be delivered to Borrower and shall be conclusive,
absent manifest error.
(b) If any payments or prepayments in respect of the Eurodollar
Rate Loans are received by Lender other than on the last day of the applicable
Interest Period (whether pursuant to acceleration, upon maturity or otherwise),
including any payments pursuant to the application of collections under Section
6.3 or any other payments made with the proceeds of Collateral, Borrower shall
pay to Lender upon demand by Lender (or Lender may, at its option, charge any
loan account of Borrower) any amounts required to compensate Lender, the
Reference Bank or any participant with Lender for any additional loss (including
loss of anticipated profits), cost or expense incurred by such person as a
result of such prepayment or payment, including, without limitation, any loss,
cost or expense incurred by reason of the liquidation or reemployment of
deposits or other funds acquired by such person to make or maintain such
Eurodollar Rate Loans or any portion thereof.
-19-
<PAGE> 25
SECTION 4. CONDITIONS PRECEDENT
4.1 Conditions Precedent to Initial Loans and Letter of Credit
Accommodations. Each of the following is a condition precedent to Lender making
the initial Loans and providing the initial Letter of Credit Accommodations
hereunder:
(a) Lender shall have received, in form and substance
satisfactory to Lender, all releases, terminations and such other documents as
Lender may request to evidence and effectuate the termination by the existing
lender or lenders to Borrower of their respective financing arrangements with
Borrower and the termination and release by it or them, as the case may be, of
any interest in and to any assets and properties of Borrower and each Obligor,
duly authorized, executed and delivered by it or each of them, including, but
not limited to, (i) UCC termination statements for all UCC financing statements
previously filed by it or any of them or their predecessors, as secured party
and Borrower or any Obligor, as debtor and (ii) satisfactions and discharges of
any mortgages, deeds of trust or deeds to secure debt by Borrower or any Obligor
in favor of such existing lender or lenders, in form acceptable for recording in
the appropriate government office;
(b) Lender shall have received evidence, in form and substance
satisfactory to Lender, that Lender has valid perfected and first priority
security interests in and liens upon the Collateral and any other property which
is intended to be security for the Obligations or the liability of any Obligor
in respect thereof, subject only to the security interests and liens permitted
herein or in the other Financing Agreements;
(c) all requisite corporate action and proceedings in connection
with this Agreement and the other Financing Agreements shall be satisfactory in
form and substance to Lender, and Lender shall have received all information and
copies of all documents, including records of requisite corporate action and
proceedings which Lender may have requested in connection therewith, such
documents where requested by Lender or its counsel to be certified by
appropriate corporate officers or governmental authorities;
(d) no material adverse change shall have occurred in the assets,
business or prospects of Borrower since the date of Lender's latest field
examination and no change or event shall have occurred which would impair the
ability of Borrower or any Obligor to perform its obligations hereunder or under
any of the other Financing Agreements to which it is a party or of Lender to
enforce the Obligations or realize upon the Collateral;
(e) Lender shall have completed a field review of the Records and
such other information with respect to the Collateral as Lender may require to
determine the amount of Revolving Loans available to Borrower, the results of
which shall be satisfactory to Lender, not more than three (3) business days
prior to the date hereof;
(f) Lender shall have received, in form and substance
satisfactory to Lender, all consents, waivers, acknowledgments and other
agreements from third persons which Lender may deem necessary or desirable in
order to permit, protect and perfect its security interests in and liens upon
the Collateral or to effectuate the provisions or purposes of this Agreement and
the other
-20-
<PAGE> 26
Financing Agreements, including acknowledgments by lessors, mortgagees
and warehousemen of Lender's security interests in the Collateral, waivers by
such persons of any security interests, liens or other claims by such persons to
the Collateral and agreements permitting Lender access to, and the right to
remain on, the premises to exercise its rights and remedies and otherwise deal
with the Collateral;
(g) Lender shall have received evidence of insurance and loss
payee endorsements required hereunder and under the other Financing Agreements,
in form and substance satisfactory to Lender, and certificates of insurance
policies and/or endorsements naming Lender as loss payee;
(h) Lender shall have received environmental audits of Borrower's
plants and the Real Property conducted by an independent environmental
engineering firm reasonably acceptable to Lender, and in form, scope and
methodology reasonably satisfactory to Lender, confirming (i) Borrower is in
substantial compliance with all material applicable Environmental Laws and that
any non-compliance therewith has not and could not reasonably be expected to
result in a material adverse effect upon Borrower's assets and business
operations, and (ii) the absence of any material environmental problems;
(i) Lender shall have received, in form and substance
satisfactory to Lender, a valid and effective title insurance policy issued by a
company and agent acceptable to Lender (i) insuring the priority, amount and
sufficiency of the Mortgages, (ii) insuring against matters that would be
disclosed by surveys and (iii) containing any legally available endorsements,
assurances or affirmative coverage requested by Lender for protection of its
interests;
(j) the Excess Availability as determined by Lender, as of the
date hereof, shall be not less than $10,000,000 after giving effect to the
initial Loans made or to be made and Letter of Credit Accommodations issued or
to be issued in connection with the initial transactions hereunder;
(k) Lender shall have received, in form and substance
satisfactory to Lender, such opinion letters of counsel to Borrower with respect
to the Financing Agreements and such other matters as Lender may request; and
(l) the other Financing Agreements and all instruments and
documents hereunder and thereunder shall have been duly executed and delivered
to Lender, in form and substance satisfactory to Lender.
4.2 Conditions Precedent to All Loans and Letter of Credit
Accommodations. Each of the following is an additional condition precedent to
Lender making Loans and/or providing Letter of Credit Accommodations to
Borrower, including the initial Loans and Letter of Credit Accommodations and
any future Loans and Letter of Credit Accommodations:
(a) all representations and warranties contained herein and in
the other Financing Agreements shall be true and correct in all material
respects with the same effect as though such representations and warranties had
been made on and as of the date of the making of each such Loan or providing
each such Letter of Credit Accommodation and after giving effect thereto; and
-21-
<PAGE> 27
(b) no Event of Default and no event or condition which, with
notice or passage of time or both, would constitute an Event of Default, shall
exist or have occurred and be continuing on and as of the date of the making of
such Loan or providing each such Letter of Credit Accommodation and after giving
effect thereto.
SECTION 5. GRANT OF SECURITY INTEREST
To secure payment and performance of all Obligations, Borrower hereby
grants to Lender a continuing security interest in, a lien upon, and a right of
set off against, and hereby assigns to Lender as security, the following
property and interests in property of Borrower, whether now owned or hereafter
acquired or existing, and wherever located (collectively, the "Collateral"):
5.1 Accounts;
5.2 all present and future contract rights, general intangibles
(including tax and duty refunds, registered and unregistered patents,
trademarks, service marks, copyrights, trade names, applications for the
foregoing (excluding, however, intent-to-use trademark applications), trade
secrets, goodwill, processes, drawings, blueprints, customer lists, licenses,
whether as licensor or licensee, choses in action and other claims and existing
and future leasehold interests in equipment, real estate and fixtures), chattel
paper, documents, instruments, securities and other investment property, letters
of credit, bankers' acceptances and guaranties;
5.3 all present and future monies, securities, credit balances,
deposits, deposit accounts and other property of Borrower now or hereafter held
or received by or in transit to Lender or its affiliates or at any other
depository or other institution from or for the account of Borrower, whether for
safekeeping, pledge, custody, transmission, collection or otherwise, and all
present and future liens, security interests, rights, remedies, title and
interest in, to and in respect of Accounts and other Collateral, including (a)
rights and remedies under or relating to guaranties, contracts of suretyship,
letters of credit and credit and other insurance related to the Collateral, (b)
rights of stoppage in transit, replevin, repossession, reclamation and other
rights and remedies of an unpaid vendor, lienor or secured party, (c) goods
described in invoices, documents, contracts or instruments with respect to, or
otherwise representing or evidencing, Accounts or other Collateral, including
returned, repossessed and reclaimed goods, and (d) deposits by and property of
account debtors or other persons securing the obligations of account debtors;
5.4 Inventory;
5.5 Equipment, except that, the foregoing grant of security interest
shall not extend to or encompass, and the Collateral shall not include, the
Shelby Equipment;
5.6 Real Property;
5.7 Records; and
5.8 all products and proceeds of the foregoing, in any form,
including insurance proceeds and all claims against third parties for loss or
damage to or destruction of any or all of the foregoing.
-22-
<PAGE> 28
SECTION 6. COLLECTION AND ADMINISTRATION
6.1 Borrower's Loan Account. Lender shall maintain one or more loan
account(s) on its books in which shall be recorded (a) all Loans, Letter of
Credit Accommodations and other Obligations and the Collateral, (b) all payments
made by or on behalf of Borrower and (c) all other appropriate debits and
credits as provided in this Agreement, including fees, charges, costs, expenses
and interest. All entries in the loan account(s) shall be made in accordance
with Lender's customary practices as in effect from time to time.
6.2 Statements. Lender shall render to Borrower each month a
statement setting forth the balance in the Borrower's loan account(s) maintained
by Lender for Borrower pursuant to the provisions of this Agreement, including
principal, interest, fees, costs and expenses. Each such statement shall be
subject to subsequent adjustment by Lender but shall, absent manifest errors or
omissions, be considered correct and deemed accepted by Borrower and
conclusively binding upon Borrower as an account stated except to the extent
that Lender receives a written notice from Borrower of any specific exceptions
of Borrower thereto within thirty (30) days after the date such statement has
been mailed by Lender. Until such time as Lender shall have rendered to Borrower
a written statement as provided above, the balance in Borrower's loan account(s)
shall be presumptive evidence of the amounts due and owing to Lender by
Borrower.
6.3 Collection of Accounts.
(a) Borrower shall establish and maintain, at its expense,
blocked accounts or lockboxes and related blocked accounts (in either case,
"Blocked Accounts"), as Lender may specify, with such banks as are acceptable to
Lender into which Borrower shall promptly deposit and direct its account debtors
to directly remit all payments on Accounts and all payments constituting
proceeds of Inventory or other Collateral in the identical form in which such
payments are made, whether by cash, check or other manner. The banks at which
the Blocked Accounts are established shall enter into an agreement, in form and
substance satisfactory to Lender, providing that all items received or deposited
in the Blocked Accounts are the property of Lender, that the depository bank has
no lien upon, or right to setoff against, the Blocked Accounts, the items
received for deposit therein, or the funds from time to time on deposit therein
and that the depository bank will wire, or otherwise transfer, in immediately
available funds, on a daily basis, all funds received or deposited into the
Blocked Accounts to such bank account of Lender as Lender may from time to time
designate for such purpose ("Payment Account"). Borrower agrees that all
payments made to such Blocked Accounts or other funds received and collected by
Lender, whether on the Accounts or as proceeds of Inventory or other Collateral
or otherwise shall be the property of Lender.
(b) For purposes of calculating the amount of the Loans available
to Borrower, such payments will be applied (conditional upon final collection)
to the Obligations on the business day of receipt by Lender of immediately
available funds in the Payment Account provided such payments and notice thereof
are received in accordance with Lender's usual and customary practices as in
effect from time to time and within sufficient time to credit Borrower's loan
account on such day, and if not, then on the next business day. For the purposes
of calculating interest on the Obligations, such payments or other funds
received will be applied (conditional upon final collection) to the Obligations
one (1) business day following the date of receipt of immediately available
-23-
<PAGE> 29
funds by Lender in the Payment Account provided such payments or other funds and
notice thereof are received in accordance with Lender's usual and customary
practices as in effect from time to time and within sufficient time to credit
Borrower's loan account on such day, and if not, then on the next business day.
(c) Borrower and all of its affiliates, subsidiaries,
shareholders, directors, employees or agents shall, acting as trustee for
Lender, receive, as the property of Lender, any monies, checks, notes, drafts or
any other payment relating to and/or proceeds of Accounts or other Collateral
which come into their possession or under their control and immediately upon
receipt thereof, shall deposit or cause the same to be deposited in the Blocked
Accounts, or remit the same or cause the same to be remitted, in kind, to
Lender. In no event shall the same be commingled with Borrower's own funds.
Borrower agrees to reimburse Lender on demand for any amounts owed or paid to
any bank at which a Blocked Account is established or any other bank or person
involved in the transfer of funds to or from the Blocked Accounts arising out of
Lender's payments to or indemnification of such bank or person. The obligation
of Borrower to reimburse Lender for such amounts pursuant to this Section 6.3
shall survive the termination or non-renewal of this Agreement.
6.4 Payments. All Obligations shall be payable to the Payment Account
as provided in Section 6.3 or such other place as Lender may designate from time
to time. Lender may apply payments received or collected from Borrower or for
the account of Borrower (including the monetary proceeds of collections or of
realization upon any Collateral) to such of the Obligations, whether or not then
due, in such order and manner as Lender determines. At Lender's option, all
principal, interest, fees, costs, expenses and other charges provided for in
this Agreement or the other Financing Agreements may be charged directly to the
loan account(s) of Borrower. Borrower shall make all payments to Lender on the
Obligations free and clear of, and without deduction or withholding for or on
account of, any setoff, counterclaim, defense, duties, taxes, levies, imposts,
fees, deductions, withholding, restrictions or conditions of any kind. If after
receipt of any payment of, or proceeds of Collateral applied to the payment of,
any of the Obligations, Lender is required to surrender or return such payment
or proceeds to any Person for any reason, then the Obligations intended to be
satisfied by such payment or proceeds shall be reinstated and continue and this
Agreement shall continue in full force and effect as if such payment or proceeds
had not been received by Lender. Borrower shall be liable to pay to Lender, and
does hereby indemnify and hold Lender harmless for the amount of any payments or
proceeds surrendered or returned. This Section 6.4 shall remain effective
notwithstanding any contrary action which may be taken by Lender in reliance
upon such payment or proceeds. This Section 6.4 shall survive the payment of the
Obligations and the termination or non-renewal of this Agreement.
6.5 Authorization to Make Loans. Lender is authorized to make the Loans
and provide the Letter of Credit Accommodations based upon telephonic or other
instructions received from anyone purporting to be an officer of Borrower or
other authorized person or, at the discretion of Lender, if such Loans are
necessary to satisfy any Obligations. All requests for Loans or Letter of Credit
Accommodations hereunder shall specify the date on which the requested advance
is to be made or Letter of Credit Accommodations established (which day shall be
a business day) and the amount of the requested Loan. Requests received after
11:00 a.m. Chicago, Illinois time on any day shall be deemed to have been made
as of the opening of business on the immediately following business day. All
Loans and Letter of Credit Accommodations under this Agreement shall be
conclusively
-24-
<PAGE> 30
presumed to have been made to, and at the request of and for the
benefit of, Borrower when deposited to the credit of Borrower or otherwise
disbursed or established in accordance with the instructions of Borrower or in
accordance with the terms and conditions of this Agreement.
6.6 Use of Proceeds. Borrower shall use the initial proceeds of the
Loans provided by Lender to Borrower hereunder only for: (a) payments to each of
the persons listed in the disbursement direction letter furnished by Borrower to
Lender on or about the date hereof and (b) costs, expenses and fees in
connection with the preparation, negotiation, execution and delivery of this
Agreement and the other Financing Agreements. All other Loans made or Letter of
Credit Accommodations provided by Lender to Borrower pursuant to the provisions
hereof shall be used by Borrower only for general operating, working capital and
other proper corporate purposes of Borrower not otherwise prohibited by the
terms hereof. None of the proceeds will be used, directly or indirectly, for the
purpose of purchasing or carrying any margin security or for the purposes of
reducing or retiring any indebtedness which was originally incurred to purchase
or carry any margin security or for any other purpose which might cause any of
the Loans to be considered a "purpose credit" within the meaning of Regulation G
of the Board of Governors of the Federal Reserve System, as amended.
SECTION 7. COLLATERAL REPORTING AND COVENANTS
7.1 Collateral Reporting. Borrower shall provide Lender with the
following documents in a form satisfactory to Lender: (a) on a weekly basis,
within 5 Business Days after the end of each week or more frequently as Lender
may request, a schedule of Accounts, sales made, credits issued and cash
received; (b) on a monthly basis, within 20 days after the end of the each month
or more frequently as Lender may request, (i) perpetual inventory reports by
category and location, (ii) agings of accounts receivable, and (iii) agings of
accounts payable, (c) upon Lender's request, (i) copies of customer statements
and credit memos, remittance advices and reports, and copies of deposit slips
and bank statements, (ii) copies of shipping and delivery documents, and (iii)
copies of purchase orders, invoices and delivery documents for Inventory and
Equipment acquired by Borrower; and (d) such other reports as to the Collateral
as Lender shall request from time to time. If any of Borrower's records or
reports of the Collateral are prepared or maintained by an accounting service,
contractor, shipper or other agent, Borrower hereby irrevocably authorizes such
service, contractor, shipper or agent to deliver such records, reports, and
related documents to Lender and to follow Lender's instructions with respect to
further services at any time that an Event of Default exists or has occurred and
is continuing.
7.2 Accounts Covenants.
(a) Borrower shall notify Lender promptly of: (i) any material
delay in Borrower's performance of any of its obligations to any account debtor
or the assertion of any claims, offsets, defenses or counterclaims by any
account debtor, or any disputes with account debtors, or any settlement,
adjustment or compromise thereof, (ii) all material adverse information relating
to the financial condition of any account debtor and (iii) any event or
circumstance which, to Borrower's knowledge would cause Lender to consider any
then existing Accounts as no longer constituting Eligible Accounts. No credit,
discount, allowance or extension or agreement for any of the foregoing shall be
granted to any account debtor without Lender's consent, except in the ordinary
-25-
<PAGE> 31
course of Borrower's business in accordance with practices and policies
previously disclosed in writing to Lender. So long as no Event of Default exists
or has occurred and is continuing, Borrower shall settle, adjust or compromise
any claim, offset, counterclaim or dispute with any account debtor. At any time
that an Event of Default exists or has occurred and is continuing, Lender shall,
at its option, have the exclusive right to settle, adjust or compromise any
claim, offset, counterclaim or dispute with account debtors or grant any
credits, discounts or allowances.
(b) Without limiting the obligation of Borrower to deliver any
other information to Lender, Borrower shall promptly report to Lender any return
of Inventory by any one account debtor if the inventory so returned in such case
has a value in excess of $50,000. At any time that Inventory is returned,
reclaimed or repossessed, the Account (or portion thereof) which arose from the
sale of such returned, reclaimed or repossessed Inventory shall not be deemed an
Eligible Account. In the event any account debtor returns Inventory when an
Event of Default exists or has occurred and is continuing, Borrower shall, upon
Lender's request, (i) hold the returned Inventory in trust for Lender, (ii)
segregate all returned Inventory from all of its other property, (iii) dispose
of the returned Inventory solely according to Lender's instructions, and (iv)
not issue any credits, discounts or allowances with respect thereto without
Lender's prior written consent.
(c) With respect to each Account: (i) the amounts shown on any
invoice delivered to Lender or schedule thereof delivered to Lender shall be
true and complete, (ii) no payments shall be made thereon except payments
immediately delivered to Lender pursuant to the terms of this Agreement, (iii)
no credit, discount, allowance or extension or agreement for any of the
foregoing shall be granted to any account debtor except as reported to Lender in
accordance with this Agreement and except for credits, discounts, allowances or
extensions made or given in the ordinary course of Borrower's business in
accordance with practices and policies previously disclosed to Lender, (iv)
there shall be no setoffs, deductions, contras, defenses, counterclaims or
disputes existing or asserted with respect thereto except as reported to Lender
in accordance with the terms of this Agreement, (v) none of the transactions
giving rise thereto will violate any applicable State or Federal laws or
regulations, all documentation relating thereto will be legally sufficient under
such laws and regulations and all such documentation will be legally enforceable
in accordance with its terms.
(d) Lender shall have the right at any time or times, in Lender's
name or in the name of a nominee of Lender, to verify the validity, amount or
any other matter relating to any Account or other Collateral, by mail,
telephone, facsimile transmission or otherwise.
(e) Borrower shall deliver or cause to be delivered to Lender,
with appropriate endorsement and assignment, with full recourse to Borrower, all
chattel paper and instruments ("Special Collateral") which Borrower now owns or
may at any time acquire immediately upon Borrower's receipt thereof, except as
Lender may otherwise agree, provided, however, that notwithstanding the
foregoing, so long as no Event of Default has occurred and is continuing,
Borrower shall not be required to deliver to Lender any Special Collateral (or
take any of the foregoing actions with respect to Special Collateral) relating
to obligations owed by any Person to Borrower of less than $250,000 individually
or in the aggregate.
-26-
<PAGE> 32
(f) Lender may, at any time or times that an Event of Default
exists or has occurred and is continuing, (i) notify any or all account debtors
that the Accounts have been assigned to Lender and that Lender has a security
interest therein and Lender may direct any or all accounts debtors to make
payment of Accounts directly to Lender, (ii) extend the time of payment of,
compromise, settle or adjust for cash, credit, return of merchandise or
otherwise, and upon any terms or conditions, any and all Accounts or other
obligations included in the Collateral and thereby discharge or release the
account debtor or any other party or parties in any way liable for payment
thereof without affecting any of the Obligations, (iii) demand, collect or
enforce payment of any Accounts or such other obligations, but without any duty
to do so, and Lender shall not be liable for its failure to collect or enforce
the payment thereof nor for the negligence of its agents or attorneys with
respect thereto and (iv) take whatever other action Lender may deem necessary or
desirable for the protection of its interests. At any time that an Event of
Default exists or has occurred and is continuing, at Lender's request, all
invoices and statements sent to any account debtor shall state that the Accounts
and such other obligations have been assigned to Lender and are payable directly
and only to Lender and Borrower shall deliver to Lender such originals of
documents evidencing the sale and delivery of goods or the performance of
services giving rise to any Accounts as Lender may require.
7.3 Inventory Covenants. With respect to the Inventory: (a) Borrower
shall at all times maintain inventory records reasonably satisfactory to Lender,
keeping correct and accurate records itemizing and describing the kind, type,
quality and quantity of Inventory, Borrower's cost therefor and daily
withdrawals therefrom and additions thereto; (b) Borrower shall conduct a
physical count of the Inventory at least once each year, but at any time or
times as Lender may request on or after an Event of Default, and promptly
following such physical inventory shall supply Lender with a report in the form
and with such specificity as may be reasonably satisfactory to Lender concerning
such physical count; (c) Borrower shall not remove any Inventory from the
locations set forth or permitted herein, without the prior written consent of
Lender, except for sales of Inventory in the ordinary course of Borrower's
business and except to move Inventory directly from one location set forth or
permitted herein to another such location; (d) upon Lender's request, Borrower
shall, at its expense, no more than once in any twelve (12) month period, but at
any time or times as Lender may request on or after an Event of Default, deliver
or cause to be delivered to Lender written reports or appraisals as to the
Inventory in form, scope and methodology acceptable to Lender and by an
appraiser acceptable to Lender, addressed to Lender or upon which Lender is
expressly permitted to rely; (e) Borrower shall produce, use, store and maintain
the Inventory with all reasonable care and caution and in accordance with
applicable standards of any insurance and in conformity with applicable laws
(including the requirements of the Federal Fair Labor Standards Act of 1938, as
amended and all rules, regulations and orders related thereto); (f) Borrower
assumes all responsibility and liability arising from or relating to the
production, use, sale or other disposition of the Inventory; (g) Borrower shall
not sell Inventory to any customer on approval, or any other basis which
entitles the customer to return or may obligate Borrower to repurchase such
Inventory, except for such sales made in the ordinary course of Borrower's
business in accordance with Borrower's "Supplier Owned and Managed Inventory
Program" previously disclosed in writing to Lender, and provided Borrower
discloses such sales in the monthly Inventory report delivered to Lender
pursuant to Section 7.1(b) of this Agreement; (h) Borrower shall keep the
Inventory in good and marketable condition; and (i) Borrower shall not, without
prior written notice to Lender, acquire or accept any Inventory on consignment
or approval.
-27-
<PAGE> 33
7.4 Equipment and Real Property Covenants. With respect to the
Equipment and Real Property: (a) upon Lender's request, Borrower shall, at its
expense, no more than once in any twelve (12) month period, but at any time or
times as Lender may request on or after an Event of Default, deliver or cause to
be delivered to Lender written reports or appraisals as to the Equipment and/or
the Real Property in form, scope and methodology acceptable to Lender and by an
appraiser acceptable to Lender, addressed to Lender and upon which Lender is
expressly permitted to rely; (b) Borrower shall keep the Equipment that is used
or useful in Borrower's business in good order, repair, running and marketable
condition (ordinary wear and tear excepted); (c) Borrower shall use the
Equipment and Real Property with all reasonable care and caution and in
accordance with applicable standards of any insurance and in conformity with all
applicable laws; (d) the Equipment is and shall be used in Borrower's business
and not for personal, family, household or farming use; (e) Borrower shall not
remove any Equipment from the locations set forth or permitted herein, except to
the extent necessary to have any Equipment repaired or maintained in the
ordinary course of the business of Borrower or to move Equipment directly from
one location set forth or permitted herein to another such location and except
for the movement of motor vehicles used by or for the benefit of Borrower in the
ordinary course of business; (f) the Equipment is now and shall remain personal
property and Borrower shall not permit any of the Equipment to be or become a
part of or affixed to real property; and (g) Borrower assumes all responsibility
and liability arising from the use of the Equipment and Real Property.
7.5 Power of Attorney. Borrower hereby irrevocably designates and
appoints Lender (and all persons designated by Lender) as Borrower's true and
lawful attorney-in-fact, and authorizes Lender, in Borrower's or Lender's name,
to: (a) at any time an Event of Default or event which with notice or passage of
time or both would constitute an Event of Default exists or has occurred and is
continuing (i) demand payment on Accounts or other proceeds of Inventory or
other Collateral, (ii) enforce payment of Accounts by legal proceedings or
otherwise, (iii) exercise all of Borrower's rights and remedies to collect any
Account or other Collateral, (iv) sell or assign any Account upon such terms,
for such amount and at such time or times as the Lender deems advisable, (v)
settle, adjust, compromise, extend or renew an Account, (vi) discharge and
release any Account, (vii) prepare, file and sign Borrower's name on any proof
of claim in bankruptcy or other similar document against an account debtor,
(viii) notify the post office authorities to change the address for delivery of
Borrower's mail to an address designated by Lender, and open and dispose of all
mail addressed to Borrower, and (ix) do all acts and things which are necessary,
in Lender's determination, to fulfill Borrower's obligations under this
Agreement and the other Financing Agreements and (b) at any time, acting in good
faith, to (i) take control in any manner of any item of payment or proceeds
thereof, (ii) have access to any lockbox or postal box into which Borrower's
mail is deposited, (iii) endorse Borrower's name upon any items of payment or
proceeds thereof and deposit the same in the Lender's account for application to
the Obligations, (iv) endorse Borrower's name upon any chattel paper, document,
instrument, invoice, or similar document or agreement relating to any Account or
any goods pertaining thereto or any other Collateral, (v) sign Borrower's name
on any verification of Accounts and notices thereof to account debtors and (vi)
execute in Borrower's name and file any UCC financing statements or amendments
thereto. Borrower hereby releases Lender and its officers, employees and
designees from any liabilities arising from any act or acts under this power of
attorney and in furtherance thereof, whether of omission or commission, except
as a result of Lender's own gross negligence or wilful misconduct as determined
pursuant to a final non-appealable order of a court of competent jurisdiction.
-28-
<PAGE> 34
7.6 Right to Cure. Lender may, at its option, (a) subject to the terms
thereof, cure any default by Borrower under any agreement with a third party or
pay or bond on appeal any judgment entered against Borrower, (b) discharge
taxes, liens, security interests or other encumbrances at any time levied on or
existing with respect to the Collateral and (c) pay any amount, incur any
expense or perform any act which, in Lender's judgment, is necessary or
appropriate to preserve, protect, insure or maintain the Collateral and the
rights of Lender with respect thereto. Lender may add any amounts so expended to
the Obligations and charge Borrower's account therefor, such amounts to be
repayable by Borrower on demand. Lender shall be under no obligation to effect
such cure, payment or bonding and shall not, by doing so, be deemed to have
assumed any obligation or liability of Borrower. Any payment made or other
action taken by Lender under this Section shall be without prejudice to any
right to assert an Event of Default hereunder and to proceed accordingly.
7.7 Access to Premises. From time to time as requested by Lender, at
the cost and expense of Borrower, (a) Lender or its designee shall have complete
access to all of Borrower's premises during normal business hours and after
notice to Borrower, or at any time and without notice to Borrower if an Event of
Default exists or has occurred and is continuing, for the purposes of
inspecting, verifying and auditing the Collateral and all of Borrower's books
and records, including the Records, and (b) Borrower shall promptly furnish to
Lender such copies of such books and records or extracts therefrom as Lender may
request, and (c) use during normal business hours such of Borrower's personnel,
equipment, supplies and premises as may be reasonably necessary for the
foregoing and if an Event of Default exists or has occurred and is continuing
for the collection of Accounts and realization of other Collateral.
SECTION 8. REPRESENTATIONS AND WARRANTIES
Borrower hereby represents and warrants to Lender the following (which
shall survive the execution and delivery of this Agreement), the truth and
accuracy of which are a continuing condition of the making of Loans and
providing Letter of Credit Accommodations by Lender to Borrower:
8.1 Corporate Existence, Power and Authority; Subsidiaries. Borrower is
a corporation duly organized and in good standing under the laws of its state of
incorporation and is duly qualified as a foreign corporation and in good
standing in all states or other jurisdictions where the nature and extent of the
business transacted by it or the ownership of assets makes such qualification
necessary, except for those jurisdictions in which the failure to so qualify
would not have a material adverse effect on Borrower's financial condition,
results of operation or business or the rights of Lender in or to any of the
Collateral. The execution, delivery and performance of this Agreement, the other
Financing Agreements and the transactions contemplated hereunder and thereunder
are all within Borrower's corporate powers, have been duly authorized and are
not in contravention of law or the terms of Borrower's certificate of
incorporation, by-laws, or other organizational documentation, or any indenture,
agreement or undertaking to which Borrower is a party or by which Borrower or
its property are bound. This Agreement and the other Financing Agreements
constitute legal, valid and binding obligations of Borrower enforceable in
accordance with their respective terms. Borrower does not have any subsidiaries
except as set forth on the Information Certificate.
-29-
<PAGE> 35
8.2 Financial Statements; No Material Adverse Change. All financial
statements relating to Borrower which have been or may hereafter be delivered by
Borrower to Lender have been prepared in accordance with GAAP and fairly present
the financial condition and the results of operation of Borrower as at the dates
and for the periods set forth therein. Except as disclosed in any interim
financial statements furnished by Borrower to Lender prior to the date of this
Agreement, there has been no material adverse change in the assets, liabilities,
properties and condition, financial or otherwise, of Borrower, since the date of
the most recent audited financial statements furnished by Borrower to Lender
prior to the date of this Agreement.
8.3 Chief Executive Office; Collateral Locations. The chief executive
office of Borrower and Borrower's Records concerning Accounts are located only
at the address set forth below and its only other places of business and the
only other locations of Collateral, if any, are the addresses set forth in the
Information Certificate, subject to the right of Borrower to establish new
locations in accordance with Section 9.2 below. The Information Certificate
correctly identifies any of such locations which are not owned by Borrower and
sets forth the owners and/or operators thereof and to the best of Borrower's
knowledge, the holders of any mortgages on such locations.
8.4 Priority of Liens; Title to Properties. The security interests and
liens granted to Lender under this Agreement and the other Financing Agreements
constitute valid and perfected first priority liens and security interests in
and upon the Collateral subject only to the liens indicated on Schedule 8.4
hereto and the other liens permitted under Section 9.8 hereof. Borrower has good
and marketable title to all of its properties and assets subject to no liens,
mortgages, pledges, security interests, encumbrances or charges of any kind,
except those granted to Lender and such others as are specifically listed on
Schedule 8.4 hereto or permitted under Section 9.8 hereof.
8.5 Tax Returns. Borrower has filed, or caused to be filed, in a timely
manner all tax returns, reports and declarations which are, to the best of
Borrower's knowledge, required to be filed by it (inclusive of requests for
filing extensions requested and received by Borrower with respect to its federal
and state income tax returns). All information in such tax returns, reports and
declarations is complete and accurate in all material respects. Borrower has
paid or caused to be paid all taxes due and payable or claimed due and payable
in any assessment received by it, except taxes the validity of which are being
contested in good faith by appropriate proceedings diligently pursued and
available to Borrower and with respect to which adequate reserves have been set
aside on its books. Adequate provision has been made for the payment of all
accrued and unpaid Federal, State, county, local, foreign and other taxes
whether or not yet due and payable and whether or not disputed.
8.6 Litigation. Except as set forth on the Information Certificate,
there is no present investigation by any governmental agency pending, or to the
best of Borrower's knowledge threatened, against or affecting Borrower, its
assets or business and there is no action, suit, proceeding or claim by any
Person pending, or to the best of Borrower's knowledge threatened, against
Borrower or its assets or goodwill, or against or affecting any transactions
contemplated by this Agreement, which if adversely determined against Borrower
would result in any material adverse change in the assets, business or prospects
of Borrower or would impair the ability of Borrower to perform its obligations
hereunder or under any of the other Financing Agreements to which it is a party
or of Lender to enforce any Obligations or realize upon any Collateral.
-30-
<PAGE> 36
8.7 Compliance with Other Agreements and Applicable Laws. Borrower is
not in default in any material respect under, or in violation in any material
respect of any of the terms of, any agreement ( including, without limitation,
the Bond Agreements),contract, instrument, lease or other commitment to which it
is a party or by which it or any of its assets are bound and involving
obligations, liabilities or indebtedness in an aggregate amount in excess of
$500,000, and Borrower is in compliance in all material respects with all
applicable provisions of laws, rules, regulations, licenses, permits, approvals
and orders of any foreign, Federal, State or local governmental authority.
8.8 Environmental Compliance.
(a) Except as set forth on Schedule 8.8 hereto, Borrower has not
generated, used, stored, treated, transported, manufactured, handled, produced
or disposed of any Hazardous Materials, on or off its premises (whether or not
owned by it) in any manner which at any time violates any applicable
Environmental Law or any license, permit, certificate, approval or similar
authorization thereunder and complies in all material respects with all
Environmental Laws and all licenses, permits, certificates, approvals and
similar authorizations thereunder, except for any non-compliance with respect to
or violation of any of the foregoing that has not resulted, and could not
reasonably be expected to result, in a material adverse effect on Borrower's
business, operations, assets or financial condition.
(b) Except as set forth on Schedule 8.8 hereto, there has been no
investigation, proceeding, written complaint, written order, written directive,
written claim, written citation or written notice (each, an "Environmental
Claim") by any Governmental Authority or any other person nor is any
Environmental Claim pending or to the best of Borrower's knowledge threatened,
with respect to any non-compliance with or violation of the requirements of any
Environmental Law by Borrower or the release, spill or discharge of any
Hazardous Material or the generation, use, storage, treatment, transportation,
manufacture, handling, production or disposal of any Hazardous Materials or any
other environmental, health or safety matter, except for any Environmental Claim
which has not resulted, and could not reasonably be expected to result, in a
material adverse effect on Borrower's business, operations, assets or financial
condition or on any properties at which Borrower has transported, stored or
disposed of any Hazardous Materials.
(c) Except as set forth on Schedule 8.8 hereto, Borrower has no
liability (contingent or otherwise) in connection with a release, spill or
discharge of any Hazardous Materials or the generation, use, storage, treatment,
transportation, manufacture, handling, production or disposal of any Hazardous
Materials (any such liability, an "Environmental Liability"), except for any
Environmental Liability which has not resulted, and could not reasonably be
expected to result, in a material adverse effect on Borrower's business,
operations, assets or financial condition..
(d) Except as set forth on Schedule 8.8 hereto, Borrower has all
material licenses, permits, certificates, approvals or similar authorizations
required to be obtained or filed in connection with the operations of Borrower
under any Environmental Law and all of such licenses, permits, certificates,
approvals or similar authorizations are valid and in full force and effect.
8.9 Bank Accounts. All of the deposit accounts, investment accounts or
other accounts in the name of or used by Borrower maintained at any bank or
other financial institution are set forth
-31-
<PAGE> 37
on Schedule 8.9 hereto, subject to the right of Borrower to establish new
accounts in accordance with Section 9.13 below.
8.10 Accuracy and Completeness of Information. All information
furnished by or on behalf of Borrower in writing to Lender in connection with
this Agreement or any of the other Financing Agreements or any transaction
contemplated hereby or thereby, including all information on the Information
Certificate is true and correct in all material respects on the date as of which
such information is dated or certified and does not omit any material fact
necessary in order to make such information not misleading. To Borrower's
knowledge, no event or circumstance has occurred which has had or could
reasonably be expected to have a material adverse affect on the business or
assets of Borrower, which has not been fully and accurately disclosed to Lender
in writing.
8.11 Survival of Warranties; Cumulative. All representations and
warranties contained in this Agreement or any of the other Financing Agreements
shall survive the execution and delivery of this Agreement and shall be deemed
to have been made again to Lender on the date of each additional borrowing or
other credit accommodation hereunder and shall be conclusively presumed to have
been relied on by Lender regardless of any investigation made or information
possessed by Lender. The representations and warranties set forth herein shall
be cumulative and in addition to any other representations or warranties which
Borrower shall now or hereafter give, or cause to be given, to Lender.
SECTION 9. AFFIRMATIVE AND NEGATIVE COVENANTS
9.1 Maintenance of Existence. Borrower shall at all times preserve,
renew and keep in full force and effect its corporate existence and rights and
franchises with respect thereto and maintain in full force and effect all
permits, licenses, trademarks, tradenames, approvals, authorizations, leases and
contracts necessary to carry on the business as presently or proposed to be
conducted. Borrower shall give Lender thirty (30) days prior written notice of
any proposed change in its corporate name, which notice shall set forth the new
name and Borrower shall deliver to Lender a copy of the amendment to the
Certificate of Incorporation of Borrower providing for the name change certified
by the Secretary of State of the jurisdiction of incorporation of Borrower as
soon as it is available.
9.2 New Collateral Locations. Borrower may open any new location
within the continental United States provided Borrower (a) gives Lender thirty
(30) days prior written notice of the intended opening of any such new location
and (b) executes and delivers, or causes to be executed and delivered, to Lender
such agreements, documents, and instruments as Lender may deem reasonably
necessary or desirable to protect its interests in the Collateral at such
location, including UCC financing statements.
9.3 Compliance with Laws, Regulations, Etc.
(a) Borrower shall, and shall cause any Subsidiary to, at all
times, comply in all material respects with all laws, rules, regulations,
licenses, permits, approvals orders and stipulations applicable to it, including
any Federal, State or local Governmental Authority, including ERISA, the Code,
the Occupational Safety and Health Act of 1970, as amended, the Fair Labor
Standards Act of 1938, as amended, and all Environmental Laws.
-32-
<PAGE> 38
(b) Borrower shall establish and maintain, at its expense, a
system to assure and monitor its continued compliance with all Environmental
Laws in all of its operations, which system shall include annual reviews of such
compliance by employees or agents of Borrower who are familiar with the
requirements of the Environmental Laws. Copies of all final environmental
surveys, audits, assessments, feasibility studies and results of remedial
investigations shall be promptly furnished, or caused to be furnished, by
Borrower to Lender. Borrower shall take prompt and appropriate action to respond
to any non-compliance with any of the Environmental Laws, except for any such
non-compliance which has not resulted, and could not reasonably be expected to
result, in a material adverse effect on Borrower's business, operations, assets
or financial condition, and shall regularly report to Lender on such response.
(c) Borrower shall give both oral and written notice to Lender
immediately upon Borrower's receipt of any written notice of, or Borrower's
otherwise obtaining actual knowledge of, (i) the occurrence of any event
involving the release, spill or discharge, threatened or actual, of any
Hazardous Material or (ii) any investigation, proceeding, complaint, order,
directive, claims, citation or notice with respect to: (A) any non-compliance
with or violation of any Environmental Law by Borrower or (B) the release, spill
or discharge of any Hazardous Material or (C) the generation, use, storage,
treatment, transportation, manufacture, handling, production or disposal of any
Hazardous Materials or (D) any other environmental, health or safety matter,
which affects Borrower or its business, operations or assets or any properties
at which Borrower transported, stored or disposed of any Hazardous Materials, in
each case where the occurrence of which has resulted, or could reasonably be
expected to result, in a material adverse effect on Borrower's business,
operations, assets or financial condition .
(d) Without limiting the generality of the foregoing, whenever
Lender reasonably determines that there is material non-compliance with any
Environmental Laws, or at such other times as Lender may reasonably request with
respect to any Real Property covered by a Mortgage granted by Borrower in favor
of Lender, Borrower shall, at Borrower's expense: (i) cause an independent
environmental engineer reasonably acceptable to Lender to conduct a compliance
audit at such location where Borrower's non-compliance or alleged non-compliance
with such Environmental Laws has occurred and prepare and deliver to Lender a
report as to such non-compliance setting forth the results of such audit, a
proposed plan for responding to any environmental problems described therein,
and an estimate of the costs thereof and (ii) provide to Lender a supplemental
report of such engineer whenever the scope of such non-compliance, or Borrower's
response thereto or the estimated costs thereof, shall change in any material
respect.
(e) Borrower shall indemnify and hold harmless Lender, its
directors, officers, employees, agents, invitees, representatives, successors
and assigns, from and against any and all losses, claims, damages, liabilities,
costs, and expenses (including reasonable attorneys' fees and legal expenses)
directly or indirectly arising out of or attributable to the use, generation,
manufacture, reproduction, storage, release, spill, discharge, disposal or
presence of a Hazardous Material, including the costs of any required or
necessary repair, cleanup or other remedial work with respect to any property of
Borrower and the preparation and implementation of any closure, remedial or
other required plans. All indemnification obligations of Borrower set forth in
this Section 9.3(e) shall survive the payment of the Obligations and the
termination or non-renewal of this Agreement.
-33-
<PAGE> 39
9.4 Payment of Taxes and Claims. Borrower shall duly pay and discharge
all taxes, assessments, contributions and governmental charges upon or against
it or its properties or assets, except for taxes the validity of which are being
contested in good faith by appropriate proceedings diligently pursued and
available to Borrower and with respect to which adequate reserves have been set
aside on its books. Borrower shall be liable for any tax or penalties imposed on
Lender as a result of the financing arrangements provided for herein and
Borrower agrees to indemnify and hold Lender harmless with respect to the
foregoing, and to repay to Lender on demand the amount thereof, and until paid
by Borrower such amount shall be added and deemed part of the Loans, provided,
that, nothing contained herein shall be construed to require Borrower to pay any
income or franchise taxes attributable to the income of Lender from any amounts
charged or paid hereunder to Lender. The foregoing indemnity shall survive the
payment of the Obligations and the termination or non-renewal of this Agreement.
9.5 Insurance. (a) Borrower shall, at all times, maintain with
financially sound and reputable insurers insurance with respect to the
Collateral against loss or damage and all other insurance of the kinds and in
the amounts customarily insured against or carried by corporations of
established reputation engaged in the same or similar businesses and similarly
situated. Said policies of insurance shall be satisfactory to Lender as to form,
amount and insurer. Borrower shall furnish certificates, policies or
endorsements to Lender as Lender shall require as proof of such insurance, and,
if Borrower fails to do so, Lender is authorized, but not required, to obtain
such insurance at the expense of Borrower. All policies shall provide for at
least thirty (30) days prior written notice to Lender of any cancellation or
reduction of coverage and that Lender may act as attorney for Borrower in
obtaining, and at any time an Event of Default exists or has occurred and is
continuing, adjusting, settling, amending and canceling such insurance. Borrower
shall cause Lender to be named as a loss payee and an additional insured (but
without any liability for any premiums) under such insurance policies and
Borrower shall obtain non-contributory lender's loss payable endorsements to all
insurance policies in form and substance satisfactory to Lender. Such lender's
loss payable endorsements shall specify that the proceeds of such insurance
shall be payable to Lender as its interests may appear and further specify that
Lender shall be paid regardless of any act or omission by Borrower or any of its
affiliates. At its option, Lender may apply any insurance proceeds received by
Lender at any time to the cost of repairs or replacement of Collateral and/or to
payment of the Obligations, whether or not then due, in any order and in such
manner as Lender may determine or, if there are no Loans or other Obligations
then outstanding, hold such proceeds as cash collateral for, and apply the same
to, thereafter arising non-contingent Obligations.
(b) Notwithstanding anything to the contrary set forth herein, in the
event any of the Collateral shall be lost or physically damaged or destroyed,
and provided no Event of Default or act, condition or event which with notice or
passage of time or both would constitute an Event of Default shall exist or have
occurred and be continuing, (i) if the casualty resulted in a payment of
insurance proceeds not in excess of $500,000, then upon written request of
Borrower, Lender shall release to Borrower the net cash proceeds from insurance
received by Lender, (ii) if the casualty resulted in a payment of insurance
proceeds in excess of $500,000 but not more than $1,500,000, then upon written
request of Borrower, Lender shall release to Borrower the net cash proceeds from
insurance received by Lender solely for the purpose of Borrower's effecting the
repair, refurbishing or replacement of the Collateral so lost, damaged or
destroyed, provided that the following additional conditions precedent shall
also have been satisfied in full: (A) the amount of the net cash insurance
-34-
<PAGE> 40
proceeds must be sufficient, in Lender's determination, to effect in a
satisfactory manner Borrower's proposed repair, refurbishing or replacement of
the Collateral so lost, damaged or destroyed and (B) the insurance carrier
making payment of such proceeds shall have waived any right of subrogation
against Borrower under the policy(ies) insuring against such loss, damage or
destruction and (iii) if the casualty resulted in a payment of insurance
proceeds in excess of $1,500,000, then the net cash proceeds from insurance
received by Lender shall be applied in accordance with Section 9.5 (a) above.
9.6 Financial Statements and Other Information.
(a) Borrower shall keep proper books and records in which true
and complete entries shall be made of all dealings or transactions of or in
relation to the Collateral and the business of Borrower and its subsidiaries (if
any) in accordance with GAAP and Borrower shall furnish or cause to be furnished
to Lender: (i) within twenty (20) days after the end of each fiscal month,
monthly unaudited consolidated financial statements (including in each case
balance sheets, statements of income and loss, and statements of cash flow), all
in reasonable detail, fairly presenting the financial position and the results
of the operations of Borrower as of the end of and through such fiscal month and
(ii) within ninety (90) days after the end of each fiscal year, audited
consolidated financial statements and, if Borrower has any subsidiaries, audited
consolidating financial statements of Borrower and its subsidiaries (including
in each case balance sheets, statements of income and loss, statements of cash
flow and statements of shareholders' equity), and the accompanying notes
thereto, all in reasonable detail, fairly presenting the financial position and
the results of the operations of Borrower and its subsidiaries as of the end of
and for such fiscal year, together with the unqualified opinion of independent
certified public accountants, which accountants shall be an independent
accounting firm selected by Borrower and reasonably acceptable to Lender, that
such financial statements have been prepared in accordance with GAAP, and
present fairly the results of operations and financial condition of Borrower and
its subsidiaries as of the end of and for the fiscal year then ended.
(b) Borrower shall promptly notify Lender in writing of the
details of (i) any loss, damage, investigation, action, suit, proceeding or
claim relating to the Collateral or any other property which is security for the
Obligations or which would result in any material adverse change in Borrower's
business, properties, assets, goodwill or condition, financial or otherwise and
(ii) the occurrence of any Event of Default or event which, with the passage of
time or giving of notice or both, would constitute an Event of Default.
(c) Borrower shall promptly after the sending or filing thereof
furnish or cause to be furnished to Lender copies of all reports which Borrower
sends to its stockholders generally and copies of all financial reports and
registration statements which Borrower files with the Securities and Exchange
Commission, any national securities exchange or the National Association of
Securities Dealers, Inc.
(d) Borrower shall furnish or cause to be furnished to Lender
such budgets, forecasts, projections and other information respecting the
Collateral and the business of Borrower, as Lender may, from time to time,
reasonably request. Lender is hereby authorized to deliver a copy of any
financial statement or any other information relating to the business of
Borrower to any court or
-35-
<PAGE> 41
other government agency or to any participant or assignee or prospective
participant or assignee. Borrower hereby irrevocably authorizes and directs all
accountants or auditors to deliver to Lender, at Borrower's expense, copies of
the financial statements of Borrower and any reports or management letters
prepared by such accountants or auditors on behalf of Borrower and to disclose
to Lender such information as they may have regarding the business of Borrower.
Any documents, schedules, invoices or other papers delivered to Lender may be
destroyed or otherwise disposed of by Lender one (1) year after the same are
delivered to Lender, except as otherwise designated by Borrower to Lender in
writing.
9.7 Sale of Assets, Consolidation, Merger, Dissolution, Etc. Borrower
shall not, directly or indirectly, (a) except as otherwise expressly permitted
hereinbelow in this Section 9.7, merge into or with or consolidate with any
other Person or permit any other Person to merge into or with or consolidate
with it, or (b) sell, assign, lease, transfer, abandon or otherwise dispose of
any stock or indebtedness to any other Person or any of its assets to any other
Person (except for (i) sales of Inventory in the ordinary course of business,
(ii) the sale and contemporaneous leaseback of Equipment ("Sale/Leaseback") so
long as (A) if such Equipment is Eligible Existing Equipment or Eligible New
Equipment, the net cash proceeds payable on account of such Sale/Leaseback shall
be not less than (as applicable) the then existing Closing Existing
Equipment/Real Estate Availability (as defined in Section 2.1(a)(iii)) or the
then existing Original New Equipment Availability (as defined in Section 1.16
above) with respect to such Equipment and all proceeds are paid to Lender, (B)
such Sale/Leasebacks do not involve Equipment having an aggregate fair market
value in excess of $500,000 for all such Equipment disposed of during the term
of this Agreement and (C) as of the date of any Sale/Leaseback, no Event of
Default exists hereunder, and (iii) disposition of worn-out or obsolete
Equipment or Equipment no longer used in the business of Borrower so long as (A)
if an Event of Default exists or has occurred and is continuing, any proceeds
are paid to Lender and (B) such sales do not involve Equipment having an
aggregate fair market value in excess of $500,000 for all such Equipment
disposed of in any fiscal year of Borrower), or (c) form or acquire any
subsidiaries, or (d) wind up, liquidate or dissolve or (e) agree to do any of
the foregoing. Notwithstanding anything to the contrary set forth in Section
9.7(a) above, Borrower shall have the right to either merge with its affiliate,
Shasta Paper Company, a Delaware corporation ("Shasta") and/or with its
affiliate, Plainwell Tissue-Memphis, Inc., a Delaware corporation ("Plainwell
Tissue") and/or with any other direct or indirect wholly-owned subsidiary of
Plainwell Shasta Holdings Inc., a Delaware corporation, or acquire in one or
more transactions substantially all of the assets or stock of Shasta, Plainwell
Tissue, and/or with any such other direct or indirect wholly-owned subsidiary of
Plainwell Shasta Holdings Inc., provided that, (i) at the time of and after
giving effect to the proposed merger or asset or stock acquisition (as the case
may be), no Event of Default or act, condition or event which with notice or
passage of time or both would constitute an Event of Default shall exist or have
occurred and be continuing, including, without limitation, an event of default
under the Bond Agreements, (ii) in the case of any such merger, Borrower shall
be the surviving corporation, (iii) Borrower's officers and directors shall be
the same as the directors and officers of Borrower immediately prior to such
merger or asset or stock acquisition, (iv) Lender shall have received true,
correct and complete copies of all documents, instruments and agreements
executed between Borrower and any such affiliate effecting or related to such
merger or asset or stock acquisition, all of which shall be in form and
substance reasonably satisfactory to Lender, (v) in connection with such merger
or such asset or stock acquisition, Borrower shall have executed and delivered
to Lender an amendatory agreement with respect to this Agreement and the other
-36-
<PAGE> 42
Financing Agreements, in form and substance satisfactory to Lender in its sole
discretion, and.(vi) such transaction is consummated with funds other than Loans
from Lender to Borrower, unless Lender, in its sole discretion, consents thereto
in writing.
9.8 Encumbrances. Borrower shall not create, incur, assume or suffer to
exist any security interest, mortgage, pledge, lien, charge or other encumbrance
of any nature whatsoever on any of its assets or properties, including the
Collateral, except: (a) liens and security interests of Lender; (b) liens
securing the payment of taxes, either not yet overdue or the validity of which
are being contested in good faith by appropriate proceedings diligently pursued
and available to Borrower and with respect to which adequate reserves have been
set aside on its books; (c) non-consensual statutory liens (other than liens
securing the payment of taxes) arising in the ordinary course of Borrower's
business to the extent: (i) such liens secure indebtedness which is not overdue
or (ii) such liens secure indebtedness relating to claims or liabilities which
are fully insured and being defended at the sole cost and expense and at the
sole risk of the insurer or being contested in good faith by appropriate
proceedings diligently pursued and available to Borrower, in each case prior to
the commencement of foreclosure or other similar proceedings and with respect to
which adequate reserves have been set aside on its books; (d) zoning
restrictions, easements, licenses, covenants and other restrictions affecting
the use of real property which do not interfere in any material respect with the
use of such real property or ordinary conduct of the business of Borrower as
presently conducted thereon or materially impair the value of the real property
which may be subject thereto; (e) purchase money security interests in Equipment
(including capital leases) and purchase money mortgages on real estate not to
exceed in the aggregate at any time outstanding the greater of (i) $5,000,000
and (ii) five (5%) percent of Borrower's net tangible assets (determined in
accordance with GAAP applied on a consistent basis) as of the most recent
balance sheet delivered by Borrower to Lender pursuant to Section 9.6(a) of this
Agreement, so long as such security interests and mortgages do not apply to any
property of Borrower other than the Equipment or real estate so acquired, and
the indebtedness secured thereby does not exceed the cost of the Equipment or
real estate so acquired, as the case may be; (f) security interests in Equipment
leased pursuant to a Sale/Leaseback permitted pursuant to Section 9.7(b) hereof,
so long as such security interests do not apply to any property of Borrower
other than the Equipment that is the subject of such Sale/Leaseback, and the
indebtedness secured thereby does not exceed the net purchase price for such
Equipment, as reflected on the bill of sale or invoice evidencing such purchase;
(g) liens securing any judgment for the payment of money if and to the extent
such judgment does not constitute an Event of Default under Section 10.1(d)
hereof; and (h) the security interests and liens set forth on Schedule 8.4
hereto.
9.9 Indebtedness. Borrower shall not incur, create, assume, become or
be liable in any manner with respect to, or permit to exist, any obligations or
indebtedness, except: (a) the Obligations; (b) trade obligations and normal
accruals in the ordinary course of business not yet due and payable, or with
respect to which the Borrower is contesting in good faith the amount or validity
thereof by appropriate proceedings diligently pursued and available to Borrower,
and with respect to which adequate reserves have been set aside on its books;
(c) (i) purchase money indebtedness (including capital leases) and (ii)
indebtedness incurred in connection with a Sale/Leaseback permitted pursuant to
Section 9.7(b) hereof, to the extent not incurred or secured by liens (including
capital leases) in violation of any other provision of this Agreement; and (d)
the indebtedness set forth on Schedule 9.9 hereto; provided, that, with respect
to the indebtedness described in clauses (c) and (d) of this Section 9.9, (i)
Borrower may only make regularly scheduled payments of
-37-
<PAGE> 43
principal and interest in respect of such indebtedness in accordance with the
terms of the agreement or instrument evidencing or giving rise to such
indebtedness as in effect on the date of execution thereof (in the case of
indebtedness permitted pursuant to clause (c)) or on the date hereof (in the
case of indebtedness permitted pursuant to clause (d)), (ii) Borrower shall not,
directly or indirectly, (A) amend, modify, alter or change the terms of such
indebtedness or any agreement, document or instrument related thereto as in
effect on the date of execution thereof (in the case of indebtedness permitted
pursuant to clause (c)) or on the date hereof (in the case of indebtedness
permitted pursuant to clause (d)), or (B) redeem, retire, defease, purchase or
otherwise acquire such indebtedness, or set aside or otherwise deposit or invest
any sums for such purpose, and (iii) Borrower shall furnish to Lender all
notices or demands in connection with such indebtedness either received by
Borrower or on its behalf, promptly after the receipt thereof, or sent by
Borrower or on its behalf, concurrently with the sending thereof, as the case
may be.
9.10 Loans, Investments, Guarantees, Etc. Borrower shall not, directly
or indirectly, make any loans or advance money or property to any person, or
invest in (by capital contribution, dividend or otherwise) or purchase or
repurchase the stock or indebtedness or all or a substantial part of the assets
or property of any person, or guarantee, assume, endorse, or otherwise become
responsible for (directly or indirectly) the indebtedness, performance,
obligations or dividends of any Person or agree to do any of the foregoing,
except:
(a) the endorsement of instruments for collection or deposit in the
ordinary course of business;
(b) as expressly permitted pursuant to Section 9.7 of this Agreement;
(c) loans or advances of money (other than salary) to officers,
directors, and employees of Borrower consisting of (i) expense advances in the
ordinary course of business consistent with past practices, and (ii) cash loans,
not to exceed Fifty Thousand Dollars ($50,000), individually, or Five Hundred
Thousand Dollars ($500,000) outstanding in the aggregate at any time;
(d) investments in: (i) short-term direct obligations of the United
States Government, (ii) negotiable certificates of deposit issued by any bank
satisfactory to Lender, payable to the order of the Borrower or to bearer and
delivered to Lender, (iii) commercial paper rated A1 or P1 and (iv) other
investment property in an amount not to exceed $3,000,000 in the aggregate
during the term of this Agreement if, after giving effect to each such proposed
investment, Borrower shall have Excess Availability of at least Twenty Million
($20,000,000) Dollars; provided, that, as to any of the foregoing investments,
unless waived in writing by Lender, Borrower shall take such actions as are
deemed necessary by Lender to perfect the security interest of Lender in such
investments; and
(e) the loans, advances and guarantees set forth on Schedule 9.10
hereto; provided, that, as to such loans, advances and guarantees, (i) Borrower
shall not, directly or indirectly, (A) amend, modify, alter or change the terms
of such loans, advances or guarantees or any agreement, document or instrument
related thereto, or (B) as to such guarantees, redeem, retire, defease, purchase
or otherwise acquire the obligations arising pursuant to such guarantees, or set
aside or otherwise deposit or invest any sums for such purpose, and (ii)
Borrower shall furnish to Lender all notices or demands in connection with such
loans, advances or guarantees or other indebtedness subject to such
-38-
<PAGE> 44
guarantees either received by Borrower or on its behalf, promptly after the
receipt thereof, or sent by Borrower or on its behalf, concurrently with the
sending thereof, as the case may be.
9.11 Dividends and Redemptions. Borrower shall not, directly or
indirectly, declare or pay any dividends on account of any shares of class of
capital stock of Borrower now or hereafter outstanding, or set aside or
otherwise deposit or invest any sums for such purpose, or redeem, retire,
defease, purchase or otherwise acquire any shares of any class of capital stock
(or set aside or otherwise deposit or invest any sums for such purpose) for any
consideration other than common stock or apply or set apart any sum, or make any
other distribution (by reduction of capital or otherwise) in respect of any such
shares or agree to do any of the foregoing; except that notwithstanding the
foregoing, Borrower may (a) declare and pay cash dividends upon its capital
stock in an aggregate amount not to exceed $1,000,000 during the term of this
Agreement and (b) make payments in respect of redeemed shares of capital stock
of departing and departed employees of Borrower in an aggregate amount not to
exceed $100,000 during each year of the term of this Agreement, provided that,
with respect to any dividend or redemption payment, (x) Borrower delivers to
Lender at least fourteen(14) days prior written notice thereof, setting forth
the proposed dividend or redemption payment date ("Dividend/Redemption Payment
Date") and certifying to Lender in such notice that (in the case of any such
dividend) such dividend payment shall be used by Borrowers's parent corporation
solely for the purpose of enabling an Affiliate of Borrower to acquire Shelby
Tissue, Inc., a Delaware corporation (the"Shelby Acquisition") or (in the case
of any such redemption) such payment shall be made to redeem the shares of
capital stock of Borrower owned by departed or departing employees of Borrower
and identifying such employees, the number of shares redeemed and the payment to
be made to each such employee, (y) no Event of Default shall have occurred and
be continuing on the Dividend/Redemption Payment Date and (z) Borrower's Excess
Availability on the Dividend/Redemption Payment Date, after giving effect to any
proposed dividend or redemption, shall not be less than $10,000,000.
9.12 Transactions with Affiliates. Borrower shall not, directly or
indirectly, (a) except as otherwise permitted pursuant to Section 9.7 of this
Agreement, purchase, acquire or lease any property from, or sell, transfer or
lease any property to, any officer, director, agent or other person affiliated
with Borrower, except in the ordinary course of and pursuant to the reasonable
requirements of Borrower's business and upon fair and reasonable terms no less
favorable to the Borrower than Borrower would obtain in a comparable arm's
length transaction with an unaffiliated person or (b) make any payments of
management, consulting or other fees for management or similar services, or of
any indebtedness owing to any officer, employee, shareholder, director or other
person affiliated with Borrower except reasonable compensation to officers,
employees and directors for services rendered to Borrower in the ordinary course
of business.
9.13 Additional Bank Accounts. Borrower shall not, directly or
indirectly, open, establish or maintain any deposit account, investment account
or any other account with any bank or other financial institution, other than
the Blocked Accounts and the accounts set forth in Schedule 8.9 hereto, except:
(a) as to any new or additional Blocked Accounts and other such new or
additional accounts which contain any Collateral or proceeds thereof, with the
prior written consent of Lender and subject to such conditions thereto as Lender
may establish and (b) as to any accounts used by Borrower to make payments of
payroll, taxes or other obligations to third parties, after prior written notice
to Lender.
-39-
<PAGE> 45
9.14 Adjusted Net Worth. At all times Borrower has Excess Availability
of less than $10,000,000, Borrower shall maintain Adjusted Net Worth of not less
than $8,000,000.
9.15 After Acquired Real Property. If Borrower hereafter acquires any
Real Property, fixtures or any other property that is of the kind or nature
described in the Mortgages and such Real Property, fixtures or other property at
any one location has a fair market value in an amount equal to or greater than
$1,000,000 (or if an Event of Default, or act, condition or event which with
notice or passage of time or both would constitute an Event of Default exists,
then regardless of the fair market value of such assets), without limiting any
other rights of Lender, or duties or obligations of Borrower, upon Lender's
request, Borrower shall execute and deliver to Lender a mortgage, deed of trust
or deed to secure debt, as Lender may determine, in form and substance
substantially similar to the Mortgages and as to any provisions relating to
specific state laws satisfactory to Lender and in form appropriate for recording
in the real estate records of the jurisdiction in which such Real Property or
other property is located granting to Lender a first and only lien and mortgage
on and security interest in such Real Property, fixtures or other property
(except as Borrower would otherwise be permitted to incur hereunder or under the
Mortgages or as otherwise consented to in writing by Lender) and such other
agreements, documents and instruments as Lender may require in connection
therewith.
9.16 Costs and Expenses. Borrower shall pay to Lender on demand all
costs, expenses, filing fees and taxes paid or payable in connection with the
preparation, negotiation, execution, delivery, recording, administration,
collection, liquidation, enforcement and defense of the Obligations, Lender's
rights in the Collateral, this Agreement, the other Financing Agreements and all
other documents related hereto or thereto, including any amendments, supplements
or consents which may hereafter be contemplated (whether or not executed) or
entered into in respect hereof and thereof, including: (a) all costs and
expenses of filing or recording (including Uniform Commercial Code financing
statement filing taxes and fees, documentary taxes, intangibles taxes and
mortgage recording taxes and fees, if applicable); (b) costs and expenses and
fees for insurance premiums, environmental audits, surveys, assessments,
engineering reports and inspections, appraisal fees and search fees; (c) costs
and expenses of remitting loan proceeds, collecting checks and other items of
payment, and establishing and maintaining the Blocked Accounts, together with
Lender's customary charges and fees with respect thereto; (d) charges, fees or
expenses charged by any bank or issuer in connection with the Letter of Credit
Accommodations; (e) costs and expenses of preserving and protecting the
Collateral; (f) costs and expenses paid or incurred in connection with obtaining
payment of the Obligations, enforcing the security interests and liens of
Lender, selling or otherwise realizing upon the Collateral, and otherwise
enforcing the provisions of this Agreement and the other Financing Agreements or
defending any claims made or threatened against Lender arising out of the
transactions contemplated hereby and thereby (including preparations for and
consultations concerning any such matters); (g) all out-of-pocket expenses and
costs heretofore and from time to time hereafter incurred by Lender during the
course of periodic field examinations of the Collateral and Borrower's
operations, plus a per diem charge at the rate of $650 per person per day for
Lender's examiners in the field and office; and (h) the reasonable fees and
disbursements of counsel (including legal assistants) to Lender in connection
with any of the foregoing.
9.17 Year 2000 Compliance. Borrower shall take all action which may be
required so that its computer-based information systems, including, without
limitation, all of its proprietary computer hardware
-40-
<PAGE> 46
and software and all computer hardware and software leased or licensed from
third parties (and whether supplied by others or with which Borrower's systems
interface) are able to operate effectively and correctly process data using
dates on or after January 1, 2000. Compliance with the foregoing shall mean that
the systems will operate and correctly process data without human intervention
such that (a) there is correct century recognition, (b) calculations properly
accommodate same century and multi-century formulas and date values, (c) all
leap years shall be calculated correctly and (d) the information systems shall
otherwise comply with applicable industry standards and regulatory guidelines
regarding the change of the century and year 2000 compliance. Borrower shall, by
no later than November 30, 1999, certify to Agent in writing that its
information systems have been modified, updated and reprogrammed as required by
this Section. On and after November 30, 1999, the computer-based information
systems of Borrower shall be, and with ordinary course upgrading and
maintenance, will continue to be, sufficient to permit Borrower to conduct its
business without any adverse effect as a result of the year 2000.
9.18 Further Assurances. At the request of Lender at any time and from
time to time, Borrower shall, at its expense, duly execute and deliver, or cause
to be duly executed and delivered, such further agreements, documents and
instruments, and do or cause to be done such further acts as may be necessary or
proper to evidence, perfect, maintain and enforce the security interests and the
priority thereof in the Collateral and to otherwise effectuate the provisions or
purposes of this Agreement or any of the other Financing Agreements. Lender may
at any time and from time to time request a certificate from an officer of
Borrower representing that all conditions precedent to the making of Loans and
providing Letter of Credit Accommodations contained herein are satisfied. In the
event of such request by Lender, Lender may, at its option, cease to make any
further Loans or provide any further Letter of Credit Accommodations until
Lender has received such certificate and, in addition, Lender has determined
that such conditions are satisfied. Where permitted by law, Borrower hereby
authorizes Lender to execute and file one or more UCC financing statements
signed only by Lender.
9.19 Indenture. Borrower shall not execute any document, instrument or
agreement amending either Section 4.09 (Incurrence of Indebtedness) or Section
4.10 (Asset Sales) of the Indenture, without the prior written consent of
Lender, which consent shall not be unreasonably withheld; and Borrower shall
deliver to Lender a copy of any amendment executed with respect to any other
Section of the Indenture or otherwise with respect to any of the other Bond
Agreements promptly after the execution thereof.
SECTION 10. EVENTS OF DEFAULT AND REMEDIES
10.1 Events of Default. The occurrence or existence of any one or more
of the following events are referred to herein individually as an "Event of
Default", and collectively as "Events of Default":
(a) (i) Borrower fails to pay when due any of the Loans or
interest accrued thereon, (ii) within five (5) days after (x) demand for payment
thereof by Lender, Borrower fails to pay any Obligations other than the Loans
and interest accrued thereon or (y) request by Lender pursuant to Section 9.18
hereof that Borrower execute and deliver to Lender any further documents,
instruments and/or agreements, or (iii)(x) Borrower or any Obligor fails to
perform any of the covenants
-41-
<PAGE> 47
contained in this Agreement or any of the other Financing Agreements other than
as described in Section 10.1(a)(i)or(ii) above and such failure shall continue
for thirty (30) days; provided, that, such thirty (30) day period shall not
apply in the case of (A) any failure to observe any such covenant which is not
capable of being cured at all or within such ten (10) day period or which has
been the subject of a prior failure within a six (6) month period or (B) an
intentional breach of Borrower or any Obligor of any such covenant or (C) the
failure to observe or perform any of the covenants or provisions contained in
Section 9.2, 9.3, 9.7, 9.8, 9.9, 9.10, 9.11, 9.12, 9.13, 9.18 or 9.19 of this
Agreement or any covenants or agreements covering substantially the same matter
as such sections in any of the other Financing Agreements or (y) Borrower fails
to perform any of the terms, covenants, conditions or provisions contained in
this Agreement or any of the other Financing Agreements other than those
described in Sections 10.1(a)(i),(ii)and(iii) above;
(b) any representation, warranty or statement of fact made by
Borrower to Lender in this Agreement, the other Financing Agreements or any
other agreement, schedule, confirmatory assignment or otherwise shall when made
or deemed made be false or misleading in any material respect;
(c) any Obligor revokes, terminates or fails to perform, within
any grace period provided for therein, any of the terms, covenants, conditions
or provisions of any guarantee, endorsement or other agreement of such party in
favor of Lender;
(d) any judgment for the payment of money is rendered against
Borrower or any Obligor in excess of $750,000 in any one case or in excess of
$750,000 in the aggregate and shall remain undischarged or unvacated for a
period in excess of forty-five (45) days or execution shall at any time not be
effectively stayed, or any judgment other than for the payment of money, or
injunction, attachment, garnishment or execution is rendered against Borrower or
any Obligor or any of their assets;
(e) any Obligor (being a natural person or a general partner of
an Obligor which is a partnership) dies or Borrower or any Obligor, which is a
partnership, limited liability company, limited liability partnership or a
corporation, dissolves or suspends or discontinues doing business;
(f) Borrower or any Obligor becomes insolvent (however defined or
evidenced), makes an assignment for the benefit of creditors, makes or sends
notice of a bulk transfer or calls a meeting of its creditors or principal
creditors;
(g) a case or proceeding under the bankruptcy laws of the United
States of America now or hereafter in effect or under any insolvency,
reorganization, receivership, readjustment of debt, dissolution or liquidation
law or statute of any jurisdiction now or hereafter in effect (whether at law or
in equity) is filed against Borrower or any Obligor or all or any part of its
properties and such petition or application is not dismissed within sixty (60)
days after the date of its filing or Borrower or any Obligor shall file any
answer admitting or not contesting such petition or application or indicates its
consent to, acquiescence in or approval of, any such action or proceeding or the
relief requested is granted sooner;
-42-
<PAGE> 48
(h) a case or proceeding under the bankruptcy laws of the
United States of America now or hereafter in effect or under any insolvency,
reorganization, receivership, readjustment of debt, dissolution or liquidation
law or statute of any jurisdiction now or hereafter in effect (whether at a law
or equity) is filed by Borrower or any Obligor or for all or any part of its
property; or
(i) any default by Borrower or any Obligor under any agreement,
document or instrument relating to any indebtedness for borrowed money owing to
any person other than Lender, or any capitalized lease obligations, contingent
indebtedness in connection with any guarantee, letter of credit, indemnity or
similar type of instrument in favor of any person other than Lender, in any case
in an amount in excess of $500,000, which default continues for more than the
applicable cure period, if any, with respect thereto, or any default by Borrower
or any Obligor under any material contract, lease, license or other obligation
to any person other than Lender, which default continues for more than the
applicable cure period, if any, with respect thereto;
(j) any change in the controlling ownership of Borrower;
(k) the indictment of Borrower or any Obligor under any
criminal statute, or commencement or threatened commencement of criminal or
civil proceedings against Borrower or any Obligor, pursuant to which statute or
proceedings the penalties or remedies sought or available include forfeiture of
any of the property of Borrower or such Obligor, which forfeiture has, or could
reasonably be expected to result in, a material adverse effect upon the business
or assets of Borrower or any Obligor after the date hereof;
(l) any default by Borrower or any Obligor under any agreement,
document or instrument with any Governmental Authority relating to any
environmental matter which has, or reasonably could be expected to result in, a
material adverse effect upon the business or assets of Borrower or any Obligor
after the date hereof;
(m) there shall be a material adverse change in the business or
assets of Borrower or any Obligor after the date hereof;
(n) there shall be an event of default under any of the other
Financing Agreements; or
(o) the occurrence of an Event of Default under, and as defined
in, the Shasta Loan Agreement.
10.2 Remedies.
(a) At any time an Event of Default exists or has occurred and
is continuing, Lender shall have all rights and remedies provided in this
Agreement, the other Financing Agreements, the Uniform Commercial Code and other
applicable law, all of which rights and remedies may be exercised without notice
to or consent by Borrower or any Obligor, except as such notice or consent is
expressly provided for hereunder or required by applicable law. All rights,
remedies and powers granted to Lender hereunder, under any of the other
Financing Agreements, the Uniform Commercial Code or other applicable law, are
cumulative, not exclusive and enforceable, in Lender's discretion,
alternatively, successively, or concurrently on any one or more occasions, and
-43-
<PAGE> 49
shall include, without limitation, the right to apply to a court of equity for
an injunction to restrain a breach or threatened breach by Borrower of this
Agreement or any of the other Financing Agreements. Lender may, at any time or
times, proceed directly against Borrower or any Obligor to collect the
Obligations without prior recourse to the Collateral.
(b) Without limiting the foregoing, at any time an Event of
Default exists or has occurred and is continuing, Lender may, in its discretion
and without limitation, (i) accelerate the payment of all Obligations and demand
immediate payment thereof to Lender (provided, that, upon the occurrence of any
Event of Default described in Sections 10.1(g) and 10.1(h), all Obligations
shall automatically become immediately due and payable), (ii) with or without
judicial process or the aid or assistance of others, enter upon any premises on
or in which any of the Collateral may be located and take possession of the
Collateral or complete processing, manufacturing and repair of all or any
portion of the Collateral, (iii) require Borrower, at Borrower's expense, to
assemble and make available to Lender any part or all of the Collateral at any
place and time designated by Lender, (iv) collect, foreclose, receive,
appropriate, setoff and realize upon any and all Collateral, (v) remove any or
all of the Collateral from any premises on or in which the same may be located
for the purpose of effecting the sale, foreclosure or other disposition thereof
or for any other purpose, (vi) sell, lease, transfer, assign, deliver or
otherwise dispose of any and all Collateral (including entering into contracts
with respect thereto, public or private sales at any exchange, broker's board,
at any office of Lender or elsewhere) at such prices or terms as Lender may deem
reasonable, for cash, upon credit or for future delivery, with the Lender having
the right to purchase the whole or any part of the Collateral at any such public
sale, all of the foregoing being free from any right or equity of redemption of
Borrower, which right or equity of redemption is hereby expressly waived and
released by Borrower and/or (vii) terminate this Agreement. If any of the
Collateral is sold or leased by Lender upon credit terms or for future delivery,
the Obligations shall not be reduced as a result thereof until payment therefor
is finally collected by Lender. If notice of disposition of Collateral is
required by law, ten (10) days prior notice by Lender to Borrower designating
the time and place of any public sale or the time after which any private sale
or other intended disposition of Collateral is to be made, shall be deemed to be
reasonable notice thereof and Borrower waives any other notice. In the event
Lender institutes an action to recover any Collateral or seeks recovery of any
Collateral by way of prejudgment remedy, unless prohibited by applicable law,
Borrower waives the posting of any bond which might otherwise be required.
(c) Lender may apply the cash proceeds of Collateral actually
received by Lender from any sale, lease, foreclosure or other disposition of the
Collateral to payment of the Obligations, in whole or in part and in such order
as Lender may elect, whether or not then due. Borrower shall remain liable to
Lender for the payment of any deficiency with interest at the highest rate
provided for herein and all costs and expenses of collection or enforcement,
including attorneys' fees and legal expenses.
(d) Without limiting the foregoing, upon the occurrence of an
Event of Default or an event which with notice or passage of time or both would
constitute an Event of Default, Lender may, at its option, without notice, (i)
cease making Loans or arranging for Letter of Credit Accommodations or reduce
the lending formulas or amounts of Revolving Loans and Letter of Credit
Accommodations available to Borrower and/or (ii) terminate any provision of this
Agreement
-44-
<PAGE> 50
providing for any future Loans or Letter of Credit Accommodations to
be made by Lender to Borrower.
SECTION 11. JURY TRIAL WAIVER; OTHER WAIVERS
AND CONSENTS; GOVERNING LAW
11.1 Governing Law; Choice of Forum; Service of Process; Jury Trial
Waiver.
(a) The validity, interpretation and enforcement of this
Agreement and the other Financing Agreements and any dispute arising out of the
relationship between the parties hereto, whether in contract, tort, equity or
otherwise, shall be governed by the internal laws of the State of Illinois
(without giving effect to principles of conflicts of law), except that the
parties acknowledge, confirm and agree that 735 ILCS 5/2-1301(c) shall not apply
to this Agreement or any of the other Financing Agreements.
(b) Borrower and Lender irrevocably consent and submit to the
non-exclusive jurisdiction of the Circuit Court of Cook County, Illinois and the
United States District Court for the Northern District of Illinois and waive any
objection based on venue or forum non conveniens with respect to any action
instituted therein arising under this Agreement or any of the other Financing
Agreements or 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 other Financing
Agreements or the transactions related hereto or thereto, in each case whether
now existing or hereafter arising, and whether in contract, tort, equity or
otherwise, and agree that any dispute with respect to any such matters shall be
heard only in the courts described above (except that Lender shall have the
right to bring any action or proceeding against Borrower or its property in the
courts of any other jurisdiction which Lender deems necessary or appropriate in
order to realize on the Collateral or to otherwise enforce its rights against
Borrower or its property).
(c) Borrower hereby waives personal service of any and all
process upon it and consents that all such service of process may be made by
certified mail (return receipt requested) directed to its address set forth on
the signature pages hereof and service so made shall be deemed to be completed
five (5) days after the same shall have been so deposited in the U.S. mails, or,
at Lender's option, by service upon Borrower in any other manner provided under
the rules of any such courts. Within that number of days after such service as
is prescribed by applicable law, Borrower shall appear in answer to such
process, failing which Borrower shall be deemed in default and judgment may be
entered by Lender against Borrower for the amount of the claim and other relief
requested.
(d) BORROWER AND LENDER EACH HEREBY WAIVES ANY RIGHT TO
TRIAL BY JURY OF ANY CLAIM, DEMAND, ACTION OR CAUSE OF ACTION (i) ARISING UNDER
THIS AGREEMENT OR ANY OF THE OTHER FINANCING AGREEMENTS 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 OTHER FINANCING AGREEMENTS OR THE
TRANSACTIONS RELATED HERETO OR THERETO IN EACH CASE WHETHER NOW EXISTING OR
HEREAFTER ARISING, AND WHETHER IN CONTRACT, TORT, EQUITY OR OTHERWISE. BORROWER
AND LENDER EACH
-45-
<PAGE> 51
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 BORROWER OR
LENDER 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) Lender shall not have any liability to Borrower (whether in
tort, contract, equity or otherwise) for losses suffered by Borrower in
connection with, arising out of, or in any way related to the transactions or
relationships contemplated by this Agreement, or any act, omission or event
occurring in connection herewith, unless it is determined by a final and
non-appealable judgment or court order binding on Lender, that the losses were
the result of acts or omissions constituting gross negligence or willful
misconduct. In any such litigation, Lender shall be entitled to the benefit of
the rebuttable presumption that it acted in good faith and with the exercise of
ordinary care in the performance by it of the terms of this Agreement.
11.2 Waiver of Notices. Borrower hereby expressly waives demand,
presentment, protest and notice of protest and notice of dishonor with respect
to any and all instruments and commercial paper, included in or evidencing any
of the Obligations or the Collateral, and any and all other demands and notices
of any kind or nature whatsoever with respect to the Obligations, the Collateral
and this Agreement, except such as are expressly provided for herein. No notice
to or demand on Borrower which Lender may elect to give shall entitle Borrower
to any other or further notice or demand in the same, similar or other
circumstances.
11.3 Amendments and Waivers. Neither this Agreement nor any provision
hereof shall be amended, modified, waived or discharged orally or by course of
conduct, but only by a written agreement signed by an authorized officer of
Lender, and as to amendments, as also signed by an authorized officer of
Borrower. Lender shall not, by any act, delay, omission or otherwise be deemed
to have expressly or impliedly waived any of its rights, powers and/or remedies
unless such waiver shall be in writing and signed by an authorized officer of
Lender. Any such waiver shall be enforceable only to the extent specifically set
forth therein. A waiver by Lender of any right, power and/or remedy on any one
occasion shall not be construed as a bar to or waiver of any such right, power
and/or remedy which Lender would otherwise have on any future occasion, whether
similar in kind or otherwise.
11.4 Waiver of Counterclaims. Borrower waives all rights to interpose
any claims, deductions, setoffs or counterclaims of any nature (other then
compulsory counterclaims) in any action or proceeding with respect to this
Agreement, the Obligations, the Collateral or any matter arising therefrom or
relating hereto or thereto. Nothing contained herein shall constitute a waiver
by Borrower of any claims or causes of action that Borrower may have that do not
arise from or relate to this Agreement, the Obligations, the Collateral or any
matter arising therefrom or relating hereto or thereto.
11.5 Indemnification. Borrower shall indemnify and hold Lender, and its
directors, agents, employees and counsel, harmless from and against any and all
losses, claims, damages, liabilities, costs or expenses imposed on, incurred by
or asserted against any of them in connection with any litigation,
investigation, claim or proceeding commenced or threatened related to the
negotiation,
-46-
<PAGE> 52
preparation, execution, delivery, enforcement, performance or
administration of this Agreement, any other Financing Agreements, or any
undertaking or proceeding related to any of the transactions contemplated hereby
or any act, omission, event or transaction related or attendant thereto,
including amounts paid in settlement, court costs, and the fees and expenses of
counsel, except for any losses, claims, damages, liabilities, costs or expenses
which result from the gross negligence or willful misconduct of Lender, as
determined pursuant to a final non-appealable order of a court of competent
jurisdiction. To the extent that the undertaking to indemnify, pay and hold
harmless set forth in this Section may be unenforceable because it violates any
law or public policy, Borrower shall pay the maximum portion which it is
permitted to pay under applicable law to Lender in satisfaction of indemnified
matters under this Section. The foregoing indemnity shall survive the payment of
the Obligations and the termination or non-renewal of this Agreement.
SECTION 12. TERM OF AGREEMENT; MISCELLANEOUS
12.1 Term.
(a) This Agreement and the other Financing Agreements shall
become effective as of the date set forth on the first page hereof and shall
continue in full force and effect for a term ending on the date three (3) years
from the date hereof (the "Renewal Date"), and from year to year thereafter,
unless sooner terminated pursuant to the terms hereof. Lender or Borrower may
terminate this Agreement and the other Financing Agreements effective on the
Renewal Date or on the anniversary of the Renewal Date in any year by giving to
the other party at least ninety (90) days prior written notice; provided, that,
this Agreement and all other Financing Agreements must be terminated
simultaneously. Upon the effective date of termination or non-renewal of the
Financing Agreements, Borrower shall pay to Lender, in full, all outstanding and
unpaid Obligations and shall furnish cash collateral to Lender in such amounts
as Lender determines are reasonably necessary to secure Lender from loss, cost,
damage or expense, including attorneys' fees and legal expenses, in connection
with any contingent Obligations, including issued and outstanding Letter of
Credit Accommodations and checks or other payments provisionally credited to the
Obligations and/or as to which Lender has not yet received final and
indefeasible payment. Such payments in respect of the Obligations and cash
collateral shall be remitted by wire transfer in Federal funds to such bank
account of Lender, as Lender may, in its discretion, designate in writing to
Borrower for such purpose. Interest shall be due until and including the next
business day, if the amounts so paid by Borrower to the bank account designated
by Lender are received in such bank account later than 2:00 p.m., Chicago,
Illinois time.
(b) No termination of this Agreement or the other Financing
Agreements shall relieve or discharge Borrower of its respective duties,
obligations and covenants under this Agreement or the other Financing Agreements
until all Obligations have been fully and finally discharged and paid, and
Lender's continuing security interest in the Collateral and the rights and
remedies of Lender hereunder, under the other Financing Agreements and
applicable law, shall remain in effect until all such Obligations have been
fully and finally discharged and paid.
(c) If for any reason this Agreement is terminated prior to the
end of the then current term or renewal term of this Agreement, in view of the
impracticality and extreme difficulty of ascertaining actual damages and by
mutual agreement of the parties as to a reasonable calculation
-47-
<PAGE> 53
of Lender's lost profits as a result thereof, Borrower agrees to pay to Lender,
upon the effective date of such termination, an early termination fee in the
amount set forth below if such termination is effective in the period indicated:
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------
Amount Period
- -------------------------------------------------------------------------------------------------
<S> <C> <C>
(i) 3% of Maximum Credit From the date hereof to and including
November 4, 2000
- -------------------------------------------------------------------------------------------------
(ii) 2% of Maximum Credit From November 5, 2000 to and
including November 4, 2001
- -------------------------------------------------------------------------------------------------
(iii) 1% of Maximum Credit From November 5, 2001 to and
including November 4, 2002
=================================================================================================
</TABLE>
Such early termination fee shall be presumed to be the amount of damages
sustained by Lender as a result of such early termination and Borrower agrees
that it is reasonable under the circumstances currently existing. In addition,
Lender shall be entitled to such early termination fee upon the occurrence of
any Event of Default described in Sections 10.1(g) and 10.1(h) hereof, even if
Lender does not exercise its right to terminate this Agreement, but elects, at
its option, to provide financing to Borrower or permit the use of cash
collateral under the United States Bankruptcy Code. The early termination fee
provided for in this Section 12.1 shall be deemed included in the Obligations.
(d) Notwithstanding anything to the contrary contained in Section
13.1(c), in the event of the termination of this Agreement by Borrower prior to
the end of the then current term and the full and final repayment of all of the
Obligations and the receipt by Lender of cash collateral all as provided in
Section 13.1(a), Borrower shall not be required to pay the early termination fee
provided for above if each of the following conditions is satisfied: (i) no
Event of Default or act, condition or event which with notice or passage of time
or both would constitute an Event of Default shall exist or have occurred and be
continuing, (ii) Lender shall have received not less than thirty (30) days prior
written notice of the intention of Borrower to so terminate this Agreement, and
(iii) the final payment in full of all of the Obligations is received
simultaneously with the refinancing of the Obligations with proceeds of loans
made by Lender or its affiliates to Borrower in connection with the consummation
of a public equity offering by Borrower or any affiliate of Borrower, which
equity offering shall be registered under the Securities Act of 1933, as
amended.
12.2 Notices. All notices, requests and demands hereunder shall be in
writing and (a) made to Lender at its address set forth below and to Borrower at
its chief executive office set forth below, or to such other address as either
party may designate by written notice to the other in accordance with this
provision, and (b) deemed to have been given or made: if delivered in person,
immediately upon delivery; if by telex, telegram or facsimile transmission,
immediately upon sending and upon confirmation of receipt; if by nationally
recognized overnight courier service with instructions to deliver the next
business day, one (1) business day after sending; and if by certified mail,
return receipt requested, five (5) days after mailing.
-48-
<PAGE> 54
12.3 Partial Invalidity. If any provision of this Agreement is held to
be invalid or unenforceable, such invalidity or unenforceability shall not
invalidate this Agreement as a whole, but this Agreement shall be construed as
though it did not contain the particular provision held to be invalid or
unenforceable and the rights and obligations of the parties shall be construed
and enforced only to such extent as shall be permitted by applicable law.
12.4 Successors. This Agreement, the other Financing Agreements and any
other document referred to herein or therein shall be binding upon and inure to
the benefit of and be enforceable by Lender, Borrower and their respective
successors and assigns, except that Borrower may not assign its rights under
this Agreement, the other Financing Agreements and any other document referred
to herein or therein without the prior written consent of Lender. Lender may,
after notice to Borrower, assign its rights and delegate its obligations under
this Agreement and the other Financing Agreements: (a) to any financial
institution or (b) upon or as a result of the merger, consolidation, sale,
transfer or other disposition of all or any substantial portion of its business,
loan portfolio or other assets; provided, however, that (i) if no Event of
Default, and if no event which with notice or passage of time or both would
constitute an Event of Default, shall have occurred and be continuing, any such
assignment pursuant to clause (a) immediately above shall be subject to
Borrower's prior written consent, which shall not be unreasonably withheld or
delayed, and (ii) if any such assignment occurs pursuant to clause (b)
immediately above and if Borrower shall thereafter terminate this Agreement and
the other Financing Agreements in accordance with Section 12.1(a) above within
ninety (90) days from the date of such assignment and as of the date of such
termination, no Event of Default, and no event which with notice or passage of
time or both would constitute an Event of Default, shall have occurred and be
then continuing hereunder, Borrower shall have no obligation to pay to Lender
the early termination fee otherwise due and payable pursuant to Section 12.1(c)
above. In addition, Lender may sell participations in all or part of the Loans,
the Letter of Credit Accommodations or any other interest herein to another
financial institution or other person. Any assignee or participant shall have,
to the extent of such assignment or participation, the same rights and benefits
as it would have if it were the Lender hereunder, except as otherwise provided
by the terms of such assignment or participation.
12.5 Entire Agreement. This Agreement, the other Financing Agreements,
any supplements hereto or thereto, and any instruments or documents delivered or
to be delivered in connection herewith or therewith represents the entire
agreement and understanding concerning the subject matter hereof and thereof
between the parties hereto, and supersede all other prior agreements,
understandings, negotiations and discussions, representations, warranties,
commitments, proposals, offers and contracts concerning the subject matter
hereof, whether oral or written. In the event of any inconsistency between the
terms of this Agreement and any schedule or exhibit hereto, the terms of this
Agreement shall govern.
IN WITNESS WHEREOF, Lender and Borrower have caused these presents to
be duly executed as of the day and year first above written.
-49-
<PAGE> 55
===========================================================================
LENDER BORROWER
CONGRESS FINANCIAL
CORPORATION (CENTRAL) PLAINWELL INC.
By: /s/ Virginia Pulverenti By: /s/ Jeffrey Arnesen
-------------------------- -------------------------------
Title: V.P. Title: SVP Chief Financial Officer
----------------------- ----------------------------
Address: Chief Executive Office:
150 South Wacker Drive 1270 Northland Drive
Suite 300
Chicago, Illinois 60606-4401 Mendota Heights, Minnesota 55120
===========================================================================
-50-
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY INFORMATION EXTRACTED FROM THE CONDENSED BALANCE
SHEETS AND CONDENSED STATEMENTS OF OPERATIONS FOUND ON PAGE 3 AND 4 OF THE
COMPANY'S FORM 10-Q.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> SEP-30-1999
<CASH> 1,334
<SECURITIES> 0
<RECEIVABLES> 25,500
<ALLOWANCES> (1,051)
<INVENTORY> 28,744
<CURRENT-ASSETS> 62,998
<PP&E> 153,187
<DEPRECIATION> (19,644)
<TOTAL-ASSETS> 229,652
<CURRENT-LIABILITIES> 29,977
<BONDS> 152,300
0
0
<COMMON> 1
<OTHER-SE> 13,430
<TOTAL-LIABILITY-AND-EQUITY> 229,652
<SALES> 159,026
<TOTAL-REVENUES> 159,026
<CGS> 140,248
<TOTAL-COSTS> 140,248
<OTHER-EXPENSES> 14,005
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 13,152
<INCOME-PRETAX> (8,379)
<INCOME-TAX> (2,329)
<INCOME-CONTINUING> (6,050)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (6,050)
<EPS-BASIC> 0
<EPS-DILUTED> 0
</TABLE>
