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AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON APRIL 22, 1998
REGISTRATION NO. 333-
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM S-4
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
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SF HOLDINGS GROUP, INC.
(Exact name of registrant as specified in its charter)
<TABLE>
<S> <C> <C>
DELAWARE 2656, 2676 13-3990796
(State or other jurisdiction of (Primary Standard Industrial (I.R.S. Employer
incorporation or organization) Classification Code Number) Identification No.)
115 STEVENS AVENUE
VALHALLA, NY 10595-1252
(914) 749-3274
(Address, including zip code, and telephone number,
including area code, of registrant's principal executive offices)
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MICHAEL S. NELSON
KRAMER, LEVIN, NAFTALIS & FRANKEL
919 THIRD AVENUE
NEW YORK, NEW YORK 10022
(212) 715-9100
(Name, address, including zip code, and telephone number,
including area code, of agent for service)
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</TABLE>
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon
as practicable after the registration statement becomes effective and all other
conditions to the exchange offer (the "Exchange Offer") pursuant to the
registration rights agreement (the "Registration Rights Agreement") described
in the enclosed Prospectus have been satisfied or waived.
If any of the securities being registered on this Form are to be offered
in connection with the formation of a holding company and there is compliance
with General Instruction G, check the following box. [ ]
<TABLE>
<CAPTION>
CALCULATION OF REGISTRATION FEE
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PROPOSED
AMOUNT MAXIMUM PROPOSED MAXIMUM
TITLE OF EACH CLASS OF TO BE OFFERING PRICE AGGREGATE AMOUNT OF
SECURITIES TO BE REGISTERED REGISTERED PER NOTE OFFERING PRICE REGISTRATION FEE
<S> <C> <C> <C> <C>
12 3/4% Series B Senior Secured
Discount Notes due 2008 ......... $144,000,000 100%(1) $144,000,000(1) $ 42,480.00
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</TABLE>
(1) Estimated solely for the purposes of calculating the registration fee
pursuant to Rule 457(f)(2) under the Securities Act of 1933.
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT
SHALL FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(A),
MAY DETERMINE.
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<PAGE>
PRELIMINARY PROSPECTUS SUBJECT TO COMPLETION, DATED APRIL 22, 1998
SF HOLDINGS GROUP, INC.
OFFER TO EXCHANGE ITS
12 3/4% SERIES B SENIOR SECURED DISCOUNT NOTES DUE 2008
WHICH HAVE BEEN REGISTERED UNDER THE SECURITIES ACT FOR
ANY AND ALL OF ITS OUTSTANDING
12 3/4% SERIES A SENIOR SECURED DISCOUNT NOTES DUE 2008
($144,000,000 PRINCIPAL AMOUNT AT MATURITY OUTSTANDING)
THE EXCHANGE OFFER AND WITHDRAWAL RIGHTS WILL EXPIRE AT 5:00 P.M., NEW
YORK CITY TIME, ON , 1998 (AS SUCH DATE MAY BE EXTENDED, THE "EXPIRATION
DATE").
SF Holdings Group, Inc. (the "Company") hereby offers (the "Exchange
Offer"), upon the terms and subject to the conditions set forth in this
Prospectus and the accompanying letter of transmittal (the "Letter of
Transmittal"), to exchange an aggregate of up to $144,000,000 principal amount
at maturity of 12 3/4% Series B Senior Secured Discount Notes due 2008 (the
"New Notes") for an identical face amount of the outstanding 12 3/4% Series A
Senior Secured Discount Notes due 2008 (the "Old Notes" and, with the New
Notes, the "Notes"). The terms of the New Notes are identical in all material
respects to the terms of the Old Notes except that the registration and other
rights relating to the exchange of Old Notes for New Notes and the restrictions
on transfer set forth on the Old Notes will not appear on the New Notes. See
"The Exchange Offer." The New Notes are being offered hereunder in order to
satisfy certain obligations of the Company under a Registration Rights
Agreement dated as of March 12, 1998 (the "Registration Rights Agreement")
among the Company, Bear, Stearns & Co. Inc. and SBC Warburg Dillon Read Inc.
(the "Initial Purchasers"). Based on an interpretation by the staff of the
Securities and Exchange Commission (the "Commission") set forth in no-action
letters issued to third parties unrelated to the Company, New Notes issued
pursuant to the Exchange Offer in exchange for Old Notes may be offered for
resale, resold, and otherwise transferred by a holder thereof (other than a
holder which is an "affiliate" of the Company within the meaning of Rule 405
under the Securities Act of 1933, as amended (the "Securities Act")), without
compliance with the registration and the prospectus delivery provisions of the
Securities Act, provided that such New Notes are acquired in the ordinary
course of such holder's business and such holder has no arrangement with any
person to participate in or is engaged in or is planning to be engaged in the
distribution of such New Notes.
The New Notes will mature on March 15, 2008. Until March 15, 2003, no
interest will accrue on the New Notes, but the Accreted Value (as defined
herein) will increase between the date of original issuance of the Old Notes
and March 15, 2003. Beginning on March 15, 2003, interest on the New Notes will
accrue at the rate of 12 3/4% per annum and will be payable in cash
semi-annually in arrears on September 15 and March 15 of each year, commencing
on September 15, 2003. The New Notes will be redeemable at the option of the
Company at any time on and after March 15, 2003 at the redemption prices set
forth herein. In addition, prior to March 15, 2001, the Company may redeem up
to one-third of the aggregate principal amount of Notes at a redemption price
equal to 112.75% of the Accreted Value thereof, plus Liquidated Damages (as
defined herein) thereon, if any, with the net cash proceeds of an Equity
Offering (as defined herein); provided that at least two-thirds of the original
aggregate principal amount of Notes remains outstanding immediately after the
occurrence of such redemption. Upon the occurrence of a Change of Control, the
Company will be required to make an offer to repurchase each holder's New Notes
at an offer price equal to 101% of the aggregate principal amount thereof, plus
accrued and unpaid interest and Liquidated Damages thereon, if any, to the date
of repurchase (or, in the case of repurchases of New Notes prior to March 15,
2003, at a purchase price equal to 101% of the Accreted Value thereof, plus
Liquidated Damages thereon, if any, as of the date of repurchase). See
"Description of New Notes."
The New Notes will rank senior in right of payment to any subordinated
indebtedness of the Company incurred in the future, and will rank pari passu in
right of payment with any other senior indebtedness of the Company incurred in
the future. The New Notes will be effectively subordinated, however, to all
indebtedness and other liabilities and commitments of the Company's
subsidiaries, which, as of January 25, 1998, after giving pro forma effect to
the Transactions (as defined herein), would have totaled $767.7 million. See
"Risk Factors--Holding Company Structure and Related Considerations." The New
Notes will be secured by a first priority pledge of all of the Capital Stock
(as defined herein) owned by the Company of Sweetheart Holdings Inc.
("Sweetheart") and The Fonda Group, Inc. ("Fonda"), and all intercompany notes
issued by the Company in favor of Sweetheart and Fonda. See "Description of New
Notes--Security."
The Company will accept for exchange from an Eligible Holder any and all
Old Notes that are validly tendered prior to 5:00 p.m., New York City time, on
the Expiration Date. For purposes of the Exchange Offer, "Eligible Holder"
shall mean the registered owner of any Old Notes that remain Transfer
Restricted Securities, as reflected on the records of The Bank of New York, as
registrar for the Old Notes (in such capacity, the "Registrar"), or any person
whose Old Notes are held of record by the depository of the Old Notes. Tenders
of Old Notes may be withdrawn at any time prior to 5:00 p.m., New York City
time, on the Expiration Date. For purposes of the Exchange Offer, "Transfer
Restricted Securities" means each Old Note until the earliest to occur of (i)
the date on which such Old Note is exchanged in this Exchange Offer and
entitled to be resold to the public by the holder thereof without complying
with the prospectus delivery provisions of the Securities Act, (ii) the date on
which such Old Note is registered under the Securities Act and is disposed of
in a shelf registration statement, if applicable, or (iii) the date on which
such Old Note has been distributed to the public pursuant to Rule 144 under the
Securities Act or by a broker-dealer pursuant to the plan of distribution
described herein. See "Plan of Distribution."
The Company will not receive any proceeds from the Exchange Offer and will
pay all the expenses incident to the Exchange Offer. If the Company terminates
the Exchange Offer and does not accept for exchange any Old Notes, it will
promptly return the Old Notes to the holders thereof. See "The Exchange Offer."
Each broker-dealer that receives New Notes for its own account pursuant to
the Exchange Offer must acknowledge that it will deliver a prospectus in
connection with any resale of such New Notes. The Letter of Transmittal states
that by so acknowledging and by delivering a prospectus, a broker-dealer will
not be deemed to admit that it is an "underwriter" within the meaning of the
Securities Act. This Prospectus, as it may be amended or supplemented from time
to time, may be used by a broker-dealer in connection with resales of New Notes
received in exchange for Old Notes where such Old Notes were acquired by such
broker-dealer as a result of market-making activities or other trading
activities. Any broker-dealer that acquired Old Notes directly from the Company
and not as a result of market-making activities, or other trading activities,
in the absence of an exemption from the registration requirements of the
Securities Act, must comply with such registration requirements and the
Prospectus delivery requirements of the Securities Act in connection with any
secondary resales of New Notes received in exchange for such Old Notes. The
Company has agreed that, for a period of 270 days after the effective date
hereof, it will make this Prospectus available to any broker-dealer for use in
connection with any such resale. See "The Exchange Offer" and "Plan of
Distribution."
Prior to this Exchange Offer, there has been no public market for the
Notes. To the extent that Old Notes are tendered and accepted in the Exchange
Offer, a holder's ability to sell untendered Old Notes could be adversely
affected. If a market for the New Notes should develop, the New Notes could
trade at a discount from their principal amount. The Company does not currently
intend to list the New Notes on any securities exchange or to seek approval for
quotation through any automated quotation system. There can be no assurance
that an active public market for the New Notes will develop.
The Exchange Agent for the Exchange Offer is The Bank of New York.
--------------
SEE "RISK FACTORS" BEGINNING ON PAGE 20 HEREIN FOR A DISCUSSION OF CERTAIN
RISKS THAT SHOULD BE CONSIDERED BY ELIGIBLE HOLDERS IN EVALUATING THE EXCHANGE
OFFER.
--------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS
A CRIMINAL OFFENSE.
--------------
THE DATE OF THIS PROSPECTUS IS , 1998.
<PAGE>
AVAILABLE INFORMATION
The Company has filed with the Commission a Registration Statement (which
term shall include any amendments thereto) on Form S-4 under the Securities Act
with respect to the securities offered by this Prospectus. This Prospectus,
which constitutes a part of the Registration Statement, does not contain all
the information set forth in the Registration Statement and the exhibits and
schedules thereto, to which reference is hereby made. Each statement made in
this Prospectus referring to a document filed as an exhibit or schedule to the
Registration Statement is qualified in its entirety by reference to the exhibit
or schedule for a complete statement of its terms and conditions, although all
of the material terms of the Company's contracts and agreements that would be
material to an investor have been summarized in this Prospectus. In addition,
upon the effectiveness of the Registration Statement filed with the Commission,
the Company will be subject to the informational requirements of the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), and in accordance
therewith the Company will file periodic reports and other information with the
Commission relating to its business, financial statements and other matters.
Any interested parties may inspect and/or copy the Registration Statement, its
schedules and exhibits, and the periodic reports and other information filed in
connection therewith, at the public reference facilities maintained by the
Commission at Room 1024, Judiciary Plaza, 450 Fifth Street, N.W., Washington,
D.C. 20549 and at the Commission's regional offices located at Citicorp Center,
500 W. Madison Street, Suite 1400, Chicago, Illinois 60661, and 7 World Trade
Center, Suite 1300, New York, New York 10048. Copies of such materials can be
obtained at prescribed rates by addressing written requests for such copies to
the Public Reference Section of the Commission at its principal office at
Judiciary Plaza, 450 Fifth Street, N.W., Room 1024, Washington, D.C. 20549. The
Commission also maintains a Web site that contains reports, proxy and
information statements and other information regarding registrants. The
Commission's Web site can be accessed on the World Wide Web at
http://www.sec.gov. The obligations of the Company under the Exchange Act to
file periodic reports and other information with the Commission may be
suspended, under certain circumstances, if the New Notes are held of record by
fewer than 300 holders at the beginning of any fiscal year and are not listed
on a national securities exchange. The Company has agreed that, whether or not
it is required to do so by the rules and regulations of the Commission, for so
long as any of the Notes remain outstanding it will furnish to the holders of
the Notes, and if required by the Exchange Act, file with the Commission all
annual, quarterly and current reports that the Company is or would be required
to file with the Commission pursuant to Section 13(a) or 15(d) of the Exchange
Act. In addition, for so long as any of the Old Notes remain outstanding, the
Company has agreed to make available to any prospective purchaser of the Old
Notes or beneficial owner of the Old Notes in connection with any sale thereof
the information required by Rule 144A(d)(4) under the Securities Act.
Sweetheart and Fonda are subject to the periodic reporting and other
informational requirements of the Exchange Act and the rules and regulations
thereunder, and in accordance therewith file periodic reports, proxy and
information statements, and other information with the Commission. All reports,
proxy and information statements, and other information filed by Sweetheart and
Fonda with the Commission may be inspected at the public reference facilities
maintained by the Commission at the address set forth above, and at the
regional offices of the Commission located at the addresses set forth above.
Copies of such materials may also be obtained from The Public Reference Section
of the Commission at the address set forth above, at prescribed rates. The
Commission also maintains a web site (http://www.sec.gov) that contains
reports, proxy and information statements regarding registrants, such as the
Company's subsidiaries that file electronically with the Commission. The
Company's subsidiaries furnish to the respective holders of the Fonda Notes (as
defined herein) and the Sweetheart Notes (as defined herein) all such filings
with the Commission. In addition, for so long as any of such securities remain
outstanding, each company has agreed to make available to any prospective
purchaser of such securities or respective beneficial owner of such securities
in connection with any sale thereof the information required by Rule 144(d)(4)
under the Securities Act.
THIS PROSPECTUS INCORPORATES DOCUMENTS BY REFERENCE WHICH ARE NOT PRESENT
HEREIN OR DELIVERED HEREWITH. COPIES OF ANY SUCH DOCUMENTS FILED BY THE
COMPANY, INCLUDING EXHIBITS TO SUCH DOCUMENTS, ARE AVAILABLE TO ANY REGISTERED
HOLDER OR BENEFICIAL OWNER OF THE OLD NOTES UPON WRITTEN OR ORAL REQUEST AND
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WITHOUT CHARGE FROM SF HOLDINGS GROUP, INC., 115 STEVENS AVENUE, VALHALLA, NEW
YORK 10595-1252, ATTENTION: CHIEF FINANCIAL OFFICER. TELEPHONE REQUESTS MAY BE
DIRECTED TO THE COMPANY AT (914) 749-3274. IN ORDER TO ENSURE TIMELY DELIVERY
OF THE DOCUMENTS, ANY SUCH REQUEST SHOULD BE MADE BY , 1998.
NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATIONS, OTHER THAN THOSE CONTAINED IN THIS PROSPECTUS. IF GIVEN OR
MADE, SUCH INFORMATION OR REPRESENTATIONS MAY NOT BE RELIED UPON AS HAVING BEEN
AUTHORIZED BY THE COMPANY. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER OR
SOLICITATION WITH RESPECT TO ANY SECURITY OTHER THAN THE SECURITIES OFFERED
HEREBY OR AN OFFER TO OR SOLICITATION OF ANY PERSON IN ANY JURISDICTION IN
WHICH SUCH AN OFFER OR SOLICITATION WOULD BE UNLAWFUL. NEITHER THE DELIVERY OF
THIS PROSPECTUS NOR ANY DISTRIBUTION OF SECURITIES HEREUNDER SHALL UNDER ANY
CIRCUMSTANCES CREATE ANY IMPLICATION THAT THE INFORMATION CONTAINED HEREIN IS
CORRECT AS OF ANY TIME SUBSEQUENT TO THE DATE HEREOF OR THAT THERE HAS BEEN NO
CHANGE IN THE INFORMATION SET FORTH HEREIN OR IN THE AFFAIRS OF THE COMPANY
SINCE THE DATE HEREOF.
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PROSPECTUS SUMMARY
The following summary is qualified in its entirety by the more detailed
information and financial statements, including the notes thereto, appearing
elsewhere in this Prospectus. References to a fiscal year of SF Holdings or
Fonda are to the year ended on the last Sunday in July of such year. References
to a fiscal year of Sweetheart are to the year ended on September 30 of such
year. Unless otherwise stated or the context otherwise requires, (a) references
to the "Company" are to SF Holdings and its subsidiaries, including Fonda and
Sweetheart and their respective subsidiaries, after giving effect to the
Transactions and (b) references to "SF Holdings" are to SF Holdings Group,
Inc., excluding its subsidiaries. See "The Sweetheart Investment." Unless
otherwise indicated, all information in this Prospectus assumes the
Transactions have been consummated. Certain information in the Prospectus with
respect to Sweetheart and Fonda is derived from their respective reports on
Forms 10-K and 10-Q as filed with the Commission. See "Available Information."
Portions of this Prospectus may constitute forward-looking statements for
purposes of the Securities Act and the Exchange Act. See "Risk
Factors--Forward-Looking Statements."
THE COMPANY
The Company is one of the three largest converters and marketers of
disposable food service and food packaging products in North America. The
Company sells a broad line of disposable paper, plastic and foam food service
and food packaging products under both branded and private labels to the
consumer and institutional markets, including large national accounts, and
participates at all major price points. The Company conducts its business
through two principal operating subsidiaries, Sweetheart and Fonda, and has
marketed its products under its well recognized Lily (Registered Trademark),
Sweetheart (Registered Trademark) and Trophy (Registered Trademark) brands
for over 85, 45 and 15 years, respectively. In addition, the Company's
Sensations and Hoffmaster (Registered Trademark) brands are well recognized in
the industry. After giving pro forma effect to the Transactions, the Company
would have had net sales, net income and EBITDA (as defined herein) of $1.1
billion, $34.4 million and $79.8 million, respectively, for the twelve months
ended January 25, 1998.
The Company's product offerings are among the broadest in the industry,
enabling it to offer its customers "one-stop" shopping for their disposable
food service and food packaging product needs. The Company's principal products
include (i) paperboard, plastic and foam food service products, primarily cups,
lids, plates, bowls, plastic cutlery and food containers; (ii) tissue and
specialty food service products, primarily napkins and placemats; and (iii)
food packaging products, primarily containers for the dairy and food processing
industries.
The Company sells its products to more than 5,000 customers and serves the
institutional and consumer markets, including large national accounts, located
throughout the United States and Canada. In addition, the Company has developed
and maintained long-term relationships with many of its customers. The
Company's institutional customers, which are served by Sweetheart and Fonda,
include (i) major food service distributors, (ii) national accounts, including
fast-food chains and catering services, and (iii) schools, hospitals and other
major institutions. The Company's consumer customers, which are served by
Fonda, include supermarkets, mass merchandisers, warehouse clubs and other
retailers. The Company's food packaging customers, which are served by
Sweetheart, include national and regional dairy and food companies.
COMPETITIVE STRENGTHS
The Company believes that it has a leading competitive position in the
disposable food service products industry for the following reasons:
o Leading Market Position. The Company serves all markets in the
industry. The Company believes that it holds one of the top three market
positions in each major market segment it serves and for each of its
major product categories. The Company's well recognized brands and long
history in the industry have allowed it to gain its leading market
positions. In those institutional markets served by both of Sweetheart
and Fonda, the Company experiences minimal product
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redundancy because Sweetheart and Fonda primarily sell different products
to shared customers. The Company also believes that its multiple
distribution channels will enable it to further penetrate existing
markets by cross-marketing new products through existing channels.
o Brand Recognition. The Company's brands are well recognized in the
industry. The Company's products have been marketed under its Sweetheart
(Registered trademark) and Lily (Registered trademark) brands for over
45 years. Upon consummation of the Sweetheart Investment (as defined
herein), the Company believes that it will be able to leverage the
strength of Sweetheart's brands to further penetrate already existing
markets. The Company's Sweetheart (Registered trademark), Lily
(Registered trademark), Trophy (Registered trademark), Jazz (Registered
trademark), Preference (Registered trademark), Silent Service
(Registered trademark), Centerpiece (Registered trademark), Guildware
(Registered trademark), Simple Elegance (Registered trademark) and
Hoffmaster (Registered trademark) brands are well recognized in the
institutional market; and its Sensations, Splash (Registered Trademark)
and Party Creations (Registered trademark) brands are well recognized in
the consumer market.
o Broad Product Offering. The Company believes that its product offering
is one of the broadest in the industry, competing across all major price
points of the markets it serves, and that the Company is the only company
that offers a full selection of premium products as well as a full line
of private label products. The Company offers its products in paper,
plastic and foam and in a wide range of colors, designs and graphics
which are often printed to the customer's specifications.
The Company's diverse and expansive product offering allows it to better
serve its customers with "one-stop" shopping and enables both the Company
and its customers to differentiate themselves from their respective
competitors. As the industry continues to experience greater customer
concentration resulting from a consolidation of distributors and retail
outlets, as well as an increase in sales to the mass merchandiser and
discount retailer distribution channels, the Company believes that its
broad product offering will continue to provide a competitive advantage.
In addition, the Company believes that its broad product offering enables
it to increase shelf space with its customers. The Company also maintains
facilities for the development of new products and product line
extensions to support a continued broad product offering.
o Extensive Distribution. The Company has 27 manufacturing and
distribution facilities located throughout the United States and Canada.
The Company's extensive geographic coverage enables it to serve large
institutional and consumer accounts on a national basis and to respond to
customers' product needs in an effective and timely manner.
o Experienced Management Team. The Company's senior operating managers
average over 15 years of experience in the food service industry and have
a proven track record in operating companies efficiently and realizing
cost savings from the integration of acquisitions. Certain of Fonda's
senior officers became executive officers of Sweetheart upon consummation
of the Sweetheart Investment.
BUSINESS STRATEGY
The Company believes that its ownership of Fonda and investment in
Sweetheart will provide it with significant benefits and synergies which it
expects to realize over the next several years. The Company also believes that
it can improve its leading position in the disposable food service products
industry by (i) achieving cost savings from the Transactions, (ii) achieving
operating efficiencies and other synergies from the relationship between
Sweetheart and Fonda and (iii) cross-marketing its products. The Company will
pursue its business strategy through:
o Cost Savings. The Company intends to focus on reducing its costs,
eliminating redundancies and realizing cost efficiencies. The Company
believes that opportunities for cost reductions can be realized through
(i) eliminating the outsourcing of products which will be manufactured
within the Company, (ii) capitalizing on the Company's combined
purchasing leverage with respect to raw materials and other procured
items, such as packaging materials, (iii) eliminating duplicative
administration, sales and marketing expenses and (iv) making selective
capital expenditures intended to realize manufacturing and distribution
savings.
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o Operating Efficiencies and Other Synergies. The Company intends to
focus on achieving operating efficiencies and other synergies from the
relationship between Sweetheart and Fonda. The Company believes that it
can operate more efficiently by (i) rationalizing its facilities through
a more efficient use of its manufacturing equipment, (ii) eliminating
duplicative product offerings and (iii) improving customer service as a
result of its geographic diversification. In addition, the Company
intends to evaluate potential benefits, including cost savings, operating
efficiencies and additional synergies, which may be obtained from other
transactions, including certain business combinations, among the
affiliated group.
o Sales and Marketing. The Company seeks to maintain a balanced presence
in the markets it serves by cross-marketing Sweetheart and Fonda's
respective products to further penetrate their distribution channels. In
addition, in order to better serve its customers, the Company also
focuses on developing new product designs, increasing brand awareness and
channel marketing. The Company believes that new product designs provide
customers recognized value by offering alternatives in color and style.
The Company supports its brand identity and private label program through
enhanced packaging and promotion. Additionally, the Company seeks,
through its direct sales force, to create "pull-through" demand by
marketing directly to end-users in order to create additional demand from
institutional distributors for the Company's products. Sweetheart and
Fonda also intend to enter into joint marketing and sales agreements
which will be designed to eliminate duplicative marketing and sales
expenses at both companies.
The Company conducts its business through two principal operating
subsidiaries, Sweetheart and Fonda:
SWEETHEART HOLDINGS INC.
Sweetheart is one of the largest producers of paper, plastic and foam
disposable food service and food packaging products, including hot and cold
drink cups, lids, food containers, plates and bowls, and cutlery. Sweetheart
sells its food service products primarily to (i) major food service
distributors who serve national and regional institutional food service
customers such as Sysco Corporation and Alliant Foodservice Inc. and (ii)
national accounts, including fast-food chains, such as McDonald's Corporation
("McDonald's") and Wendy's International, Inc., and catering services, such as
ARAMARK Corporation.
Sweetheart's food packaging operations sell paper and plastic containers
and lids for products such as ice cream, frozen novelty products and cultured
foods, and also lease filling and lidding equipment to customers. Sweetheart's
food packaging customers include national and regional dairy and food
companies, such as Ben and Jerry's Homemade, Inc., Blue Bell Creameries, L.P.,
Borden, Inc. and Prairie Farms Dairy, Inc.
After giving pro forma effect to the Transactions, Sweetheart would have
had net sales, net loss and EBITDA of $855.3 million, $31.2 million and $55.6
million, respectively, for the twelve months ended December 31, 1997.
THE FONDA GROUP, INC.
Fonda is a leading producer of (i) private label paper plates, bowls and
cups for the consumer market and (ii) premium tissue products including white,
colored and custom-printed napkins, placemats, tablecovers and food trays for
the institutional and consumer markets. Fonda's consumer market customers
include (i) supermarkets, such as The Great Atlantic & Pacific Tea Company,
Inc., The Kroger Co. and The Stop & Shop Companies, Inc., (ii) mass
merchandisers, such as Target Stores (a division of Dayton Hudson Corp.),
Wal-Mart Stores, Inc. and Kmart Corporation and (iii) warehouse clubs, such as
Price-Costco, Inc., and other retailers. Fonda's institutional customers
include Sysco Corporation, Rykoff-Sexton, Inc./U.S. Foodservice Inc., Bunzl
USA, Inc. and Alliant Foodservice Inc.
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After giving pro forma effect to the Transactions, Fonda would have had
net sales, net income and EBITDA of $263.2 million, $4.4 million and $23.4
million, respectively, for the twelve months ended January 25, 1998.
RECENT DEVELOPMENTS
On February 11, 1998, Fonda reached an agreement with Kamine Besicorp
Natural Dam L.P. ("Kamine"), the owner of the co-generation facility hosted by
Fonda at the Natural Dam mill, whereby Kamine will terminate its obligations to
supply steam to Natural Dam and to make certain land lease payments in return
for a lump sum cash payment and the delivery of certain equipment. The
consummation of this agreement is subject to various conditions, including the
negotiation and execution of a definitive agreement and the consummation of a
master restructuring agreement among Niagara Mohawk Power Corporation
("Niagara") and sixteen independent power producers, including Kamine. The
Company expects Fonda to record a gain upon the consummation of the transaction
contemplated by this agreement, however, there can be no assurance that such
transaction will be consummated.
On March 12, 1998, Fonda entered into a five-year licensing agreement with
its affiliate, Creative Expressions Group, Inc. ("CEG"), subject to extension,
whereby CEG will manufacture and distribute certain party goods products
currently manufactured by Fonda. In connection therewith, Fonda will receive a
royalty equal to 5% of CEG's cash flow, as determined in accordance with a
formula specified in such agreement. In Fiscal 1997, Fonda's net sales of such
party goods products were approximately $30 million.The Company expects Fonda's
fixed and variable costs to decrease and it expects to reduce Fonda's accounts
receivable and inventory by approximately $9 million as a result of such
licensing agreement. The Company believes that such transaction will have a
favorable impact on Fonda's results of operations.
On March 24, 1998, Fonda consummated an agreement with Cellu Tissue
Holdings, Inc. ("Cellu"), whereby Cellu acquired substantially all of the fixed
assets and certain related working capital of the Natural Dam mill in
Gouverneur, New York, and Fonda realized net proceeds, after expenses, of
approximately $25 million, subject to a post-closing adjustment for working
capital (the "Natural Dam Mill Disposition"). The Natural Dam mill produced
tissue mill products, primarily specialty "jumbo" rolls of tissue.
In connection with the consummation of the Sweetheart Investment,
Sweetheart incurred $4.4 million of financial advisory and legal expenses and
$2.6 million of severance expenses as a result of the termination of certain
officers of Sweetheart pursuant to executive separation agreements (such
expenses are collectively defined herein as the "Sweetheart Reduction"). See
"Unaudited Pro Forma Financial Information." For the three month period ended
March 31, 1998, Sweetheart also expects to recognize additional one time
charges of approximately $15 million related to further cost cutting
initiatives including work force reduction and facility rationalization. Such
charges will consequently have an adverse impact on Sweetheart's results of
operations for such period. As a result of the applications of purchase
accounting by SF Holdings for the Sweetheart Investment, the expenses described
above will have no effect on SF Holdings' results of operations.
THE SWEETHEART INVESTMENT
In connection with the Sweetheart Investment, SF Holdings acquired all of
the outstanding capital stock of Fonda in a merger of a subsidiary of SF
Holdings into Fonda, and the stockholders of Fonda became the stockholders of
the Company (the "Fonda Stockholders Exchange").
On March 12, 1998, the stockholders of Sweetheart as of December 29, 1997
(the "Sweetheart Stockholders") consummated an Investment Agreement dated
December 29, 1997 with SF Holdings and CEG (the "Investment Agreement"),
pursuant to which SF Holdings acquired 48% of the total
7
<PAGE>
outstanding voting common stock, par value $.01 per share, of Sweetheart (the
"Sweetheart Class A Common Stock") and 100% of the total outstanding non-voting
common stock, par value $.01 per share, of Sweetheart (the "Sweetheart Class B
Common Stock" and together with the Sweetheart Class A Common Stock the
"Sweetheart Common Stock"), representing 90% of the total outstanding common
stock of Sweetheart (the "Sweetheart Investment"). The aggregate purchase price
consisted of $88.0 million in cash, a demand promissory note (the "Demand
Note") of SF Holdings in the amount of $7.0 million (which was satisfied
immediately following the consummation of the Sweetheart Investment) and an
aggregate of $30.0 million of a series of exchangeable preferred stock, par
value $.001 per share, of SF Holdings (the "Exchangeable Preferred Stock"). See
"Description of Capital Stock."
Pursuant to the Investment Agreement, immediately prior to the
consummation of the Sweetheart Investment, Sweetheart amended its by-laws,
including its subsidiaries' by-laws, to provide for certain matters, and to
appoint certain executive officers of Fonda as executive officers of
Sweetheart. Upon consummation of the Sweetheart Investment, the Company entered
into the Sweetheart Stockholders' Agreement, the SF Holdings Registration
Rights Agreement and the Management Services Agreement (each as defined
herein). See "The Sweetheart Investment."
SF Holdings, which was formed in December 1997 to facilitate the
Sweetheart Investment, is incorporated under the laws of Delaware. The
principal executive office of SF Holdings is located at 115 Stevens Avenue,
Valhalla, New York 10595-1252 and its telephone number is (914) 749-3274.
ISSUANCE OF THE OLD NOTES
Units (the "Units") consisting of $144.0 million principal amount at
maturity of 12 3/4% Series A Senior Secured Discount Notes due 2008 (the "Old
Notes") and 288,000 shares of Class C Common Stock of the Company (the
"Shares") were sold by the Company to Bear, Stearns & Co. Inc. and SBC Warburg
Dillon Read Inc. (the "Initial Purchasers") on March 12, 1998 (the "Closing
Date") pursuant to a Purchase Agreement, dated as of March 5, 1998 (the
"Purchase Agreement"), among the Company and the Initial Purchasers. The
Initial Purchasers subsequently resold the Units in reliance on Rule 144A under
the Securities Act and other available exemptions under the Securities Act on
or about March 12, 1998. The Company and the Initial Purchasers also entered
into a Registration Rights Agreement, dated as of March 12, 1998 (the
"Registration Rights Agreement"), among the Company and the Initial Purchasers,
pursuant to which the Company granted certain registration rights for the
benefit of the holders of the Old Notes. The Exchange Offer is intended to
satisfy certain of the Company's obligations under the Registration Rights
Agreement with respect to the Old Notes. See "The Exchange Offer--Purpose and
Effects."
The Old Notes were issued under an indenture, dated as of March 12, 1998
(the "Indenture"), between the Company and The Bank of New York as trustee (in
such capacity, the "Trustee"). The New Notes are also being issued under the
Indenture and are entitled to the benefits of the Indenture. The form and terms
of the New Notes will be identical in all material respects to the form and
terms of the Old Notes except that (i) the New Notes have been registered under
the Securities Act and, therefore, will not bear legends restricting the
transfer thereof, (ii) holders of New Notes will not be entitled to the
liquidated damages otherwise payable under the terms of the Registration Rights
Agreement in respect of Old Notes constituting Transfer Restricted Securities
held by such holders during any period in which a Registration Default (as
defined) is continuing (the "Liquidated Damages") and (iii) holders of New
Notes will not be, and upon the consummation of the Exchange Offer, Eligible
Holders of Old Notes will no longer be, entitled to certain rights under the
Registration Rights Agreement intended for the holders of unregistered
securities. The Exchange Offer shall be deemed consummated upon the delivery of
the Company to the Exchange Agent under the Indenture of New Notes in the same
aggregate principal amount as the aggregate principal amount of Old Notes that
are validly tendered by holders thereof pursuant to the Exchange Offer. See
"The Exchange Offer--Termination of Certain Rights" and "--Procedures for
Tendering" and "Description of New Notes--Registration Rights; Liquidated
Damages."
8
<PAGE>
The proceeds received by the Company from the issuance of the Units were
used to fund a portion of the cash required by the Company to consummate the
Sweetheart Investment and to pay certain fees and expenses associated with the
issuance of the Units. There will be no proceeds to the Company from any
exchange pursuant to the Exchange Offer.
THE EXCHANGE OFFER
THE EXCHANGE OFFER.......... The Company is offering, upon the terms and
subject to the conditions set forth herein and in
the accompanying letter of transmittal (the
"Letter of Transmittal"), to exchange its 12 3/4%
Series B Senior Secured Discount Notes due 2008
(the "New Notes," and with the Old Notes, the
"Notes") for an identical face amount of the
outstanding Old Notes (the "Exchange Offer"). As
of the date of this Prospectus, $144.0 million in
aggregate principal amount at maturity of the Old
Notes is outstanding, the maximum amount
authorized by the Indenture for all Notes. As of
, 1998, there was one registered holder of
the Old Notes, Cede & Co. ("Cede"), which held
$144.0 million of aggregate principal amount at
maturity of the Old Notes. See "The Exchange
Offer--Terms of the Exchange Offer."
EXPIRATION DATE............. 5:00 p.m., New York City time, on ,
1998, as the same may be extended. See "The
Exchange Offer--Expiration Date; Extension;
Termination; Amendments."
CONDITIONS OF THE
EXCHANGE OFFER.............. The Exchange Offer is not conditioned upon any
minimum principal amount of Old Notes being
tendered for exchange. However, the Exchange
Offer is subject to certain customary conditions,
which may be waived by the Company. See "The
Exchange Offer--Conditions of the Exchange
Offer."
ACCRETED VALUE OF THE
OLD NOTES................... Until March 15, 2003, no interest will accrue on
the New Notes, but the Accreted Value will
increase (representing amortization of original
issue discount) between the date of original
issuance of the Old Notes and March 15, 2003 at a
rate of 12 3/4% per annum of the initial offering
price of the Old Notes. Eligible Holders whose
Old Notes are accepted for exchange will have the
right to receive the increase in Accreted Value
from the date of original issuance of the Old
Notes. Beginning on March 15, 2003, interest on
the New Notes will accrue at the rate of 12 3/4%
per annum.
PROCEDURES FOR TENDERING
OLD NOTES.................. Each holder of Old Notes wishing to accept the
Exchange Offer must complete, sign and date the
Letter of Transmittal, or a facsimile thereof, in
accordance with the instructions contained herein
and therein, and mail or otherwise deliver such
Letter of Transmittal, or such facsimile,
together with the Old Notes and any other
required documentation to the exchange agent (the
"Exchange Agent") at the address set forth
herein. Old Notes may be physically delivered,
but physical delivery is not re-
9
<PAGE>
quired if a confirmation of a book-entry of such
Old Notes to the Exchange Agent's account at The
Depositary Trust Company ("DTC" or the
"Depositary") is delivered in a timely fashion.
By executing the Letter of Transmittal, each
holder will represent to the Company that, among
other things, the New Notes acquired pursuant to
the Exchange Offer are being obtained in the
ordinary course of business of the person
receiving such New Notes, whether or not such
person is the holder, that neither the holder
nor any such other person is engaged in, or
intends to engage in, or has an arrangement or
understanding with any person to participate in,
the distribution of such New Notes and that
neither the holder nor any such other person is
an "affiliate," as defined under Rule 405 of the
Securities Act, of the Company. Each broker or
dealer that receives New Notes for its own
account in exchange for Old Notes, where such
Old Notes were acquired by such broker or dealer
as a result of market-making activities or other
trading activities, must acknowledge that it
will deliver a prospectus in connection with any
resale of such New Notes. See "The Exchange
Offer--Procedures for Tendering" and "Plan of
Distribution."
GUARANTEED DELIVERY
PROCEDURES.................. Eligible Holders of Old Notes who wish to tender
their Old Notes and (i) whose Old Notes are not
immediately available or (ii) who cannot deliver
their Old Notes or any other documents required
by the Letter of Transmittal to the Exchange
Agent prior to the Expiration Date (or complete
the procedure for book-entry transfer on a timely
basis), may tender their Old Notes according to
the guaranteed delivery procedures set forth in
the Letter of Transmittal. See "The Exchange
Guaranteed Delivery Procedures."
ACCEPTANCE OF OLD NOTES AND
DELIVERY OF NEW NOTES...... Upon satisfaction or waiver of all conditions
of the Exchange Offer, the Company will accept
any and all Old Notes that are properly tendered
in the Exchange Offer prior to 5:00 p.m., New
York City time, on the Expiration Date. The New
Notes issued pursuant to the Exchange Offer will
be delivered promptly after acceptance of the Old
Notes. See "The Exchange Offer--Procedures for
Tendering."
WITHDRAWAL RIGHTS........... Tenders of Old Notes may be withdrawn at any
time prior to 5:00 p.m., New York City time, on
the Expiration Date. See "The Exchange
Offer--Withdrawal of Tenders."
THE EXCHANGE AGENT.......... The Bank of New York is the exchange agent (in
such capacity, the "Exchange Agent"). The address
and telephone number of the Exchange Agent are
set forth in "The Exchange Offer--The Exchange
Agent."
FEES AND EXPENSES........... All expenses incident to the Company's
consummation of the Exchange Offer and compliance
with the Registration Rights
10
<PAGE>
Agreement will be borne by the Company. The
Company will also pay certain transfer taxes
applicable to the Exchange Offer. See "The
Exchange Offer--Fees and Expenses."
RESALES OF THE NEW NOTES.... Based on interpretations by the staff of the
Commission set forth in no-action letters issued
to third parties, the Company believes that New
Notes issued pursuant to the Exchange Offer to an
Eligible Holder in exchange for Old Notes may be
offered for resale, resold and otherwise
transferred by such Eligible Holder (other than
(i) a broker-dealer who purchased the Old Notes
directly from the Company for resale pursuant to
Rule 144A under the Securities Act or any other
available exemption under the Securities Act, or
(ii) a person that is an affiliate of the Company
within the meaning of Rule 405 under the
Securities Act), without compliance with the
registration and prospectus delivery provisions
of the Securities Act, provided that the Eligible
Holder is acquiring the New Notes in the ordinary
course of business and is not participating, and
has no arrangement or understanding with any
person to participate, in a distribution of the
New Notes. Each broker-dealer that receives New
Notes for its own account in exchange for Old
Notes, where such Old Notes were acquired by such
broker as a result of market-making or other
trading activities, must acknowledge that it will
deliver a prospectus in connection with any
resale of such New Notes. See "The Exchange
Offer--Purposes and Effects" and "Plan of
Distribution."
11
<PAGE>
DESCRIPTION OF NEW NOTES
The Exchange Offer applies to $144.0 million aggregate principal amount at
maturity of Old Notes. The terms of the New Notes are identical in all material
respects to the Old Notes, except for certain transfer restrictions and
registration and other rights relating to the exchange of the Old Notes for New
Notes. The New Notes will evidence the same debt as the Old Notes and will be
entitled to the benefits of the Indenture under which both the Old Notes were,
and the New Notes will be, issued. See "Description of New Notes."
SECURITIES OFFERED.......... $144.0 million in aggregate principal amount at
maturity of 12 3/4% Series B Senior Secured
Discount Notes due 2008.
MATURITY.................... March 15, 2008.
INTEREST.................... Until March 15, 2003, no interest will accrue
on the New Notes, but the Accreted Value will
increase (representing amortization of original
issue discount) between the date of original
issuance of the Old Notes and March 15, 2003.
Beginning on March 15, 2003, interest on the New
Notes will accrue at the rate of 12 3/4% per
annum and will be payable in cash semi-annually
in arrears on March 15 and September 15 of each
year, commencing on September 15, 2003.
RANKING..................... The New Notes will rank senior in right of
payment to any subordinated indebtedness of the
Company incurred in the future, and will rank
pari passu in right of payment with any other
senior indebtedness of the Company incurred in
the future. The New Notes will be effectively
subordinated, however, to all indebtedness and
other liabilities and commitments of the
Company's subsidiaries, which as of January 25,
1998, after giving pro forma effect to the
Transactions would have totaled $767.7 million.
As of March 31, 1998, the Company had no
indebtedness ranking pari passu with the New
Notes outstanding.
SECURITY.................... The New Notes will be secured by a first
priority pledge of all of the Capital Stock owned
by SF Holdings of Sweetheart and Fonda and all
intercompany notes issued by the Company in favor
of Sweetheart and Fonda. See "Description of New
Notes--Security."
REDEMPTION.................. The New Notes will be redeemable at the option
of SF Holdings at any time on or after March 15,
2003 at the redemption prices set forth herein.
In addition, prior to March 15, 2001, SF Holdings
may redeem up to one-third of the aggregate
principal amount of Notes at a redemption price
equal to 112.75% of the Accreted Value thereof,
plus Liquidated Damages thereon, if any, with the
net cash proceeds of an Equity Offering; provided
that at least two-thirds of the original
aggregate principal amount of Notes remains
outstanding immediately after the occurrence of
such redemption. See "Description of New
Notes--Optional Redemption."
12
<PAGE>
CHANGE OF CONTROL........... Upon the occurrence of a Change of Control, SF
Holdings will be required to make an offer to
repurchase each holder's New Notes at an offer
price equal to 101% of the aggregate principal
amount thereof, plus accrued and unpaid interest
and Liquidated Damages thereon, if any, to the
date of repurchase (or, in the case of
repurchases of New Notes prior to March 15, 2003,
at a purchase price equal to 101% of the Accreted
Value thereof, plus Liquidated Damages thereon,
if any, as of the date of repurchase). There can
be no assurance that SF Holdings will have the
financial resources to repurchase the New Notes
upon a Change of Control. See "Description of New
Notes--Repurchase at the Option of Holders."
COVENANTS................... The indenture pursuant to which the New Notes
will be issued (the "Indenture") will contain
certain covenants that, among other things, limit
the ability of SF Holdings to incur additional
indebtedness, issue additional preferred stock,
pay dividends or make other distributions,
repurchase Equity Interests (as defined herein),
repay subordinated Indebtedness (as defined
herein) or make other Restricted Payments (as
defined herein), create certain liens, enter into
certain transactions with affiliates, sell assets
or enter into certain mergers and consolidations.
See "Description of New Notes--Certain
Covenants."
USE OF PROCEEDS............. There will be no proceeds to the Company from
any exchange pursuant to the Exchange Offer. The
net proceeds from the issuance of the Units were
used to fund a portion of the cash required by
the Company to consummate the Sweetheart
Investment and to pay certain fees and expenses
associated with the issuance of the Units. See
"The Sweetheart Investment" and "Use of
Proceeds."
ABSENCE OF A PUBLIC MARKET
FOR THE NEW NOTES.......... The New Notes are a new issue of securities
with no established market, and the Company does
not expect that an active trading market in the
Notes will develop. Accordingly, there can be no
assurance as to the development or liquidity of
any market for the New Notes. The Initial
Purchasers have advised the Company that they
currently make a market in the Notes. The Company
does not currently intend to apply for listing of
the New Notes on any securities exchange.
RISK FACTORS
See "Risk Factors" for a discussion of factors that should be considered
by Eligible Holders evaluating the Exchange Offer.
13
<PAGE>
SUMMARY UNAUDITED PRO FORMA COMBINED CONDENSED FINANCIAL DATA OF THE COMPANY
(DOLLARS IN THOUSANDS)
The following table sets forth summary unaudited pro forma combined
condensed financial data of the Company as of January 25, 1998 and for the
fiscal year ended July 27, 1997 and the six and twelve months ended January 25,
1998. The summary unaudited pro forma combined condensed statement of income
data give effect to (i) the Fonda Stockholders Exchange, (ii) the issuance of
the Units and (iii) the Sweetheart Investment, as if each had occurred on the
first day of the Company's fiscal year ended July 27, 1997. The summary
unaudited pro forma combined condensed balance sheet data as of January 25,
1998 give additional effect to (i) the Leisureway Acquisition (as defined
herein), (ii) the Natural Dam Mill Disposition, (iii) the Fonda Stockholders
Exchange, (iv) the issuance of the Units and (v) the Sweetheart Investment, as
if each had occurred on January 25, 1998. The information contained in the
following table should also be read in conjunction with "Capitalization,"
"Unaudited Pro Forma Combined Condensed Financial Data," "Management's
Discussion and Analysis of Financial Condition and Results of Operations,"
"Unaudited Pro Forma Financial Data of Sweetheart," "Unaudited Pro Forma
Financial Data of Fonda" and the historical financial statements, including the
notes thereto, contained elsewhere herein.
<TABLE>
<CAPTION>
SIX MONTHS TWELVE MONTHS
YEAR ENDED ENDED ENDED
JULY 27, 1997 JANUARY 25, 1998 JANUARY 25, 1998
--------------- ------------------ -----------------
<S> <C> <C> <C>
STATEMENT OF INCOME DATA:
Net sales ............................................... $1,117,215 $ 557,816 $1,118,484
Cost of goods sold ...................................... 992,757 494,514 983,587
---------- ---------- ----------
Gross profit ............................................ 124,458 63,302 134,897
Selling, general and administrative expenses ............ 104,700 55,957 106,926
Loss on asset disposal and impairment ................... 24,550 24,550 24,550
Other income, net ....................................... (1,681) (3,514) (5,044)
---------- ---------- ----------
Income (loss) from operations ........................... (3,111) (13,691) 8,465
Interest expense, net ................................... 62,930 32,708 64,137
---------- ---------- ----------
Loss before taxes and minority interest ................. (66,041) (46,399) (55,672)
Income tax benefit ...................................... (26,485) (18,616) (22,341)
Minority interest in loss of subsidiary ................. (3,757) (2,595) (3,119)
---------- ---------- ----------
Loss before cumulative effect of an accounting
change and extraordinary loss .......................... (35,799) (25,188) (30,212)
Dividends on preferred stock ............................ 4,220 2,110 4,220
---------- ---------- ----------
Loss available to common stockholders before
cumulative effect of an accounting change
and extraordinary loss ................................. $ (40,019) $ (27,298) $ (34,432)
========== ========== ==========
OTHER GAAP FINANCIAL DATA:
Cash interest expense (a) ............................... $ 49,761 $ 26,296 $ 51,170
Capital expenditures .................................... 47,951 19,874 47,494
Depreciation and amortization (b) ....................... 50,028 25,249 50,310
OTHER NON-GAAP FINANCIAL DATA:
EBITDA (c) .............................................. $ 71,406 $ 33,319 $ 79,750
Ratio of EBITDA to cash interest expense (c)(a) ......... 1.4x 1.3x 1.6x
</TABLE>
<TABLE>
<CAPTION>
AS OF
JANUARY 25, 1998
-----------------
<S> <C>
BALANCE SHEET DATA:
Cash and cash equivalents .................. $ 13,432
Cash in escrow ............................. 23,720
Working capital ............................ 172,935
Property, plant and equipment, net ......... 433,273
Total assets ............................... 919,439
Total indebtedness (d) ..................... 604,192
Total stockholders' equity ................. 31,633
</TABLE>
(Footnotes on next page)
14
<PAGE>
- ----------
(a) Cash interest expense consists of interest expense, excluding
interest on the Notes and amortization of deferred financing costs
of $4,135, $1,791 and $3,877 for Fiscal 1997 and the six and twelve
months ended January 25, 1998, respectively.
(b) Depreciation and amortization excludes amortization of deferred
financing costs, which are included in interest expense.
(c) EBITDA represents income from operations before interest expense,
provision for income taxes, Fonda other income, depreciation and
amortization, Sweetheart loss on asset disposal and impairment and
gain on the Sweetheart Bakery Disposition (as defined herein) of
$3,459 in the three and twelve months ended December 31, 1997.
EBITDA is generally accepted as providing information regarding a
company's ability to service debt. EBITDA should not be considered
in isolation or as a substitute for net income, cash flows from
operations, or other income or cash flow data prepared in accordance
with generally accepted accounting principles or as a measure of a
company's profitability or liquidity.
EBITDA does not reflect the elimination of $2.8 million and $1.4
million of fixed costs in Fiscal 1997 and the twelve months ended
January 25, 1998, respectively, that would not have been incurred
had the Three Rivers and Long Beach facilities been closed at the
beginning of Fiscal 1997.
(d) Total indebtedness includes short-term and long-term borrowings and
current maturities, of long-term debt.
15
<PAGE>
SUMMARY HISTORICAL FINANCIAL DATA OF THE FONDA GROUP, INC. (1)
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
SIX MONTHS
FISCAL YEAR ENDED JULY (2) ENDED JANUARY (2)
---------------------------------------------------------- -----------------------
1993 1994 1995 1996 1997 1997 1998
---------- ---------- ------------ ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF INCOME DATA:
Net sales ........................ $ 61,079 $ 61,839 $ 97,074 $ 204,903 $ 252,513 $124,379 $ 136,674
Cost of goods sold ............... 49,776 51,643 76,252 161,304 196,333 96,987 108,077
-------- -------- --------- --------- --------- -------- ---------
Gross profit ..................... 11,303 10,196 20,822 43,599 56,180 27,392 28,597
Selling, general and
administrative expenses ......... 8,686 8,438 14,112 29,735 37,168 19,520 19,814
Other income, net ................ -- -- -- -- (1,608) -- --
-------- -------- --------- --------- --------- -------- ---------
Income from operations ........... 2,617 1,758 6,710 13,864 20,620 7,872 8,783
Interest expense, net ............ 1,201 1,268 2,943 7,934 9,017 4,540 6,003
-------- -------- --------- --------- --------- -------- ---------
Income before taxes and
extraordinary loss .............. 1,416 490 3,767 5,930 11,603 3,332 2,780
Income taxes ..................... 478 239 1,585 2,500 4,872 1,400 1,168
-------- -------- --------- --------- --------- -------- ---------
Income before extraordinary
loss ............................ 938 251 2,182 3,430 6,731 1,932 1,612
Extraordinary loss, net (3) ...... -- -- -- -- 3,495 -- --
-------- -------- --------- --------- --------- -------- ---------
Net income ....................... $ 938 $ 251 $ 2,182 $ 3,430 $ 3,236 $ 1,932 $ 1,612
======== ======== ========= ========= ========= ======== =========
OTHER GAAP FINANCIAL DATA:
Net cash provided by (used in)
operating activities(4) ......... $ 2,797 $ 140 $ (4,774) $ 17,673 $ 8,273 $ 4,783 $ 9,324
Net cash (used in) investment
activities ...................... (1,027) (1,272) (29,593) (46,532) (36,006) (2,074) (10,641)
Net cash provided by (used in)
financing activities ............ (1,742) 992 34,262 30,206 32,174 (3,849) (4,067)
Cash interest expense (5) ........ 1,201 1,268 2,383 6,748 8,309 4,000 5,924
Capital expenditures (6) ......... 1,027 1,272 1,608 1,314 10,363 2,074 4,408
Depreciation and amortization 1,248 1,246 1,669 3,450 4,440 2,859 2,694
Ratio of earnings to fixed
charges (7) ..................... 1.9x 1.3x 2.1x 1.7x 2.1x 1.7x 1.4x
OTHER NON-GAAP FINANCIAL
DATA:
EBITDA(8) ........................ $ 3,865 $ 3,004 $ 8,379 $ 17,314 $ 23,942 $ 10,731 $ 11,670
Ratio of EBITDA to cash
interest expense (8)(5) ......... 3.2x 2.4x 3.5x 2.6x 2.9x 2.7x 2.0x
</TABLE>
<TABLE>
<CAPTION>
AS OF
JANUARY 25, 1998
-----------------
<S> <C>
BALANCE SHEET DATA:
Cash ....................................... $ 524
Working capital ............................ 47,858
Property, plant and equipment, net ......... 61,354
Total assets ............................... 180,837
Total indebtedness (9) ..................... 128,709
Redeemable common stock (10) ............... 2,108
Total stockholders' equity ................. 6,802
</TABLE>
(Footnotes on next page)
16
<PAGE>
- ----------
(1) The summary statement of income and other financial data include the
results of operations of Fonda and each of the following acquisitions
(the "Fonda Acquisitions") since their respective dates of acquisition as
follows: (i) the net assets of the Scott Foodservice Division
("Hoffmaster") from Scott Paper Company as of March 31, 1995; (ii) the
net assets of Alfred Bleyer & Co., Inc. ("Maspeth") as of November 30,
1995; (iii) all of the outstanding capital stock of the Chesapeake
Consumer Products Company ("Chesapeake") from Chesapeake Corporation as
of December 29, 1995; (iv) the net assets of two divisions of the
Specialties Operations Division of James River Paper Corporation ("James
River California/Natural Dam") as of May 5, 1996; (v) all of the
outstanding capital stock of Heartland Mfg. Corp. ("Heartland") as of
June 2, 1997; (vi) the net assets of the former division of Astro
Valcour, Inc. ("Astro Valcour") from Tenneco Inc. as of June 10, 1997;
and (vii) the net assets of Leisureway, Inc. ("Leisureway") as of January
5, 1998 (the "Leisureway Acquisition"). The acquisitions of Heartland and
Astro Valcour are hereinafter referred to as the "1997 Fonda
Acquisitions." See "Management's Discussion and Analysis of Financial
Condition and Results of Operations--Introduction," "Business" and Note 3
of the Notes to the Financial Statements of Fonda.
(2) All fiscal years are 52 weeks, except for Fiscal 1994 which is 53 weeks.
The six month periods are 26 weeks.
(3) Fonda incurred a $3.5 million extraordinary loss (net of a $2.5 million
income tax benefit) in connection with the early retirement of debt
consisting of the write-off of unamortized debt issuance costs,
elimination of unamortized discount and prepayment penalties.
(4) Material differences between EBITDA and net cash provided by or used in
operating activities may occur because of the inherent differences in
each such calculation including (a) the change in operating assets and
liabilities between the beginning and end of each period, as well as
certain non-cash items which are considered when presenting net cash
provided by or used in operating activities but are not used when
calculating EBITDA and (b) interest expense and provision for income
taxes which are included when presenting cash provided by or used in
operating activities but are not included in the calculation of EBITDA.
(5) Cash interest expense excludes (i) the amortization of debt issuance
costs of $560, $1,021, $514, $190 and $272 for Fiscal 1995, 1996 and
1997, the six months ended January 1997 and 1998, respectively, (ii)
pay-in-kind interest expense of $165, $684 and $350 for Fiscal 1996 and
1997 and the six months ended January 1997, respectively, and (iii)
interest income of $490 and $193 for Fiscal 1997 and the six months ended
January 1998, respectively.
(6) Excludes the costs of the Fonda Acquisitions.
(7) For purposes of calculating the ratio of earnings to fixed charges,
earnings consist of income before provision for income taxes plus fixed
charges. Fixed charges consist of interest expense (including the
amortization of debt issuance costs) plus that portion of rental payments
on operating leases deemed representative of the interest factor.
(8) EBITDA represents income from operations before interest expense,
provision for income taxes, other income and depreciation and
amortization. EBITDA is generally accepted as providing information
regarding a company's ability to service debt. EBITDA should not be
considered in isolation or as a substitute for net income, cash flows
from operations, or other income or cash flow data prepared in accordance
with generally accepted accounting principles or as a measure of a
company's profitability or liquidity. In addition, although the EBITDA
measure of performance is not recognized under generally accepted
accounting principles, it is widely used by companies as a measure of
operating performance because it assists in comparing performance on a
relatively consistent basis across companies without regard to
depreciation and amortization, which can vary significantly depending on
accounting methods (particularly where acquisitions are invloved) or
non-operating factors such as historical cost bases. Because EBITDA is
not calculated identically by all companies, the presentation herein may
not be comparable to other similarly titled measures of other companies.
(9) Total indebtedness includes short-term and long-term borrowings and
current maturities of long-term debt.
(10) See Note 10 of the Notes to the Financial Statements of Fonda.
17
<PAGE>
SUMMARY HISTORICAL FINANCIAL DATA OF SWEETHEART HOLDINGS INC.
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
PERIOD FROM PERIOD FROM
JANUARY 1 TO AUGUST 30 TO FISCAL YEAR ENDED SEPTEMBER 30,
AUGUST 29, SEPTEMBER 30, -------------------------------------------------
1993 1993 1994 1995 1996 1997
--------------- -------------- ----------- ----------- ----------- -------------
(PREDECESSOR) (SUCCESSOR)
--------------- ----------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS
DATA:
Net sales ......................... $ 591,258 $ 81,571 $ 898,528 $ 986,618 $ 959,818 $ 886,017
Cost of sales ..................... 460,324 64,011 683,429 779,497 748,055 722,539
--------- -------- --------- --------- --------- ---------
Gross income ...................... 130,934 17,560 215,099 207,121 211,763 163,478
Transportation .................... 62,291 7,952 94,734 95,096 98,664 98,482
Selling, general and
administrative ................... 45,494 5,787 67,712 66,089 61,788 66,792
Loss on asset disposal and
impairment ....................... -- -- -- -- -- 24,550
Restructuring charges ............. -- -- -- -- -- 9,680
--------- -------- --------- --------- --------- ---------
Operating income (loss) ........... 23,149 3,821 52,653 45,936 51,311 (36,026)
Interest expense .................. 43,981 3,327 37,460 38,655 38,832 41,812
Other income (expense) ............ 82 (161) 623 2,442 (2,956) 1,620
--------- -------- --------- --------- --------- ---------
Income (loss) before income
taxes, cumulative effect of
an accounting change and
extraordinary loss ............... (20,750) 333 15,816 9,723 9,523 (76,218)
Income tax (expense) benefit ...... 6,641 (161) (6,462) (3,903) (3,809) 30,487
--------- -------- --------- --------- --------- ---------
Income (loss) before
cumulative effect
of an accounting change
and extraordinary loss ........... (14,109) 172 9,354 5,820 5,714 (45,731)
Cumulative effect of a change
in accounting principle, net -- -- -- -- -- --
Extraordinary loss, net ........... -- -- -- -- -- (940)
--------- -------- --------- --------- --------- ---------
Net income (loss) ................. $ (14,109) $ 172 $ 9,354 $ 5,820 5,714 $ (46,671)
========= ======== ========= ========= ========= =========
OTHER GAAP FINANCIAL DATA:
Net cash provided by (used
in) operating activities (1) ..... $ 23,735 $ 5,901 $ 41,532 $ 50,899 $ 43,508 $ (3,242)
Net cash (used in) investing
activities ....................... (14,154) (1,942) (32,581) (51,514) (50,236) (29,914)
Net cash provided by
financing activities ............. (9,625) (3,982) 3,240 (3,615) 3,098 31,435
Cash interest expense (2) ......... 14,038 3,063 34,140 35,121 35,272 38,241
Capital expenditures .............. 14,557 1,956 39,428 51,625 50,236 47,757
Depreciation and
amortization (3) ................. 28,507 2,050 25,783 34,207 39,813 44,152
Ratio of earnings to fixed
charges (4) ...................... N/A 1.1x 1.4x 1.2x 1.2x N/A
OTHER NON-GAAP FINANCIAL
DATA:
EBITDA (5) ........................ $ 51,738 $ 5,710 $ 79,059 $ 82,585 $ 88,168 $ 43,976
Ratio of EBITDA to cash
interest expense (5)(2) .......... 3.7x 1.9x 2.3x 2.4x 2.5x 1.1x
<PAGE>
<CAPTION>
THREE MONTHS
ENDEDDECEMBER 31,
-------------------------
1996 1997
------------- -----------
(SUCCESSOR)
-------------------------
<S> <C> <C>
STATEMENT OF OPERATIONS
DATA:
Net sales ......................... $ 202,102 $ 201,952
Cost of sales ..................... 176,859 164,341
--------- ---------
Gross income ...................... 25,243 37,611
Transportation .................... 22,462 23,665
Selling, general and
administrative ................... 16,216 19,102
Loss on asset disposal and
impairment ....................... -- --
Restructuring charges ............. -- --
--------- ---------
Operating income (loss) ........... (13,435) (5,156)
Interest expense .................. 9,952 11,126
Other income (expense) ............ 268 3,576
--------- ---------
Income (loss) before income
taxes, cumulative effect of
an accounting change and
extraordinary loss ............... (23,119) (12,706)
Income tax (expense) benefit ...... 9,247 5,081
--------- ---------
Income (loss) before
cumulative effect
of an accounting change
and extraordinary loss ........... (13,872) (7,625)
Cumulative effect of a change
in accounting principle, net -- (1,511)
Extraordinary loss, net ........... -- --
--------- ---------
Net income (loss) ................. $ (13,872) $ (9,136)
========= =========
OTHER GAAP FINANCIAL DATA:
Net cash provided by (used
in) operating activities (1) ..... $ (2,838) $ 738
Net cash (used in) investing
activities ....................... (9,523) 8,633
Net cash provided by
financing activities ............. 14,333 (7,334)
Cash interest expense (2) ......... 9,063 10,495
Capital expenditures .............. 9,523 7,134
Depreciation and
amortization (3) ................. 10,605 10,784
Ratio of earnings to fixed
charges (4) ...................... N/A N/A
OTHER NON-GAAP FINANCIAL
DATA:
EBITDA (5) ........................ $ (2,562) $ 5,745
Ratio of EBITDA to cash
interest expense (5)(2) .......... N/A 0.5x
</TABLE>
<TABLE>
<CAPTION>
AS OF
DECEMBER 31, 1997
------------------
<S> <C>
BALANCE SHEET DATA:
Cash and cash equivalents .................... $ 4,687
Working capital .............................. 125,793
Property, plant and equipment, net ........... 372,718
Total assets ................................. 673,051
Total indebtedness (6) ....................... 406,474
Total shareholders' equity (deficit) ......... 65,056
</TABLE>
(Footnotes on next page)
18
<PAGE>
- ----------
(1) Material differences between EBITDA and net cash provided by or used in
operating activities may occur because of the inherent differences in
each such calculation including (a) the change in operating assets and
liabilities between the beginning and end of each period, as well as
certain non-cash items which are considered when presenting net cash
provided by or used in operating activities but are not used when
calculating EBITDA and (b) interest expense and provision for income
taxes which are included when presenting net cash provided by or used in
operating activities but are not included in the calculation of EBITDA.
(2) Cash interest expense excludes (i) the amortization of debt issuance cost
of $1,241, $264, $3,320, $3,534, $3,560, $3,571, $889, and $631 for the
eight months ended August 1993, the one month ended September 1993,
Fiscal 1994, 1995, 1996, 1997, the three month December 1996 period and
the three month December 1997 period, respectively, and (ii) $28,702 of
payment-in-kind interest in the eight months ended August 1993.
(3) Depreciation and amortization excludes amortization of deferred financing
costs which are included in interest expense.
(4) For purposes of calculating the ratio of earnings to fixed charges,
earnings consist of income before provision for income taxes plus fixed
charges. Fixed charges consist of interest expense (including the
amortization of debt issuance costs) plus that portion of rental payments
on operating leases deemed representative of the interest factor.
Earnings were not sufficient to cover fixed charges in the eight months
ended August 1993, Fiscal 1997 and the three months ended December 1996
and 1997 periods in the amount of $20,750, $76,803, $23,357 and $12,706,
respectively.
(5) EBITDA represents income from operations before interest expense,
provision for income taxes, depreciation and amortization, loss on asset
disposal and impairment, restructuring expense and gain on the Sweetheart
Bakery Disposition incurred in the three month December 1997 period in
the amount of $3,459. EBITDA is generally accepted as providing
information regarding a company's ability to service debt. EBITDA should
not be considered in isolation or as a substitute for net income, cash
flows from operations, or other income or cash flow data prepared in
accordance with generally accepted accounting principles or as a measure
of a company's profitability or liquidity. In addition, although the
EBITDA measure of performance is not recognized under generally accepted
accounting principles, it is widely used by companies as a measure of
operating performance because it assists in comparing performance on a
relatively consistent basis across companies without regard to
depreciation and amortization, which can vary significantly depending on
accounting methods (particularly where acquisitions are invloved) or
non-operating factors such as historical cost bases. Because EBITDA is
not calculated identically by all companies, the presentation herein may
not be comparable to other similarly titled measures of other companies.
(6) Total indebtedness includes short-term and long-term borrowings and
current maturities of long-term debt.
19
<PAGE>
RISK FACTORS
Holders of the Old Notes should carefully consider the following matters,
as well as the other information contained in this Prospectus, before deciding
to tender their Old Notes in the Exchange Offer.
HOLDING COMPANY STRUCTURE AND RELATED CONSIDERATIONS
SF Holdings is a holding company that conducts all of its operations
through Sweetheart and Fonda, and therefore does not have any material cash
flows independent of Sweetheart and Fonda. The instruments governing the
indebtedness of Sweetheart and Fonda (the "Subsidiary Debt Instruments")
contain numerous restrictive covenants which restrict Sweetheart and Fonda's
ability to pay dividends or make other distributions to SF Holdings. In
addition, the payment of dividends and other distributions by Sweetheart or
Fonda may be restricted by applicable law. Therefore, in order to generate
sufficient cash flow to meet SF Holdings' debt obligations, including the
principal amount at maturity on the New Notes, cash interest when due,
redeeming the New Notes or repurchasing the New Notes upon the occurrence of a
Change of Control or otherwise, the Company will be required to refinance the
New Notes and/or the Subsidiary Debt Instruments. There can be no assurance
that the Company will be able to do so or the assets of the Company would be
sufficient to enable the Company to make any payments in respect of the New
Notes when required. See "Description of Certain Indebtedness."
Any right of the Company and its creditors, including holders of the
Notes, to participate in the assets of Sweetheart, Fonda or any other
subsidiary of the Company upon any liquidation or reorganization of any such
subsidiary will be subject to the prior claims of that subsidiary's creditors,
including the trade creditors. Accordingly, the New Notes will be effectively
subordinated to all liabilities, including trade payables, of the subsidiaries
of the Company.
SUBSTANTIAL LEVERAGE; ABILITY TO SERVICE INDEBTEDNESS; LIQUIDITY
Since the issuance of the Units, each of SF Holdings, Sweetheart and Fonda
has become highly leveraged. As of January 25, 1998, after giving pro forma
effect to the Transactions, the Company would have had total consolidated
indebtedness of $604.2 million consisting of the Notes, $122.7 million of
indebtedness at Fonda and $406.5 of indebtedness at Sweetheart. In addition, as
of January 31, 1998, Sweetheart and Fonda would have had $6.7 million and $40.6
million, respectively, of additional borrowings available under their
respective credit facilities. Moreover, the Company's indebtedness will
increase as a result of the accretion of original issue discount on the Notes.
See "Capitalization." For the twelve months ended January 25, 1998, after
giving pro forma effect to the Transactions, the Company's ratio of EBITDA to
total interest expense would have been 1.2x.
The significant indebtedness outstanding of SF Holdings, Sweetheart and
Fonda may have several important consequences to the holders of the New Notes,
including, but not limited to, the following: (i) the Company's ability to
obtain additional financing in the future for working capital, capital
expenditures, acquisitions or for other purposes may be impaired; (ii) the
Company's flexibility to expand, make capital expenditures and respond to
changes in the industry and economic conditions generally may be limited; (iii)
the Subsidiary Debt Instruments contain, and the Indenture will contain,
numerous financial and other restrictive covenants, including, among other
things, limitations on the ability of the Company to incur additional
indebtedness, to create liens and other encumbrances, to make certain payments
and investments, to sell or otherwise dispose of assets, to reinvest asset sale
proceeds, if any, or to merge or consolidate with another entity, the failure
to comply with which may result in an event of default, which, if not cured or
waived, could have a material adverse effect on the Company; and (iv) the
ability of the Company to satisfy its obligations pursuant to its indebtedness,
including pursuant to the Indenture, may be impaired. See "Management's
Discussion and Analysis of Results of Operations and Financial Condition." In
addition, SF Holdings has no credit facility to draw upon in order to obtain
additional financing, if necessary.
Due in part to seasonally low cash flows from operations in the first and
second fiscal quarters and reduced profitability in the prior fiscal year,
Sweetheart's available borrowings under its credit facilities as of January 31,
1998 were substantially limited pursuant to the borrowing base formulas set
forth therein.
20
<PAGE>
The inability of Sweetheart to increase available borrowings through the
production of inventory and accounts receivable or otherwise could have a
material adverse effect on the Company. In addition, due to the Company's high
leverage, there can be no assurance that the Company would have access to
alternative sources of liquidity.
INDENTURE AND CREDIT FACILITY RESTRICTIONS
The Subsidiary Debt Instruments contain, and the Indenture contains,
numerous restrictive covenants including, among other things, limitations on
the ability of Sweetheart, Fonda and the Company, as the case may be, to incur
additional indebtedness, to create liens and other encumbrances, to make
certain payments and investments, to sell or otherwise dispose of assets, or to
merge or consolidate with another entity. The Fonda Credit Facility (as defined
herein) and Sweetheart Credit Facilities (as defined herein) also require each
respective entity to meet certain financial tests. Fonda, Sweetheart or the
Company's failure to comply with their respective obligations under the
Subsidiary Debt Instruments or the Indenture, as the case may be, or under
agreements relating to indebtedness incurred in the future, could result in an
event of default under such agreements, which could permit acceleration of the
related indebtedness and acceleration of indebtedness under other financing
arrangements that may contain cross-acceleration or cross-default provisions.
In addition, because the Subsidiary Debt Instruments limit, and the Indenture
limits, the ability of Fonda, Sweetheart and the Company, as the case may be,
to engage in certain transactions except under certain circumstances, Fonda,
Sweetheart and the Company may be prohibited from entering into transactions
that could be beneficial to the Company. Furthermore, the Subsidiary Debt
Instruments permit certain transactions with affiliates so long as such
transactions are negotiated on an arm's length basis and are on terms at least
as favorable as those which could otherwise have been obtained from unrelated
third parties. See "--Realization of Benefits from Sweetheart Investment,"
"Description of New Notes" and "Description of Certain Indebtedness."
CHANGE OF CONTROL PROVISIONS
Upon the occurrence of a Change of Control, the Company will be required
to offer to repurchase each holder's New Notes at a price equal to 101% of the
aggregate principal amount thereof, plus accrued and unpaid interest and
Liquidated Damages thereon, if any, to the date of repurchase (or, in the case
of repurchases of Notes prior to March 15, 2003, at a repurchase price equal to
101% of the Accreted Value thereof, plus Liquidated Damages thereon, if any, as
of the date of repurchase). The Company does not have, and may not in the
future have, any assets other than the Capital Stock of Sweetheart and Fonda.
The Subsidiary Debt Instruments limit Sweetheart and Fonda's respective ability
to make payments to the Company. As a result, the ability of the Company to
repurchase the New Notes upon a Change of Control will be dependent on the
Company's ability to refinance the indebtedness under the New Notes or the
Subsidiary Debt Instruments. If the Company is unable to refinance the
indebtedness under the New Notes or the Subsidiary Debt Instruments, the
Company will likely not have the financial resources to repurchase New Notes
upon the occurrence of a Change of Control. In addition, the requirement to
repurchase the New Notes upon a Change of Control may discourage persons from
making a tender offer for or a bid to acquire the Company. In addition, the
Subsidiary Debt Instruments contain similar change of control provisions. As a
result, following a Change of Control, Sweetheart and Fonda, as the case may
be, may be required to offer to repurchase all indebtedness under their
respective indentures. See "The Sweetheart Investment;" "Description of New
Notes--Repurchase at the Option of Holders--Change of Control" and "Description
of Certain Indebtedness."
ORIGINAL ISSUE DISCOUNT; LIMITATIONS ON HOLDERS' CLAIMS
The New Notes will be issued at a substantial original issue discount from
their principal amount at maturity. Consequently, purchasers of the New Notes
will be required to include amounts in gross income for federal income tax
purposes in advance of receipt of the cash payment to which the income is
attributable. See "Certain Federal Income Tax Consequences" for more detailed
discussions of the federal income tax consequences to the purchasers of the New
Notes resulting from the purchase, ownership or disposition thereof.
21
<PAGE>
Under the Indenture, in the event of an acceleration of the maturity of
the New Notes upon the occurrence of an Event of Default (as defined herein),
the holders of the New Notes may be entitled to recover only the amount which
may be declared due and payable pursuant to the Indenture, which will be less
than the principal amount at maturity of such New Notes. See "Description of
New Notes--Events of Default and Remedies."
If a bankruptcy case is commenced by or against the Company under the
Bankruptcy Code, the claim of a holder of New Notes with respect to the
principal amount thereto may be limited to an amount equal to the sum of (i)
the issue price of the New Notes as set forth on the cover page hereof and (ii)
that portion of the original issue discount (as determined on the basis of such
issue price) which is not deemed to constitute "unmatured interest" for
purposes of the Bankruptcy Code (as defined herein). In addition, there can be
no assurance that bankruptcy court would compute the accrual of interest under
the same rules as those used for the calculation of original issue discount
under federal income tax law and, accordingly, a holder might be required to
recognize gain or loss in the event of a distribution related to such
bankruptcy case.
DEPENDENCE ON CERTAIN CUSTOMERS
The Company has a number of large national accounts which account for a
significant portion of its revenue. In Fiscal 1997, each of Sweetheart and
Fonda's five largest customers represented approximately 35% and 17%,
respectively, of its net sales. No single customer of Fonda accounted for more
than 10.0% of net sales in Fiscal 1997. One customer of Sweetheart, McDonald's,
accounted for 13.7% of net sales of Sweetheart in Fiscal 1997. In the fourth
quarter of Fiscal 1997, Sweetheart completed negotiations of a three-year
contract renewal with its largest customer, McDonald's. This agreement results
in a lower selling price and less total volume, thereby resulting in lower
margins. The loss of one or more large national customers could adversely
affect the Company's operating results. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations--Sweetheart Liquidity
and Capital Resources" and "Business--Marketing and Sales."
SUPPLY AND PRICING OF RAW MATERIALS
The Company purchases solid bleached sulfate ("SBS") paperboard, plastic
resin and paper tissue stock, among other raw materials, for the production of
its products. Although the Company believes that current sources of supply for
its raw materials are adequate to meet its requirements, occasional periods of
short supply of certain raw materials may occur. Some of the Company's
competitors own or control sources of supply and may, therefore, have better
access to such raw materials during periods of short supply. In addition,
prices for the Company's raw materials fluctuate. When raw materials prices
decrease, the Company's selling prices have historically decreased. Conversely,
when raw materials prices increase, the Company's selling prices have
historically increased. The actual impact on the Company of raw materials price
changes is affected by a number of factors including the level of inventories
at the time of a price change, the specific timing and frequency of price
changes, and the lead and lag time that generally accompanies the
implementation of both raw materials and subsequent selling price changes. In
the event raw materials prices decrease over a period of several months, the
Company's profit margins may be adversely affected. See "Management's
Discussion and Analysis of Financial Condition and Results of Operations."
REALIZATION OF BENEFITS FROM SWEETHEART INVESTMENT
There can be no assurance that the Company will be able to realize the
benefits it expects to achieve as a result of the Sweetheart Investment.
Management has not previously had responsibility for day-to-day operations of a
company as large as Sweetheart. The realization of potential benefits from the
Sweetheart Investment could be adversely affected by a number of factors, some
of which are not in the Company's control, including the ability of the Company
to achieve cost savings and other synergies as a result of, among other things,
the limitations under the Subsidiary Debt Instruments, the ability of the
Company's existing management and systems infrastructure to absorb the
increased operations, the response of competition and general economic
conditions. In addition, the implementation of the
22
<PAGE>
Company's strategy could result in one-time operating charges, which could
impair the Company's liquidity. See "--Substantial Leverage; Ability to Service
Indebtedness; Liquidity." In addition, pursuant to the Subsidiary Debt
Instruments, transactions with affiliates, including transactions between and
among SF Holdings, Sweetheart and/or Fonda, must be negotiated on terms at
least as favorable as those which could otherwise have been obtained from
unrelated third parties, which may limit the Company's ability to fully realize
the cost savings and synergies expected to be achieved as a result of the
Sweetheart Investment. See "Business--General."
MANAGEMENT INFORMATION SYSTEMS
Sweetheart is in the process of implementing new management information
systems that affect broad aspects of its operations. There can be no assurance
that such systems will be implemented successfully or that implementation of
such systems will not result in a disruption of Sweetheart's operations. The
failure to successfully implement such systems could have a material adverse
effect on the Company.
SEASONALITY
The Company's business is highly seasonal with a majority of its net cash
flow from operations realized in the second and third quarters of the calendar
year. The Company builds its inventory throughout the year to satisfy the high
seasonal demands of the summer months when outdoor and away-from-home
consumption increases. In the event cash flow from operations is insufficient
to provide working capital necessary to fund production requirements during
these quarters, Fonda and Sweetheart will need to borrow under their respective
credit facilities or seek other sources of capital. Although the Company
believes that funds available under the Fonda Credit Facility and Sweetheart
Credit Facilities, together with cash generated from operations, will be
adequate to provide for each company's respective cash requirements, there can
be no assurance that such capital resources will be sufficient in the future.
See "Management's Discussion and Analysis of Financial Condition and Results of
Operations--Introduction; --Fonda Liquidity and Capital Resources and
- --Sweetheart Liquidity and Capital Resources."
HIGHLY COMPETITIVE INDUSTRY
The disposable food service products industry is fragmented and highly
competitive. The Company's competitors include large, vertically integrated,
multinational companies as well as regional manufacturers. The Company's
competitors also include those who compete across the full line of the
Company's products, as well as companies that compete against a limited number
of the Company's products. Some of the Company's competitors have greater
financial and other resources than the Company. See "Business--Competition."
VOTING OWNERSHIP OF SWEETHEART
The Sweetheart Stockholders own 52% of the total outstanding Sweetheart
Class A Common Stock and thereby control the vote on matters submitted to the
stockholders of Sweetheart. In addition, the Sweetheart Stockholders have the
right to nominate and elect three of the five members of Sweetheart's Board of
Directors. See "The Sweetheart Investment."
CONTROL BY PRINCIPAL STOCKHOLDER
Dennis Mehiel, the Chairman of the Board of Directors and Chief Executive
Officer of the Company, beneficially owns approximately 80.0% of the
outstanding shares of the Company's Common Stock on a fully diluted basis
(approximately 90.0% of the outstanding shares of the Company's Class A Common
Stock on a fully diluted basis). See "Principal Stockholders." As a result, Mr.
Mehiel controls the Company and has the power to elect the entire board of
directors, appoint new management and approve any other action requiring the
approval of the holders of the Company's stock, including adopting certain
amendments to the Company's certificate of incorporation and approving mergers
or sales of all of the Company's assets. See "Principal Stockholders" and
"Description of Capital Stock."
23
<PAGE>
DEPENDENCE ON KEY PERSONNEL
The Company is dependent on the retention of, and continued performance
by, its senior management, including Dennis Mehiel, Chairman and Chief
Executive Officer of the Company, and Thomas Uleau, President and Chief
Operating Officer of the Company. The Company believes that the loss of the
services of any of the senior management of the Company could have a material
adverse effect on the Company. The Company does not have employment contracts
with any of its senior management and has not obtained disability or life
insurance policies covering such executive officers. In addition, Dennis Mehiel
is also Chairman and Chief Executive Officer of Four M Corporation ("Four M")
and Dennis Mehiel and Thomas Uleau are executive officers of other affiliates
of the Company. See "Management."
LABOR MATTERS
As of March 31, 1998, approximately 22% and 87% of Sweetheart and Fonda's
hourly employees, respectively, were covered by collective bargaining
agreements. Fonda experienced a one-month work stoppage at its former Three
Rivers facility in August 1996. See "Business--Employees."
ENVIRONMENTAL MATTERS
The Company and its operations are subject to comprehensive and frequently
changing Federal, state and local environmental and occupational health and
safety laws and regulations, including laws and regulations governing emissions
of air pollutants, discharges of waste and storm water, and the disposal of
hazardous wastes. The Company is subject to liability for the investigation and
remediation of environmental contamination (including contamination caused by
other parties) at properties that it owns or operates and at other properties
where the Company or its predecessors have arranged for the disposal of
hazardous substances. As a result, the Company is involved from time to time in
administrative and judicial proceedings and inquiries relating to environmental
matters. The Company believes there are currently no pending investigations at
the Company's plants and sites relating to environmental matters. However,
there can be no assurance that the Company will not be involved in any such
proceeding in the future and that the aggregate amount of future clean up costs
and other environmental liabilities will not be material. See
"Business--Environmental Matters."
The Company cannot predict what environmental legislation or regulations
will be enacted in the future, how existing or future laws or regulations will
be administered or interpreted or what environmental conditions may be found to
exist. Enactment of more stringent laws or regulations or more strict
interpretation of existing laws and regulations could require additional
expenditures by the Company, some of which could be material.
YEAR 2000 COMPLIANCE
Each of Sweetheart and Fonda have implemented Year 2000 compliance
programs designed to ensure that each respective company's computer systems and
applications will function properly beyond 1999. The Company expects Sweetheart
and Fonda's Year 2000 date conversion programs to be substantially completed by
the end of 1999. The Company believes that adequate resources, both internal
and external, have been allocated for this purpose. Spending for these Year
2000 compliance programs, including Fiscal 1998 spending, is estimated to be
$2.7 million and $1.8 million at Sweetheart and Fonda, respectively, and will
be funded from each of the respective company's cash from operations or
borrowings under each company's respective credit facility. However, there can
be no assurance that the Company will identify all Year 2000 date conversion
problems in its computer systems in advance of their occurrence or that the
Company will be able to successfully remedy all problems that are discovered.
Failure by Sweetheart or Fonda and/or their significant vendors and customers
to complete Year 2000 compliance programs in a timely manner could have a
material adverse effect on the Company's business, financial condition and
results of operations. In addition, the revenue stream and financial stability
of existing customers may be adversely impacted by Year 2000 problems which
could cause fluctuations in the Company's revenues and operating profitability.
24
<PAGE>
ABSENCE OF PUBLIC MARKET
Prior to this Prospectus, there has been no public market for the New
Notes, and there can be no assurance that such a market will develop. In
addition, the New Notes will not be listed on any national securities exchange.
Although the New Notes are eligible for trading in the Private Offerings,
Resales and Trading through Automatic Linkages ("PORTAL") market, the New Notes
may trade at a discount from their initial offering price, depending upon
prevailing interest rates, the market for similar securities, the Company's
performance and other factors. The Initial Purchasers have made a market in the
Old Notes as permitted by applicable law and regulation; however, the Initial
Purchasers are not obligated to do so and any such market-making activities may
be discontinued at any time without notice. In addition, such market-making
activities may be limited during the Exchange Offer and, if necessary, the
pendency of a Shelf Registration Statement. Therefore, there can be no
assurance that an active market for any of the New Notes will develop after the
Company's performance of its obligations under the Registration Rights
Agreement.
FRAUDULENT TRANSFER STATUTES
Under Federal or state fraudulent transfer laws, the Notes may be
subordinated to existing or future indebtedness of the Company or found not to
be enforceable in accordance with their terms, and the pledge of the Capital
Stock of Sweetheart and Fonda owned by SF Holdings (the "Pledge") may be found
not to be enforceable in accordance with its terms. Under such statutes, if a
court were to find that, at the time (a) the Notes were issued or (b) the
Capital Stock of Sweetheart and Fonda was pledged, the Company was insolvent,
or was rendered insolvent by the issuance of the Notes and the substantially
concurrent use of the proceeds therefrom, was engaged in a business or
transaction for which the assets remaining with the Company constituted
unreasonably small capital, intended to incur, or believed that it would incur,
debts beyond its ability to pay such debts as they matured, or intended to
hinder, delay or defraud its creditors, such court could void the Company's
obligations under the Notes and the Pledge, or subordinate the Notes and the
Pledge to all other indebtedness of the Company. In such event, there can be no
assurance that any repayment of the Notes could ever be recovered by holders of
the Notes.
For purposes of the foregoing, the measure of insolvency varies depending
upon the law of the jurisdiction which is being applied. Generally, however,
the Company would be considered to have been insolvent at the time the Notes
and Pledge were issued if the sum of its debts was, at that time, greater than
the sum of the value of all of its property at a fair valuation, or if the then
fair saleable value of its assets was less than the amount that was then
required to pay its probable liability on its existing debts as they became
absolute and matured. There can be no assurance as to what standard a court
would apply in order to determine whether the Company was insolvent as of the
date the Notes and the Pledge were issued, or that, regardless of the method of
valuation, a court would not determine that the Company was insolvent on that
date, or that, regardless of whether the Company was insolvent on the date the
Notes and the Pledge were issued, that the issuances constituted fraudulent
transfers on another of the grounds summarized above.
FORWARD-LOOKING STATEMENTS
Certain of the matters discussed in this Prospectus may constitute
forward-looking statements, and as such may involve known and unknown risks,
uncertainties and other factors which may cause the actual results, performance
or achievements of the Company to be materially different from future results,
performance or achievements expressed or implied by such forward looking
statements. Important factors that could cause the actual results, performance
or achievements of the Company to differ materially from the Company's
expectations are disclosed in this Prospectus ("Cautionary Statements"),
including, without limitation, those statements made in conjunction with the
forward-looking statements included under "Risk Factors" and otherwise herein.
All written forward looking statements attributable to the Company are
expressly qualified in their entirety by the Cautionary Statements.
25
<PAGE>
CONSEQUENCES OF FAILURE TO EXCHANGE
Holders of Old Notes who do not exchange their Old Notes for New Notes
pursuant to the Exchange Offer will continue to be subject to the restrictions
on transfer of such Old Notes as set forth in the legend thereon as a
consequence of the issuance of the Old Notes pursuant to exemptions from, or in
transactions not subject to, the registration requirements of the Securities
Act and applicable state securities laws. In general, the Old Notes may not be
offered or sold, unless registered under the Securities Act, except pursuant to
an exemption from, or in a transaction not subject to, the Securities Act and
applicable state securities laws. The Company does not currently anticipate
that it will register the Old Notes under the Securities Act. New Notes issued
pursuant to the Exchange Offer in exchange for Old Notes may be offered for
resale, resold or otherwise transferred by Holders thereof (other than any such
holder which is an "affiliate" of the Company within the meaning of Rule 405
under the Securities Act) without compliance with the registration and
prospectus delivery provisions of the Securities Act provided that such New
Notes are acquired in the ordinary course of such holders' business and such
holders have no arrangement with any person to participate in the distribution
of such Notes. Each broker-dealer that receives New Notes for its own account
pursuant to the Exchange Offer must acknowledge that it will deliver a
prospectus in connection with any resale of such New Notes. The Letter of
Transmittal states that, by so acknowledging and by delivering a prospectus, a
broker-dealer will not be deemed to admit that it is an "underwriter" within
the meaning of the Securities Act. This Prospectus, as it may be amended or
supplemented from time to time, may be used by a broker-dealer in connection
with resales of New Notes received in exchange for Old Notes where such Old
Notes were acquired by such broker-dealer as a result of market-making
activities or other trading activities. The Company has agreed that, for a
period 270 days after the effective date of the Exchange Offer Registration
Statement (as defined herein), it will make this Prospectus available to any
broker-dealer for use in connection with any such resale. See "Plan of
Distribution." However, to comply with the securities laws of certain
jurisdictions, if applicable, the New Notes may not be offered or sold unless
they have been registered or qualified for sale in such jurisdictions or an
exemption from registration or qualification is available and is complied with.
To the extent that Old Notes are tendered and accepted in the Exchange Offer,
the trading market for untendered and tendered but unaccepted Old Notes will be
adversely affected.
26
<PAGE>
THE SWEETHEART INVESTMENT
In connection with the Sweetheart Investment, the Company acquired all of
the outstanding capital stock of Fonda in a merger of a subsidiary of the
Company into Fonda, and the stockholders of Fonda became the stockholders of
the Company.
On March 12, 1998, the Investment Agreement was consummated and SF
Holdings acquired 48% of the Sweetheart Class A Common Stock and 100% of the
Sweetheart Class B Common Stock, representing 90% of the total outstanding
common stock of Sweetheart. The aggregate purchase price consisted of $88.0
million in cash, a $7.0 million Demand Note and $30.0 million of Exchangeable
Preferred Stock. See "Description of Capital Stock--Preferred Stock."
Pursuant to the Investment Agreement, Sweetheart has agreed to indemnify
the Sweetheart Stockholders and their respective affiliates and, if applicable,
their respective directors, officers, shareholders, partners, attorneys,
accountants, agents and employees for claims relating to or arising out of the
ownership by the Sweetheart Stockholders of the capital stock of Sweetheart or
the operation by Sweetheart and its subsidiaries of the respective businesses,
regardless of when they arose and regardless of by whom or when asserted. The
foregoing indemnification obligation has no dollar limitation with respect to
such obligation.
The Demand Note was satisfied in full immediately following the
consummation of the Sweetheart Investment.
Upon consummation of the Sweetheart Investment, the Company entered into
certain agreements with the Sweetheart Stockholders concerning their respective
interests in Sweetheart (the "Sweetheart Stockholders' Agreement") and their
respective interests in the Company (the "SF Holdings Registration Rights
Agreement").
Pursuant to the Sweetheart Stockholders' Agreement, the Sweetheart
Stockholders are entitled to nominate three members to the board of directors
of Sweetheart and the Company is entitled to nominate two members. The
Sweetheart Stockholders and the Company have agreed to vote all their shares of
Sweetheart Common Stock in favor of such nominees. In addition, the Sweetheart
Stockholders, following the fifth anniversary of the consummation of the
Sweetheart Investment, have the right to exchange their shares of Sweetheart
Class A Common Stock for warrants (the "Exchange Warrants") to purchase, for
nominal consideration, shares of Class C Common Stock of the Company
representing 10% of the total outstanding shares of common stock of the Company
at the consummation of the Sweetheart Investment on a fully diluted basis. The
Company has the right to cause such exchange and has the right to thereafter
repurchase the Exchange Warrants, in whole or in part, for an aggregate call
price of $50.0 million, subject to increase at 12.5% per annum until the fifth
anniversary of the consummation of the Sweetheart Investment. Upon the
occurrence of a merger (as defined in the Sweetheart Stockholders' Agreement),
the Sweetheart Stockholders will be required to exchange their shares of
Sweetheart Class A Common Stock for the Exchange Warrants. In addition, in the
event the Company proposes to sell shares of Sweetheart Class A Common Stock or
Sweetheart Class B Common Stock in an amount greater than 30% of the
outstanding shares of Sweetheart Common Stock, the Sweetheart Stockholders will
have the right to participate in such sale. In the event the Company proposes
to sell shares of Sweetheart Common Stock in an amount greater than 30% of the
outstanding shares of Sweetheart Common Stock, then the Company will have the
right to require the Sweetheart Stockholders to sell all, but not less than
all, of their shares of Sweetheart Common Stock. The Sweetheart Stockholders
have also agreed not to transfer or pledge their shares of Sweetheart Class A
Common Stock, subject to certain exceptions as described above.
Pursuant to the SF Holdings Registration Rights Agreement, the Company has
agreed to file a registration statement registering the securities of SF
Holdings received by the Sweetheart Stockholders upon consummation of the
Sweetheart Investment no later than the 90th day thereafter. The Sweetheart
Stockholders have agreed not to sell any such securities for a specified period
of time prior to and after a public offering of the Company's Common Stock. In
addition, after the issuance of the Exchange Warrants, upon the request of the
Sweetheart Stockholders, the Company will file a registration statement
registering the Exchange Warrants and the shares of Class C Common Stock
underlying such warrants.
27
<PAGE>
Pursuant to the Investment Agreement, the by-laws of Sweetheart and its
subsidiaries were amended immediately prior to the consummation of the
Sweetheart Investment (i) to fix its board of directors at five members, (ii)
to provide for the presence of four directors to constitute a quorum and (iii)
to require approval of four directors for the following matters, among others
(a) a merger, consolidation or other combination of Sweetheart with or into
another entity, (b) the sale of all or a material portion of the assets of
Sweetheart, (c) the entering into of any new line of business by Sweetheart,
(d) the issuance or repurchase by Sweetheart of any equity securities, (e) the
incurrence by Sweetheart of any indebtedness for money borrowed or the
refinancing of any existing indebtedness of Sweetheart, (f) approval of the
annual business plans and operating budgets of Sweetheart, (g) the termination
or modification of any of the terms of the Management Services Agreement, (h)
the amendment or modification of any provisions of the certificate of
incorporation of Sweetheart, (i) the selection of Sweetheart's chief executive
officer, chief operating officer and chief financial officer, (j) any change of
accountants and (k) the removal of officers of Sweetheart.
In addition, immediately prior to the consummation of the Sweetheart
Investment, Dennis Mehiel, Thomas Uleau and Hans Heinsen were appointed Chief
Executive Officer, Chief Operating Officer and Chief Financial Officer,
respectively, of Sweetheart. Pursuant to the Investment Management Agreement,
in the event of the disability of Dennis Mehiel, the Chief Operating Officer
shall automatically replace him as Chief Executive Officer.
The Sweetheart Stockholders also received the same number of shares of
Class C Common Stock, on a pro rata basis, as were offered pursuant to the
issuance of the Units.
Upon consummation of the Sweetheart Investment, American Industrial
Partners Management Company, Inc. ("AIPM"), an affiliate of American Industrial
Partners, L.P. ("AIP"), assigned to the Company certain of its rights under the
restated management services agreement, dated August 31, 1993 (the "1993
Management Services Agreement"), pursuant to which AIPM provided management
services to Sweetheart and received fees of $1.85 million per annum. Following
the assignment of the 1993 Management Services Agreement, such Agreement (the
"Management Services Agreement") was amended and its term was extended through
March 12, 2008. Following the consummation of the Sweetheart Investment, SF
Holdings assigned substantially all of its rights under the Management Services
Agreement to Fonda in consideration for the payment of $7.0 million. During the
term of the Management Services Agreement, Fonda has the right, subject to the
direction of the board of directors of Sweetheart, to manage Sweetheart's
day-to-day operations for and on behalf of Sweetheart, including but not
limited to, the right to cause Sweetheart to (i) acquire and dispose of assets;
(ii) employ, determine compensation of and terminate employees of Sweetheart
other than the Chief Executive Officer, Chief Operating Officer and Chief
Financial Officer; and (iii) take all other actions associated with the
management of the day-to-day operations of the business of Sweetheart. For the
first three years after the consummation of the Sweetheart Investment, AIPM
will continue to provide certain financial advisory services to Sweetheart for
which it will receive fees of $925,000, $740,000 and $555,000 in respect of the
first, second and third years, respectively. In consideration of SF Holdings'
performance of certain administrative services, it will receive fees of
$200,000 per annum throughout the term of the Management Services Agreement. In
consideration of Fonda's performance of services, it will receive fees of
$725,000, $910,000 and $1,095,000 in the first, second and third years,
respectively, following the consummation of the Sweetheart Investment, and
$1,650,000 per annum throughout the remaining term of the Management Services
Agreement.
28
<PAGE>
USE OF PROCEEDS
There will be no proceeds to the Company from the exchange pursuant to the
Exchange Offer. The net proceeds from the issuance of the Units were used as
follows:
<TABLE>
<CAPTION>
(DOLLARS IN MILLIONS)
<S> <C>
SOURCES OF FUNDS:
Units .................................... $ 77.5
Exchangeable Preferred Stock ............. 30.0
SF Holdings equity investment(1) ......... 15.0
Demand Note(2) ........................... 7.0
-------
TOTAL ................................... $ 129.5
=======
USES OF FUNDS:
Purchase of Sweetheart Equity:
Cash .................................... $ 88.0
Exchangeable Preferred Stock ............ 30.0
Demand Note(2) .......................... 7.0
Fees and expenses ........................ 4.5
-------
TOTAL ................................... $ 129.5
=======
</TABLE>
- ----------
(1) An affiliate of Dennis Mehiel made a capital investment in SF Holdings of
$15.0 million in cash in exchange for shares of Class B Series 1
Preferred (as defined herein). See "Description of Capital Stock."
(2) The Demand Note was satisfied in full immediately following the
consummation of the Sweetheart Investment. See "The Sweetheart
Investment."
29
<PAGE>
THE EXCHANGE OFFER
PURPOSE AND EFFECTS
The Units, comprised of the Old Notes and the Shares, were sold by the
Company on March 12, 1998 to the Initial Purchasers, who resold the Units to
"qualified institutional buyers" (as defined in Rule 144A under the Securities
Act) and other institutional "accredited investors" (as defined in Rule 501(a)
under the Securities Act). In connection with the sale of the Old Notes, the
Company and the Initial Purchasers entered into a Registration Rights Agreement
dated as of March 12, 1998 (the "Registration Rights Agreement") pursuant to
which the Company agreed to file with the Commission a registration statement
(the "Exchange Offer Registration Statement") with respect to an offer to
exchange the Old Notes for New Notes within 45 days following the closing date
of the issuance of the Old Notes. In addition, the Company agreed to use its
best efforts to cause the Exchange Offer Registration Statement to become
effective under the Securities Act and to issue the New Notes pursuant to the
Exchange Offer. A copy of the Registration Rights Agreement has been filed as
an exhibit to the Exchange Offer Registration Statement.
The Exchange Offer is being made pursuant to the Registration Rights
Agreement to satisfy the Company's obligations thereunder. For purposes of the
Exchange Offer, the term "Eligible Holder" shall mean the registered owner of
any Old Notes that remain Transfer Restricted Securities, as reflected on the
records of The Bank of New York as registrar for the Old Notes (in such
capacity, the "Registrar"), or any person whose Old Notes are held of record by
the depository of the Old Notes. The Company is not required to include any
securities other than the New Notes in the Exchange Offer Registration
Statement. Holders of Old Notes who do not tender their Old Notes or whose Old
Notes are tendered but not accepted would have to rely on exemptions from
registration requirements under the securities laws, including the Securities
Act, if they wish to sell their Old Notes.
Based on interpretations by the staff of the Commission set forth in
no-action letters issued to third parties unrelated to the Company, the Company
believes that the New Notes issued pursuant to the Exchange Offer in exchange
for Old Notes may be offered for resale, resold and otherwise transferred by
any holder of such New Notes (other than a person that is an "affiliate" of the
Company within the meaning of Rule 405 under the Securities Act and except as
set forth in the next paragraph) without compliance with the registration and
prospectus delivery provisions of the Securities Act, provided that such New
Notes are acquired in the ordinary course of such holder's business and such
holder is not participating and does not intend to participate, and has no
arrangement or understanding with any person to participate, in the
distribution of such New Notes.
If any person were to be participating in the Exchange Offer for the
purpose of distributing securities in a manner not permitted by the
Commission's interpretation, (i) the position of the staff of the Commission
enunciated in interpretive letters would be inapplicable to such person and
(ii) such person would be required to comply with the registration and
prospectus delivery requirements of the Securities Act in connection with any
resale transaction. Each broker-dealer that receives New Notes for its own
account in exchange for Old Notes, where such Old Notes were acquired by such
broker-dealer as a result of market-making activities or other trading
activities, must acknowledge that it will deliver a prospectus in connection
with any resale of such New Notes. See "Plan of Distribution."
The Exchange Offer is not being made to, nor will the Company accept
surrenders for exchange from, holders of Old Notes in any jurisdiction in which
the Exchange Offer or the acceptance thereof would not be in compliance with
the securities or blue sky laws of such jurisdiction. Prior to the Exchange
Offer, however, the Company will use its best efforts to register or qualify
the New Notes for offer and sale under the securities or blue sky laws of such
jurisdictions as is necessary to permit consummation of the Exchange Offer and
do any and all other acts or things necessary or advisable to enable the offer
and sale in such jurisdictions of the New Notes.
TERMS OF THE EXCHANGE OFFER
Upon the terms and subject to the conditions set forth in this Prospectus
and in the accompanying Letter of Transmittal, the Company will accept any and
all Old Notes validly tendered prior to 5:00 p.m.,
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<PAGE>
New York City time, on the Expiration Date (as defined below). The Company will
issue up to $144,000,000 aggregate principal amount at maturity of New Notes in
exchange for a like principal amount of outstanding Old Notes which are validly
tendered and accepted in the Exchange Offer. Subject to the conditions of the
Exchange Offer described below, the Company will accept any and all Old Notes
which are so tendered. Holders may tender some or all of their Old Notes
pursuant to the Exchange Offer; however, the Old Notes may be tendered only in
multiples of $1,000. See "Description of New Notes."
The form and terms of the New Notes will be the same in all material
respects as the form and terms of the Old Notes, except that (i) the New Notes
will be registered under the Securities Act and hence will not bear legends
restricting the transfer thereof, (ii) because the New Notes will be
registered, holders of the New Notes will not be entitled to Liquidated Damages
which would have been payable under the terms of the Registration Rights
Agreement in respect of Old Notes constituting Transfer Restricted Securities
held by such holders during any period in which a Registration Default was
continuing and (iii) because the New Notes will be registered, holders of New
Notes will not be, and upon the consummation of the Exchange Offer, Eligible
Holders of Old Notes will no longer be, entitled to certain rights under the
Registration Rights Agreement intended for the holders of unregistered
securities.
Holders of Old Notes do not have any appraisal or dissenters' rights under
the General Corporation Law of the State of Delaware or the Indenture in
connection with the Exchange Offer. The Company intends to conduct the Exchange
Offer in accordance with the provisions of the Registration Rights Agreement.
Old Notes which are not tendered for exchange or are tendered but not accepted
in the Exchange Offer will remain outstanding and be entitled to the benefits
of the Indenture, but will not be entitled to any registration rights under the
Registration Rights Agreement.
The Company shall be deemed to have accepted validly tendered Old Notes
when, as and if the Company has given oral or written notice thereof to the
Exchange Agent for the Exchange Offer. The Exchange Agent will act as agent for
the tendering holders for the purposes of receiving the New Notes from the
Company.
If any tendered Old Notes are not accepted for exchange because of an
invalid tender, the occurrence of certain other events set forth herein or
otherwise, certificates for any such unaccepted Old Notes will be returned,
without expense, to the tendering holder thereof as promptly as practicable
after the Expiration Date.
Eligible Holders who tender Old Notes in the Exchange Offer will not be
required to pay brokerage commissions or fees or, subject to the instructions
in the Letter of Transmittal, transfer taxes with respect to the exchange of
Old Notes pursuant to the Exchange Offer. The Company will pay all charges and
expenses, other than certain applicable taxes described below, in connection
with the Exchange Offer. See "--Fees and Expenses."
EXPIRATION DATE; EXTENSION; TERMINATION; AMENDMENTS
The Exchange Offer will expire at 5:00 p.m., New York City time, on
, 1998, subject to extension by the Company by notice to the Exchange
Agent as herein provided. The Company reserves the right to so extend the
Exchange Offer at its discretion, in which event the term "Expiration Date"
shall mean the time and date on which the Exchange Offer as so extended shall
expire. The Company will notify the Exchange Agent of any extension by oral or
written notice and will make a public announcement thereof, each prior to 9:00
a.m., New York City time, on the next business day after the previously
scheduled Expiration Date.
The Company reserves the right (i) to delay accepting for exchange any Old
Notes for any New Notes or to extend or terminate the Exchange Offer and not
accept for exchange any Old Notes for any New Notes if any of the events set
forth below under the caption "Conditions of the Exchange Offer" shall have
occurred and shall not have been waived by the Company by giving oral or
written notice of such delay or termination to the Exchange Agent, or (ii) to
amend the terms of the Exchange Offer in any manner. Any such delay in
acceptance for exchange, extension or amendment will be followed as promptly as
practicable by public announcement thereof. If the Exchange Offer is amended in
a manner
31
<PAGE>
determined by the Company to constitute a material change, the Company will
promptly disclose such amendment in a manner reasonably calculated to inform
the holders of Old Notes of such amendment, and the Company will extend the
Exchange Offer for a minimum of five business days, depending upon the
significance of the amendment and the manner of disclosure to the holders of
Old Notes, if the Exchange Offer would otherwise expire during such five
business-day period. The rights reserved by the Company in this paragraph are
in addition to the Company's rights set forth below under the caption
"Conditions of the Exchange Offer."
TERMINATION OF CERTAIN RIGHTS
The Registration Rights Agreement provides that, subject to certain
exceptions, in the event of a Registration Default, Eligible Holders of Old
Notes are entitled to receive Liquidated Damages in an amount equal to 50 basis
points per annum of the Accreted Value of Old Notes for each successive 90-day
period, or any portion thereof, during which such Registration Default
continues, up to a maximum amount of 200 basis points per annum of the Accreted
Value of the Old Notes. For purposes of the Exchange Offer, a "Registration
Default" shall occur if (i) the Company fails to file any of the Registration
Statements required by the Registration Rights Agreement on or before the date
specified for such filing; (ii) any such Registration Statement is not declared
effective by the Commission on or prior to the date specified for such
effectiveness (the Effectiveness Target Date"); (iii) the Company fails to
consummate the Exchange Offer within 30 business days of the Effectiveness
Target Date with respect to the Exchange Offer Registration Statement; or (iv)
the Exchange Offer Registration Statement is declared effective but thereafter
ceases to be effective or usable in connection with the resales of the New
Notes without being succeeded immediately by a post-effective amendment to the
Exchange Offer Registration Statement that cures such failure and is
immediately declared effective. Following the cure of all Registration
Defaults, the accrual of Liquidated Damages will cease.
Holders of New Notes will not be and, upon consummation of the Exchange
Offer, Eligible Holders of Old Notes will no longer be, entitled to (i) the
right to receive Liquidated Damages or (ii) certain other rights under the
Registration Rights Agreement intended for holders of Transfer Restricted
Securities. The Exchange Offer shall be deemed consummated upon the occurrence
of the delivery by the Company to the Registrar under the Indenture of New
Notes in the same aggregate principal amount as the aggregate principal amount
of Old Notes that are tendered by holders thereof pursuant to the Exchange
Offer.
PROCEDURES FOR TENDERING
Only an Eligible Holder of Old Notes may tender such Old Notes in the
Exchange Offer. To tender in the Exchange Offer, an Eligible Holder must
complete, sign and date the Letter of Transmittal, or a facsimile thereof, have
the signatures thereon guaranteed if required by the Letter of Transmittal, and
mail or otherwise deliver such Letter of Transmittal or such facsimile,
together with the Old Notes (unless such tender is being effected pursuant to
the procedure for book-entry transfer described below) and any other required
documents, to the Exchange Agent prior to 5:00 p.m., New York City time, on the
Expiration Date.
Any financial institution that is a participant in the Depositary's
Book-Entry Transfer Facility System may make book-entry delivery of the Old
Notes by causing the Depositary to transfer such Old Notes into the Exchange
Agent's account in accordance with the Depositary's procedure for such
transfer. Although delivery of Old Notes may be effected through book-entry
transfer into the Exchange Agent's account at the Depositary, the Letter of
Transmittal (or facsimile thereof), with any required signature guarantees and
any other required documents, must, in any case, be transmitted to and received
or confirmed by the Exchange Agent at its addresses as set forth under the
caption "Exchange Agent" below prior to 5:00 p.m., New York City time, on the
Expiration Date. DELIVERY OF DOCUMENTS TO THE DEPOSITARY IN ACCORDANCE WITH ITS
PROCEDURES DOES NOT CONSTITUTE DELIVERY TO THE EXCHANGE AGENT.
32
<PAGE>
The tender by an Eligible Holder of Old Notes will constitute an agreement
between such holder and the Company in accordance with the terms and subject to
the conditions set forth herein and in the Letter of Transmittal.
The method of delivery of Old Notes and the Letter of Transmittal and all
other required documents to the Exchange Agent is at the election and risk of
the Eligible Holders. Instead of delivery by mail, it is recommended that
Eligible Holders use an overnight or hand delivery service. In all cases,
sufficient time should be allowed to assure delivery to the Exchange Agent on
or before the Expiration Date. No Letter of Transmittal or Old Notes should be
sent to the Company. Eligible Holders may request their respective brokers,
dealers, commercial banks, trust companies or nominees to effect the tenders
for such holders.
Signatures on a Letter of Transmittal or a notice of withdrawal, as the
case may be, must be guaranteed by an Eligible Institution (as defined below)
unless the Old Notes tendered pursuant thereto are tendered (i) by a registered
holder who has not completed the box entitled "Special Issuance Instructions"
or "Special Delivery Instructions" on the Letter of Transmittal, or (ii) for
the account of an Eligible Institution. In the event that signatures on a
Letter of Transmittal or a notice of withdrawal, as the case may be, are
required to be guaranteed, such guarantee must be by a member of a signature
guarantee program within the meaning of Rule 17Ad-15 under the Exchange Act (an
"Eligible Institution").
If the Letter of Transmittal or any Old Notes or bond powers are signed by
trustees, executors, administrators, guardians, attorneys-in-fact, officers of
corporations or others acting in a fiduciary or representative capacity, such
persons should so indicate when signing, and unless waived by the Company,
evidence satisfactory to the Company of their authority to so act must be
submitted with the Letter of Transmittal.
All questions as to the validity, form, eligibility (including time of
receipt) and acceptance and withdrawal of tendered Old Notes will be determined
by the Company in its sole discretion, which determination will be final and
binding. The Company reserves the absolute right to reject any and all Old
Notes not properly tendered or any Old Notes the Company's acceptance of which
might, in the judgment of the Company or its counsel, be unlawful. The Company
also reserves the right to waive any defects, irregularities or conditions of
tender as to particular Old Notes. The Company's interpretation of the terms
and conditions of the Exchange Offer (including the instructions in the Letter
of Transmittal) will be final and binding on all parties. Unless waived, any
defects or irregularities in connection with tenders of Old Notes must be cured
within such times as the Company in its sole discretion shall determine.
Although the Company intends to request the Exchange Agent to notify holders of
defects or irregularities with respect to tenders of Old Notes, neither the
Company, the Exchange Agent nor any other person shall incur any liability for
failure to give such notification. Tenders of Old Notes will not be deemed to
have been made until such defects or irregularities have been cured or waived.
Any Old Notes received by the Exchange Agent that are not properly tendered and
as to which the defects or irregularities have not been cured or waived will be
returned by the Exchange Agent to the tendering holders, unless otherwise
provided in the Letter of Transmittal, as soon as practicable following the
Expiration Date.
In addition, the Company reserves the right in its sole discretion
(subject to limitations contained in the Indenture) (i) to purchase or make
offers for any Old Notes that remain outstanding subsequent to the Expiration
Date and (ii) to the extent permitted by applicable law, to purchase Old Notes
in privately negotiated transactions or otherwise. The terms of any such
purchases or offers could differ from the terms of the Exchange Offer.
By tendering, each Eligible Holder will represent to the Company that,
among other things, the New Notes acquired pursuant to the Exchange Offer are
being obtained in the ordinary course of business by the person receiving such
New Notes, whether or not such person is the holder, and that neither the
Eligible Holder nor any such other person has an arrangement or understanding
with any person to participate in the distribution of such New Notes and that
neither the Eligible Holder nor any such other person is an "affiliate," as
defined in Rule 405 under the Securities Act, of the Company. If the holder is
33
<PAGE>
a broker-dealer that will receive New Notes for its own account in exchange for
Old Notes that were acquired as a result of market-making activities or other
trading activities, such holder by tendering will acknowledge that it will
deliver a prospectus in connection with any resale of such New Notes.
GUARANTEED DELIVERY PROCEDURES
Eligible Holders who wish to tender their Old Notes and (i) whose Old
Notes are not immediately available, or (ii) who cannot deliver their Old Notes
and other required documents to the Exchange Agent or cannot complete the
procedure for book-entry transfer prior to the Expiration Date, may effect a
tender if:
(a) The tender is made through an Eligible Institution;
(b) Prior to the Expiration Date, the Exchange Agent receives from such
Eligible Institution a properly completed and duly executed Notice of
Guaranteed Delivery (by facsimile transmission, mail or hand delivery)
setting forth the name and address of the Eligible Holder, the certificate
number(s) of such Old Notes (if available) and the principal amount of Old
Notes tendered together with a duly executed Letter of Transmittal (or a
facsimile thereof), stating that the tender is being made thereby and
guaranteeing that, within three business days after the Expiration Date,
the certificate(s) representing the Old Notes to be tendered in proper form
for transfer (or a confirmation of a book entry transfer into the Exchange
Agent's account at the Depositary of Old Notes delivered electronically)
and any other documents required by the Letter of Transmittal will be
deposited by the Eligible Institution with the Exchange Agent; and
(c) Such certificate(s) representing all tendered Old Notes in proper
form for transfer (or confirmation of a book-entry transfer into the
Exchange Agent's account at the Depositary of Old Notes delivered
electronically) and all other documents required by the Letter of
Transmittal are received by the Exchange Agent within three business days
after the Expiration Date.
Upon request to the Exchange Agent, a Notice of Guaranteed Delivery will
be sent to Eligible Holders who wish to tender their Old Notes according to the
guaranteed delivery procedures set forth above.
WITHDRAWAL OF TENDERS
Except as otherwise provided herein, tenders of Old Notes may be withdrawn
at any time prior to 5:00 p.m., New York City time, on the Expiration Date,
unless previously accepted for exchange.
To withdraw a tender of Old Notes in the Exchange Offer, a written or
facsimile transmission notice of withdrawal must be received by the Exchange
Agent at its address set forth herein prior to 5:00 p.m., New York City time,
on the Expiration Date, and prior to acceptance for exchange thereof by the
Company. Any such notice of withdrawal must (i) specify the name of the person
having deposited the Old Notes to be withdrawn (the "Depositor"), (ii) identify
the Old Notes to be withdrawn (including the certificate number or numbers and
principal amount of such Old Notes), (iii) be signed by the Depositor in the
same manner as the original signature on the Letter of Transmittal by which
such Old Notes were tendered (including any required signature guarantees) or
be accompanied by documents of transfer sufficient to have the Trustee with
respect to the Old Notes register the transfer of such Old Notes into the name
of the person withdrawing the tender, and (iv) specify the name in which any
such Old Notes are to be registered, if different from that of the Depositor.
All questions as to the validity, form and eligibility (including time of
receipt) of such withdrawal notices will be determined by the Company in its
sole discretion, whose determination shall be final and binding on all parties.
Any Old Notes so withdrawn will be deemed not to have been validly tendered for
purposes of the Exchange Offer, and no New Notes will be issued with respect
thereto unless the Old Notes so withdrawn are validly re-tendered. Any Old
Notes which have been tendered but which are not accepted for exchange or which
are withdrawn will be returned to the holder thereof without cost to such
holder as soon as practicable after withdrawal, rejection of tender or
termination of the Exchange Offer. Properly withdrawn Old Notes may be
re-tendered by following one of the procedures described above under
"Procedures for Tendering" at any time prior to the Expiration Date.
34
<PAGE>
CONDITIONS OF THE EXCHANGE OFFER
In addition, and notwithstanding any other term of the Exchange Offer, the
Company will not be required to accept for exchange any Old Notes tendered for
any New Notes and may terminate or amend the Exchange Offer as provided herein
before the acceptance of such Old Notes, if any of the following conditions
exist:
(a) Any action or proceeding is instituted or threatened in any court or
by or before any governmental agency or regulatory authority with respect
to the Exchange Offer which, in the sole judgment of the Company, might
materially impair the ability of the Company to proceed with the Exchange
Offer or have a material adverse effect on the contemplated benefits of the
Exchange Offer to the Company; or
(b) There shall have occurred any change, or any development involving a
prospective change, in the business or financial affairs of the Company,
which in the sole judgment of the Company, might materially impair the
ability of the Company to proceed with the Exchange Offer or materially
impair the contemplated benefits of the Exchange Offer to the Company; or
(c) There shall have been proposed, adopted or enacted any law, statute,
rule or regulation which, in the sole judgment of the Company, might
materially impair the ability of the Company to proceed with the Exchange
Offer or have a material adverse effect on the contemplated benefits of the
Exchange Offer to the Company; or
(d) There shall have occurred (i) any general suspension of, shortening
of hours for, or limitation on prices for, trading in securities on the New
York Stock Exchange (whether or not mandatory), (ii) a declaration of a
banking moratorium or any suspension of payments in respect of banks by
Federal or state authorities in the United States (whether or not
mandatory), (iii) a commencement of a war, armed hostilities or other
international or national crisis directly or indirectly involving the
United States, (iv) any limitation (whether or not mandatory) by any
governmental authority on, or other event having a reasonable likelihood of
affecting, the extension of credit by banks or other lending institutions
in the United States, or (v) in the case of any of the foregoing existing
at the time of the commencement of the Exchange Offer, a material
acceleration or worsening thereof.
The foregoing conditions are for the sole benefit of the Company and may
be asserted by the Company regardless of the circumstances giving rise to such
conditions or may be waived by the Company in whole or in part at any time and
from time to time in its sole discretion. If the Company waives or amends the
foregoing conditions, the Company will, if required by applicable law, extend
the Exchange Offer for a minimum of five business days from the date that the
Company first gives notice, by public announcement or otherwise, of such waiver
or amendment, if the Exchange Offer would otherwise expire within such five
business-day period. Any determination by the Company concerning the events
described above will be final and binding upon all parties.
FEES AND EXPENSES
The expenses of soliciting tenders pursuant to the Exchange Offer will be
borne by the Company. The principal solicitation for tenders pursuant to the
Exchange Offer is being made by mail; however, additional solicitation may be
made by telecopy, telephone or in person by officers and regular employees of
the Company and its affiliates.
The Company has not retained any dealer-manager in connection with the
Exchange Offer and will not make any payments to brokers, dealers or others
soliciting acceptances of the Exchange Offer. The Company, however, will pay
the Exchange Agent reasonable and customary fees for its services and will
reimburse it for its reasonable out-of-pocket expenses in connection therewith.
The Company may also pay brokerage houses and other custodians, nominees and
fiduciaries the reasonable out-of-pocket expenses incurred by them in
forwarding copies of this Prospectus, Letters of Transmittal and related
documents to the beneficial owners of the Old Notes and in handling or
forwarding tenders for exchange. The Company will pay the other expenses to be
incurred in connection with the Exchange Offer, including fees and expenses of
the Trustee, accounting and legal fees and printing costs.
35
<PAGE>
The Company will pay all transfer taxes, if any, applicable to the
exchange of Old Notes pursuant to the Exchange Offer. If, however, certificates
representing New Notes or Old Notes for principal amounts not tendered or
accepted for exchange are to be delivered to, or are to be issued in the name
of, any person other than the registered holder of the Old Notes tendered, or
if tendered Old Notes are registered in the name of any person other than the
person signing the Letter of Transmittal, or if a transfer tax is imposed for
any reason other than the exchange of Old Notes pursuant to the Exchange Offer,
then the amount of any such transfer taxes (whether imposed on the registered
holder or any other persons) will be payable by the tendering holder. If
satisfactory evidence of payment of such taxes or exemption therefrom is not
submitted with the Letter of Transmittal, the amount of such transfer taxes
will be billed directly to such tendering holder.
CERTAIN FEDERAL INCOME TAX CONSIDERATIONS
Kramer, Levin, Naftalis & Frankel, counsel to the Company, has advised the
Company that the exchange of the Old Notes for the New Notes in the Exchange
Offer should not constitute an exchange for federal income purposes.
Consequently, (i) no gain or loss should be realized by a U.S. Holder upon
receipt of a New Note; (ii) the holding period of the New Note should include
the holding period of the Old Note exchanged therefor and (iii) the adjusted
tax basis of the New Note should be the same as the adjusted tax basis of the
Old Note exchanged therefor immediately before the exchange. Even if the
exchange of an Old Note for a New Note were treated as an exchange, however,
such an exchange should constitute a tax-free recapitalization for federal
income tax purposes. Accordingly, a New Note should have the same issue price
as an Old Note and a U.S. Holder should have the same adjusted basis and
holding period in the New Note as it had in an Old Note immediately before the
exchange. As used herein, the term "U.S. Holder" means a person who is, for
United States federal income tax purposes, (i) a citizen or resident of the
United States; (ii) a corporation, partnership or other entity created or
organized in or under the laws of the United States or any political
subdivision thereof; or (iii) an estate or trust the income of which is subject
to United States federal income taxation regardless of its source.
CONSEQUENCES OF FAILURE TO EXCHANGE OLD NOTES
Generally, Eligible Holders (other than any holder who is an "affiliate"
of the Company within the meaning of Rule 405 under the Securities Act) who
exchange their Old Notes for New Notes pursuant to the Exchange Offer may offer
such New Notes for resale, resell such New Notes, and otherwise transfer such
New Notes without compliance with the registration and prospectus delivery
provisions of the Securities Act, provided such New Notes are acquired in the
ordinary course of the holders' business, and such holders have no arrangement
with any person to participate in a distribution of such New Notes. Each
broker-dealer that receives New Notes for its own account in exchange for Old
Notes, where such Old Notes were acquired by such broker-dealer as a result of
market-making activities or other trading activities, must acknowledge that it
will deliver a prospectus in connection with any resale of such New Notes. See
"Plan of Distribution." To comply with the securities laws of certain
jurisdictions, it may be necessary to qualify for sale or register the New
Notes prior to offering or selling such New Notes. Upon request by Eligible
Holders prior to the Exchange Offer, the Company will register or qualify the
New Notes in certain jurisdictions subject to the conditions in the
Registration Rights Agreement. If an Eligible Holder does not exchange such Old
Notes for New Notes pursuant to the Exchange Offer, such Old Notes will
continue to be subject to the restrictions on transfer contained in the legend
thereon and will not have the benefit of any covenant regarding registration
under the Securities Act. In general, the Old Notes may not be offered or sold,
unless registered under the Securities Act, except pursuant to an exemption
from, or in a transaction not subject to, the Securities Act and applicable
state securities laws. To the extent that Old Notes are tendered and accepted
in the Exchange Offer, a holder's ability to sell untendered Old Notes could be
adversely affected.
Participation in the Exchange Offer is voluntary and holders should
carefully consider whether to accept the Exchange Offer and tender their Old
Notes. Holders of Old Notes are urged to consult their financial and tax
advisors in making their own decisions on what action to take.
36
<PAGE>
ACCOUNTING TREATMENT
The New Notes will be recorded at the same carrying value as the Old
Notes, as reflected in the Company's accounting records on the date of the
exchange. Accordingly, no gain or loss for accounting purposes will be
recognized by the Company upon the consummation of the Exchange Offer. The
expenses of the Exchange Offer will be amortized by the Company over the term
of the New Notes.
EXCHANGE AGENT
The Bank of New York has been appointed as Exchange Agent for the Exchange
Offer. All correspondence in connection with the Exchange Offer and the Letter
of Transmittal should be addressed to the Exchange Agent, as follows:
<TABLE>
<S> <C>
By Hand or Overnight Courier: By Mail:
(registered or certified
recommended)
The Bank of New York The Bank of New York
101 Barclay Street 101 Barclay Street 7E
Corporate Trust Services Window New York, New York 10286
Ground Level Attn: Reorganization Section
New York, New York 10286
Attn: Reorganization Section
Facsimile Number (for Eligible Institutions Only and Withdrawal Notices Only):
(212) 571-3080
Confirm Receipt of Notice of Guaranteed Delivery by Telephone:
(212) 815-3687
For Information Call:
(212) 515-3687
</TABLE>
Requests for additional copies of this Prospectus or the Letter of
Transmittal should be directed to the Exchange Agent.
37
<PAGE>
CAPITALIZATION
The following table sets forth the capitalization of (i) Fonda as of
January 25, 1998 on an historical and a pro forma basis to give effect to the
Natural Dam Mill Disposition and the application of a portion of the proceeds
therefrom to repay all outstanding borrowings under the Fonda Credit Facility,
and the purchase of the Management Services Agreement from SF Holdings, (ii)
Sweetheart as of December 31, 1997 on an historical basis and (iii) the Company
on a pro forma combined basis to give effect to the Transactions. The following
table should be read in conjunction with the "Unaudited Pro Forma Combined
Condensed Financial Data" and the other financial information appearing
elsewhere in this Prospectus.
<TABLE>
<CAPTION>
JANUARY 25, 1998 DECEMBER 31, 1997
------------------------------ ------------------
FONDA FONDA SWEETHEART PRO FORMA
HISTORICAL PRO FORMA HISTORICAL ADJUSTMENTS COMBINED
------------ --------------- ------------------ -------------------- ----------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Cash and cash equivalents ........... $ 524 $ 8,745(1) $ 28,407(2) $ 37,152
======== =========== =========== ========
Long-term debt, including current
portion:
Credit facilities .................. $ 6,029 -- $ 97,258 $ 97,258
Sweetheart Secured Notes ........... -- -- 190,000 190,000
Sweetheart Subordinated Notes ...... -- -- 110,000 110,000
Fonda Notes ........................ 120,000 $ 120,000 -- 120,000
The Notes .......................... $ 75,038(3) 75,038
Other .............................. 2,680 2,680 9,216 11,896
-------- ----------- ----------- --------
Total long-term debt ............... 128,709 122,680 406,474 75,038 604,192
Exchangeable Preferred Stock ........ -- -- -- 29,050 (4) 29,050
Minority interest in Sweetheart ..... -- -- -- 13,890 (5) 13,890
Redeemable common stock ............. 2,108 2,108 -- 2,108
Stockholders' equity ................ 6,802 13,183(6) 65,056 15,000 (7) 31,633
(65,056) (8)
2,500 (3)
950 (4)
-------------
Total capitalization ................ $137,619 $ 137,971 $ 471,530 $ 71,372 $680,873
======== =========== =========== ============= ========
</TABLE>
- ----------
(1) Reflects the excess cash from the Natural Dam Mill Disposition reduced by
the cash paid to SF Holdings to purchase the Management Services
Agreement. The proceeds from the Management Services Agreement were used
by SF Holdings to satisfy the Demand Note.
(2) Includes $23.7 million cash in escrow, which is restricted to qualified
capital expenditures.
(3) Reflects the proceeds of the issuance of the Units, after giving effect
to the $2.5 million fair value of the Shares.
(4) Reflects the Exchangeable Preferred Stock, after giving effect to the
$950 fair value of the Class C Common Stock issued by the Company to the
Sweetheart Stockholders as partial consideration for the Sweetheart
Investment.
(5) Reflects the common equity investment in Sweetheart being retained by the
Sweetheart Stockholders.
(6) The Natural Dam Mill Disposition is expected to result in a net gain of
$6.4 million, which is reflected in stockholders' equity.
(7) Reflects a cash contribution of equity from an affiliate of Dennis Mehiel
to the Company. See "Use of Proceeds."
(8) Reflects elimination of the historical Sweetheart stockholders' equity.
38
<PAGE>
UNAUDITED PRO FORMA FINANCIAL INFORMATION
The following unaudited pro forma combined condensed financial statements
of the Company set forth the unaudited pro forma combined condensed balance
sheet of the Company as of January 25, 1998 (the "Pro Forma Balance Sheet") and
the unaudited pro forma combined condensed statements of income of the Company
for the fiscal year ended July 27, 1997 and the six and twelve months ended
January 25, 1998 (the "Pro Forma Statements of Income" and, together with the
Pro Forma Balance Sheet, the "Company Pro Forma Financial Statements"). The Pro
Forma Balance Sheet has been derived from Fonda's historical balance sheet as
of January 25, 1998 and Sweetheart's historical balance sheet as of December
31, 1997, and gives effect to (i) the Natural Dam Mill Disposition, (ii) the
Fonda Stockholders Exchange, (iii) the issuance of the Units, (iv) the
Sweetheart Investment and (v) the Sweetheart Reduction, as if each such
transaction had occurred on January 25, 1998. The Pro Forma Statements of
Income have been derived from Fonda's pro forma condensed statements of income
for the fiscal year ended July 27, 1997 and the six and twelve months ended
January 25, 1998 (collectively, the "Fonda Pro Forma Statements of Income"),
included elsewhere herein, and Sweetheart's pro forma condensed statements of
operations for the fiscal year ended September 30, 1997 and the six and twelve
months ended December 31, 1997 (collectively, the "Sweetheart Pro Forma
Statements of Operations"), included elsewhere herein, and give additional
effect to (i) the Fonda Stockholders Exchange, (ii) the issuance of the Units
and (iii) the Sweetheart Investment, as if each such transaction had occurred
on the first day of the Company's fiscal year ended July 27, 1997.
The Fonda Pro Forma Statements of Income have been derived from Fonda's
historical statements of income for the fiscal year ended July 27, 1997 and the
six and twelve months ended January 25, 1998, and give effect to (i) the 1997
Fonda Acquisitions, (ii) the issuance of the Fonda Notes, (iii) the Leisureway
Acquisition and (iv) the Natural Dam Mill Disposition, as if each such
transaction had occurred on the first day of Fonda's fiscal year ended July 27,
1997. The Sweetheart Pro Forma Statements of Operations have been derived from
Sweetheart's historical statements of operations for the fiscal year ended
September 30, 1997 and the six and twelve months ended December 31, 1997, and
give effect to (i) the sale by Sweetheart of its bakery operations in November
1997 (the "Sweetheart Bakery Disposition") and (ii) the closing of Sweetheart's
Riverside facility and the cessation of paper operations at Sweetheart's
Springfield facility during Fiscal 1997 (the "Sweetheart Closures"), as if each
such transaction had occurred on the first day of Sweetheart's fiscal year
ended September 30, 1997. The Sweetheart Pro Forma Statement of Operations for
the six months ended December 31, 1997 combines the first quarter of Fiscal
1998 and the fourth quarter of Fiscal 1997.
The 1997 Fonda Acquisitions, the issuance of the Fonda Notes, the
Leisureway Acquisition, the Natural Dam Mill Disposition, the Sweetheart Bakery
Disposition, the Sweetheart Closures, the Fonda Stockholders Exchange, the
issuance of the Units, the Sweetheart Investment and the Sweetheart Reduction
are collectively referred to herein as the "Transactions."
The 1997 Fonda Acquisitions, the Leisureway Acquisition and the Sweetheart
Investment have been accounted for under the purchase method of accounting,
pursuant to which the total purchase price of such acquisitions is allocated to
the assets and liabilities acquired based upon their relative fair values as of
the closing date, with the excess of the purchase price over the fair value of
the assets acquired, net of the liabilities assumed, allocated to goodwill. The
Company believes that the preliminary allocations set forth herein are
reasonable; however, in some cases the final allocations will be based upon
valuations and other studies that are not yet complete. As a result, the
allocations set forth herein are subject to revision when additional
information becomes available, and such revised allocations could differ
substantially from those set forth herein. In addition, the Pro Forma Financial
Statements exclude the potential effect of rationalization of facilities and
other cost savings initiatives that the Company intends to undertake following
the consummation of the Sweetheart Investment.
39
<PAGE>
UNAUDITED PRO FORMA COMBINED CONDENSED BALANCE SHEET
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
FONDA SWEETHEART
JANUARY 25, NATURAL DAM DECEMBER 31,
1998 MILL PRO FORMA 1997 PRO FORMA
HISTORICAL DISPOSITION (A) FONDA HISTORICAL ADJUSTMENTS COMBINED
------------- ----------------- ----------- ------------- -------------------- ----------
<S> <C> <C> <C> <C> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents ............ $ 524 $ 15,221 $ 15,745 $ 4,687 $ (7,000)(c) $ 13,432
Cash in escrow ....................... 23,720 23,720
Accounts receivable .................. 31,725 (1,845) 29,880 72,417 102,297
Inventories .......................... 39,434 (1,265) 38,169 140,941 3,883 (b) 182,993
Other current assets ................. 11,139 11,139 22,003 33,142
-------- --------- -------- -------- ----------- --------
TOTAL CURRENT ASSETS ............... 82,822 12,111 94,933 263,768 (3,117) 355,584
Property, plant and equipment, net 61,354 (12,799) 48,555 372,718 12,000 (b) 433,273
Goodwill, net ......................... 22,459 22,459 -- 39,842 (b) 62,301
Other assets, net ..................... 14,202 3,750 17,952 36,565 9,226 (b) 68,281
4,538 (c)
-------- --------- -------- -------- ----------- --------
TOTAL ASSETS .......................... $180,837 $ 3,062 $183,899 $673,051 $ 62,489 $919,439
======== ========= ======== ======== =========== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable ..................... $ 10,389 $ (1,910) $ 8,479 $ 50,870 $ 59,349
Accrued expenses ..................... 24,038 4,620 28,658 81,589 $ 7,000(b) 117,247
Current portion of long-term
debt ............................... 537 537 5,516 6,053
-------- --------- -------- -------- ----------- --------
TOTAL CURRENT LIABILITIES .......... 34,964 2,710 37,674 137,975 7,000 182,649
Credit facilities ..................... 6,029 (6,029) 97,258 97,258
Other long-term debt .................. 122,143 122,143 303,700 75,038 (c) 500,881
Other long-term liabilities ........... 8,791 8,791 69,062 (15,883) (b) 61,970
-------- --------- -------- -------- ----------- --------
TOTAL LIABILITIES .................. 171,927 (3,319) 168,608 607,995 66,155 842,758
Exchangeable Preferred Stock .......... 29,050 (c) 29,050
Minority interest in Sweetheart ....... 13,890 (b) 13,890
Redeemable common stock ............... 2,108 2,108 2,108
Stockholders' equity .................. 6,802 6,381 13,183 65,056 (65,056) (b) 31,633
18,450 (c)
-------- --------- -------- -------- ----------- --------
TOTAL LIABILITIES AND
STOCKHOLDERS' EQUITY .................. $180,837 $ 3,062 $183,899 $673,051 $ 62,489 $919,439
======== ========= ======== ======== =========== ========
</TABLE>
See Notes to Unaudited Pro Forma Combined Condensed Balance Sheet.
40
<PAGE>
NOTES TO UNAUDITED PRO FORMA COMBINED CONDENSED BALANCE SHEET
(a) Reflects the sale of the business and certain assets of the Natural Dam
mill as follows:
<TABLE>
<S> <C>
Net proceeds ...................................................... $ 25,000
--------
Net book value of assets disposed of:
Accounts receivable ............................................. 1,845
Inventories ..................................................... 1,265
Property, plant and equipment ................................... 12,799
Accounts payable ................................................ (1,910)
--------
13,999
--------
Pre-tax gain on disposal .......................................... 11,001
Income taxes (based on 42% statutory tax rate) .................. 4,620
--------
Net gain on disposition ........................................... $ 6,381
========
Cash consideration applied to:
Eliminate outstanding borrowings under the Fonda Credit Facility $ 6,029
Cash balance .................................................... 15,221
--------
Total cash consideration .......................................... 21,250
Non-cash consideration--note receivable ........................... 3,750
--------
$ 25,000
========
</TABLE>
(b) The total purchase price for the Sweetheart Investment was be $125.0
million. The adjustments reflect the preliminary allocation of the
purchase price in accordance with purchase accounting, as follows:
<TABLE>
<S> <C> <C>
Purchase price ........................................................ $ 125,000
---------
Fair value of net assets acquired:
Net book value of assets as of December 31, 1997 .................... 65,056
Adjustments to fair value of assets acquired and liabilities assumed:
Inventories:
Write-off existing LIFO reserve .................................... $ 125
Write-up finished goods inventory .................................. 3,758 3,883
------
Property, plant and equipment ....................................... 12,000
Other assets:
Eliminate intangible pension asset ................................. (774)
Management Services Agreement ...................................... 7,000
Fair value of intangible assets .................................... 3,000 9,226
------
Accrued expenses -- Sweetheart Reduction expenses ................... (7,000)
Other long-term liabilities--eliminate unrecognized prior service
costs and unrecognized net gains from pension and
post-retirement benefit plans ...................................... 15,883
Minority interest in Sweetheart ..................................... (13,890)
---------
Fair value of net assets acquired .................................. 85,158
---------
Goodwill--excess of purchase price over fair value of net assets
acquired ............................................................. $ 39,842
=========
</TABLE>
41
<PAGE>
(c) Reflects the financing, including related financing costs, of the
Sweetheart Investment, as follows:
<TABLE>
<S> <C>
Cash purchase price of Management Services Agreement ................... $ 7,000
Long-term debt--the Notes, net of fair value of the Shares ............. 75,038
Fair value of the Shares issued in connection with the Notes ........... 2,500
Deferred financing costs ............................................... (4,538)
Exchangeable Preferred Stock, net of fair value of the Shares .......... 29,050
Fair value of the Class C Common Stock issued in connection with the
Exchangeable Preferred Stock ......................................... 950
Capital contribution ................................................... 15,000
--------
$125,000
========
</TABLE>
42
<PAGE>
UNAUDITED PRO FORMA COMBINED CONDENSED STATEMENTS OF INCOME
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
YEAR ENDED JULY 27, 1997
-----------------------------------------------------------
PRO FORMA
-----------------------
PRO FORMA
FONDA SWEETHEART ADJUSTMENTS COMBINED
----------- ------------ ------------------- -------------
<S> <C> <C> <C> <C>
STATEMENT OF INCOME DATA:
Net sales ............................................ $262,850 $ 854,365 $1,117,215
Cost of goods sold ................................... 204,904 786,603 $ 1,250(a) 992,757
-------- --------- ---------- ----------
Gross profit ......................................... 57,946 67,762 (1,250) 124,458
Selling, general and administrative expenses ......... 39,390 65,628 696 (b) 104,700
(1,014) (c)
Loss on asset disposal and impairment ................ -- 24,550 24,550
Other income, net .................................... (1,608) (73) (1,681)
-------- --------- ---------- ----------
Income from operations ............................... 20,164 (22,343) (932) (3,111)
Interest expense, net ................................ 12,084 40,265 10,581 (d) 62,930
-------- --------- ---------- ----------
Income (loss) before taxes and minority interest ..... 8,080 (62,608) (11,513) (66,041)
Income tax (benefit) expense ......................... 3,393 (25,043) (4,835) (e) (26,485)
Minority interest in loss of subsidiary .............. -- -- (3,757) (f) (3,757)
-------- --------- ---------- ----------
Income (loss) before cumulative effect of an
accounting change and extraordinary loss ............ 4,687 (37,565) (2,921) (35,799)
Dividends on preferred stock ......................... -- -- 4,220 (g) 4,220
-------- --------- ---------- ----------
Income (loss) available to common stockholders
before cumulative effect of an accounting change
and extraordinary loss .............................. $ 4,687 $ (37,565) $ (7,141) $ (40,019)
======== ========= ========== ==========
OTHER GAAP FINANCIAL DATA:
Cash interest expense (h) ............................ $ 11,520 $ 38,241 $ 49,761
Capital expenditures ................................. 1,762 46,189 47,951
Depreciation and amortization (i) .................... 5,406 43,176 $ 1,446 50,028
Ratio of earnings to fixed charges (j) ............... 1.6x N/A N/A
OTHER NON-GAAP FINANCIAL DATA:
EBITDA (k) ........................................... $ 23,962 $ 46,930 $ 514 $ 71,406
Ratio of EBITDA to cash interest expense (k)(h) ...... 2.1x 1.2x 1.4x
Ratio of EBITDA to total interest expense (k) ........ 1.1x
</TABLE>
See Notes to Unaudited Pro Forma Combined Condensed Statements of Income.
43
<PAGE>
UNAUDITED PRO FORMA COMBINED CONDENSED STATEMENTS OF INCOME
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
SIX MONTHS ENDED JANUARY 25, 1998
-------------------------------------------------------------------
PRO FORMA
----------------------------
PRO FORMA
FONDA SWEETHEART ADJUSTMENTS COMBINED
------------- ------------ --------------------- ------------
<S> <C> <C> <C> <C>
STATEMENT OF INCOME DATA:
Net sales ................................................ $ 132,073 $ 425,743 $ 557,816
Cost of goods sold ....................................... 103,623 390,341 $ 550(a) 494,514
--------- --------- --------- ---------
Gross profit ............................................. 28,450 35,402 (550) 63,302
Selling, general and administrative expenses ............. 20,004 36,186 (2) (b) 55,957
(231) (c)
Loss on asset disposal and impairment .................... 24,550 24,550
Other income, net ........................................ (3,514) (3,514)
--------- --------- --------- ---------
Income from operations ................................... 8,446 (21,820) (317) (13,691)
Interest expense, net .................................... 6,003 21,414 5,291 (d) 32,708
--------- --------- ----------- ---------
Income (loss) before taxes and minority interest ......... 2,443 (43,234) (5,608) (46,399)
Income tax (benefit) expense ............................. 1,027 (17,288) (2,355) (e) (18,616)
Minority interest in loss of subsidiary .................. -- -- (2,595) (f) (2,595)
--------- --------- ----------- ---------
Income (loss) before cumulative effect of an
accounting change and extraordinary loss ................ 1,416 (25,946) (658) (25,188)
Dividends on preferred stock ............................. -- -- 2,110 (g) 2,110
--------- --------- ----------- ---------
Income (loss) available to common stockholders
before cumulative effect of an accounting change
and extraordinary loss .................................. $ 1,416 $ (25,946) $ (2,768) $ (27,298)
========= ========= =========== =========
OTHER GAAP FINANCIAL DATA:
Cash interest expense (h) ................................ $ 5,731 $ 20,565 $ 26,296
Capital expenditures ..................................... 2,716 17,158 19,874
Depreciation and amortization (i) ........................ 2,747 21,779 $ 723 25,249
Ratio of earnings to fixed charges (j) ................... 1.3x N/A N/A
OTHER NON-GAAP FINANCIAL DATA:
EBITDA (k) ............................................... $ 11,193 $ 21,720 $ 406 $ 33,319
Ratio of EBITDA to cash interest expense (k)(h) .......... 2.0x 1.1x 1.3x
Ratio of EBITDA to total interest expense (k) ............ 1.0x
</TABLE>
See Notes to Unaudited Pro Forma Combined Condensed Statements of Income.
44
<PAGE>
UNAUDITED PRO FORMA COMBINED CONDENSED STATEMENTS OF INCOME
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
TWELVE MONTHS ENDED JANUARY 25, 1998
-----------------------------------------------------------
PRO FORMA
-----------------------
PRO FORMA
FONDA SWEETHEART ADJUSTMENTS COMBINED
----------- ------------ ------------------- -------------
<S> <C> <C> <C> <C>
STATEMENT OF INCOME DATA:
Net sales ............................................ $263,195 $ 855,289 $1,118,484
Cost of goods sold ................................... 206,477 775,910 $ 1,200(a) 983,587
-------- --------- ---------- ----------
Gross profit ......................................... 56,718 79,379 (1,200) 134,897
Selling, general and administrative expenses ......... 38,678 68,759 481 (b) 106,926
(992) (c)
Loss on asset disposal and impairment ................ -- 24,550 24,550
Other income, net .................................... (1,608) (3,436) (5,044)
-------- --------- ---------- ----------
Income from operations ............................... 19,648 (10,494) (689) 8,465
Interest expense, net ................................ 12,062 41,494 10,581 (d) 64,137
-------- --------- ---------- ----------
Income (loss) before taxes and minority interest ..... 7,586 (51,988) (11,270) (55,672)
Income tax (benefit) expense ......................... 3,186 (20,794) (4,733) (e) (22,341)
Minority interest in loss of subsidiary .............. -- -- (3,119) (f) (3,119)
-------- --------- ---------- ----------
Income (loss) before cumulative effect of an
accounting change and extraordinary loss ............ 4,400 (31,194) (3,418) (30,212)
Dividends on preferred stock ......................... -- -- 4,220 (g) 4,220
-------- --------- ---------- ----------
Income (loss) available to common stockholders
before cumulative effect of an accounting change
and extraordinary loss .............................. $ 4,400 $ (31,194) $ (7,638) $ (34,432)
======== ========= ========== ==========
OTHER GAAP FINANCIAL DATA:
Cash interest expense (h) ............................ $ 11,498 $ 39,672 $ 51,170
Capital expenditures ................................. 3,538 43,956 47,494
Depreciation and amortization (i) .................... 5,395 43,469 $ 1,446 50,310
Ratio of earnings to fixed charges (j) ............... 1.5x N/A N/A
OTHER NON-GAAP FINANCIAL DATA:
EBITDA (k) ........................................... $ 23,435 $ 55,558 $ 757 $ 79,750
Ratio of EBITDA to cash interest expense (k)(h) ...... 2.0x 1.4x 1.6x
Ratio of EBITDA to total interest expense (k) ........ 1.2x
</TABLE>
See Notes to Unaudited Pro Forma Combined Condensed Statements of Income.
45
<PAGE>
NOTES TO UNAUDITED PRO FORMA COMBINED CONDENSED STATEMENTS OF INCOME
(a) Reflects an increase in cost of goods sold resulting from the Sweetheart
Investment, as follows:
<TABLE>
<CAPTION>
SIX MONTHS TWELVE MONTHS
YEAR ENDED ENDED ENDED
JULY 27, 1997 JANUARY 25, 1998 JANUARY 25, 1998
--------------- ------------------ -----------------
<S> <C> <C> <C>
Increase in depreciation expense resulting from the
preliminary purchase price allocation to
long-term assets acquired ....................... $ 250 $125 $ 250
Increase in pension and post-retirement benefits
resulting from elimination of unrecognized gains 1,000 425 950
------ ---- ------
$1,250 $550 $1,200
====== ==== ======
</TABLE>
(b) Reflects adjustments to general and administrative expenses resulting from
the Sweetheart Investment, as follows:
<TABLE>
<CAPTION>
SIX MONTHS TWELVE MONTHS
YEAR ENDED ENDED ENDED
JULY 27, 1997 JANUARY 25, 1998 JANUARY 25, 1998
--------------- ------------------ -----------------
<S> <C> <C> <C>
Goodwill amortization over forty years .......... $ 996 $ 498 $ 996
Other intangible assets amortization over fifteen
years ......................................... 200 100 200
Reduction in officer compensation ............... (500) (600) (715)
------ ------ ------
$ 696 $ (2) $ 481
====== ====== ======
</TABLE>
(c) Reflects the elimination of a portion of the fees paid by Sweetheart to AIP
pursuant to the Management Services Agreement that, upon consummation of
the Sweetheart Investment, were paid to Fonda. See "The Sweetheart
Investment."
(d) Reflects additional interest expense of the Company resulting from the
issuance of the Units, as follows:
<TABLE>
<CAPTION>
SIX MONTHS TWELVE MONTHS
YEAR ENDED ENDED ENDED
JULY 27, 1997 JANUARY 25, 1998 JANUARY 25, 1998
--------------- ------------------ -----------------
<S> <C> <C> <C>
Amortization of original issue discount on the
Notes at 12.75% ................................ $ 9,881 $4,941 $ 9,881
Amortization of deferred financing costs over ten
years .......................................... 450 225 450
Amortization of additional discount resulting from
the fair value of the Shares ................... 250 125 250
------- ------ -------
$10,581 $5,291 $10,581
======= ====== =======
</TABLE>
(e) For pro forma purposes, the income tax provision was calculated at 42%
based on enacted statutory rates applied to pro forma pre-tax income
(loss) and the provisions of SFAS No. 109.
(f) Reflects the minority interest allocable to the common equity investment in
Sweetheart retained by the Sweetheart Stockholders.
(g) Reflects pay-in-kind dividends on the Exchangeable Preferred Stock issued
to the Sweetheart Stockholders and amortization of discount resulting from
an allocation of fair value to the Class C Common Stock.
<PAGE>
<TABLE>
<CAPTION>
SIX MONTHS TWELVE MONTHS
YEAR ENDED ENDED ENDED
JULY 27, 1997 JANUARY 25, 1998 JANUARY 25, 1998
--------------- ------------------ -----------------
<S> <C> <C> <C>
Dividends at 13.75% ...................... $4,125 $2,063 $4,125
Amortization of discount of Class C Common
Stock .................................. 95 47 95
------ ------ ------
$4,220 $2,110 $4,220
====== ====== ======
</TABLE>
46
<PAGE>
(h) Cash interest expense consists of interest expense, excluding interest on
the Notes and amortization of deferred financing costs of $4,131, $1,791
and $3,877 for Fiscal 1997 and the six and twelve months ended January 25,
1998, respectively.
(i) Depreciation and amortization excludes amortization of deferred financing
costs, which are included in interest expense.
(j) For purposes of calculating the ratio of earnings to fixed charges and the
earnings to fixed charges coverage deficiency, earnings consist of
earnings before provision for income taxes plus fixed charges less
capitalized interest. Fixed charges consist of interest expense plus that
portion of rental payments on operating leases deemed representative of
the interest factor and capitalized interest. Dividends on the
Exchangeable Preferred Stock are not included. Earnings were not
sufficient to cover fixed charges for Sweetheart and for the combined
Company by $63,193 and $66,789, respectively, for Fiscal 1997, by $43,316,
and $46,673 respectively, for six months ended January 25, 1998, and by
$52,335 and $56,374, respectively, for the twelve months ended January 25,
1998.
(k) EBITDA represents income from operations before interest expense, provision
for income taxes, Fonda other income, depreciation and amortization,
Sweetheart loss on asset disposal and impairment and gain on the
Sweetheart Bakery Disposition of $3,459 in the three and twelve months
ended December 31, 1997. EBITDA is generally accepted as providing
information regarding a company's ability to service debt. EBITDA should
not be considered in isolation or as a substitute for net income, cash
flows from operations, or other income or cash flow data prepared in
accordance with generally accepted accounting principles or as a measure
of a company's profitability or liquidity.
EBITDA does not reflect the elimination of $2.8 million and $1.4 million of
fixed costs in Fiscal 1997 and the twelve months ended January 25, 1998,
respectively, that would not have been incurred had the Three Rivers and
Long Beach facilities been closed at the beginning of the year ended July
27, 1997.
47
<PAGE>
SELECTED HISTORICAL FINANCIAL DATA OF FONDA (1)
The following selected historical financial data have been derived from
the financial statements of Fonda. The data as of July 28, 1996 and July 27,
1997 and for the years ended July 30, 1995, July 28, 1996 and July 27, 1997 are
derived from the financial statements of Fonda audited by Deloitte & Touche
LLP, independent auditors, whose report with respect thereto is included
elsewhere in this Prospectus. The data as of January 25, 1998 and for the six
months ended January 26, 1997 and January 25, 1998 are derived from Fonda's
unaudited financial statements included elsewhere in this Prospectus. In the
opinion of management, the unaudited financial statements include all
adjustments (consisting of only normal recurring adjustments) necessary for a
fair presentation of the information set forth therein. The results of
operations for the six months ended January 25, 1998 are not necessarily
indicative of the results that may be expected for any other interim period or
the entire year. The following data should be read in conjunction with Fonda's
financial statements and related notes, "Management's Discussion and Analysis
of Financial Condition and Results of Operations" and the other financial
information included elsewhere herein.
<TABLE>
<CAPTION>
SIX MONTHS
FISCAL YEAR ENDED JULY (2) ENDED JANUARY (2)
---------------------------------------------------------- -----------------------
1993 1994 1995 1996 1997 1997 1998
---------- ---------- ------------ ----------- ----------- ----------- -----------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF INCOME DATA:
Net sales ............................ $ 61,079 $ 61,839 $ 97,074 $ 204,903 $ 252,513 $124,379 $ 136,674
Cost of goods sold ................... 49,776 51,643 76,252 161,304 196,333 96,987 108,077
-------- -------- --------- --------- --------- -------- ---------
Gross profit ......................... 11,303 10,196 20,822 43,599 56,180 27,392 28,597
Selling, general and administrative
expenses ............................ 8,686 8,438 14,112 29,735 37,168 19,520 19,814
Other income, net .................... -- -- -- -- (1,608) -- --
-------- -------- --------- --------- --------- -------- ---------
Income from operations ............... 2,617 1,758 6,710 13,864 20,620 7,872 8,783
Interest expense, net ................ 1,201 1,268 2,943 7,934 9,017 4,540 6,003
-------- -------- --------- --------- --------- -------- ---------
Income before taxes and
extraordinary loss .................. 1,416 490 3,767 5,930 11,603 3,332 2,780
Income taxes ......................... 478 239 1,585 2,500 4,872 1,400 1,168
-------- -------- --------- --------- --------- -------- ---------
Income before extraordinary loss ..... 938 251 2,182 3,430 6,731 1,932 1,612
Extraordinary loss, net (3) .......... -- -- -- -- 3,495 -- --
-------- -------- --------- --------- --------- -------- ---------
Net income ........................... $ 938 $ 251 $ 2,182 $ 3,430 $ 3,236 $ 1,932 $ 1,612
======== ======== ========= ========= ========= ======== =========
OTHER GAAP FINANCIAL DATA:
Net cash provided by (used in)
operating activities (4) ............ $ 2,797 $ 140 $ (4,774) $ 17,673 $ 8,273 $ 4,783 $ 9,324
Net cash (used in) investment
activities .......................... (1,027) (1,272) (29,593) (46,532) (36,006) (2,074) (10,641)
Net cash provided by (used in)
financing activities ................ (1,742) 992 34,262 30,206 32,174 (3,849) (4,067)
Capital expenditures (5) ............. 1,027 1,272 1,608 1,314 10,363 2,074 4,408
Depreciation and amortization ........ 1,248 1,246 1,669 3,450 4,440 2,859 2,694
Ratio of earnings to fixed
charges (6) ......................... 1.9x 1.3x 2.1x 1.7x 2.1x 1.7x 1.4x
OTHER NON-GAAP FINANCIAL DATA:
EBITDA (7) ........................... $ 3,865 $ 3,004 $ 8,379 $ 17,314 $ 23,942 $ 10,731 $ 11,670
Ratio of EBITDA to cash interest
expense (7)(8) ...................... 3.2x 2.4x 3.5x 2.6x 2.9x 2.7x 2.0x
</TABLE>
(Footnotes on next page)
48
<PAGE>
<TABLE>
<CAPTION>
AS OF JULY
--------------------------------------------------- AS OF
1993 1994 1995 1996 1997 JANUARY 25, 1998
--------- --------- --------- ---------- ---------- -----------------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Cash .................................. $ 365 $ 225 $ 120 $ 1,467 $ 5,908 $ 524
Working capital ....................... 1,738 2,731 28,079 38,931 58,003 47,858
Property, plant and equipment, net 7,428 7,454 26,933 46,350 59,261 61,354
Total assets .......................... 24,676 24,668 79,725 136,168 179,604 180,837
Total indebtedness (9) ................ 11,589 12,581 48,165 87,763 122,987 128,709
Redeemable common stock (10) .......... -- -- 2,115 2,179 2,076 2,108
Stockholders' equity .................. 5,726 5,977 7,205 11,873 15,010 6,802
</TABLE>
- ----------
(1) The selected historical statement of income and other financial data
include the results of operations of Fonda and each of the Fonda
Acquisitions since their respective dates of acquisition. See
"Management's Discussion and Analysis of Financial Condition and Results
of Operations--Introduction," "Business" and Note 3 of the Notes to the
Financial Statements of Fonda.
(2) All fiscal years are 52 weeks, except for Fiscal 1994 which is 53 weeks.
Six month periods are 26 weeks.
(3) Fonda incurred a $3.5 million extraordinary loss (net of a $2.5 million
income tax benefit) in connection with the early retirement of debt
consisting of the write-off of unamortized debt issuance costs,
elimination of unamortized discount and prepayment penalties.
(4) Material differences between EBITDA and net cash provided by or used in
operating activities may occur because of the inherent differences in each
such calculation including (a) the change in operating assets and
liabilities between the beginning and end of each period, as well as
certain non-cash items which are considered when presenting net cash
provided by or used in operating activities but are not used when
calculating EBITDA and (b) interest expense and provision for income taxes
which are included when presenting net cash provided by or used in
operating activities but are not included in the calculation of EBITDA.
(5) Excludes the costs of the Fonda Acquisitions.
(6) For purposes of calculating the ratio of earnings to fixed charges,
earnings consist of income before provision for income taxes plus fixed
charges. Fixed charges consist of interest expense (including the
amortization of debt issuance costs) plus that portion of rental payments
on operating leases deemed representative of the interest factor.
(7) EBITDA represents income from operations before interest expense,
provision for income taxes, other income and depreciation and
amortization. EBITDA is generally accepted as providing information
regarding a company's ability to service debt. EBITDA should not be
considered in isolation or as a substitute for net income, cash flows from
operations, or other income or cash flow data prepared in accordance with
generally accepted accounting principles or as a measure of a company's
profitability or liquidity. In addition, although the EBITDA measure of
performance is not recognized under generally accepted accounting
principles, it is widely used by companies as a measure of operating
performance because it assists in comparing performance on a relatively
consistent basis across companies without regard to depreciation and
amortization, which can vary significantly depending on accounting methods
(particularly where acquisitions are invloved) or non-operating factors
such as historical cost bases. Because EBITDA is not calculated
identically by all companies, the presentation herein may not be
comparable to other similarly titled measures of other companies.
(8) Cash interest expense excludes (i) the amortization of debt issuance costs
of $560, $1,021, $514, $190 and $272 for Fiscal 1995, 1996 and 1997, the
six months ended January 1997 and 1998, respectively, (ii) pay-in-kind
interest expense of $165, $684 and $350 for Fiscal 1996 and 1997 and the
six months ended January 1997, respectively and (iii) interest income of
$490 and $193 for Fiscal 1997 and the six months ended January 1998,
respectively.
(9) Total indebtedness includes short-term and long-term borrowings and
current maturities of long-term debt.
(10) See Note 10 of the Notes to the Financial Statements of Fonda.
49
<PAGE>
SELECTED HISTORICAL CONSOLIDATED FINANCIAL DATA OF SWEETHEART
The following selected historical consolidated financial data have been
derived from the financial statements of Sweetheart. The data as of September
30, 1996 and 1997 and for the years ended September 30, 1995, 1996 and 1997 are
derived from the consolidated financial statements of Sweetheart audited by
Arthur Andersen LLP, independent auditors, whose report with respect thereto is
included elsewhere in this Prospectus. The data as of September 30, 1993 and
1994 and August 29, 1993 and for the year ended September 30, 1994, the period
from August 30, 1993 to September 30, 1993 and the period from January 1, 1993
to August 29, 1993 are derived from the audited consolidated financial
statements of Sweetheart and are not included herein. The data as of December
31, 1997 and for the three months ended December 31, 1996 and 1997 are derived
from Sweetheart's unaudited consolidated financial statements included
elsewhere in this Prospectus. In the opinion of management, the unaudited
consolidated financial statements include all adjustments (consisting of only
normal recurring adjustments) necessary for a fair presentation of the
information set forth therein. The results of operations for the three months
ended December 31, 1997 are not necessarily indicative of the results that may
be expected for any other interim period or the entire year. The following data
should be read in conjunction with Sweetheart's financial statements and
related notes, "Management's Discussion and Analysis of Financial Condition and
Results of Operations," and the other financial information included elsewhere
herein.
<TABLE>
<CAPTION>
PERIOD FROM PERIOD FROM
JANUARY 1 TO AUGUST 30 TO FISCAL YEAR ENDED SEPTEMBER 30,
AUGUST 29, SEPTEMBER 30, -------------------------------------------------
1993 1993 1994 1995 1996 1997
--------------- -------------- ----------- ----------- ----------- -------------
(PREDECESSOR) (SUCCESSOR)
--------------- ----------------------------------------------------------------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS
DATA:
Net Sales ........................... $ 591,258 $81,571 $898,528 $986,618 $959,818 $ 886,017
Cost of sales ....................... 460,324 64,011 683,429 779,497 748,055 722,539
--------- ------- -------- -------- -------- ---------
Gross income ........................ 130,934 17,560 215,099 207,121 211,763 163,478
Transportation ...................... 62,291 7,952 94,734 95,096 98,664 98,482
Selling, general and
administrative ..................... 45,494 5,787 67,712 66,089 61,788 66,792
Loss on asset disposal and
impairment ......................... --- --- --- --- --- 24,550
Restructuring charges ............... -- -- -- -- -- 9,680
--------- ------- -------- -------- -------- ---------
Operating income (loss) ............. 23,149 3,821 52,653 45,936 51,311 (36,026)
Interest expense .................... 43,981 3,327 37,460 38,655 38,832 41,812
Other income (expense) .............. 82 (161) 623 2,442 (2,956) 1,620
--------- ------- -------- -------- -------- ---------
Income (loss) before income
taxes, cumulative effect of
an accounting change and
extraordinary loss ................. (20,750) 333 15,816 9,723 9,523 (76,218)
Income tax (expense) benefit ........ 6,641 (161) (6,462) (3,903) (3,809) 30,487
--------- ------- -------- -------- -------- ---------
Income (loss) before
cumulative effect of an
accounting change and
extraordinary loss ................. (14,109) 172 9,354 5,820 5,714 (45,731)
Cumulative effect of a change
in accounting principle, net . --- --- --- --- --- ---
Extraordinary loss, net ............. -- -- -- -- -- (940)
--------- ------- -------- -------- -------- ---------
Net income (loss) ................... (14,109) 172 9,354 5,820 5,714 (46,671)
Accrued dividends on Class B
Common Stock ....................... 4,200 -- -- -- -- --
--------- ------- -------- -------- -------- ---------
Net income (loss) applicable
to common shareholders ............. $ (18,309) $ 172 $ 9,354 $ 5,820 $ 5,714 $ (46,671)
========= ======= ======== ======== ======== =========
<PAGE>
<CAPTION>
THREE MONTHS
ENDED DECEMBER 31,
-------------------------
1996 1997
------------- -----------
(SUCCESSOR)
-------------------------
(DOLLARS IN THOUSANDS)
<S> <C> <C>
STATEMENT OF OPERATIONS
DATA:
Net Sales ........................... $ 202,102 $ 201,952
Cost of sales ....................... 176,859 164,341
--------- ---------
Gross income ........................ 25,243 37,611
Transportation ...................... 22,462 23,665
Selling, general and
administrative ..................... 16,216 19,102
Loss on asset disposal and
impairment ......................... -- --
Restructuring charges ............... -- --
--------- ---------
Operating income (loss) ............. (13,435) (5,156)
Interest expense .................... 9,952 11,126
Other income (expense) .............. 268 3,576
--------- ---------
Income (loss) before income
taxes, cumulative effect of
an accounting change and
extraordinary loss ................. (23,119) (12,706)
Income tax (expense) benefit ........ 9,247 5,081
--------- ---------
Income (loss) before
cumulative effect of an
accounting change and
extraordinary loss ................. (13,872) (7,625)
Cumulative effect of a change
in accounting principle, net . -- (1,511)
Extraordinary loss, net ............. -- --
--------- ---------
Net income (loss) ................... (13,872) (9,136)
Accrued dividends on Class B
Common Stock ....................... -- --
--------- ---------
Net income (loss) applicable
to common shareholders ............. $ (13,872) $ (9,136)
========= =========
</TABLE>
50
<PAGE>
<TABLE>
<CAPTION>
PERIOD FROM PERIOD FROM
JANUARY 1 TO AUGUST 30 TO FISCAL YEAR ENDED SEPTEMBER 30,
AUGUST 29, SEPTEMBER 30, ---------------------------------------------------
1993 1993 1994 1995 1996 1997
--------------- -------------- ------------ ------------ ------------ ------------
(PREDECESSOR) (SUCCESSOR)
--------------- ------------------------------------------------------------------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
OTHER GAAP FINANCIAL DATA:
Net cash provided by (used
in) operating activities(1) ..... $ 23,735 $ 5,901 $ 41,532 $ 50,899 $ 43,508 $ (3,242)
Net cash (used in) investing
activities ...................... (14,154) (1,942) (32,581) (51,514) (50,236) (29,914)
Net cash provided by
financing activities ............ (9,625) (3,982) 3,240 (3,615) 3,098 31,435
Capital Expenditures ............. 14,557 1,956 39,428 51,625 50,236 47,757
Depreciation and
amortization .................... 28,507 2,050 25,783 34,207 39,813 44,152
Ratio of earnings to fixed
charges (2) ..................... N/A 1.1x 1.4x 1.2x 1.2x N/A
OTHER NON-GAAP FINANCIAL
DATA:
EBITDA (3) ....................... $ 51,738 $ 5,710 $ 79,059 $ 82,585 $ 88,168 $ 43,976
Ratio of EBITDA to cash
interest expense (3)(4) ......... 3.7x 1.9x 2.3x 2.4x 2.5x 1.1x
BALANCE SHEET DATA
(AT END OF PERIOD): .............
Cash and cash equivalents ........ $ 63 $ 40 $ 12,231 $ 8,001 $ 4,371 $ 2,650
Working capital .................. 112,817 146,821 163,391 153,951 162,379 166,768
Property, plant and
equipment, net .................. 450,362 393,918 400,176 417,563 427,833 382,491
Total assets ..................... 753,531 692,772 728,442 741,906 762,610 719,530
Total indebtedness (5) ........... 621,190 354,132 371,257 371,690 387,114 431,868
Total shareholders' equity
(deficit) ....................... (121,883) 100,548 109,955 115,805 121,415 74,611
<PAGE>
<CAPTION>
THREE MONTHS
ENDED DECEMBER 31,
------------------------
1996 1997
------------ -----------
(SUCCESSOR)
------------------------
(DOLLARS IN THOUSANDS)
<S> <C> <C>
OTHER GAAP FINANCIAL DATA:
Net cash provided by (used
in) operating activities(1) ..... $ (2,838) $ 738
Net cash (used in) investing
activities ...................... (9,523) 8,633
Net cash provided by
financing activities ............ 14,333 (7,334)
Capital Expenditures ............. 9,523 7,134
Depreciation and
amortization .................... 10,605 10,784
Ratio of earnings to fixed
charges (2) ..................... N/A N/A
OTHER NON-GAAP FINANCIAL
DATA:
EBITDA (3) ....................... $ (2,562) $ 5,745
Ratio of EBITDA to cash
interest expense (3)(4) ......... N/A 0.5x
BALANCE SHEET DATA
(AT END OF PERIOD): .............
Cash and cash equivalents ........ $ 6,343 $ 4,687
Working capital .................. 157,740 125,793
Property, plant and
equipment, net .................. 426,553 372,718
Total assets ..................... 792,219 673,051
Total indebtedness (5) ........... 407,686 406,474
Total shareholders' equity
(deficit) ....................... 107,462 65,056
</TABLE>
- ----------
(1) Material differences between EBITDA and net cash provided by or used in
operating activities may occur because of the inherent differences in
each such calculation including (a) the change in operating assets and
liabilities between the beginning and end of each period, as well as
certain non-cash items which are considered when presenting net cash
provided by or used in operating activities but are not used when
calculating EBITDA and (b) interest expense and provision for income
taxes which are included when presenting net cash provided by or used in
operating activities but are not included in the calculation of EBITDA.
(2) For purposes of calculating the ratio of earnings to fixed charges,
earnings consist of income before provision for income taxes plus fixed
charges. Fixed charges consist of interest expense (including the
amortization of debt issuance costs) plus that portion of rental payments
on operating leases deemed representative of the interest factor.
Earnings were not sufficient to cover fixed charges in the eight months
ended August 1993, Fiscal 1997 and the three months ended December 1996
and 1997 periods in the amount of $20,750, $76,803, $23,357 and $12,706,
respectively.
(3) EBITDA represents income from operations before interest expense,
provision for income taxes, depreciation and amortization, loss on asset
disposal and impairment, restructuring expense and gain on the Sweetheart
Bakery Disposition incurred in the three month December 1997 period in
the amount of $3,459. EBITDA is generally accepted as providing
information regarding a company's ability to service debt. EBITDA should
not be considered in isolation or as a substitute for net income, cash
flows from operations, or other income or cash flow data prepared in
accordance with generally accepted accounting principles or as a measure
of a company's profitability or liquidity. In addition, although the
EBITDA measure of performance is not recognized under generally accepted
accounting principles, it is widely used by companies as a measure of
operating performance because it assists in comparing performance on a
relatively consistent basis across companies without regard to
depreciation and amortization, which can vary significantly depending on
accounting methods (particularly where acquisitions are invloved) or
non-operating factors such as historical cost bases. Because EBITDA is
not calculated identically by all companies, the presentation herein may
not be comparable to other similarly titled measures of other companies.
(4) Cash interest expense excludes (i) the amortization of debt issuance cost
of $1,241, $264, $3,320, $3,534, $3,560, $3,571, $889, and $631 for the
eight months ended August 1993, the one month ended September 1993,
Fiscal 1994, 1995, 1996, 1997, the three month December 1996 and 1997
periods, respectively, and (ii) $28,702 of payment-in-kind interest in
the eight months ended August 1993.
(5) Total indebtedness includes short-term and long-term borrowings and
current maturities of long-term debt.
51
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
INTRODUCTION
The following discussion contains forward-looking statements which involve
risks and uncertainties. The Company's actual results or future events could
differ materially from those anticipated in these forward-looking statements as
a result of certain factors, including, but not limited to, raw material costs,
labor market conditions, the highly competitive nature of the industry and
developments with respect to contingencies.
The following discussion of results of operations for Fiscal 1995, 1996
and 1997 and the interim periods is based on the historical results of
operations of Sweetheart and Fonda. Since the Fonda Acquisitions were
consummated from time to time during such fiscal years, the financial
information contained herein with respect to periods prior to such acquisitions
does not reflect the results of operations of the businesses acquired; thus,
this financial information is not necessarily indicative of the results of
operations that would have been achieved had the acquisitions been consummated
by Fonda at the beginning of the periods presented herein or which may be
achieved in the future.
The Company's business is highly seasonal with a majority of its net cash
flow from operations realized in the second and third quarters of the calendar
year. The Company builds its inventory throughout the year to satisfy the high
seasonal demands of the summer months when outdoor and away-from-home
consumption increases. In the event cash flow from operations is insufficient
to provide working capital necessary to fund production requirements during
these quarters, Fonda and Sweetheart will need to borrow under their respective
credit facilities or seek other sources of capital. Although the Company
believes that funds available under the Fonda Credit Facility and Sweetheart
Credit Facilities, together with cash generated from operations, will be
adequate to provide for each company's respective cash requirements, there can
be no assurance that such capital resources will be sufficient in the future.
GENERAL
SF Holdings is a holding company that conducts all of its operations
through Sweetheart and Fonda. As a holding company, the Company expects to
incur minimal operating expenses. See "Certain Relationships and Related
Transactions." Sweetheart and Fonda, the Company's principal operating
subsidiaries, are converters and marketers of disposable paper, plastic and
foam food service and food packaging products. The prices for each subsidiary's
raw materials fluctuate. When raw material prices decrease, selling prices have
historically decreased. The actual impact on each company from raw materials
price changes is affected by a number of factors including the level of
inventories at the time of a price change, the specific timing and frequency of
price changes, and the lead and lag time that generally accompanies the
implementation of both raw materials and subsequent selling price changes. In
the event raw materials prices decrease over a period of several months, such
company may suffer margin erosion on the sale of such inventory.
In addition to the pro forma adjustments set forth under "Unaudited Pro
Forma Financial Information," the Company believes that it can realize
additional cost savings by (i) eliminating the outsourcing of products which
will be manufactured within the Company; (ii) capitalizing on the Company's
combined purchasing leverage with respect to raw materials and other procured
items, such as packaging materials; (iii) eliminating duplicative
administrative, sales and marketing expenses; (iv) making selective capital
expenditures intending to realize manufacturing and distribution savings; and
(v) rationalizing its facilities.
YEAR 2000
Each of Sweetheart and Fonda have implemented Year 2000 compliance
programs designed to ensure that each respective company's computer systems and
applications will function properly beyond 1999. The Company expects Sweetheart
and Fonda's Year 2000 date conversion programs to be substantially completed by
the end of 1999. The Company believes that adequate resources, both internal
52
<PAGE>
and external, have been allocated for this purpose. Spending for these Year
2000 compliance programs, including Fiscal 1998 spending, is estimated to be
$2.7 million and $1.8 million at Sweetheart and Fonda, respectively, and will
be funded from each of the respective company's cash from operations or
borrowings under each company's respective credit facility. However, there can
be no assurance that the Company will identify all Year 2000 date conversion
problems in its computer systems in advance of their occurrence or that the
Company will be able to successfully remedy all problems that are discovered.
Failure by Sweetheart or Fonda and/or their significant vendors and customers
to complete Year 2000 compliance programs in a timely manner could have a
material adverse effect on the Company's business, financial condition and
results of operations. In addition, the revenue stream and financial stability
of existing customers may be adversely impacted by Year 2000 problems which
could cause fluctuations in the Company's revenues and operating profitability.
LIQUIDITY AND CAPITAL RESOURCES
On March 12, 1998, the Company issued $144.0 million aggregate principal
amount at maturity of Units consisting of Old Notes and Shares. Until March 15,
2003, no interest will accrue on the Old Notes, but the Accreted Value will
increase between the date of original issuance and March 15, 2003. Beginning on
March 15, 2003, interest on the Old Notes will accrue at the rate of 12 3/4%
per annum and will be payable in cash semi-annually in arrears on March 15 and
September 15 of each year, commencing on September 15, 2003. The Old Notes will
mature on March 15, 2008. See "Prospectus Summary--Issuance of the Old Notes."
RECENT DEVELOPMENTS
On February 11, 1998, Fonda reached an agreement with Kamine, the owner of
the co-generation facility hosted by Fonda at the Natural Dam mill, whereby
Kamine will terminate its obligations to supply steam to Natural Dam and to
make certain land lease payments in return for a lump sum cash payment and the
delivery of certain equipment. The consummation of this agreement is subject to
various conditions, including the negotiation and execution of a definitive
agreement and the consummation of a master restructuring agreement among
Niagara and sixteen independent power producers, including Kamine. The Company
expects Fonda to record a gain upon the consummation of the transaction
contemplated by this agreement, however, there can be no assurance that such
transaction will be consummated.
On March 12, 1998, Fonda entered into a five-year licensing agreement with
its affiliate, CEG, subject to extension, whereby CEG will manufacture and
distribute certain party goods products currently manufactured by Fonda. In
connection therewith, Fonda will receive a royalty equal to 5% of CEG's cash
flow, as determined in accordance with a formula specified in such agreement.
In Fiscal 1997, Fonda's net sales of such party goods products were
approximately $30 million. The Company expects Fonda's fixed and variable costs
to decrease and it expects to reduce Fonda's accounts receivable and inventory
by approximately $9 million as a result of such licensing agreement. The
Company believes that such transaction will have a favorable impact on Fonda's
results of operations.
On March 24, 1998, Fonda consummated the agreement with Cellu, whereby
Cellu acquired substantially all of the fixed assets and certain related
working capital of the Natural Dam mill in Gouverneur, New York, pursuant to
which Fonda realized net proceeds, after expenses, of approximately $25
million, subject to a post-closing adjustment for working capital.
In connection with the consummation of the Sweetheart Investment,
Sweetheart incurred $4.4 million of financial advisory and legal expenses and
$2.6 million of severance expenses as a result of the termination of certain
officers of Sweetheart pursuant to executive separation agreements (such
expenses are collectively defined herein as the "Sweetheart Reduction"). See
"Unaudited Pro Forma Financial Information." For the three month period ended
March 31, 1998, Sweetheart also expects to recognize additional one time
charges of approximately $15 million related to further cost cutting
initiatives including work force reduction and facility rationalization. Such
charges will consequently have an adverse impact on Sweetheart's results of
operations for such period. As a result of the applications of
53
<PAGE>
purchase accounting by SF Holdings for the Sweetheart Investment, the expenses
described above will have no effect on SF Holdings' results of operations.
FONDA RESULTS OF OPERATIONS
<TABLE>
<CAPTION>
FISCAL YEAR ENDED JULY
-------------------------------------------------------------------------
1995 1996 1997
----------------------- ------------------------ ------------------------
PERCENT OF PERCENT OF PERCENT OF
AMOUNT NET SALES AMOUNT NET SALES AMOUNT NET SALES
---------- ------------ ----------- ------------ ----------- ------------
(DOLLARS IN MILLIONS)
<S> <C> <C> <C> <C> <C> <C>
Net sales .................. $ 97.1 100.0% $ 204.9 100.0% $ 252.5 100.0%
Cost of goods sold ......... 76.3 78.6 161.3 78.7 196.3 77.7
------- ----- -------- ----- -------- -----
Gross profit ............... 20.8 21.4 43.6 21.3 56.2 22.3
Selling, general and
admin. expenses ........... 14.1 14.5 29.7 14.5 37.2 14.7
Other income, net .......... -- -- -- -- ( 1.6) 6.0
------- ----- -------- ----- -------- -----
Income from operations ..... $ 6.7 6.9% $ 13.9 6.8% $ 20.6 8.2%
======= ===== ======== ===== ======== =====
EBITDA ..................... $ 8.4 8.6% $ 17.3 8.4% $ 23.9 9.5%
<PAGE>
<CAPTION>
SIX MONTHS ENDED JANUARY
------------------------------------------------
1997 1998
------------------------ -----------------------
PERCENT OF PERCENT OF
AMOUNT NET SALES AMOUNT NET SALES
----------- ------------ ----------- -----------
(DOLLARS IN MILLIONS)
<S> <C> <C> <C> <C>
Net sales .................. $ 124.4 100.0% $ 136.7 100.0%
Cost of goods sold ......... 97.0 78.0 108.1 79.1
-------- ----- -------- -----
Gross profit ............... 27.4 22.0 28.6 20.9
Selling, general and
admin. expenses ........... 19.5 15.7 19.8 14.5
Other income, net .......... -- -- -- --
-------- ----- -------- -----
Income from operations ..... $ 7.9 6.3% $ 8.8 6.4%
======== ===== ======== =====
EBITDA ..................... $ 10.7 8.6% $ 11.3 8.3%
</TABLE>
FONDA--SIX MONTHS ENDED JANUARY 25, 1998 COMPARED TO SIX MONTHS ENDED JANUARY
26, 1997
Net sales increased $12.3 million, or 9.9%, to $136.7 million, in the six
months ended January 25, 1998 compared to $124.4 million in the six months
ended January 26, 1997. The increase in net sales included a $12.9 million
increase in the Company's converting operations primarily due to sales volume
from businesses acquired in the fourth quarter of Fiscal 1997, as well as
increased sales volume in converted tissue products. Sales volume in the
converting operations increased 12% in the institutional markets and 9% in the
consumer markets, Average selling prices were slightly higher, including a 2%
increase in the institutional markets and a 1% increase in the consumer
markets. Net sales of tissue mill products declined $0.6 million as increased
sales of commodity white paper from the new paper machine were offset by
reduced volume of deep tone paper due to competitive market conditions. In
January 1998, the Natural Dam mill was not operational for nine days as a
result of a severe ice storm which interrupted the availability of electricity
and steam.
Gross profit increased $1.2 million, or 4.4%, to $28.6 million in the six
months ended January 25, 1998 compared to $27.4 million in the six months ended
January 26, 1997. As a percentage of net sales, gross profit decreased from
22.0% in the six months ended January 26, 1997 to 20.9% in the six months ended
January 25, 1998. Gross profits in the converting operations increased $2.6
million. The results of operations from businesses acquired in the fourth
quarter of Fiscal 1997 and higher margins in converted tissue products were
partially offset by increased costs of paperboard, which were not recovered
through price adjustments. Gross profits of tissue mill products declined $1.4
million due to the increased sales of lower margin white paper and reduced
sales of higher margin deep tone paper, as well as increased manufacturing
costs resulting from the start-up of the second paper machine. As a result of
the ice storm, the Natural Dam mill sustained property damage and experienced a
temporary shut down. The Company maintains insurance policies which cover
losses of this type, and expects to recover a significant portion of these
costs. However, there can be no assurance that all of these costs will be
recovered.
Selling, general and administrative expenses increased $0.3 million, or
1.5%, to $19.8 million in the six months ended January 25, 1998 compared to
$19.5 million in the six months ended January 26, 1997. As a percentage of net
sales, selling, general and administrative expenses decreased from 15.7% in the
six months ended January 26, 1997 to 14.5% in the six months ended January 25,
1998.
Income from operations increased $0.9 million, or 11.6% to $8.8 million in
the six months ended January 25, 1998 compared to $7.9 million in the six
months ended January 26, 1997 due to the reasons discussed above. As a
percentage of net sales, income from operations remained relatively unchanged.
Interest expense, net of interest income, increased $1.5 million, or 32.2%
to $6.0 million in the six months ended January 25, 1998 compared to $4.5
million in the six months ended January 26, 1997. The
54
<PAGE>
increase was due to higher borrowing levels resulting from the issuance in the
third quarter of Fiscal 1997 of the Senior Notes, which replaced higher
interest rate debt.
As a result of the above, net income was $1.6 million in the six months
ended January 25, 1998 compared to $1.9 million in the six months ended January
26, 1997.
EBITDA increased $0.6 million in the six months ended January 25, 1998
primarily for the reasons stated above. Depreciation and amortization decreased
$0.2 million.
FONDA--FISCAL 1997 COMPARED TO FISCAL 1996
Net sales increased $47.6 million, or 23.2%, to $252.5 million in Fiscal
1997 compared to $204.9 million in Fiscal 1996. This increase was a result of a
full year's results of operations for the acquisitions consummated in Fiscal
1996 and two month's results of operations for the 1997 Fonda Acquisitions,
which was partially offset by a $5.8 million decline in net sales due to lower
average selling prices. The lower selling prices arose from competitive market
conditions and lower raw material costs. During Fiscal 1997, prices declined
about 13% in the institutional market and 5% in the consumer market. These
lower selling prices were partially offset by higher sales volumes of 8% and 4%
in the institutional and consumer markets, respectively.
Gross profit increased $12.6 million, or 28.9%, to $56.2 million in Fiscal
1997 compared to $43.6 million in Fiscal 1996, primarily due to the
acquisitions consummated in Fiscal 1996. As a percentage of net sales, gross
profit improved slightly from 21.3% in Fiscal 1996 to 22.2% in Fiscal 1997.
Gross profits increased in the consumer market, primarily due to a 14% decline
in SBS paperboard costs, but were offset by lower gross profits in the
institutional market. Margins for the institutional market were reduced
primarily as a result of competitive market conditions which lowered selling
prices.
Selling, general and administrative expenses increased $7.4 million, or
25.0%, to $37.2 million in Fiscal 1997 compared to $29.7 million in Fiscal
1996. This increase was primarily due to the incurrence of additional expenses
and corporate overhead assumed in connection with the acquisitions consummated
in Fiscal 1996. As a percentage of net sales, selling, general and
administrative expenses increased slightly from 14.5% in 1996 to 14.7% in 1997.
Other income, net includes a gain of a net $2.9 million in Fiscal 1997
from the settlement of a lawsuit. Partially offsetting this gain was a $1.3
million charge for costs of the closure of Fonda's Three Rivers, Michigan
facility. The charge covers the costs for the termination of employees as well
as ongoing costs to maintain the facility until its disposition.
Income from operations increased $6.8 million, or 48.7%, to $20.6 million
in Fiscal 1997 compared to $13.9 million in Fiscal 1996, due to the reasons
discussed above. Excluding the $1.6 million net gain included in other income,
income from operations increased, as a percentage of net sales, from 6.8% in
Fiscal 1996 to 7.5% in Fiscal 1997.
Interest expense, net of interest income, increased $1.1 million, or
13.7%, to $9.0 million in Fiscal 1997 compared to $7.9 million in Fiscal 1996
due to higher borrowing levels primarily resulting from the acquisitions
consummated in Fiscal 1996 and the issuance of the Fonda Notes. See "--Fonda
Liquidity and Capital Resources." Partially offsetting the higher borrowing
levels were the lower interest rates on such notes.
Income before income taxes and extraordinary loss increased to $11.6
million in Fiscal 1997 from $5.9 million in Fiscal 1996. Fonda's effective
income tax rate was 42% in both years.
Fonda incurred a $3.5 million extraordinary loss (net of a $2.5 million
income tax benefit) in connection with the early retirement of debt consisting
of the write-off of unamortized debt issuance costs, elimination of unamortized
debt discount, and prepayment penalties. As a result of the above, net income
was $3.2 million in Fiscal 1997 compared to $3.4 million in Fiscal 1996.
EBITDA increased $6.6 million, or 38.3%, to $23.9 million in Fiscal 1997
compared to $17.3 million in Fiscal 1996 for the reasons stated above.
Depreciation and amortization increased to $4.4 million from $3.5 million as a
result of the acquisitions consummated in Fiscal 1996.
55
<PAGE>
FISCAL 1996 COMPARED TO FISCAL 1995
Fonda's net sales increased $107.8 million, or 111.1%, to $204.9 million
in Fiscal 1996 compared to $97.1 million in Fiscal 1995. Approximately 70% of
this increase reflects a full year's results for the Hoffmaster division which
also included seven months of results of operations for the Chesapeake
acquisition. Approximately 7% of this increase is attributable to three months
of results of operations of the James River acquisition which was acquired by
Fonda in May 1996. Sales growth was also driven by a 13% increase in shipments
by the Fonda division, which is primarily due to improved integration and
marketing efforts, and a 5% increase in selling prices.
Gross profit increased by $22.8 million, or 109.4%, to $43.6 million in
Fiscal 1996 compared to $20.8 million in Fiscal 1995. Approximately 70% of this
increase is due to the acquisition of Hoffmaster, for the reasons stated above.
Gross profits as a percentage of net sales was approximately 21.4% in both
periods. The inclusion of the Hoffmaster division results was offset in part by
an increase in cost of goods sold as a percentage of sales at the Fonda
division. In the first half of Fiscal 1996, Fonda experienced increased raw
material costs as a result of continuous price increases during Fiscal 1995,
which affected the Fonda division. Raw material costs stabilized and began to
decline in the latter part of Fiscal 1996 but nevertheless increased
approximately 15% during the year.
Selling, general and administrative expenses increased $15.6 million, or
110.7%, to $29.7 million in Fiscal 1996 compared to $14.1 million in Fiscal
1995, primarily as a result of Fonda's increased presence in consumer markets
as a result of the Chesapeake and Maspeth acquisitions, as well as a full
year's results for the Hoffmaster division. As a percentage of net sales,
however, selling, general and administrative expenses remained relatively
constant at approximately 14.5%.
Income from operations increased $7.2 million, or 106.6%, to $13.9 million
in Fiscal 1996 compared to $6.7 million in Fiscal 1995. As a percentage of net
sales, operating income remained unchanged at 6.9%. Costs of integrating the
Chesapeake and Maspeth acquisitions and slightly lower selling prices were
offset by cost savings achieved in overhead reduction, improved fixed cost
absorption and lower procurement costs.
Interest expense increased $5.0 million as a result of the debt incurred
in connection with the Hoffmaster acquisition and the acquisitions consummated
in Fiscal 1996. Fonda's effective income tax rate was 42% in both periods.
EBITDA increased $8.9 million, or 106.6%, to $17.3 million in Fiscal 1996
compared to $8.4 million in Fiscal 1995 for the reasons stated above.
Depreciation and amortization increased from $1.7 million in Fiscal 1995 to
$3.5 million in Fiscal 1996, primarily as a result of the Hoffmaster
acquisition.
FONDA LIQUIDITY AND CAPITAL RESOURCES
Historically, Fonda has relied on cash flows from operations and
borrowings to finance its working capital requirements, capital expenditures
and acquisitions.
Net cash used in operating activities for the six months ended January 25,
1998 was $9.3 million compared to $4.8 million for the six months ended January
26, 1997. The six month period ended January 25, 1998 includes the receipt of
$2.9 million resulting from the settlement of a lawsuit. Net cash provided by
operating activities for Fiscal 1997 was $8.3 million compared to $17.7 million
for Fiscal 1996. The higher level of net cash provided by operating activities
in Fiscal 1996 reflects the consolidation of the working capital assets
acquired in the Hoffmaster acquisition. This increase was primarily due to a
reduction in the level of accounts receivable and an increase in accounts
payable and accrued expenses.
Fonda's investing activities are primarily capital expenditures and
business acquisitions. Capital expenditures in the six months ended January 25,
1998 were $4.4 million, including $1.7 million related to the installation of a
second paper machine at the Natural Dam mill. The remaining $2.7 million in
such period and the capital expenditures in the six months ended January 26,
1997 were for routine capital improvements. Capital expenditures in Fiscal 1997
were $10.4 million, including $8.2 million related to the
56
<PAGE>
installation of the second paper machine at the Natural Dam mill. The remaining
$2.2 million in Fiscal 1997 and most of the capital expenditures in prior years
were for routine capital improvements. Fonda spent $23.0 million in Fiscal
1997, $45.2 million in Fiscal 1996 and $28.0 million in Fiscal 1995 for the
Fonda Acquisitions.
In February 1997, Fonda entered into the Fonda Credit Facility which
provides up to $50.0 million borrowing capacity, collateralized by eligible
accounts receivable and inventories. At January 25, 1998, $6.0 million was
outstanding under the Fonda Credit Facility and $33.2 million was the maximum
advance available based upon eligible collateral.
Pursuant to the terms of the Fonda Credit Facility, Fonda is subject to
certain affirmative and negative covenants customarily contained in agreements
of this type, including, without limitation, covenants that restrict, subject
to specified exceptions (i) mergers, consolidations, asset sales or changes in
capital structure, (ii) creation or acquisition of subsidiaries, (iii) purchase
or redemption of Fonda's capital stock or declaration or payment of dividends
or distributions on such capital stock, (iv) incurrence of additional
indebtedness, (v) investment activities, (vi) granting or incurrence of liens
to secure other indebtedness, (vii) prepayment or modification of the terms of
subordinated indebtedness and (viii) engaging in transactions with affiliates.
In addition, the Fonda Credit Facility requires that Fonda satisfy certain
financial covenants.
The Fonda Notes bear interest at a rate of 9 1/2% per annum, payable
semi-annually in March and September and will mature on March 1, 2007. See
"Description of Certain Indebtedness."
In April 1997, Fonda offered to repurchase up to 74,000 shares of Class A
common stock of Fonda (the "Fonda Class A Common Stock") at $135 per share from
its stockholders on a pro rata basis (the "Fonda Stock Repurchase"). Pursuant
to the Fonda Stock Repurchase, during Fiscal 1997 Fonda redeemed 500 shares of
Fonda Class A Common Stock and 1,000 shares of Class B common stock of Fonda
for $0.2 million; during the six months ended January 25, 1998, Fonda redeemed
72,500 shares of Fonda Class A Common Stock for $9.8 million. The Company has
completed such stock repurchase.
During the six months ended January 25, 1998 and Fiscal 1997, Fonda did
not incur material costs for compliance with environmental laws and
regulations.
The Company believes that cash generated by Fonda's operations, combined
with amounts available under the Fonda Credit Facility, will be sufficient to
meet Fonda's capital expenditure needs, debt service requirements and working
capital needs for the foreseeable future.
SWEETHEART RESULTS OF OPERATIONS
<TABLE>
<CAPTION>
FISCAL YEAR ENDED SEPTEMBER
--------------------------------------------------------------------------
1995 1996 1997
------------------------ ------------------------ ------------------------
PERCENT OF PERCENT OF PERCENT OF
AMOUNT NET SALES AMOUNT NET SALES AMOUNT NET SALES
----------- ------------ ----------- ------------ ----------- ------------
(DOLLARS IN MILLIONS)
<S> <C> <C> <C> <C> <C> <C>
Net sales .................... $ 986.6 100.0% $ 959.8 100.0% $ 886.0 100.0%
Cost of goods sold ........... 779.5 79.0 748.0 77.9 722.5 81.5
-------- ----- -------- ----- -------- -----
Gross income ................. 207.1 21.0 211.8 22.1 163.5 18.5
Transportation ............... 95.1 9.6 98.7 10.3 98.5 11.1
Selling, general and
admin. expenses ............. 66.1 6.7 61.8 6.4 66.8 7.5
Loss on asset disposal and
impairment .................. -- -- -- -- 24.5 2.8
Restructuring Expense ........ -- -- -- -- 9.7 1.1
-------- ----- -------- ----- -------- -----
Income (loss) from
operations .................. $ 45.9 4.7% $ 51.3 5.3% $ (36.0) ( 4.1)%
======== ===== ======== ===== ========= =====
EBITDA ....................... $ 82.6 8.4% $ 88.2 9.2% $ 44.0 5.0%
<PAGE>
<CAPTION>
THREE MONTHS ENDED DECEMBER
------------------------------------------------
1996 1997
------------------------ -----------------------
PERCENT OF PERCENT OF
AMOUNT NET SALES AMOUNT NET SALES
----------- ------------ ----------- -----------
(DOLLARS IN MILLIONS)
<S> <C> <C> <C> <C>
Net sales .................... $ 202.1 100.0% $ 201.9 100.0%
Cost of goods sold ........... 176.9 87.5 164.3 81.4
------- ----- ------- -----
Gross income ................. 25.2 12.5 37.6 18.6
Transportation ............... 22.5 11.1 23.7 11.7
Selling, general and
admin. expenses ............. 16.2 8.0 19.1 9.5
Loss on asset disposal and
impairment .................. -- -- -- --
Restructuring Expense ........ -- -- -- --
------- ----- ------- -----
Income (loss) from
operations .................. $ (13.4) ( 6.6)% $ (5.2) ( 2.6)%
======== ===== ======== =====
EBITDA ....................... $ (2.6) 1.3% $ 5.7 2.8%
</TABLE>
57
<PAGE>
SWEETHEART--THREE MONTHS ENDED DECEMBER 31, 1997 COMPARED TO THREE MONTHS ENDED
DECEMBER 31, 1996
Net sales decreased $0.1 million to $202.0 million for the three months
ended December 31, 1997, compared to $202.1 million for the comparable 1996
period. Net sales for the three months ended December 31, 1997 reflect a 4.2%
increase in domestic sales volume and a 4.6% decrease in domestic sales price.
Food service selling prices decreased 4.9% while food packaging selling prices
decreased 1.7%. Prices have been impacted by declining raw material prices and
competition in the marketplace during 1997. The benefits of lower raw material
prices are generally passed on to customers. Food service sales volume
increased 4.5% while food packaging sales volume increased 2.4%. Sales volume
measures the dollar value of unit sales, assuming constant prices between
periods. The increase in sales volume is primarily attributable to increased
market penetration into key food service distributors. Canadian sales increased
0.5% from the prior year.
Cost of sales decreased $12.6 million, or 7.1%, to $164.3 million for the
three months ended December 31, 1997 compared to $176.9 million for the
comparable 1996 period. As a percentage of net sales, cost of sales decreased
to 81.3% for the three months ended December 31, 1997 from 87.5% for the
comparable 1996 period. Gross income increased $12.4 million, or 49.2%, to
$37.6 million for the three months ended December 31, 1997 compared to $25.2
million for the comparable 1996 period. The increase in gross income can be
attributed to several factors. Sweetheart implemented cost reduction programs
in Fiscal 1997, including plant consolidation and manufacturing and operational
improvements, which have favorably impacted costs in Fiscal 1998. Sweetheart is
also focusing on increasing sales of higher margin product lines to improve
gross income. Additionally, in the first quarter of Fiscal 1997, Sweetheart
executed a planned inventory reduction resulting in $5.0 million of fixed
overhead absorption into cost of sales. A similar inventory reduction was not
necessary in the first quarter of Fiscal 1998, resulting in a positive
year-to-year comparison.
Transportation costs have increased $1.2 million, or 5.3%, to $23.7
million for the three months ended December 31, 1997 compared to $22.5 million
for the comparable 1996 period, mainly due to the sales volume increases
described above.
Selling, general and administrative expenses increased $2.9, million or
17.9%, to $19.1 million for the three months ended December 31, 1997 compared
to $16.2 million for the comparable 1996 period. As a percentage of net sales,
selling, general and administrative expenses increased to 9.5% for the three
months ended December 31, 1997 from 8.0% for the same period in 1996. This
increase is due primarily to increased employee benefits, both performance and
non-performance related, an executive retention plan, and costs associated with
the new management information system.
Operating loss decreased $8.2 million, or 61.2%, to $5.2 million for the
three months ended December 31, 1997 compared to $13.4 million for the
comparable 1996 period, due to the reasons described above.
Interest expense increased $1.1 million, or 11.0%, to $11.1 million for
the three months ended December 31, 1997 compared to $10.0 million for the
comparable 1996 period, due primarily to slightly higher average use of
revolving credit borrowings and incremental interest paid on the portion of the
new revolving bank loan used to refinance the old notes.
Other income increased $3.3 million to $3.6 million for three months ended
December 31, 1997 compared to $0.3 million for the comparable 1996 period,
primarily due to the $3.5 million gain on the Sweetheart Bakery Disposition.
Income tax benefit was $5.1 million for the three months ended December
31, 1997 compared to $9.2 million for the same period in 1996, a change of $4.1
million. The effective tax rate for the three months ended December 31, 1997
and 1996 was 40.0%.
Cumulative effect of change in accounting principle was an expense
recorded to write-off previously capitalized costs as explained in Note 2 to
the Notes to Sweetheart's Financial Statements.
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Net loss decreased $4.8 million, or 34.5%, to $9.1 million for the three
months ended December 31, 1997 compared to $13.9 million for the comparable
1996 period, a change of $4.8 million, due to the reasons described above.
SWEETHEART--FISCAL 1997 COMPARED TO FISCAL 1996
Sweetheart's net sales decreased $73.8 million, or 7.7%, to $886.0 million
in Fiscal 1997 compared to $959.8 million in Fiscal 1996. The decrease in net
sales reflects a 2.9% decrease in domestic sales volume and a 4.4% decrease in
average domestic sales prices. Food service selling prices decreased 4.5% while
food packaging selling prices decreased 3.5%. Sweetheart's selling prices have
been negatively impacted by falling raw material prices and by competition in
the marketplace. The benefits of lower raw material prices are generally passed
on to customers. Food service sales volume decreased 1.7% while food packaging
sales volume decreased 11.5%. Sales volume measures the dollar value of unit
sales, assuming constant prices between periods. The decrease in food service
sales volume is primarily attributable to decreases in the national and club
store market segments offset by higher food service distributor account volume.
The decrease in food packaging sales volume is primarily attributable to
decreases in demand experienced by key accounts in their customer base in both
the cultured and frozen segments. Canadian net sales decreased 2.1% from the
prior year.
Cost of sales decreased $25.6 million, or 3.4%, to $722.5 million in
Fiscal 1997 compared to $748.1 million in Fiscal 1996. As a percentage of net
sales, cost of sales increased to 81.5% in Fiscal 1997 from 77.9% in Fiscal
1996. Sweetheart has implemented initiatives which have reduced variable
manufacturing costs to offset price conditions in the marketplace described
above. As a result, raw material and labor costs have been held constant as a
percentage of sales despite lower selling prices to customers. Although
overhead spending was contained at 1996 levels, this cost as a percentage of
net sales has increased. In addition, year-to-date results have been impacted
by changes in overhead absorption relating to planned inventory reductions.
Overhead costs are allocated and absorbed into inventory when inventory is
produced and expensed when inventory is sold. As a result, profit comparisons
can be materially affected when a change in inventory levels during a period
differs significantly from the change in the prior year period. In Fiscal 1996,
inventory levels increased, resulting in an absorption of fixed costs into
inventory. In Fiscal 1997, inventory levels declined, and the fixed costs
associated with inventories sold were recognized. This has resulted in a
year-to-year unfavorable impact on cost of sales of $10.5 million.
Gross income decreased $48.3 million, or 22.8%, to $163.5 million in
Fiscal 1997 compared to $211.8 million in Fiscal 1996 due to the reasons
described above.
Transportation expense decreased $0.2 million, or 0.2%, to $98.5 million
in Fiscal 1997 compared to $98.7 million in Fiscal 1996 due to lower volume
shipped. As a percent of net sales, transportation expense increased to 11.1%
in Fiscal 1997 from 10.3% in Fiscal 1996. This increase, in relation to sales,
is primarily the result of the selling price decreases referred to above.
Selling, general and administrative expenses increased $5.0 million, or
8.0%, to $66.8 million in Fiscal 1997 compared to $61.8 million in Fiscal 1996.
As a percentage of net sales, selling, general and administrative expenses
increased to 7.5% in Fiscal 1997 from 6.4% in Fiscal 1996. Approximately $3
million of the increase relates to expenditures on new management information
systems, while the remainder reflects investment in the food service
distribution selling activity and normal inflation in the wage base. All other
selling, general and administrative expenses were held below prior year levels.
Loss on asset disposal and impairment of $24.6 million was recorded in the
fourth quarter of Fiscal 1997 relating to the review of the carrying value of
Sweetheart's long-lived assets. See Note 14 of Notes to the Financial
Statements of Sweetheart.
Restructuring expense of $9.7 million was recorded in the fourth quarter
of Fiscal 1997 relating to plant closures and other expenses as part of
Sweetheart's strategic planning process. See Note 14 of Notes to the Financial
Statements of Sweetheart.
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Operating loss was $36.0 million in Fiscal 1997 compared to operating
income of $51.3 million in Fiscal 1996, a change of $87.3 million or 170.2%,
due to the reasons described above.
Interest expense increased $3.0 million, or 7.7%, to $41.8 million in
Fiscal 1997 compared to $38.8 million in Fiscal 1996, due primarily to higher
average usage of short-term borrowings.
Other income (expense) increased to $1.6 million of income in Fiscal 1997
from $3.0 million of expense in Fiscal 1996, an increase of $4.6 million.
Fiscal 1996 was unfavorably impacted by one-time expenses incurred by
Sweetheart relating to an investigation of Sweetheart's strategic alternatives.
Income tax benefit (expense) was $30.5 million of benefit in Fiscal 1997
compared to $3.8 million of expense in Fiscal 1996, a change of $34.3 million.
The effective tax rate for Fiscal 1997 and Fiscal 1996 was 40.0%.
Extraordinary loss of $0.9 million (net of $0.6 million in income taxes)
was recorded in the fourth quarter of Fiscal 1997 relating to the write-off of
deferred financing fees associated with a portion of Sweetheart's debt, which
was refinanced subsequent to September 30, 1997.
Net loss was $46.7 million in Fiscal 1997 compared to net income of $5.7
million in Fiscal 1996, a change of $52.4 million, due to the reasons described
above.
SWEETHEART--FISCAL 1996 COMPARED TO FISCAL 1995
Net sales decreased $26.8 million, or 2.7%, to $959.8 million in Fiscal
1996 compared to $986.6 million in Fiscal 1995. The decrease in net sales
reflects a 1.7% decrease in domestic sales volume and a 1.0% decrease in
domestic sales price. Food service selling prices decreased 1.2% while food
packaging selling prices decreased 0.5%. Food service sales volume decreased
1.4% while food packaging sales volume decreased 3.9%. Sales volume measures
the dollar value of unit sales, assuming constant prices between periods. The
decrease in food service sales volume is primarily attributable to decreases in
the distributor and club store market segments offset by higher national
account volume. The decrease in food packaging sales volume is primarily due to
the withdrawal of Sweetheart's Contour-Pak line from the food packaging market
and a decrease in the cultured products and frozen novelty market segments.
Canadian sales increased 2.5% from the prior year.
Cost of sales decreased $31.4 million, or 4.0%, to $748.1 million in
Fiscal 1996 compared to $779.5 million in Fiscal 1995. As a percentage of net
sales, cost of sales decreased to 77.9% in Fiscal 1996 from 79.0% in Fiscal
1995. The decrease in cost of sales as a percentage of net sales was due
primarily to significant changes between the periods in overhead costs absorbed
into inventory. Overhead costs are allocated and absorbed into inventory when
inventory is produced and expensed when inventory is sold. As a result, profit
comparisons can be affected when a change in inventory levels during a period
differs from the change in the prior year period. Finished goods inventory
levels increased to $137.7 million at September 30, 1996 from $104.6 million at
September 30, 1995, which resulted in a favorable impact on cost of sales of
$10.6 million relating to the absorption of fixed overhead costs. Additionally,
Sweetheart realized a 10.4% decrease in material costs from the prior year,
offset by an unfavorable shift in product mix.
Gross income increased $4.7 million, or 2.3%, to $211.8 million in Fiscal
1996 compared to $207.1 million in Fiscal 1995 due to the reasons described
above.
Selling, general and administrative expenses decreased $4.3 million, or
6.5%, to $61.8 million in Fiscal 1996 compared to $66.1 million in Fiscal 1995.
As a percentage of net sales, selling, general and administrative expenses
decreased to 6.4% in Fiscal 1996 from 6.7% in Fiscal 1995.
Operating income increased $5.4 million, or 11.8%, to $51.3 million in
Fiscal 1996 compared to $45.9 million in Fiscal 1995 due to the reasons
described above.
Interest expense increased $0.1 million, or 0.3%, to $38.8 million in
Fiscal 1996 compared to $38.7 million in Fiscal 1995 due primarily to higher
average usage of short-term borrowings.
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Other income (expense) decreased to $3.0 million of expense in Fiscal 1996
compared to $2.4 million of income in Fiscal 1995, a decrease of $5.4 million.
This decrease was due primarily to one-time expenses relating to the
investigation of Sweetheart's strategic alternatives.
Income tax expense decreased $0.1 million, or 2.6%, to $3.8 million in
Fiscal 1996 compared to $3.9 million in Fiscal 1995. The effective tax rate in
Fiscal 1996 was 40.0% compared to 40.1% in Fiscal 1995.
Net income decreased $0.1 million, or 1.7%, to $5.7 million in Fiscal 1996
compared to $5.8 million in Fiscal 1995 due to the reasons described above.
SWEETHEART LIQUIDITY AND CAPITAL RESOURCES
In the fourth quarter of Fiscal 1997, Sweetheart completed negotiations of
a three-year contract renewal with its largest customer, McDonald's. Although
this agreement results in a lower selling price and less total volume, thereby
resulting in lower margins, Sweetheart did retain a majority of McDonald's
North American volume for cold cups and lids. In addition, Sweetheart committed
to convert McDonald's cold cup volume to a new raw material substrate (from wax
to double-sided polyethylene ("DSP")) over the life of the contract. This will
cause Sweetheart to incur incremental capital expenditures.
On October 24, 1997, Sweetheart refinanced its old revolving loan facility
and other indebtedness and entered into an amended and restated loan and
security agreement (the "Sweetheart U.S. Credit Facility") with BankAmerica
Business Credit, Inc. ("BankAmerica") as agent, which provides for a revolving
credit facility in the amount of up to $135.0 million, subject to borrowing
base limitations. Borrowings under the Sweetheart U.S. Credit Facility have a
final maturity date of September 30, 2000. Sweetheart's Canadian Credit
Facility (as defined herein) provides for (i) a term loan in the amount of up
to Cdn. $14.0 million, (ii) a revolving credit facility in the amount of up to
Cdn. $7.0 million; and (iii) a revolving overdraft credit facility with standby
or guarantee letters of credit in the amount of up to Cdn. $1.0 million. As of
January 31, 1998, $103.0 million under the Sweetheart U.S. Credit Facility has
been borrowed and $6.3 million is available, and Cdn. $6.5 million has been
borrowed under the Sweetheart Canadian Credit Facility and Cdn. $0.4 million is
available. The Sweetheart U.S. Credit Facility and the Sweetheart Canadian
Credit Facility are herein referred to as the "Sweetheart Credit Facilities."
See "Description of Certain Indebtedness."
For the three months ended December 31, 1997, $174.6 million of debt
repayments, which includes the repayment of SRC Notes and the refinancing of
the revolving credit facility, $7.1 million of capital additions, a $10.4
million increase in cash in escrow, $0.8 million of financing fees and a $2.0
million net increase in cash and cash equivalents were funded through a $29.0
million decrease in restricted cash, $15.8 million of proceeds from sale of
property, plant and equipment, $0.7 million of net cash provided by operations
and $149.5 million of proceeds from debt borrowings, which also includes
proceeds from the refinancing.
In Fiscal 1997, $44.2 million of domestic revolving loan borrowings, $2.1
million of borrowings under the Sweetheart Canadian Credit Facility, $17.8
million of proceeds from sale and leaseback of property, plant and equipment,
and a $1.7 million decrease in cash balances were used to fund $47.8 million of
net capital additions, the payment of $0.1 million for industrial revenue bond
principal, $1.4 million of Canadian term loan reductions, a $0.1 million
increase in restricted cash, a $13.3 million increase in cash in escrow, and
$3.2 million of cash used by operations.
Sweetheart's liquidity has been enhanced because it has not been subject
to current income taxes (other than the Alternative Minimum Tax) due to the use
of net operating loss carryforwards for income tax purposes. At September 30,
1997, Sweetheart's net operating loss carryforwards for tax purposes are
approximately $170 million. These net operating loss carryforwards will expire,
if not used, beginning in 2004. See "--Sweetheart Net Operating Loss
Carryforwards."
In September 1996, Sweetheart received $1.2 million of loans from the
State of Maryland Department of Business and Economic Development and the
County of Baltimore. The loans bear interest at 6.0% per annum with a ten year
life and require repayment in equal quarterly installments starting January 1,
1998. On January 1, 1998, the loans converted to interest-free grants.
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Sweetheart Cup Company Inc. ("Sweetheart Cup"), a subsidiary of
Sweetheart, has outstanding $190.0 million aggregate principal amount of 9 5/8%
Senior Secured Notes due 2000 (the "Sweetheart Secured Notes") and $110.0
million aggregate principal amount of 10 1/2% Senior Subordinated Notes due
2003 (the "Sweetheart Subordinated Notes" and together with the Sweetheart
Secured Notes, the "Sweetheart Notes"). See "Description of Certain
Indebtedness."
Sweetheart's principal uses of cash will be capital expenditures, working
capital requirements, and debt service requirements. During Fiscal 1997,
Sweetheart made capital expenditures of approximately $47.8 million. New
product development (including conversion from wax to DSP for cold cups) and
cost reduction accounted for approximately 21% and 37%, respectively, of the
total Fiscal 1997 expenditures. Non-discretionary expenditures represented the
balance of the current year spending. Sweetheart anticipates capital spending
in the future for similar projects, of which approximately $13 million has been
committed for Fiscal 1998 as of December 29, 1997. In addition, Sweetheart may
be required to fund various contingent liabilities at any time, including
amounts accrued for litigation, claims and assessments reflected on the balance
sheet as other current liabilities.
The Company believes that cash generated by Sweetheart's operations and
funds available from working capital borrowings under the Sweetheart Credit
Facilities, as well as funds generated by asset sales, will be sufficient to
meet Sweetheart's expected operating needs, planned capital expenditures and
debt service requirements.
SWEETHEART NET OPERATING LOSS CARRYFORWARDS
As of September 30, 1997, Sweetheart had approximately $170 million of net
operating loss ("NOL") carryforwards for federal income tax purposes. The
acquisition of Sweetheart by AIPM in 1993 resulted in a significant limitation
on Sweetheart's ability to utilize its NOL carryforwards, and the consummation
of the Sweetheart Investment will result in further limitations. Although
Sweetheart has taken certain steps to allow utilization of the NOL
carryforwards and anticipates that a portion of its NOL carryforwards will be
available to offset future taxable income, there can be no assurance that its
NOL carryforwards will become available or that Sweetheart will generate future
taxable income. Accordingly, all or a portion of its NOL carryforwards could
expire unutilized, which could adversely affect Sweetheart's ability to satisfy
its obligations as they become due.
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BUSINESS
GENERAL
The Company is one of the three largest converters and marketers of
disposable food service and packaging products in North America. The Company
sells a broad line of disposable paper, plastic and foam food service and food
packaging products under both branded and private labels to the consumer and
institutional markets, including large national accounts, and participates at
all major price points. The Company conducts its business through two principal
operating subsidiaries, Sweetheart and Fonda, and has marketed its products
under its well recognized Lily (Registered trademark), Sweetheart (Registered
trademark) and Trophy (Registered trademark) brands for over 85, 45 and 15
years, respectively. In addition, the Company's Sensations and Hoffmaster
(Registered trademark) brands are well recognized in the industry. After
giving pro forma effect to the Transactions, the Company would have had net
sales, net income and EBITDA of $1.1 billion, $34.4 million and $79.8 million,
respectively, for the twelve months ended January 25, 1998.
The Company's product offerings are among the broadest in the industry,
enabling it to offer its customers "one-stop" shopping for their disposable
food service and food packaging product needs. The Company's principal products
include (i) paperboard, plastic and foam food service products, primarily cups,
lids, plates, bowls, plastic cutlery and food containers; (ii) tissue and
specialty food service products, primarily napkins and placemats; and (iii)
food packaging products, primarily containers for the dairy and food processing
industries.
The Company sells its products to more than 5,000 customers and serves the
institutional and consumer markets, including large national accounts, located
throughout the United States and Canada. In addition, the Company has developed
and maintained long-term relationships with many of its customers. The
Company's institutional customers, which are served by Sweetheart and Fonda,
include (i) major food service distributors, (ii) national accounts, including
fast-food chains and catering services, and (iii) schools, hospitals and other
major institutions. The Company's consumer customers, which are served by
Fonda, include supermarkets, mass merchandisers, warehouse clubs and other
retailers. The Company's food packaging customers, which are served by
Sweetheart, include national and regional dairy and food companies.
COMPETITIVE STRENGTHS
The Company believes that it has a leading competitive position in the
disposable food service products industry for the following reasons:
o Leading Market Position. The Company serves all markets in the industry.
The Company believes that it holds one of the top three market positions
in each major market segment it serves and for each of its major product
categories. The Company's well recognized brands and long history in the
industry have allowed it to gain its leading market positions. In those
institutional markets served by both of Sweetheart and Fonda, the Company
experiences minimal product redundancy because Sweetheart and Fonda
primarily sell different products to shared customers. The Company also
believes that its multiple distribution channels will enable it to
further penetrate existing markets by cross-marketing new products
through existing channels.
o Brand Recognition. The Company's brands are well recognized in the
industry. The Company's products have been marketed under its Sweetheart
(Registered trademark) and Lily (Registered trademark) brands for over
45 years. The Company believes that it will be able to leverage the
strength of Sweetheart's brands to further penetrate already existing
markets. The Company's Sweetheart (Registered trademark), Lily
(Registered trademark), Trophy (Registered trademark), Jazz (Registered
trademark), Preference (Registered trademark), Silent Service
(Registered trademark), Centerpiece (Registered trademark), Guildware
(Registered trademark), Simple Elegance (Registered trademark) and
Hoffmaster (Registered trademark) brands are well recognized in the
institutional market; and its Sensations, Splash (Registered Trademark)
and Party Creations (Registered trademark) brands are well recognized in
the consumer market.
o Broad Product Offering. The Company believes that its product offering
is one of the broadest in the industry, competing across all major price
points of the markets it serves, and that the Company is the only company
that offers a full selection of premium products as well as a full line
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of private label products. The Company offers its products in paper,
plastic and foam and in a wide range of colors, designs and graphics
which are often printed to the customer's specifications.
The Company's diverse and expansive product offering allows it to better
serve its customers with "one-stop" shopping and enables both the Company
and its customers to differentiate themselves from their respective
competitors. As the industry continues to experience greater customer
concentration resulting from a consolidation of distributors and retail
outlets, as well as an increase in sales to the mass merchandiser and
discount retailer distribution channels, the Company believes that its
broad product offering will continue to provide a competitive advantage.
In addition, the Company believes that its broad product offering enables
it to increase shelf space with its customers. The Company also maintains
facilities for the development of new products and product line
extensions to support a continued broad product offering.
o Extensive Distribution. The Company has 27 manufacturing and
distribution facilities located throughout the United States and Canada.
The Company's extensive geographic coverage enables it to serve large
institutional and consumer accounts on a national basis and to respond to
customers' product needs in an effective and timely manner.
o Experienced Management Team. The Company's senior operating managers
average over 15 years of experience in the food service industry and have
a proven track record in operating companies efficiently and realizing
cost savings from the integration of acquisitions. Upon consummation of
the Sweetheart Investment, certain of Fonda's senior officers became
executive officers of Sweetheart.
BUSINESS STRATEGY
The Company believes that its ownership of Fonda and investment in
Sweetheart will provide it with significant benefits and synergies which it
expects to realize over the next several years. The Company also believes that
it can improve its leading position in the disposable food service products
industry by (i) achieving cost savings from the Transactions, (ii) achieving
operating efficiencies and other synergies from the relationship between
Sweetheart and Fonda and (iii) cross-marketing its products. The Company will
pursue its business strategy through:
o Cost Savings. The Company intends to focus on reducing its costs,
eliminating redundancies and realizing cost efficiencies. The Company
believes that opportunities for cost reductions can be realized through
(i) eliminating the outsourcing of products which will be manufactured
within the Company, (ii) capitalizing on the Company's combined
purchasing leverage with respect to raw materials and other procured
items, such as packaging materials, (iii) eliminating duplicative
administration, sales and marketing expenses and (iv) making selective
capital expenditures intended to realize manufacturing and distribution
savings.
o Operating Efficiencies and Other Synergies. The Company intends to focus
on achieving operating efficiencies and other synergies from the
relationship between Sweetheart and Fonda. The Company believes that it
can operate more efficiently by (i) rationalizing its facilities through
a more efficient use of its manufacturing equipment, (ii) eliminating
duplicative product offerings and (iii) improving customer service as a
result of its geographic diversification. In addition, the Company
intends to evaluate potential benefits, including cost savings, operating
efficiencies and additional synergies, which may be obtained from other
transactions, including certain business combinations, among the
affiliated group.
o Sales and Marketing. The Company seeks to maintain a balanced presence
in the markets it serves by cross-marketing Sweetheart and Fonda's
respective products to further penetrate their distribution channels. In
addition, in order to better serve its customers, the Company also
focuses on developing new product designs, increasing brand awareness and
channel marketing. The Company believes that new product designs provide
customers recognized value by offering alternatives in color and style.
The Company supports its brand identity and private label program through
enhanced packaging and promotion. Additionally, the Company seeks,
through its direct sales force, to create "pull-through" demand by
marketing directly to end-users in order
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to create additional demand from institutional distributors for the
Company's products. Sweetheart and Fonda also intend to enter into joint
marketing and sales agreements which will be designed to eliminate
duplicative marketing and sales expenses at both companies.
PRODUCTS
General. The Company's principal products include: (i) paperboard, plastic
and foam food service products, such as white, colored and printed paper,
plastic and foam plates and bowls, paper, plastic and foam cups for both hot
and cold drinks and lids, straws, plastic cutlery, paper and plastic handled
food pails, food containers and trays for take-out of fast food; (ii) tissue
and specialty food service products, such as printed and solid napkins, printed
and solid tablecovers, crepe paper, placemats, doilies, tray covers, fluted
products and paper and plastic portion cups; and (iii) food packaging products,
such as paper and plastic containers for the dairy and food processing
industries. The Company believes it holds one of the top three market positions
in white paper plates, decorated plates, bowls and cups in the consumer market,
as well as in plastic, paper and foam cups, plates, bowls, plastic cutlery,
lids, food containers, food pails, trays and premium napkins in the
institutional market. The Company also believes it is the second largest
supplier, in terms of sales, of containers to the frozen dessert and cultured
dairy products segments of the food packaging industry in North America. These
products are sold nationwide to supermarkets, restaurant franchises, discount
store chains and major food distributors.
PAPERBOARD, PLASTIC AND FOAM FOOD SERVICE PRODUCTS
Beverage Service Products. Paper, plastic and foam cups, which represent
the largest portion of Sweetheart's sales, are sold to both the consumer and
institutional markets, including national accounts. Both Sweetheart and Fonda
offer a number of attractive cup and lid combinations for both hot and cold
beverages. Cups for the consumption of cold beverages are generally plastic or
wax coated for superior rigidity or made of DSP, which permits the printing of
better quality graphics, while cups for the consumption of hot beverages are
made from paper which is poly-coated on one side or foam to provide a barrier
to heat transfer. Printed paper and plastic cups are often used as promotional
items by Sweetheart's customers. Sweetheart sells plastic straws exclusively to
the institutional market. Sweetheart's beverage service products are sold under
the Sweetheart (Registered trademark), Lily (Registered trademark), Trophy
(Registered trademark), Preference (Registered trademark), Jazz (Registered
trademark), Gallery (Registered trademark), Clarity (Registered Trademark)
and Lumina (Registered trademark) brand names. Fonda's hot and cold beverage
cups are sold to the consumer market.
Sweetheart operates in Canada through its subsidiary Lily Cups, Inc.
("Lily Cups"), which has been manufacturing and marketing food service
disposables since 1947. Lily Cups is one of the largest providers of food
service disposable products in the Canadian market, primarily as a consequence
of its large portfolio of national account customers. Sales by Lily Cups during
Fiscal 1997 constituted approximately 6% of Sweetheart's gross sales.
Tabletop Service Products. Paper plates and bowls, which represent the
largest portion of Fonda's sales, are sold primarily to the consumer market.
These products include coated and uncoated white paper plates, decorated plates
and bowls. Sweetheart's plastic and foam plates and bowls and plastic cutlery
are sold to the institutional market. White uncoated and coated paper plates
are considered commodity items and are generally purchased by cost-conscious
consumers for everyday use. Printed and decorated plates and bowls are
value-added products and are sold for everyday use as well as for parties and
seasonal celebrations, such as Halloween and Christmas. Sweetheart's foam
dinnerware, a value-added product, and plastic cutlery are sold to the
institutional market under the Silent Service (Registered trademark),
Centerpiece (Registered trademark), Basix (Registered trademark), Guildware
(Registered trademark) and Simple Elegance (Registered trademark) brand
names.
Take-Out Containers. Sweetheart sells paper and plastic food containers
and lids and Fonda sells paper trays and food pails, all of which are used
primarily for the take-out of fast foods and are sold to the institutional
market.
TISSUE AND SPECIALTY FOOD SERVICE PRODUCTS
Tissue Converted Products. Napkins represent the second largest portion of
Fonda's sales and are sold under Fonda's Hoffmaster (Registered Trademark),
Fonda, Sensations, Splash (Registered Trademark) and Party Creations
(Registered Trademark) brand names, as well
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as under national distributor private label names. Napkin products range from
decorated-colored, multi-ply napkins and simple custom printed napkins
featuring an end-user's name or logo to fully printed, graphic-intensive
napkins for the premium paper goods sector. Tablecovers represent one of
Fonda's fastest growing product segments, ranging from economy to premium
product lines, and are sold under the Hoffmaster (Registered trademark),
Linen-Like (Registered trademark), Windsor (Registered trademark),
Sensations, Splash (Registered trademark) and Party Creations (Registered
trademark) brand names. The Company has a broad selection of tablecovers in
one-, two-, and three-ply configurations and produces tablecovers in white,
solid color and one-to four-colored printed products. Fonda also sells crepe
products under the Hoffmaster (Registered trademark), Splash (Registered
trademark) and Party Creations (Registered trademark) brand names.
Specialty Products. The Company sells placemats, traycovers, paper
doilies, plastic and paper portion cups and fluted products in a variety of
shapes and sizes. Fonda produces unique decorated placemats in a variety of
shapes. In addition, Fonda uses a proprietary technology to produce non-skid
traycovers that serve the particular needs of the airline and healthcare
industries.
FOOD PACKAGING PRODUCTS
Sweetheart's food packaging operations sell paper and plastic containers
and lids for ice cream, frozen novelty products and cultured foods (including
sour cream, yogurt, cottage cheese and snack dip), and plastic containers for
single-serving chilled juice products. Other products include Sweetheart's
Flex-E-Form straight-wall paper manufacturing technology and Flex-Guard, a
spiral wound tamper-evident lid.
To enhance product sales, Sweetheart designs, manufactures and leases
container filling and lidding equipment to dairies and other food processors to
package food items in Sweetheart containers at their plants. Sweetheart's
filling and lidding equipment is leased to customers under the Auto-Pak,
Flex-E-Fill and Flex-E-Form trade names. This equipment is manufactured in
Sweetheart's machine shop and assembly plant located in Owings Mills, Maryland.
Types of products packaged in Sweetheart's machines include ice cream,
factory-filled jacketed ice cream cones, cottage cheese, yogurt, squeeze-up
desserts and ice cream sandwiches.
MARKETING AND SALES
The following is a discussion of Sweetheart and Fonda's existing marketing
and sales operations. Sweetheart and Fonda intend to enter into joint marketing
and sales agreements following the Sweetheart Investment which will be designed
to eliminate duplicative marketing and sales expenses.
Sweetheart's marketing efforts are directed at maintaining firsthand
knowledge of its customer needs and structuring Sweetheart's manufacturing and
sales efforts to provide superior products and services tailored to those
needs. Sweetheart's sales force allows it to service a large distributor and
broker network that permits even small accounts to receive appropriate
coverage. Sweetheart sells its products through a sales organization of
approximately 145 salespersons and it sells to more than 4,000 institutional
customers and national accounts throughout the United States and Canada.
Fonda's marketing efforts are principally focused on (i) providing
value-added services; (ii) category expansion by cross marketing products
between the consumer and institutional markets; (iii) developing new graphic
designs which Fonda believes will offer consumers recognized value; and (iv)
increasing brand awareness through enhanced packaging and promotion. Fonda
sells its products through a sales organization of approximately 50
salespersons, as well as independent brokers. Fonda believes that its
experienced sales team and its ability to provide high levels of customer
service enhance its long-term relationships with its customers. Fonda sells to
more than 2,500 institutional and consumer customers located throughout the
United States.
In Fiscal 1997, Sweetheart and Fonda's five largest customers represented
approximately 35% and 17%, respectively, of net sales. One customer of
Sweetheart, McDonald's, accounted for 13.7% of net sales; no one single
customer of Fonda accounted for more than 10% of net sales.
In the fourth quarter of Fiscal 1997, Sweetheart completed negotiations of
a three-year contract renewal with McDonald's. Although this agreement results
in a lower selling price and less total volume,
66
<PAGE>
thereby resulting in lower margins, Sweetheart retained a majority of
McDonald's North American volume for cold cups and lids. In addition, the
Company committed to convert McDonald's cold cup volume to a new raw material
substrate (from wax to DSP) over the life of the contract. This will cause
Sweetheart to incur incremental capital expenditures.
SWEETHEART SALES
Food Service Institutional Market. Sweetheart's food service products are
sold directly to large national accounts, such as fast-food chains and catering
services. Food service products are also sold through distributors to other
end-users, such as independent restaurants, school systems and hospitals.
Sweetheart's national accounts include ARAMARK Corporation, McDonald's and
Wendy's International, Inc., and its major distributor accounts include Alliant
Foodservice Inc., ComSource, Inc., Network, Inc. and Sysco Corporation. This
market represented approximately 89% of Sweetheart's net sales in Fiscal 1997.
Food Packaging Institutional Market. Food packaging containers and filling
machines are marketed directly to national and regional dairies and food
companies. Major customers of Sweetheart's food packaging products include Ben
& Jerry's Homemade, Inc., Blue Bell Creameries, L.P., Borden, Inc. and Prairie
Farms Dairy, Inc. This market represented approximately 11% of Sweetheart's net
sales in Fiscal 1997.
FONDA SALES
Institutional Market. Restaurants, schools, hospitals and other major
institutions comprise Fonda's institutional market. This market represented
approximately 48% of Fonda's net sales in Fiscal 1997. Fonda's predominant
institutional customers of private label products include Sysco Corporation,
Rykoff-Sexton, Inc./U.S. Foodservice Inc. and Alliant Foodservice Inc.
Institutional customers of Fonda's branded products include Sweet Paper Sales
Corp., Smart Food Distributors Incorporated, Bunzl USA, Inc. and Lisanti Food
Incorporated. The institutional market is serviced by dedicated field service
representatives located throughout the United States. The field sales force
works directly with these national and regional distributors to service the
needs of the various segments of the food service industry.
Consumer Market. Supermarkets, mass merchants, warehouse clubs, discount
chains and other retail stores comprise the Fonda consumer market. This market
represented approximately 52% of Fonda's net sales in Fiscal 1997. Fonda's
consumer market is classified into four distribution channels: (i) the grocery
channel, which is serviced through a national and regional network of brokers,
(ii) the retail mass merchant channel, which is serviced directly by field
service representatives, (iii) the specialty (party) channel, which is serviced
through both national and regional networks of brokers and directly by field
service representatives and (iv) the warehouse club channel, which is serviced
both through national and regional networks of brokers and directly by field
service representatives. Customers of Fonda's branded consumer products include
Target Stores (a division of Dayton Hudson Corp.), Wal-Mart Stores, Inc., Kmart
Corporation and The Great Atlantic & Pacific Tea Company, Inc. Fonda's primary
private label customers in the consumer market include The Kroger Co., The
Great Atlantic & Pacific Tea Company, Inc. and The Stop & Shop Companies, Inc.
DISTRIBUTION
Each of the Company's manufacturing facilities includes sufficient
warehouse space to store such facility's raw materials and finished goods as
well as products from the Company's other manufacturing facilities. See
"--Facilities." Shipments of finished goods are made from each facility via
common carrier. Sweetheart is in the process of consolidating its warehouse and
distribution facilities in order to reduce costs and improve its customer
service levels. As part of this consolidation, Sweetheart closed its Clackamas,
Oregon and Sparks, Nevada distribution centers. It is further anticipated that
the Ontario and Riverside distribution centers will be combined in a new west
coast distribution center before fiscal year end. Sweetheart is also evaluating
the establishment of a mid-Atlantic distribution center which will replace
distribution centers located at three east coast locations.
67
<PAGE>
COMPETITION
The disposable food service products industry is highly competitive. The
Company believes that competition is principally based on product quality,
customer service, price and graphics capability. Competitors include large
multinational companies as well as regional and local manufacturers. The
marketplace for these products is fragmented and includes participants that
compete across the full line of products, as well as those that compete with a
limited number of products. Some of the Company's major competitors are
significantly larger than the Company, are vertically integrated and have
greater access to financial and other resources.
Fonda's primary competitors in the paperboard, plastic and foam food
service converted product categories include Imperial Bondware (a division of
International Paper Co.), Fort James Corp. (successor by merger of James River
and Fort Howard Corp.), AJM Packaging Corp., Temple-Inland Inc., Fold-Pak Corp.
and Solo Cup Co. Major competitors in the tissue and specialty food service
converted product categories include Duni Corp., Erving Paper Products Inc.,
Fort James Corp. and Wisconsin Tissue Mills Inc. (a subsidiary of Chesapeake
Corporation). Fonda's competitors also include manufacturers of products made
from plastics and foam. Fonda's competitors in tissue mill products include
Lincoln Pulp and Paper Co., Inc. ("Lincoln"), Little Rapids Corporation and
Cellu Tissue Corporation.Sweetheart's primary competitors in the food service
categories include Dart Group Corporation, Fort James Corp., Solo Cup Co. and
Tenneco Inc. Major competitors in the food packaging categories include
Cardinal Plastics, Inc., Landis Plastics, Inc., Norse Dairy Systems, Inc.,
Polytainer, Ltd. and Sealright Co., Inc.
RAW MATERIALS AND SUPPLIERS
Raw materials are a significant component of the Company's cost structure.
Principal raw materials for the Company's paperboard and tissue operations
include SBS paperboard, napkin tissue, bond paper and waxed bond obtained from
major domestic manufacturers. Other material components include corrugated
boxes, poly bags, wax adhesives, coating and inks. Paperboard, napkin tissue,
bond paper and waxed bond paper are purchased in "jumbo" rolls which may either
be slit for in-line printing and processing, printed and processed or printed
and blanked for processing into final products. Primary suppliers of paperboard
stock are Georgia-Pacific Corp., Temple-Inland Inc., Fort James Corp. and
Gilman Paper Co. Lincoln is the primary supplier of tissue to the Company.
Pursuant to a contract, as amended, with Lincoln, the Company is required to
purchase color and white tissue at the lower of a formula-based price or market
price through December 31, 1999. The principal raw material for the Company's
plastic operations is plastic resin (polystyrene, polypropylene, high density
polyethylene and polyethylene terphalate glycol modified) purchased directly
from major petrochemical companies and other resin suppliers. Resin is
processed and formed into cups, lids, cutlery, meal service products, straws
and containers. The Company manufactures foam products by extruding sheets of
plastic foam material that are converted into cups and plates. The Company has
a number of suppliers for substantially all of its raw materials and believes
that current sources of supply for its raw materials are adequate to meet its
requirements. Fonda purchases the bulk of its SBS paperboard and napkin tissue
under long-term contracts. Sweetheart does not maintain any written contracts
with its suppliers of raw materials.
FACILITIES
The Company has 25 converting facilities located throughout the United
States and two in Canada. All of the Company's facilities are well maintained,
in good operating condition and suitable for the Company's operations.
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<PAGE>
The table below provides summary information regarding the principal
properties owned or leased by Fonda and Sweetheart.
<TABLE>
<CAPTION>
SIZE
(APPROXIMATE
MANUFACTURING/ AGGREGATE OWNED/
LOCATION WAREHOUSE SQUARE FEET) LEASED
- -------- ---------------- -------------- -------
<S> <C> <C> <C>
FONDA CONVERTING FACILITIES
Appleton, Wisconsin ............................ M/W 267,700 O
Glens Falls, New York .......................... M/W 59,100 O
Goshen, Indiana ................................ M/W 63,000 O
Jacksonville, Florida .......................... M/W 70,000 L(1)
Lakeland, Florida .............................. M/W 50,000 L
Maspeth, New York .............................. M/W 130,000 L
Oshkosh, Wisconsin ............................. M/W 484,000 O
St. Albans, Vermont ............................ M 124,900 O
W 182,000 L
Williamsburg, Pennsylvania ..................... M/W 146,000 O(2)
SWEETHEART CONVERTING FACILITIES
Augusta, Georgia ............................... M/W 339,000 O
Conyers, Georgia ............................... M/W 905,000 O
Chicago, Illinois (2 facilities) ............... M/W 902,000 O
W 587,000 L
Dallas, Texas .................................. M/W 1,316,000 O
Manchester, New Hampshire ...................... M/W 160,000 O
North Las Vegas, Nevada (2 facilities) ......... M/W 128,000 L
W 12,000 L
Ontario, California ............................ W 249,000 L(3)
Owings Mills, Maryland (3 facilities) .......... M/W 1,533,000 O
W 267,000 O
W 406,000 O
Scarborough, Ontario (2 facilities) ............ M/W 185,000 O
M/W 207,000 O
Somerville, Massachusetts ...................... M/W 193,000 O
Springfield, Missouri (2 facilities) ........... M/W 925,000 O
W 415,000 L
Wilmington, Massachusetts ...................... W 407,000 L
</TABLE>
- ----------
(1) Leased from Dennis Mehiel. In Fiscal 1998, Fonda decided to close its
Jacksonville, Florida facility. See "Certain Relationships and Related
Transactions."
(2) Subject to capital lease.
(3) Facility will be closed and returned to the lessor at or prior to the
lease expiration of May 31, 1998. The facility will be replaced by a new
370,000 square foot warehouse facility which will also be located in
Ontario, California and will be leased.
During Fiscal 1997, Fonda decided to close its Three Rivers, Michigan and
Long Beach, California facilities, which have subsequently closed. One of
Sweetheart's warehouses in Augusta, Georgia was closed in the latter part of
Fiscal 1997. Sweetheart is currently subleasing such property to a third party
through March 31, 2001. Sweetheart's Riverside, California facility was closed
in the latter part of Fiscal 1997. On March 24, 1998, Fonda consummated the
Natural Dam Disposition and in connection therewith sold its tissue mill
facility in Gouverneur, New York.
69
<PAGE>
ENVIRONMENTAL MATTERS
The Company and its operations are subject to comprehensive and frequently
changing Federal, state, local and foreign environmental and occupational
health and safety laws and regulations, including laws and regulations
governing emissions of air pollutants, discharges of waste and storm water, and
the disposal of hazardous wastes. The Company is subject to liability for the
investigation and remediation of environmental contamination (including
contamination caused by other parties) at properties that it owns or operates
and at other properties where the Company or its predecessors have arranged for
the disposal of hazardous substances. As a result, the Company is involved from
time to time in administrative and judicial proceedings and inquiries relating
to environmental matters. The Company believes that there are currently no
pending investigations at the Company's plants and sites relating to
environmental matters. However, there can be no assurance that the Company will
not be involved in any such proceeding in the future and that any amount of
future clean up costs and other environmental liabilities will not be material.
The Company cannot predict what environmental legislation or regulations
will be enacted in the future, how existing or future laws or regulations will
be administered or interpreted or what environmental conditions may be found to
exist. Enactment of more stringent laws or regulations or more strict
interpretation of existing laws and regulations may require additional
expenditures by the Company, some of which could be material.
The Clean Air Act mandates the phase out of certain refrigerant compounds,
which will require Sweetheart to upgrade or retrofit air conditioning and
chilling systems during the next few years. Sweetheart has decided to replace
units as they become inefficient or unserviceable. The upgrade of existing
systems would cost approximately $4.0 million. Approximately $1.0 million has
been spent by Sweetheart on upgrading systems in the last five years, exclusive
of costs of $2.4 million to convert to a new foam blowing agent in 1993.
Sweetheart anticipates that future levels of expenditures for environmental
matters (exclusive of costs relating to the blowing agent conversion and the
retrofitting of air conditioning and chilling systems described above) will be
comparable; however, there can be no assurance that expenditures will not be
higher.
During Fiscal 1997, Sweetheart received a request for information from the
Environmental Protection Agency ("EPA") pursuant to Section 104 of the
Comprehensive Environmental Response, Compensation, and Liability Act and
Section 3007 of the Resource Conservation and Recovery Act, concerning the
Lily-Tulip Brown Fields site (the "Site") in Old Town, Maine. Sweetheart
received a demand from the City of Old Town for payment of Sweetheart's alleged
share of the clean-up of the Site. Sweetheart settled these claims by paying
$40,000 in the first quarter of Fiscal 1998.
Some of the Company's facilities contain asbestos. Although there is no
current legal requirement to remove such asbestos, the Company has an ongoing
monitoring and maintenance program to maintain and/or remove such asbestos as
appropriate to prevent the release of friable asbestos. The Company does not
believe the costs associated with such program will be material to its business
or financial condition.
TECHNOLOGY AND RESEARCH
Sweetheart maintains facilities for the development of new products and
product line extensions in Owings Mills, Maryland. Sweetheart maintains a staff
of engineers and technicians who are responsible for product quality, process
control, improvement of existing products, development of new products and
processes and technical assistance in adhering to environmental rules and
regulations. Sweetheart is continually striving to expand its proprietary
manufacturing technology, further automate its manufacturing operations, and
develop improved manufacturing processes and product designs.
LEGAL PROCEEDINGS
From time to time, the Company is subject to legal proceedings and other
claims arising in the ordinary course of its business. The Company maintains
insurance coverage of types and in amounts which it believes to be adequate.
The Company believes that it is not presently a party to any litigation, the
outcome of which could reasonably be expected to have a material adverse effect
on its financial condition or results of operations.
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<PAGE>
An action entitled Allan C. Aldridge, et al. v. Lily-Tulip, Inc. Salary
Retirement Plan Benefits Committee and Fort Howard Cup Corporation, Civil
Action No. CV 187-084, is currently pending against The Lily-Tulip, Inc. Salary
Retirement Plan Benefits Committee and Sweetheart Cup Company Inc. in the
United States District Court for the Southern District of Georgia. See Note 16
of the Notes to the Financial Statements of Sweetheart.
A patent infringement action entitled Fort James Corp. v. Sweetheart Cup
Company Inc., Civil Action No. 97-C-1221, was filed in the United States
District Court for the Eastern District of Wisconsin on November 21, 1997.
Sweetheart has filed an answer to the complaint denying liability and asserting
various affirmative defenses and counterclaims. In the opinion of Sweetheart's
management, the ultimate liability, if any, will not materially affect
Sweetheart's financial position or results of operations.
EMPLOYEES
At March 31, 1998, Sweetheart employed approximately 7,000 persons, of
whom approximately 6,000 persons were hourly employees with approximately 94%
of those employees located at facilities in the United States. Approximately
950 of the hourly employees located at facilities in the United States are
represented by a union. All hourly employees located in Canada are represented
by a union. Sweetheart closed its Riverside, California facility in Fiscal
1997. Sweetheart considers its relationship with its employees to be good.
At March 31, 1998, Fonda employed approximately 1,500 persons, of whom
approximately 1,160 were hourly employees. Approximately 87% of Fonda's hourly
employees are represented by the United Paperworkers International Union. All
of Fonda's facilities are covered by labor agreements other than its facility
in Jacksonville, Florida. During Fiscal 1997, Fonda decided to close its Three
Rivers, Michigan and Long Beach, California facilities, both of which have
subsequently closed. In Fiscal 1998, Fonda decided to close its Jacksonville,
Florida facility. Fonda considers its relationship with its employees to be
good.
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<PAGE>
MANAGEMENT
DIRECTORS AND EXECUTIVE OFFICERS OF THE COMPANY
The following table sets forth certain information with respect to the
directors and executive officers of the Company:
<TABLE>
<CAPTION>
NAME AGE POSITION
- ---- --- --------
<S> <C> <C>
Dennis Mehiel ................... 56 Chairman and Chief Executive Officer
Thomas Uleau .................... 53 President, Chief Operating Officer and Director
Hans Heinsen .................... 45 Senior Vice President, Chief Financial Officer
and Treasurer
Harvey L. Friedman .............. 56 Secretary and General Counsel
Alfred B. DelBello .............. 63 Vice Chairman
James Armenakis ................. 54 Director
W. Richard Bingham .............. 62 Director
Gail Blanke ..................... 50 Director
John A. Catsimatidis ............ 49 Director
Chris Mehiel .................... 58 Director
Jerome T. Muldowney ............. 52 Director
G. William Seawright ............ 56 Director
Lowell P. Weicker, Jr. .......... 66 Director
</TABLE>
DENNIS MEHIEL has been Chairman and Chief Executive Officer of the Company
since December 1997. He has been Chairman and Chief Executive Officer of Fonda
since it was purchased in 1988. In addition, Mr. Mehiel is Chief Executive
Officer of Sweetheart. Since 1966 he has been Chairman of Four M, a converter
and seller of interior packaging, corrugated sheets and corrugated containers
which he co-founded, and since 1977 (except during a leave of absence from
April 1994 through July 1995) he has been the Chief Executive Officer of Four
M. Mr. Mehiel is also the Chairman of Box USA of New Jersey, Inc. ("Box of New
Jersey"), a manufacturer of corrugated containers, and Chairman and Chief
Executive Officer of CEG.
THOMAS ULEAU has been President, Chief Operating Officer and a Director of
the Company since February 1998. He has been President of Fonda since January
1997, Chief Operating Officer of Fonda since 1994 and a director of Fonda since
1988. In addition, Mr. Uleau is Chief Operating Officer of Sweetheart. Mr.
Uleau was Executive Vice President of Fonda from 1994 to 1996 and from 1988 to
1989. He has been Executive Vice President of CEG since 1996. He served as
Executive Vice President and Chief Financial Officer of Four M from 1989
through 1993 and its Chief Operating Officer in 1994. He is also currently a
director of Four M, CEG, and Box of New Jersey. Mr. Uleau was President of
Cardinal Container Corporation (which was acquired by Four M in 1985) from 1983
to 1987. He started his career as an accountant at Haskins and Sells from 1969
to 1971, after which he spent several years in various capacities at IU
International Corp., a transportation and paper products conglomerate.
HANS HEINSEN has been Senior Vice President, Chief Financial Officer and
Treasurer of the Company since February 1998. He has been Senior Vice President
and Treasurer of Fonda since January 1997 and Vice President Finance and Chief
Financial Officer of Fonda since June 1996. Mr. Heinsen is also Chief Financial
Officer of Sweetheart. Prior to joining Fonda, Mr. Heinsen spent 21 years in a
variety of corporate finance positions with The Chase Manhattan Bank, N.A.
HARVEY L. FRIEDMAN has been Secretary and General Counsel of the Company
since February 1998. He is also Secretary and General Counsel of Fonda. He was
a director of Fonda from 1985 to January 1997. Mr. Friedman is also the
Secretary and General Counsel of CEG, Four M and Box of New Jersey and is a
director of CEG. He was formerly a partner of Kramer, Levin, Naftalis &
Frankel, a New York City law firm.
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<PAGE>
ALFRED B. DELBELLO has served as Vice Chairman of the Company since
February 1998. He has served as Vice Chairman of Fonda since January 1997 and a
director of Fonda since 1990. Since July 1995, Mr. DelBello has been a partner
in the law firm of DelBello, Donnellan & Weingarten & Tartaglia, LLP. From
September 1992 to July 1995 he was a partner in the law firm of Worby DelBello
Donnellan & Weingarten. Prior thereto, he had been President of DelBello
Associates, a consulting firm, since 1985. Mr. DelBello served as Lieutenant
Governor of New York State from 1983 to 1985.
JAMES ARMENAKIS has served as a Director of the Company since February
1998 and a director of Fonda since June 1997. He is a senior partner in the law
firm of Armenakis & Armenakis.
W. RICHARD BINGHAM became a Director of the Company upon the consummation
of the Sweetheart Investment. Mr. Bingham co-founded AIPM and has been a
director and officer of the firm since 1989. He is also a general partner of
AIP. Prior to co-founding AIPM, Mr. Bingham was a Managing Director of Shearson
Lehman Brothers from 1984 until 1987. Prior to joining Shearson Lehman
Brothers, Mr. Bingham was Director of the Corporate Finance Department, a
member of the board, and head of Mergers & Acquisitions at Lehman Brothers Kuhn
Loeb Inc. Prior thereto, he directed investment banking operations at Kuhn Loeb
& Company where he was a partner and member of the board and executive
committee. He formerly served on the board of directors of Avis Inc., ITT Life
Insurance Corporation and Valero Energy Corporation.
GAIL BLANKE has served as a Director of the Company since February 1998
and as a director of Fonda since January 1997. She has been President and Chief
Executive Officer of Gail Blanke's Lifedesigns, LLC since March 1995.
Lifedesigns was founded in March 1995 as a division of Avon Products, Inc.
("Avon") and was spun off from Avon in March 1997. Prior thereto, she held the
position of Corporate Senior Vice President of Avon since August 1991. She also
held a number of management positions at CBS, Inc., including the position of
Manager of Player Promotion for the New York Yankees. Ms. Blanke will be
serving her second consecutive term as President of the New York Women's Forum.
JOHN A. CATSIMATIDIS has served as a Director of the Company since
February 1998 and as a director of Fonda since January 1997. He has been
Chairman and Chief Executive Officer of the Red Apple Group, Inc., a company
with diversified holdings that include oil refining, supermarkets, real estate,
aviation and newspapers, since 1969. Mr. Catsimatidis serves as a director of
Sloan's Supermarket, Inc. and New's Communications, Inc. He also serves on the
board of trustees of New York Hospital, St. Vincent Home for Children, New York
University Business School, Athens College, Independent Refiners Coalition and
New York State Food Merchant's Association.
CHRIS MEHIEL, the brother of Dennis Mehiel, has been a Director of the
Company since February 1998 and a director of Fonda since January 1997. Mr.
Mehiel is a co-founder of Four M and has been Executive Vice President, Chief
Operating Officer and a director of Four M since September 1995 and Chief
Financial Officer since August 1997. He is the President of the managing member
of Fibre Marketing Group, LLC, the successor to Fibre Marketing Group, Inc., a
waste paper recovery business which he co-founded, and was President from 1994
to January 1996. From 1993 to 1994, Mr. Mehiel served as President and Chief
Operating Officer of Box of New Jersey. From 1982 to 1992, Mr. Mehiel served as
the President and Chief Operating Officer of Specialty Industries, Inc., a
waste paper processing and container manufacturing company.
JEROME T. MULDOWNEY has served as a Director of the Company since February
1998 and as a director of Fonda since 1990. Since January 1996, Mr. Muldowney
has been a Managing Director of AIG Global Investment Corp. and since March
1995 he has been a Senior Vice President of AIG Domestic Life Companies ("AIG
Life"). Prior thereto, he had been a Vice President of AIG Life since 1982. In
addition, from 1986 to 1996, he served as President of AIG Investment Advisors,
Inc. He is currently a director of AIG Life and AIG Equity Sales Corp.
G. WILLIAM SEAWRIGHT has served as a Director of the Company since
February 1998 and as a director of Fonda since January 1997. He has been
President and Chief Executive Officer of Stanhome Inc., a manufacturer and
distributor of giftware and collectibles, since 1993. Prior thereto, he was
President and Chief Executive Officer of Paddington, Inc., an importer of
distilled spirits, since 1990. From 1986 to 1990, he was President of Heublein
International, Inc.
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<PAGE>
LOWELL P. WEICKER, JR. has served as a Director of the Company since
February 1998 and as a director of Fonda since January 1997. Mr. Weicker served
as Governor of the State of Connecticut from January 1991 through January 1995.
From 1962 to 1989, Mr. Weicker served in the U.S. Congress. Mr. Weicker
presently teaches at the University of Virginia. In 1992, Mr. Weicker earned
the Profiles in Courage Award from the John F. Kennedy Library Foundation.
EXECUTIVE COMPENSATION
No executive officer of SF Holdings was paid any compensation by SF
Holdings during Fiscal 1997. SF Holdings' executive officers also serve as
executive officers of Sweetheart and/or Fonda. It is anticipated that such
persons will not be separately compensated by SF Holdings. In addition, except
as set forth below under "Stock Options," SF Holdings does not at this time
contemplate that any of its executive officers will be provided with stock
options, restricted stock, stock appreciation rights ("SARs"), phantom stock or
similar equity benefits.
DIRECTOR COMPENSATION
Directors who are not employees of the Company or directors of Fonda or
Sweetheart receive annual compensation of (i) $12,000, (ii) $1,000 for each
Board meeting attended, (iii) $1,000 for each committee meeting attended which
is not held on the date of a Board meeting and (iv) 100 SARs. Directors who are
employees of the Company or directors of Fonda or Sweetheart do not receive any
compensation or fees for service on the Board of Directors or any committee
thereof.
STOCK OPTIONS
Pursuant to the Sweetheart Investment, Dennis Mehiel currently holds
609,307 options to purchase Class A Common Stock of SF Holdings at an option
price of $2.83 per share and 105,842 options to purchase Class A Common Stock
of SF Holdings at an option price of $3.11 per share. Of such options, options
to purchase 238,383 shares are currently exercisable and options to purchase
238,383 shares vest on October 1, 1998 and October 1, 1999 or upon an initial
public offering of the Company's Common Stock, whichever occurs first;
provided, however, that Mr. Mehiel is then employed by SF Holdings and its
subsidiaries.
PRINCIPAL STOCKHOLDERS
The following table sets forth certain information as of March 10, 1998,
with respect to the beneficial ownership of the shares of common stock of the
Company.
<TABLE>
<CAPTION>
BENEFICIAL OWNERSHIP
------------------------------
NAME AND ADDRESS OF NUMBER OF PERCENTAGE OF
BENEFICIAL OWNER SHARES OWNERSHIP(1)(2)
- ---------------- ----------- ----------------
<S> <C> <C>
Dennis Mehiel
115 Stevens Avenue
Valhalla, New York 10595 .......... 6,431,573 78.8%
All executive officers and directors
as a group (3 persons) ............ 6,679,458 81.8%
</TABLE>
- ----------
(1) Includes 564,586 shares of Class B Common Stock.
(2) Includes 238,383 shares underlying options to purchase Class A Common
Stock, which are presently exercisable, and 1,341,381 shares which Mr.
Mehiel has the power to vote pursuant to a voting trust agreement between
his spouse, Edith Mehiel, and himself. See "Management--Stock Options."
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CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Fonda leases its Jacksonville facility from Dennis Mehiel on terms that
Fonda believes are no less favorable than could be negotiated with an
independent third party on an arm's-length basis. Pursuant to the lease, which
has a term expiring December 31, 2014, Fonda currently pays base rent of
approximately $167,000 per year, subject to escalations indexed to the Consumer
Price Index ("CPI"). In addition, from January 1, 1998 through July 31, 2006,
Mr. Mehiel may require Fonda to purchase the facility for $1.5 million, subject
to a CPI-based escalation. The purchase price would be paid $350,000 in cash
and the balance in a seven-year note secured by a lien covering the facility
and under which the regular monthly payments would be no greater than the
monthly lease payments payable to Mr. Mehiel immediately prior to the sale
date, with interest payable at a rate of prime plus 2% and the remaining
principal amount payable at maturity. In Fiscal 1998, Fonda decided to close
its Jacksonville facility. Fonda is currently negotiating the termination of
the lease of its Jacksonville facility and does not expect such termination to
have a material adverse effect on Fonda.
Fonda purchased $0.9 million and $0.2 million in Fiscal 1997 and 1996,
respectively, of corrugated containers from Four M. Four M is owned by Dennis
Mehiel. Management believes that the terms on which it purchased such
containers were at least as favorable as those which it could otherwise have
obtained from unrelated third parties and such terms were negotiated on an
arm's-length basis.
Fonda had net sales to Fibre Marketing Group, LLC, a waste paper recovery
business of which Four M and a director of Fonda are members, of $3.6 million
in Fiscal 1997, $4.0 million in Fiscal 1996 and $0.2 million in Fiscal 1995.
Management believes that the sales terms were at least as favorable as those
which it could otherwise have obtained from unrelated third parties and such
terms were negotiated on an arm's-length basis.
Fonda had net sales to CEG in the amount of $7.8 million and $1.9 million
in Fiscal 1997 and 1996, respectively. CEG manufactures party goods such as
decorated plates, cups, napkins, tablecovers, tableware and other related
products. Dennis Mehiel owns 97% of CEG. The Company believes that the terms
upon which it sold products to CEG were at least as favorable as those which it
could otherwise have obtained from unrelated third parties and that such terms
were negotiated on an arm's-length basis.
On February 27, 1997, upon the issuance of the Fonda Notes, Fonda loaned
$2.6 million to CEG for five years at an interest rate of 10% per annum (the
"CEG Note"), the proceeds of which were applied to CEG's prepayment of certain
obligations. On March 12, 1998, certain of the terms of the CEG Note were
amended. At the Company's option, interest on the CEG Note is pay-in-kind and
the note's maturity was extended for an additional three years. In
consideration for such amendment, Fonda was issued a warrant to purchase 2.5%
of CEG's common equity. The Company believes that the terms of such loan and
the amendments thereto are no more favorable to CEG than those that CEG could
otherwise have obtained from unrelated third parties and such terms were
negotiated on an arm's length basis.
On March 12, 1998, Fonda entered into a five-year licensing agreement with
its affiliate, CEG, subject to extension, whereby CEG will manufacture and
distribute certain party goods products currently manufactured by Fonda. In
connection therewith, Fonda will receive a royalty equal to 5% of CEG's cash
flow, as determined in accordance with a formula specified in such agreement.
In Fiscal 1997, Fonda's net sales of such party goods products were
approximately $30 million. The Company expects Fonda's fixed and variable costs
to decrease and it expects to reduce Fonda's accounts receivable and inventory
by approximately $9 million as a result of such licensing agreement. The
Company believes that such transaction will have a favorable impact on Fonda's
results of operations.
Upon consummation of the Sweetheart Investment, SF Holdings and Fonda,
which file consolidated Federal income tax returns, entered into a Tax Sharing
Agreement, pursuant to which Fonda will pay SF Holdings its allocable share of
the consolidated group's consolidated Federal income tax liability, which, in
general, will equal the tax liability Fonda would have paid if it had filed
separate tax returns.
Upon consummation of the Sweetheart Investment, SF Holdings assigned
substantially all of its rights under the Management Services Agreement to
Fonda. See "The Sweetheart Investment."
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DESCRIPTION OF NEW NOTES
GENERAL
The New Notes will be issued pursuant to the Indenture between the Company
and The Bank of New York, as trustee (the "Trustee"). The terms of the New
Notes include those stated in the Indenture and those made a part of the
Indenture by reference to the Trust Indenture Act of 1939, as amended (the
"Trust Indenture Act"). The New Notes are subject to all such terms, and
Holders of New Notes are referred to the Indenture and the Trust Indenture Act
for a statement thereof. The following summary of the material provisions of
the Indenture, the Pledge Agreement and the Registration Rights Agreement does
not purport to be complete and is qualified in its entirety by reference to
such documents, including the definitions therein of certain terms used below.
Copies of the proposed form of Indenture, Pledge Agreement and Registration
Rights Agreement are available as set forth below under "--Additional
Information." The definitions of certain terms used in the following summary
are set forth below under "--Certain Definitions." For purposes of this
summary, the term "Company" refers only to SF Holdings Group, Inc. and not to
any of its Subsidiaries.
The New Notes will rank senior in right of payment to any subordinated
indebtedness of the Company incurred in the future, and will rank pari passu in
right of payment with any other senior indebtedness of the Company incurred in
the future. The New Notes will be secured by a first priority pledge of all of
the Capital Stock owned by the Company of the current and future Restricted
Subsidiaries of the Company, including without limitation, Fonda and
Sweetheart. See "--Security."
The operations of the Company are conducted through its Subsidiaries and,
therefore, the Company will not have material cash flows independent of its
Subsidiaries. The New Notes will be effectively subordinated to all
Indebtedness and other liabilities and commitments (including trade payables
and lease obligations) of the Company's Subsidiaries. Any right of the Company
to receive assets of any of its Subsidiaries upon the latter's liquidation or
reorganization (and the consequent right of the Holders of the New Notes to
participate in those assets) will be effectively subordinated to the claims of
such Subsidiary's creditors, except to the extent that the Company is itself
recognized as a creditor of such Subsidiary, in which case the claims of the
Company would still be subordinate to any security in the assets of such
Subsidiary and any indebtedness of such Subsidiary senior to that held by the
Company. As of January 25, 1998, after giving pro forma effect to the
Transactions, all indebtedness and other liabilities and commitments of the
Company's Subsidiaries would have totaled $765.5 million of outstanding
Indebtedness. See "Risk Factors--Holding Company Structure and Related
Considerations."
SECURITY
The New Notes will be secured by a pledge of all of the Capital Stock
owned by the Company of, and all intercompany notes issued in favor of the
Company by, all of the current and future Restricted Subsidiaries of the
Company, including Fonda and Sweetheart. The Company has entered into a pledge
agreement (the "Pledge Agreement") providing for the pledge of the Collateral
by the Company to The Bank of New York, as collateral agent (in such capacity,
the "Collateral Agent") for the Holders of the New Notes. The Pledge Agreement
will prohibit the creation of any new directly owned Restricted Subsidiaries of
the Company unless the Company pledges such Capital Stock of such Restricted
Subsidiary that is owned by the Company in accordance with the terms of the
Pledge Agreement. In addition, the Pledge Agreement will prohibit intercompany
loans from the Company to any of its Restricted Subsidiaries unless such loans
are documented in the form of promissory notes payable to the Company and the
Company pledges such promissory notes in accordance with the terms of the
Pledge Agreement. Such pledges will secure the payment and performance when due
of all of the Obligations of the Company under the Indenture and the New Notes
as provided in the Pledge Agreement.
So long as no Default or Event of Default shall have occurred and be
continuing, and subject to certain terms and conditions in the Indenture and
the Pledge Agreement, the Company will be entitled to receive all cash
dividends, interest and other payments made upon or with respect to the
Collateral and to exercise any voting and other consensual rights pertaining to
the Collateral. Upon the occurrence and
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during the continuance of a Default or Event of Default, (a) all rights of the
Company to exercise such voting or other consensual rights shall cease, and all
such rights shall become vested in the Collateral Agent, which, to the extent
permitted by law, shall have the sole right to exercise such voting and other
consensual rights, (b) all rights of the Company to receive all cash dividends,
interest and other payments made upon or with respect to the Collateral will
cease and such cash dividends, interest and other payments will be paid to the
Collateral Agent, and (c) the Collateral Agent may sell the Collateral or any
part thereof in accordance with the terms of the Pledge Agreement. All funds
distributed under the Pledge Agreement and received by the Collateral Agent for
the benefit of the Holders of the New Notes will be distributed by the
Collateral Agent in accordance with the provisions of the Indenture.
Under the terms of the Pledge Agreement, the Collateral Agent will
determine the circumstances and manner in which the Collateral will be disposed
of, including, but not limited to, the determination of whether to release all
or any portion of the Collateral from the Liens created by the Pledge Agreement
and whether to foreclose on the Collateral following a Default or Event of
Default. Moreover, upon the full and final payment and performance of all
Obligations of the Company under the Indenture and the New Notes, the Pledge
Agreement will terminate and the Collateral will be released.
PRINCIPAL, MATURITY AND INTEREST
Each New Note will be limited in aggregate principal amount at maturity to
$1,000 and will mature on March 15, 2008. The Old Notes were issued at a
substantial discount from their principal amount at maturity, together with the
Common Stock, to generate gross proceeds to the Company of approximately $77.5
million. Until March 15, 2003, no interest will accrue on the New Notes, but
the Accreted Value will increase (representing amortization of original issue
discount) between the date of original issuance of the Old Notes and March 15,
2003, on a semi-annual bond equivalent basis using a 360-day year comprised of
twelve 30-day months, such that the Accreted Value will be equal to the full
principal amount at maturity of the New Notes on March 15, 2003. Beginning on
March 15, 2003, interest on the New Notes will accrue at the rate of 12 3/4%
per annum and will be payable in cash semi-annually in arrears on March 15 and
September 15 of each year, commencing on September 15, 2003, to Holders of
record on the immediately preceding March 1 and September 1. Interest on the
New Notes will accrue from the most recent date to which interest has been paid
or, if no interest has been paid, from March 15, 2003. Interest will be
computed on the basis of a 360-day year comprised of twelve 30-day months.
Principal of and premium, interest and Liquidated Damages, if any, on the New
Notes will be payable at the office or agency of the Company maintained for
such purpose or, at the option of the Company, payment of interest and
Liquidated Damages may be made by check mailed to the Holders of the New Notes
at their respective addresses set forth in the register of Holders of New
Notes; provided that all payments of principal, premium, interest and
Liquidated Damages with respect to New Notes the Holders of which have given
wire transfer instructions to the Company will be required to be made by wire
transfer of immediately available funds to the accounts specified by the
Holders thereof. Until otherwise designated by the Company, the Company's
office or agency will be the office of the Trustee maintained for such purpose.
The New Notes will be issued in denominations of $1,000 and integral multiples
thereof.
OPTIONAL REDEMPTION
Except as provided in the next paragraph, the New Notes will not be
redeemable at the Company's option prior to March 15, 2003. Thereafter, the New
Notes will be subject to redemption at any time at the option of the Company,
in whole or in part, upon not less than 30 nor more than 60 days' notice, at
the redemption prices (expressed as percentages of principal amount) set forth
below plus accrued and unpaid interest and Liquidated Damages thereon, if any,
to the applicable redemption date, if redeemed during the twelve-month period
beginning on March 15 of the years indicated below:
<TABLE>
<CAPTION>
YEAR PERCENTAGE
- ---------------------------------------- -------------
<S> <C>
2003 ......................... 106.375%
2004 ......................... 104.250%
2005 ......................... 102.125%
2006 and thereafter .......... 100.000%
</TABLE>
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Prior to March 15, 2001, the Company may, at its option, redeem up to
one-third of the aggregate principal amount at maturity of Notes at a
redemption price equal to 112.75% of the Accreted Value thereof, plus
Liquidated Damages thereon, if any, with the net cash proceeds of an Equity
Offering; provided that at least two-thirds of the original aggregate principal
amount at maturity of Notes remains outstanding immediately after the
occurrence of such redemption (excluding Notes held by the Company and its
Subsidiaries); and provided, further, that any such redemption shall occur
within 60 days of the date of the closing of such Equity Offering.
SELECTION AND NOTICE
If less than all of the New Notes are to be redeemed at any time,
selection of New Notes for redemption will be made by the Trustee in compliance
with the requirements of the principal national securities exchange, if any, on
which the New Notes are listed, or, if the New Notes are not so listed, on a
pro rata basis, by lot or by such other method as the Trustee shall deem fair
and appropriate; provided that no New Notes of $1,000 or less shall be redeemed
in part. Notices of redemption shall be mailed by first class mail at least 30
but not more than 60 days before the redemption date to each Holder of Notes to
be redeemed at its registered address. Notices of redemption may not be
conditional. If any New Note is to be redeemed in part only, the notice of
redemption that relates to such New Note shall state the portion of the
principal amount thereof to be redeemed. A new New Note in principal amount
equal to the unredeemed portion thereof will be issued in the name of the
Holder thereof upon cancellation of the original New Note. New Notes called for
redemption become due on the date fixed for redemption. On and after the
redemption date, interest ceases to accrue on New Notes or portions of them
called for redemption.
MANDATORY REDEMPTION
Except as set forth below under "--Repurchase at the Option of Holders,"
the Company is not required to make mandatory redemption or sinking fund
payments with respect to the New Notes.
REPURCHASE AT THE OPTION OF HOLDERS
CHANGE OF CONTROL
Upon the occurrence of a Change of Control, the Company will be required
to make an offer to each Holder of New Notes to repurchase all or any part
(equal to $1,000 or an integral multiple thereof) of such Holder's New Notes
pursuant to the offer described below (the "Change of Control Offer") at an
offer price in cash equal to 101% of the aggregate principal amount thereof,
plus accrued and unpaid interest and Liquidated Damages thereon, if any, to the
date of purchase (or, in the case of repurchases of Notes prior to , 2003, at a
purchase price equal to 101% of the Accreted Value thereof, plus Liquidated
Damages thereon, if any, as of the date of repurchase) (the "Change of Control
Payment"). Within ten days following any Change of Control, the Company will
mail a notice to each Holder describing the transaction or transactions that
constitute the Change of Control and offering to repurchase New Notes on the
date specified in such notice, which date shall be no earlier than 30 days and
no later than 60 days from the date such notice is mailed (the "Change of
Control Payment Date"), pursuant to the procedures required by the Indenture
and described in such notice. The Company will comply with the requirements of
Rule 14e-1 under the Exchange Act and any other securities laws and regulations
thereunder to the extent such laws and regulations are applicable in connection
with the repurchase of the New Notes as a result of a Change of Control.
On the Change of Control Payment Date, the Company will, to the extent
lawful, (1) accept for payment all New Notes or portions thereof properly
tendered pursuant to the Change of Control Offer, (2) deposit with the Paying
Agent an amount equal to the Change of Control Payment in respect of all New
Notes or portions thereof so tendered and (3) deliver or cause to be delivered
to the Trustee the New Notes so accepted together with an Officers' Certificate
stating the aggregate principal amount at maturity of New Notes or portions
thereof being purchased by the Company. The Paying Agent will promptly mail to
each Holder of New Notes so tendered the Change of Control Payment for such New
Notes, and the
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Trustee will promptly authenticate and mail (or cause to be transferred by book
entry) to each Holder a new New Note equal in principal amount at maturity to
any unpurchased portion of the New Notes surrendered, if any; provided that
each such new New Note will be in a principal amount at maturity of $1,000 or
an integral multiple thereof. The Company will publicly announce the results of
the Change of Control Offer on or as soon as practicable after the Change of
Control Payment Date.
There can be no assurances that the Company will have adequate resources
to consummate a Change of Control Offer following a Change of Control. See
"Risk Factors--Substantial Leverage" and "Risk Factors--Holding Company
Structure and Related Considerations." The Company's failure to make a Change
of Control Offer when required or to purchase tendered New Notes when tendered
would constitute an Event of Default under the Indenture.
The Change of Control provisions described above will be applicable
whether or not any other provisions of the Indenture are applicable. Except as
described above with respect to a Change of Control, the Indenture does not
contain provisions that permit the Holders of the New Notes to require that the
Company repurchase or redeem the New Notes in the event of a takeover,
recapitalization or similar transaction.
The Company will not be required to make a Change of Control Offer upon a
Change of Control if a third party makes the Change of Control Offer in the
manner, at the times and otherwise in compliance with the requirements set
forth in the Indenture applicable to a Change of Control Offer made by the
Company and purchases all New Notes validly tendered and not withdrawn under
such Change of Control Offer.
ASSET SALES
The Indenture provides that the Company will not, and will not permit any
of its Restricted Subsidiaries to, consummate an Asset Sale unless (i) the
Company (or the Restricted Subsidiary, as the case may be) receives
consideration at the time of such Asset Sale at least equal to the fair market
value (evidenced by a resolution of the Board of Directors set forth in an
Officers' Certificate delivered to the Trustee) of the assets or Equity
Interests issued or sold or otherwise disposed of and (ii) at least 75% of the
consideration therefor received by the Company or such Restricted Subsidiary is
in the form of cash; provided that the amount of (x) any liabilities (as shown
on the Company's or such Restricted Subsidiary's most recent balance sheet), of
the Company or any Restricted Subsidiary (other than contingent liabilities and
liabilities that are by their terms subordinated to the New Notes) that are
assumed by the transferee of any such assets pursuant to a customary novation
agreement that releases the Company or such Restricted Subsidiary from further
liability and (y) any securities, notes or other obligations received by the
Company or any such Restricted Subsidiary from such transferee that are
contemporaneously (subject to ordinary settlement periods) converted by the
Company or such Restricted Subsidiary into cash (to the extent of the cash
received), shall be deemed to be cash for purposes of this provision.
Within 365 days after the Company's or any Restricted Subsidiary's receipt
of any Net Proceeds from an Asset Sale, the Company or such Restricted
Subsidiary may apply such Net Proceeds (a) to permanently repay Indebtedness of
a Restricted Subsidiary of the Company (and, in the case of revolving
borrowings, to correspondingly reduce commitments with respect thereto), or (b)
to the acquisition of a majority of the assets of, or a majority of the Voting
Stock of, another Permitted Business, the making of a capital expenditure or
the acquisition of other long-term assets that are used or useful in a
Permitted Business. Pending the final application of any such Net Proceeds, the
Company may temporarily reduce revolving credit borrowings or otherwise invest
such Net Proceeds in any manner that is not prohibited by the Indenture. Any
Net Proceeds from Asset Sales that are not applied or invested as provided in
the first sentence of this paragraph will be deemed to constitute "Excess
Proceeds." When the aggregate amount of Excess Proceeds exceeds $10.0 million,
the Company will be required to make an offer to all Holders of New Notes (an
"Asset Sale Offer") to purchase the maximum principal amount of New Notes that
may be purchased out of the Excess Proceeds, at an offer price in cash in an
amount equal to 100% of the aggregate principal amount thereof, plus accrued
and unpaid interest and Liquidated Damages thereon, if any, to the date of
purchase (or, in the case of purchases of New Notes prior to March 15, 2003, at
a purchase price equal to 100% of the Accreted Value thereof, plus Liquidated
Damages thereon, if
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any), in accordance with the procedures set forth in the Indenture; provided
however, that such offer will not be required if the application of such Excess
Proceeds to repurchase New Notes would cause an Event of Default under the
Subsidiary Debt Instruments. If the aggregate purchase price of New Notes
tendered into such Asset Sale Offer surrendered by Holders thereof is less than
the amount of Excess Proceeds, the Company may use such Excess Proceeds for
general corporate purposes (subject to the restrictions of the Indenture). If
the aggregate purchase price of New Notes tendered into such Asset Sale Offer
surrendered by Holders thereof exceeds the amount of Excess Proceeds, the
Trustee shall select the New Notes to be purchased on a pro rata basis. Upon
completion of such Asset Sale Offer, the amount of Excess Proceeds shall be
reset at zero.
CERTAIN COVENANTS
RESTRICTED PAYMENTS
The Indenture provides that the Company will not, and will not permit any
of its Restricted Subsidiaries to, directly or indirectly: (i) declare or pay
any dividend or make any other payment or distribution on account of the
Company's or any of its Restricted Subsidiaries' Equity Interests (including,
without limitation, any payment in connection with any merger or consolidation
involving the Company or any of its Restricted Subsidiaries) or to the direct
or indirect holders of the Company's or any of its Restricted Subsidiaries'
Equity Interests in their capacity as such (other than dividends or
distributions payable in Equity Interests (other than Disqualified Stock) of
the Company or to the Company or any Restricted Subsidiary of the Company);
(ii) purchase, redeem or otherwise acquire or retire for value (including,
without limitation, in connection with any merger or consolidation involving
the Company) any Equity Interests of the Company or any direct or indirect
parent of the Company or other Affiliate of the Company (other than any such
Equity Interests owned by the Company or any Restricted Subsidiary of the
Company); (iii) make any principal payment on or with respect to, or purchase,
redeem, defease or otherwise acquire or retire for value any Indebtedness that
is subordinated to the New Notes, except a payment of principal at Stated
Maturity; or (iv) make any Restricted Investment (all such payments and other
actions set forth in clauses (i) through (iv) above being collectively referred
to as "Restricted Payments"), unless, at the time of and after giving effect to
such Restricted Payment:
(a) no Default or Event of Default shall have occurred and be continuing
or would occur as a consequence thereof; and
(b) the Company would, at the time of such Restricted Payment and after
giving pro forma effect thereto as if such Restricted Payment had been made
at the beginning of the applicable four-quarter period, have been permitted
to incur at least $1.00 of additional Indebtedness pursuant to the Fixed
Charge Coverage Ratio test set forth in the first paragraph of the covenant
described below under the caption "--Incurrence of Indebtedness and
Issuance of Preferred Stock;" and
(c) such Restricted Payment, together with the aggregate amount of all
other Restricted Payments made by the Company and its Restricted
Subsidiaries after the date of the Indenture (excluding Restricted Payments
permitted by clauses (ii), (iii) and (iv) of the next succeeding
paragraph), is less than the sum, without duplication, of (i) 50% of the
Consolidated Net Income of the Company for the period (taken as one
accounting period) from the beginning of the first fiscal quarter
commencing after the date of the Indenture to the end of the Company's most
recently ended fiscal quarter for which internal financial statements are
available at the time of such Restricted Payment (or, if such Consolidated
Net Income for such period is a deficit, less 100% of such deficit), plus
(ii) 100% of the aggregate net cash proceeds received by the Company since
the date of the Indenture as a contribution to its common equity capital or
from the issue or sale of Equity Interests of the Company (other than
Disqualified Stock) or from the issue or sale of Disqualified Stock or debt
securities of the Company that have been converted into such Equity
Interests (other than Equity Interests (or Disqualified Stock or
convertible debt securities) sold to a Restricted Subsidiary of the
Company), plus (iii) to the extent that any Restricted Investment that was
made after the date of the Indenture is sold for cash or otherwise
liquidated or repaid for cash, 100% of the net cash proceeds thereof (less
the cost of disposition, if any), but only to the extent not included in
subclause (i) of this clause (c).
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The foregoing provisions will not prohibit (i) the payments and
applications of the proceeds to be received by the Company from the issuance of
the Units as described under "Use of Proceeds" (ii) the payment of any dividend
within 60 days after the date of declaration thereof, if at said date of
declaration such payment would have complied with the provisions of the
Indenture; (iii) the redemption, repurchase, retirement, defeasance or other
acquisition of any Equity Interests of the Company in exchange for, or out of
the net cash proceeds of the substantially concurrent sale (other than to a
Restricted Subsidiary of the Company) of, other Equity Interests of the Company
(other than any Disqualified Stock); provided that the amount of any such net
cash proceeds that are utilized for any such redemption, repurchase,
retirement, defeasance or other acquisition shall be excluded from clause (c)
of the preceding paragraph; (iv) the defeasance, redemption, repurchase or
other acquisition of subordinated Indebtedness with the net cash proceeds from
an incurrence of Permitted Refinancing Indebtedness or the substantially
concurrent sale (other than to a Restricted Subsidiary of the Company) of
Equity Interests of the Company (other than Disqualified Stock); provided that
the amount of any such net cash proceeds that are utilized for any such
defeasance, redemption or repurchase shall be excluded from clause (c) of the
preceding paragraph; (v) the payment of any dividend by a Restricted Subsidiary
of the Company to the holders of its Equity Interests on a pro rata basis; and
(vi) so long as no Default or Event of Default shall have occurred and be
continuing immediately after such transaction, the repurchase, redemption or
other acquisition or retirement for value of any Equity Interests of the
Company or any Restricted Subsidiary of the Company held by any member of the
Company's (or any of its Restricted Subsidiaries') management; provided that
the aggregate price paid for all such repurchased, redeemed, acquired or
retired Equity Interests shall not exceed $1.0 million in any twelve-month
period plus the aggregate cash proceeds received by the Company (or any of its
Restricted Subsidiaries) during any such twelve-month period from any issuance
of Equity Interests by the Company (or any of its Restricted Subsidiaries) to
members of management of the Company (or any of its Restricted Subsidiaries)
(provided that such proceeds are excluded from clause (c) of the preceding
paragraph); and provided, further, that such repurchase, redemption or other
acquisition or retirement may not include any Equity Interests owned, directly
or indirectly, but the Principals.
The Board of Directors may designate any Restricted Subsidiary to be an
Unrestricted Subsidiary if such designation would not cause a Default. For
purposes of making such determination, all outstanding Investments by the
Company and its Restricted Subsidiaries (except to the extent repaid in cash)
in the Subsidiary so designated will be deemed to be Restricted Payments at the
time of such designation and will reduce the amount available for Restricted
Payments under the first paragraph of this covenant. All such outstanding
Investments will be deemed to constitute Investments in an amount equal to the
greatest of (i) the net book value of such Investments at the time of such
designation, (ii) the fair market value of such Investments at the time of such
designation and (iii) the original fair market value of such Investments at the
time they were made. Such designation will only be permitted if such Restricted
Payment would be permitted at such time and if such Restricted Subsidiary
otherwise meets the definition of an Unrestricted Subsidiary.
The amount of all Restricted Payments (other than cash) shall be the fair
market value on the date of the Restricted Payment of the asset(s) or
securities proposed to be transferred or issued by the Company or such
Restricted Subsidiary, as the case may be, pursuant to the Restricted Payment.
The fair market value of any non-cash Restricted Payment shall be determined by
the Board of Directors whose resolution with respect thereto shall be delivered
to the Trustee, such determination to be based upon an opinion or appraisal
issued by an accounting, appraisal or investment banking firm of national
standing if such fair market value exceeds $1.0 million. Not later than the
date of making any Restricted Payment, the Company shall deliver to the Trustee
an Officers' Certificate stating that such Restricted Payment is permitted and
setting forth the basis upon which the calculations required by the covenant
"Restricted Payments" were computed, together with a copy of any fairness
opinion or appraisal required by the Indenture.
INCURRENCE OF INDEBTEDNESS AND ISSUANCE OF PREFERRED STOCK
The Indenture provides that the Company will not, and will not permit any
of its Restricted Subsidiaries to, directly or indirectly, create, incur,
issue, assume, guarantee or otherwise become directly
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or indirectly liable, contingently or otherwise, with respect to (collectively,
"incur") any Indebtedness (including Acquired Debt) and the Company will not
permit any of its Restricted Subsidiaries to issue any shares of preferred
stock; provided, however, that so long as no Default or Event of Default has
occurred or is continuing, the Company and its Restricted Subsidiaries may
incur Indebtedness (including Acquired Debt) if the Fixed Charge Coverage Ratio
for the Company's most recently ended four full fiscal quarters for which
internal financial statements are available immediately preceding the date on
which such additional Indebtedness is incurred would have been at least 1.75 to
1, if such additional Indebtedness is incurred prior to March 15, 2000, or at
least 2.0 to 1, if such additional Indebtedness is incurred on or after March
15, 2000, in each case, determined on a pro forma basis (including a pro forma
application of the net proceeds therefrom), as if the additional Indebtedness
had been incurred at the beginning of such four-quarter period.
The Indenture also provides that the Company will not incur any
Indebtedness that is contractually subordinated in right of payment to any
other Indebtedness of the Company unless such Indebtedness is also
contractually subordinated in right of payment to the New Notes on
substantially identical terms; provided, however, that no Indebtedness of the
Company shall be deemed to be contractually subordinated in right of payment to
any other Indebtedness of the Company solely by virtue of being unsecured.
The provisions of the first paragraph of this covenant will not apply to
the incurrence of any of the following items of Indebtedness (collectively,
"Permitted Debt"):
(i) the incurrence by the Company and its Restricted Subsidiaries of
Indebtedness from a bank or other financial institution in an aggregate
principal amount not to exceed $200.0 million at any one time outstanding,
less any Net Proceeds of Asset Sales applied to permanently reduce any such
Indebtedness pursuant to the provisions of the Indenture, described under
"--Repurchase at the Option of Holders--Asset Sales;"
(ii) the incurrence by the Company and its Restricted Subsidiaries of the
Existing Indebtedness, other than pursuant to the Fonda Credit Facility or
the Sweetheart Credit Facilities;
(iii) the incurrence by the Company of Indebtedness represented by the
New Notes and the Indenture;
(iv) the incurrence by the Company or any of its Restricted Subsidiaries
of Indebtedness represented by Capital Lease Obligations, mortgage
financings or purchase money obligations, in each case incurred for the
purpose of financing all or any part of the purchase price or cost of
construction or improvement of property, plant or equipment used in the
business of the Company or such Restricted Subsidiary, in an aggregate
principal amount not to exceed $5.0 million at any time outstanding;
(v) the incurrence by the Company or any of its Restricted Subsidiaries
of Indebtedness in connection with the acquisition of assets or a new
Restricted Subsidiary; provided that such Indebtedness was incurred by the
prior owner of such assets or such Restricted Subsidiary prior to such
acquisition by the Company or one of its Restricted Subsidiaries and was
not incurred in connection with, or in contemplation of, such acquisition
by the Company or one of its Restricted Subsidiaries; and provided further
that the principal amount (or accreted value, as applicable) of such
Indebtedness, together with any other outstanding Indebtedness incurred
pursuant to this clause (v) and any Permitted Refinancing Indebtedness
incurred to refund, refinance or replace any Indebtedness incurred pursuant
to this clause (v), does not exceed $5.0 million;
(vi) the incurrence by the Company or any of its Restricted Subsidiaries
of Permitted Refinancing Indebtedness in exchange for, or the net proceeds
of which are used to refund, refinance or replace Indebtedness (other than
intercompany Indebtedness) that was permitted by the Indenture to be
incurred under the first paragraph hereof or clauses (ii), (iii), (iv) or
(v) of this paragraph;
(vii) the incurrence by the Company or any of its Restricted Subsidiaries
of intercompany Indebtedness between or among the Company and any of its
Restricted Subsidiaries; provided,
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however, that (a) any subsequent issuance or transfer of Equity Interests
that results in any such Indebtedness being held by a Person other than the
Company or a Restricted Subsidiary thereof and (b) any sale or other
transfer of any such Indebtedness to a Person that is not either the
Company or a Restricted Subsidiary thereof shall be deemed, in each case,
to constitute an incurrence of such Indebtedness by the Company or such
Restricted Subsidiary, as the case may be, that was not permitted by this
clause (vii);
(viii) the incurrence by the Company or any of its Restricted
Subsidiaries of Hedging Obligations that are incurred for the purpose of
fixing or hedging interest rate risk with respect to any floating rate
Indebtedness that is permitted by the terms of this Indenture to be
outstanding; and
(ix) the incurrence by the Company or any of its Restricted Subsidiaries
of additional Indebtedness in an aggregate principal amount (or accreted
value, as applicable) not to exceed $25.0 million at any one time
outstanding.
For purposes of determining compliance with this covenant, in the event
that an item of Indebtedness meets the criteria of more than one of the
categories of Permitted Debt described in clauses (i) through (ix) above or is
entitled to be incurred pursuant to the first paragraph of this covenant, the
Company shall, in its sole discretion, classify such item of Indebtedness in
any manner that complies with this covenant. Accrual of interest, accretion or
amortization of original issue discount, and the payment of interest on any
Indebtedness in the form of additional Indebtedness with the same terms will
not be deemed to be an incurrence of Indebtedness for purposes of this
covenant; provided, in each such case, that the amount thereof is included in
Fixed Charges of the Company as accrued.
LIENS
The Indenture provides that the Company will not, and will not permit any
of its Restricted Subsidiaries to, directly or indirectly, create, incur,
assume or suffer to exist any Lien on any asset now owned or hereafter
acquired, or any income or profits therefrom or assign or convey any right to
receive income therefrom, except Permitted Liens.
DIVIDEND AND OTHER PAYMENT RESTRICTIONS AFFECTING RESTRICTED SUBSIDIARIES
The Indenture provides that the Company will not, and will not permit any
of its Restricted Subsidiaries to, directly or indirectly, create or otherwise
cause or suffer to exist or become effective any encumbrance or restriction on
the ability of any Restricted Subsidiary to (i)(a) pay dividends or make any
other distributions to the Company or any of its Restricted Subsidiaries (1) on
its Capital Stock or (2) with respect to any other interest or participation
in, or measured by, its profits, or (b) pay any indebtedness owed to the
Company or any of its Restricted Subsidiaries, (ii) make loans or advances to
the Company or any of its Restricted Subsidiaries or (iii) transfer any of its
properties or assets to the Company or any of its Restricted Subsidiaries.
However, the foregoing restrictions will not apply to encumbrances or
restrictions existing under or by reason of (a) Existing Indebtedness as in
effect on the date of the Indenture and any amendments, modifications,
restatements, renewals, increases, supplements, refundings, replacements or
refinancings thereof, provided that such amendments, modifications,
restatements, renewals, increases, supplements, refundings, replacement or
refinancings are no more restrictive, with respect to such dividend and other
payment restrictions than those as in effect on the date of the Indenture, (b)
the Indenture and the New Notes, (c) applicable law, (d) any instrument
governing Indebtedness or Capital Stock of a Person acquired by the Company or
any of its Restricted Subsidiaries as in effect at the time of such acquisition
(except to the extent such Indebtedness was incurred in connection with or in
contemplation of such acquisition), which encumbrance or restriction is not
applicable to any Person, or the properties or assets of any Person, other than
the Person, or the property or assets of the Person, so acquired, provided
that, in the case of Indebtedness, such Indebtedness was permitted by the terms
of the Indenture to be incurred, (e) customary non-assignment provisions in
leases entered into in the ordinary course of business and consistent with past
practices, (f) purchase money obligations for property acquired in the ordinary
course of business that impose restrictions of the nature described in clause
(iii) above on the property so acquired, (g) restrictions relating to a
Restricted
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Subsidiary formed for the sole purpose of engaging in accounts receivable
financing, (h) any agreement for the sale of a Restricted Subsidiary that
restricts distributions by that Restricted Subsidiary pending its sale, (i)
Permitted Refinancing Indebtedness, provided that the restrictions contained in
the agreements governing such Permitted Refinancing Indebtedness are no more
restrictive, taken as a whole, than those contained in the agreements governing
the Indebtedness being refinanced and (j) secured Indebtedness otherwise
permitted to be incurred pursuant to the provisions of the covenant described
above under the caption "--Liens" that limits the right of the debtor to
dispose of the assets securing such Indebtedness.
MERGER, CONSOLIDATION, OR SALE OF ASSETS
The Indenture provides that the Company may not consolidate or merge with
or into (whether or not the Company is the surviving entity), or sell, assign,
transfer, lease, convey or otherwise dispose of all or substantially all of its
properties or assets in one or more related transactions, to another
corporation, Person or entity unless (i) the Company is the surviving
corporation or the entity or the Person formed by or surviving any such
consolidation or merger (if other than the Company) or to which such sale,
assignment, transfer, lease, conveyance or other disposition shall have been
made is a corporation organized or existing under the laws of the United
States, any state thereof or the District of Columbia; (ii) the entity or
Person formed by or surviving any such consolidation or merger (if other than
the Company) or the entity or Person to which such sale, assignment, transfer,
lease, conveyance or other disposition shall have been made assumes all the
obligations of the Company under the Registration Rights Agreement, the New
Notes, the Pledge Agreement and the Indenture pursuant to supplemental
agreements in a form reasonably satisfactory to the Trustee; (iii) immediately
after such transaction no Default or Event of Default exists; and (iv) except
in the case of a merger of the Company with or into a Wholly Owned Restricted
Subsidiary of the Company, the Company or the entity or Person formed by or
surviving any such consolidation or merger (if other than the Company), or to
which such sale, assignment, transfer, lease, conveyance or other disposition
shall have been made (A) will have Consolidated Net Worth immediately after the
transaction equal to or greater than the Consolidated Net Worth of the Company
immediately preceding the transaction and (B) will, at the time of such
transaction and after giving pro forma effect thereto as if such transaction
had occurred at the beginning of the applicable four-quarter period, be
permitted to incur at least $1.00 of additional Indebtedness pursuant to the
Fixed Charge Coverage Ratio test set forth in the first paragraph of the
covenant described above under the caption "--Incurrence of Indebtedness and
Issuance of Preferred Stock."
TRANSACTIONS WITH AFFILIATES
The Indenture provides that the Company will not, and will not permit any
of its Restricted Subsidiaries to, make any payment to, or sell, lease,
transfer or otherwise dispose of any of its properties or assets to, or
purchase any property or assets from, or enter into or make or amend any
transaction, contract, agreement, understanding, loan, advance or guarantee
with, or for the benefit of, any Affiliate (each of the foregoing, an
"Affiliate Transaction"), unless (i) such Affiliate Transaction is on terms
that are no less favorable to the Company or the relevant Restricted Subsidiary
than those that would have been obtained in a comparable transaction by the
Company or such Restricted Subsidiary with an unrelated Person and (ii) the
Company delivers to the Trustee (a) with respect to any Affiliate Transaction
or series of related Affiliate Transactions involving aggregate consideration
in excess of $1.0 million, a resolution of the Board of Directors set forth in
an Officers' Certificate certifying that such Affiliate Transaction complies
with clause (i) above and that such Affiliate Transaction has been approved by
a majority of the disinterested members of the Board of Directors and (b) with
respect to any Affiliate Transaction or series of related Affiliate
Transactions involving aggregate consideration in excess of $5.0 million, an
opinion as to the fairness to the Holders of such Affiliate Transaction from a
financial point of view issued by an accounting, appraisal or investment
banking firm of national standing with total assets in excess of $1.0 billion,
except with respect to transactions in the ordinary course of business and
consistent with past practice between the Company or any of its Restricted
Subsidiaries and Four M, CEG or any of their respective subsidiaries; provided
that the following will not be deemed to be Affiliate Transactions: (1) the
Indenture of Lease dated as of January 1, 1995, between Dennis Mehiel and Fonda
relating to the Jacksonville Facility except for any purchases of property by
Fonda that may arise
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thereunder; (2) any employment agreement entered into by the Company or any of
its Restricted Subsidiaries in the ordinary course of business and consistent
with the past practice of the Company or such Restricted Subsidiary in an
amount not to exceed $1.0 million per annum; (3) transactions between or among
the Company and its Restricted Subsidiaries; (4) Restricted Payments and
Permitted Investments that are permitted by the provisions of the Indenture
described above under the caption "--Restricted Payments;" and (5) transactions
entered into in connection with the Transactions.
LIMITATION ON ISSUANCES AND SALES OF CAPITAL STOCK IN WHOLLY OWNED RESTRICTED
SUBSIDIARIES
The Indenture provided that the Company (i) will not, and will not permit
any Wholly Owned Restricted Subsidiary of the Company to, transfer, convey,
sell, lease or otherwise dispose of any Capital Stock in any Wholly Owned
Restricted Subsidiary of the Company to any Person (other than the Company or a
Wholly Owned Restricted Subsidiary of the Company), unless (a) such transfer,
conveyance, sale, lease or other disposition is of all the Capital Stock in
such Wholly Owned Restricted Subsidiary and (b) the cash Net Proceeds from such
transfer, conveyance, sale, lease or other disposition are applied in
accordance with "--Repurchase at the Option of Holders--Asset Sales," and (ii)
will not permit any Wholly Owned Restricted Subsidiary of the Company to issue
any of its Equity Interests (other than, if necessary, shares of its Capital
Stock constituting directors' qualifying shares) to any Person other than to
the Company or a Wholly Owned Restricted Subsidiary of the Company.
LIMITATIONS ON ISSUANCES OF GUARANTEES OF INDEBTEDNESS
The Indenture provided that the Company will not permit any Restricted
Subsidiary, directly or indirectly, to Guarantee or pledge any assets to secure
the payment of any other Indebtedness of the Company , other than any such
Indebtedness incurred pursuant to clauses (i) and (ii) of the definition of
Permitted Debt, unless such Restricted Subsidiary simultaneously executes and
delivers a supplemental indenture to the Indenture providing for the Guarantee
of the payment of the New Notes by such Restricted Subsidiary, which Guarantee
shall be senior to or pari passu with such Restricted Subsidiary's Guarantee of
or pledge to secure such other Indebtedness. Notwithstanding the foregoing, any
such Guarantee by a Restricted Subsidiary of the New Notes shall provide by its
terms that it shall be automatically and unconditionally released and
discharged upon any sale, exchange or transfer, to any Person not an Affiliate
of the Company, of all of the Company's stock in, or all or substantially all
the assets of, such Restricted Subsidiary, which sale, exchange or transfer is
made in compliance with the applicable provisions of the Indenture.
BUSINESS ACTIVITIES
The Company will not, and will not permit any Subsidiary to, engage in any
business other than Permitted Businesses, except to such extent as would not be
material to the Company and its Restricted Subsidiaries taken as a whole.
PAYMENTS FOR CONSENT
The Indenture provides that neither the Company nor any of its Restricted
Subsidiaries will, directly or indirectly, pay or cause to be paid any
consideration, whether by way of interest, fee or otherwise, to any Holder of
any New Notes for or as an inducement to any consent, waiver or amendment of
any of the terms or provisions of the Indenture or the New Notes unless such
consideration is offered to be paid or is paid to all Holders of the New Notes
that consent, waive or agree to amend in the time frame set forth in the
solicitation documents relating to such consent, waiver or agreement.
REPORTS
The Indenture provides that, whether or not required by the rules and
regulations of the Commission, so long as any New Notes are outstanding, the
Company will furnish to the Holders of New Notes (i) all quarterly and annual
financial information that would be required to be contained in a filing with
the Commission on Forms 10-Q and 10-K if the Company were required to file such
Forms, including
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a "Management's Discussion and Analysis of Financial Condition and Results of
Operations" that describes the financial condition and results of operations of
the Company and its consolidated Subsidiaries (showing in reasonable detail,
either on the face of the financial statements or in the footnotes thereto and
in "Management's Discussion and Analysis of Financial Condition and Results of
Operations," the financial condition and results of operations of the Company
and its Restricted Subsidiaries separate from the financial condition and
results of operations of the Unrestricted Subsidiaries of the Company) and,
with respect to the annual information only, a report thereon by the Company's
certified independent accountants and (ii) all current reports that would be
required to be filed with the Commission on Form 8-K if the Company were
required to file such reports, in each case within the time periods specified
in the Commission's rules and regulations. In addition, following the
consummation of the Exchange Offer, whether or not required by the rules and
regulations of the Commission, the Company will file a copy of all such
information and reports with the Commission for public availability within the
time periods specified in the Commission's rules and regulations (unless the
Commission will not accept such a filing) and make such information available
to securities analysts and prospective investors upon request. In addition, the
Company has agreed that, for so long as any New Notes remain outstanding, it
will furnish to the Holders and to securities analysts and prospective
investors, upon their request, the information required to be delivered
pursuant to Rule 144A(d)(4) under the Securities Act.
EVENTS OF DEFAULT AND REMEDIES
The Indenture provides that each of the following constitutes an Event of
Default: (i) default for 30 days in the payment when due of interest on the New
Notes; (ii) default in payment when due of the principal of or premium, or
Liquidated Damages, if any, on the New Notes; (iii) failure by the Company or
any of its Subsidiaries to comply with the provisions described under the
captions "--Repurchase at the Option of Holders--Change of Control,"
"--Repurchase at the Option of Holders--Asset Sales," "--Certain
Covenants--Restricted Payments," "--Certain Covenants--Incurrence of
Indebtedness and Issuance of Preferred Stock," or "--Certain Covenants--Merger,
Consolidation or Sale of Assets;" (iv) failure by the Company or any of its
Subsidiaries for 30 days after notice to comply with any of its other
agreements in the Indenture, the New Notes or the Pledge Agreement; (v) default
under any mortgage, indenture or instrument under which there may be issued or
by which there may be secured or evidenced any Indebtedness for money borrowed
by the Company or any of its Restricted Subsidiaries (or the payment of which
is guaranteed by the Company or any of its Restricted Subsidiaries) whether
such Indebtedness or guarantee now exists, or is created after the date of the
Indenture, which default (a) is caused by a failure to pay principal of or
premium, if any, or interest on such Indebtedness prior to the expiration of
the grace period provided in such Indebtedness on the date of such default (a
"Payment Default") or (b) results in the acceleration of such Indebtedness
prior to its express maturity and, in each case, the principal amount of any
such Indebtedness, together with the principal amount of any other such
Indebtedness under which there has been a Payment Default or the maturity of
which has been so accelerated, aggregates $5.0 million or more; (vi) failure by
the Company or any of its Restricted Subsidiaries to pay final judgments
aggregating in excess of $5.0 million and either (a) any creditor commences
enforcement proceedings upon any such judgments or (b) such judgments are not
paid, discharged or stayed for a period of 45 days; (vii) breach by the Company
or any Subsidiary Pledgor of any material representation or warranty set forth
in the Pledge Agreement, or default by the Company or any Subsidiary Pledgor in
the performance of any material covenant set forth in the Pledge Agreement, or
repudiation by the Company or any Subsidiary Pledgor of its material
obligations under the Pledge Agreement or the unenforceability of the Pledge
Agreement against the Company or any Subsidiary Pledgor for any reason; and
(viii) certain events of bankruptcy or insolvency with respect to the Company
or any of its Restricted Subsidiaries.
If any Event of Default occurs and is continuing, the Trustee or the
Holders of at least 25% in principal amount of the then outstanding New Notes
may declare all the New Notes to be due and payable immediately.
Notwithstanding the foregoing, in the case of an Event of Default arising from
certain events of bankruptcy or insolvency, with respect to the Company, any
Significant Subsidiary or any group of Subsidiaries that, taken together, would
constitute a Significant Subsidiary, all outstanding New Notes will
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become due and payable without further action or notice. Upon any acceleration
of maturity of the New Notes, all principal of and accrued interest on and
Liquidated Damages, if any (if on or after March 15, 2003) or Accreted Value
and Liquidated Damages, if any (if prior to March 15, 2003), of the New Notes
shall be due and payable immediately. Holders of the New Notes may not enforce
the Indenture or the New Notes except as provided in the Indenture. Subject to
certain limitations, Holders of a majority in principal amount of the then
outstanding New Notes may direct the Trustee in its exercise of any trust or
power. The Trustee may withhold from Holders of the New Notes notice of any
continuing Default or Event of Default (except a Default or Event of Default
relating to the payment of principal or interest) if it determines that
withholding notice is in their interest.
In the case of any Event of Default occurring by reason of any willful
action (or inaction) taken (or not taken) by or on behalf of the Company with
the intention of avoiding payment of the premium that the Company would have
had to pay if the Company then had elected to redeem the New Notes pursuant to
the optional redemption provisions of the Indenture, an equivalent premium
shall also become and be immediately due and payable to the extent permitted by
law upon the acceleration of the New Notes. If an Event of Default occurs prior
to March 15, 2003 by reason of any willful action (or inaction) taken (or not
taken) by or on behalf of the Company with the intention of avoiding the
prohibition on redemption of the New Notes prior to March 15, 2003, then the
premium specified in the Indenture shall also become immediately due and
payable to the extent permitted by law upon the acceleration of the New Notes.
The Holders of a majority in aggregate principal amount of the New Notes
then outstanding by notice to the Trustee may on behalf of the Holders of all
of the New Notes waive any existing Default or Event of Default and its
consequences under the Indenture except a continuing Default or Event of
Default in the payment of interest on, or the principal of, the New Notes.
The Company is required to deliver to the Trustee annually a statement
regarding compliance with the Indenture, and the Company is required upon
becoming aware of any Default or Event of Default, to deliver to the Trustee a
statement specifying such Default or Event of Default.
NO PERSONAL LIABILITY OF DIRECTORS, OFFICERS, EMPLOYEES AND STOCKHOLDERS
No director, officer, employee, incorporator or stockholder of the
Company, as such, shall have any liability for any obligations of the Company
under the New Notes, the Indenture or the Pledge Agreement or for any claim
based on, in respect of, or by reason of, such obligations or their creation.
Each Holder of New Notes by accepting a New Note waives and releases all such
liability. The waiver and release are part of the consideration for issuance of
the New Notes. Such waiver may not be effective to waive liabilities under the
federal securities laws and it is the view of the Commission that such a waiver
is against public policy.
LEGAL DEFEASANCE AND COVENANT DEFEASANCE
The Company may, at its option and at any time, elect to have all of its
obligations discharged with respect to the outstanding New Notes ("Legal
Defeasance"). Such Legal Defeasance means that the Company will be deemed to
have paid and discharged the entire indebtedness represented by the outstanding
New Notes except for (i) the rights of Holders of outstanding New Notes to
receive payments in respect of the principal amount at maturity or Accreted
Value (as applicable) of and premium, interest and Liquidated Damages, if any,
on the New Notes when such payments are due or on the redemption date, as the
case may be, (ii) the Company's obligations with respect to the New Notes
concerning issuing temporary New Notes, registration of New Notes, mutilated,
destroyed, lost or stolen New Notes and the maintenance of an office or agency
for payment and money for security payments held in trust, (iii) the rights,
powers, trusts, duties and immunities of the Trustee, and the Company's
obligations in connection therewith and (iv) the Legal Defeasance provisions of
the Indenture. In addition, the Company may, at its option and at any time,
elect to have the obligations of the Company released with respect to certain
covenants that are described in the Indenture ("Covenant Defeasance") and
thereafter any omission to comply with such obligations shall not constitute a
Default or Event of Default with respect to the New Notes. In the event
Covenant Defeasance occurs, certain events (not including non-payment,
bankruptcy,
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receivership, rehabilitation and insolvency events) described under "--Events
of Default and Remedies" will no longer constitute an Event of Default with
respect to the New Notes.
In order to exercise either Legal Defeasance or Covenant Defeasance, (i)
the Company must irrevocably deposit with the Trustee, in trust, for the
benefit of the Holders of the New Notes, cash in U.S. dollars, non-callable
Government Securities, or a combination thereof, in such amounts as will be
sufficient, in the opinion of a nationally recognized firm of independent
public accountants, to pay the principal amount at maturity of or Accreted
Value (as applicable), premium, if any, interest and Liquidated Damages, if
any, on the outstanding New Notes on the stated maturity or on the applicable
redemption date, as the case may be, and the Company must specify whether the
New Notes are being defeased to maturity or to a particular redemption date;
(ii) in the case of Legal Defeasance, the Company shall have delivered to the
Trustee an opinion of counsel in the United States reasonably acceptable to the
Trustee confirming that (A) the Company has received from, or there has been
published by, the Internal Revenue Service a ruling or (B) since the date of
the Indenture, there has been a change in the applicable federal income tax
law, in either case to the effect that, and based thereon such opinion of
counsel shall confirm that, the Holders of the outstanding New Notes will not
recognize income, gain or loss for federal income tax purposes as a result of
such Legal Defeasance and will be subject to federal income tax on the same
amounts, in the same manner and at the same times as would have been the case
if such Legal Defeasance had not occurred; (iii) in the case of Covenant
Defeasance, the Company shall have delivered to the Trustee an opinion of
counsel in the United States reasonably acceptable to the Trustee confirming
that the Holders of the outstanding New Notes will not recognize income, gain
or loss for federal income tax purposes as a result of such Covenant Defeasance
and will be subject to federal income tax on the same amounts, in the same
manner and at the same times as would have been the case if such Covenant
Defeasance had not occurred; (iv) no Default or Event of Default shall have
occurred and be continuing on the date of such deposit (other than a Default or
Event of Default resulting from the borrowing of funds to be applied to such
deposit) or insofar as Events of Default from bankruptcy or insolvency events
are concerned, at any time in the period ending on the 91st day after the date
of deposit; (v) such Legal Defeasance or Covenant Defeasance will not result in
a breach or violation of, or constitute a default under any material agreement
or instrument (other than the Indenture) to which the Company or any of its
Subsidiaries is a party or by which the Company or any of its Subsidiaries is
bound; (vi) the Company must have delivered to the Trustee an opinion of
counsel to the effect that after the 91st day following the deposit, the trust
funds will not be subject to the effect of any applicable bankruptcy,
insolvency, reorganization or similar laws affecting creditors' rights
generally; (vii) the Company must deliver to the Trustee an Officers'
Certificate stating that the deposit was not made by the Company with the
intent of preferring the Holders of New Notes over the other creditors of the
Company with the intent of defeating, hindering, delaying or defrauding
creditors of the Company or others; and (viii) the Company must deliver to the
Trustee an Officers' Certificate and an opinion of counsel, each stating that
all conditions precedent provided for relating to the Legal Defeasance or the
Covenant Defeasance have been complied with.
TRANSFER AND EXCHANGE
A Holder may transfer or exchange New Notes in accordance with the
Indenture. The Registrar and the Trustee may require a Holder, among other
things, to furnish appropriate endorsements and transfer documents and the
Company may require a Holder to pay any taxes and fees required by law or
permitted by the Indenture. The Company is not required to transfer or exchange
any New Note selected for redemption. Also, the Company is not required to
transfer or exchange any New Note for a period of 15 days before a selection of
New Notes to be redeemed.
The registered Holder of a New Note will be treated as the owner of it for
all purposes.
AMENDMENT, SUPPLEMENT AND WAIVER
Except as provided in the next two succeeding paragraphs, the Indenture or
the New Notes may be amended or supplemented with the consent of the Holders of
at least a majority in principal amount, at maturity of the New Notes then
outstanding (including, without limitation, consents obtained in
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connection with a purchase of, or tender offer or exchange offer for, New
Notes), and any existing default or compliance with any provision of the
Indenture or the New Notes may be waived with the consent of the Holders of a
majority in principal amount of the then outstanding New Notes (including,
without limitation, consents obtained in connection with a purchase of, or
tender offer or exchange offer for, New Notes).
Without the consent of each Holder affected, an amendment or waiver may
not (with respect to any New Notes held by a non-consenting Holder): (i) reduce
the principal amount of New Notes whose Holders must consent to an amendment,
supplement or waiver, (ii) reduce the principal amount at maturity of, change
the fixed maturity of, alter the provisions with respect to the redemption of
the New Notes (other than provisions relating to the covenants described above
under the caption "--Repurchase at the Option of Holders") or amend or modify
the calculation of Accreted Value so as to reduce the amount of the Accreted
Value of the New Notes, (iii) reduce the rate of or change the time for payment
of interest on any New Note, (iv) waive a Default or Event of Default in the
payment of principal of or premium, if any, or interest on the New Notes
(except a rescission of acceleration of the New Notes by the Holders of at
least a majority in aggregate principal amount of the New Notes and a waiver of
the payment default that resulted from such acceleration), (v) make any New
Note payable in money other than that stated in the New Notes, (vi) make any
change in the provisions of the Indenture relating to waivers of past Defaults
or the rights of Holders of New Notes to receive payments of principal of or
premium, if any, or interest on the New Notes, (vii) waive a redemption or
repurchase payment with respect to any New Note (other than a payment required
by one of the covenants described above under the caption "--Repurchase at the
Option of Holders"), (viii) make any change in the foregoing amendment and
waiver provisions or (ix) modify any provision of the Indenture with respect to
the priority of the New Notes in right of payment. Notwithstanding the
foregoing, any amendment or waiver to the covenant described above under the
caption "--Repurchase at the Option of Holders--Change of Control" will require
the consent of the Holders of at least two-thirds in aggregate principal amount
of the New Notes then outstanding if such amendment would adversely affect the
rights of Holders of the New Notes.
Notwithstanding the foregoing, without the consent of any Holder of New
Notes, the Company and the Trustee may amend or supplement the Indenture or the
New Notes to cure any ambiguity, defect or inconsistency, to provide for
uncertificated New Notes in addition to or in place of certificated New Notes,
to provide for the assumption of the Company's obligations to Holders of New
Notes in the case of a merger or consolidation or sale of all or substantially
all of the Company's assets, to make any change that would provide any
additional rights or benefits to the Holders of New Notes or that does not
adversely affect the legal rights under the Indenture of any such Holder, or to
comply with requirements of the Commission in order to effect or maintain the
qualification of the Indenture under the Trust Indenture Act.
CONCERNING THE TRUSTEE
The Indenture contains certain limitations on the rights of the Trustee,
should the Trustee become a creditor of the Company, to obtain payment of
claims in certain cases, or to realize on certain property received in respect
of any such claim as security or otherwise. The Trustee will be permitted to
engage in other transactions with the Company; however, if it acquires any
conflicting interest it must eliminate such conflict within 90 days, apply to
the Commission for permission to continue or resign.
The Holders of a majority in principal amount at maturity of the then
outstanding New Notes will have the right to direct the time, method and place
of conducting any proceeding for exercising any remedy available to the
Trustee, subject to certain exceptions. The Indenture provides that in case an
Event of Default shall occur (which shall not be cured), the Trustee will be
required, in the exercise of its power, to use the degree of care of a prudent
man in the conduct of his own affairs. Subject to such provisions, the Trustee
will be under no obligation to exercise any of its rights or powers under the
Indenture at the request of any Holder of New Notes, unless such Holder shall
have offered to the Trustee security and indemnity satisfactory to it against
any loss, liability or expense.
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ADDITIONAL INFORMATION
Anyone who receives this Prospectus may obtain a copy of the Indenture,
the Pledge Agreement and the Registration Rights Agreement without charge by
writing to SF Holdings Group, Inc., 115 Stevens Avenue, Valhalla, New York
10595, Attention: General Counsel.
REGISTRATION RIGHTS; LIQUIDATED DAMAGES
The Company and the Initial Purchasers entered into the Registration
Rights Agreement dated as of March 12, 1998. Pursuant to the Registration
Rights Agreement, the Company agreed to file with the Commission the Exchange
Offer Registration Statement on the appropriate form under the Securities Act
with respect to the New Notes. Upon the effectiveness of the Exchange Offer
Registration Statement, the Company will offer to the Holders of Transfer
Restricted Securities pursuant to the Exchange Offer who are able to make
certain representations the opportunity to exchange their Transfer Restricted
Securities for New Notes. If the Company does not meet its obligations under
the Registration Rights Agreement, it may be required to pay to each Holder of
Old Notes Liquidated Damages in an amount equal to 50 basis points per annum of
the Accreted Value of Old Notes held by such Holder for each successive 90-day
period, or any portion thereof, during which such Registration Default
continues, up to a maximum amount of 200 basis points per annum of the Accreted
Value of Old Notes.
Holders of New Notes are not entitled to any registration rights with
respect to the New Notes. The Company agrees for a period of 270 days from the
effective date of this Prospectus to make available a prospectus meeting the
requirements of the Securities Act to any broker-dealer for use in connection
with any resale of any New Notes. The Registration Statement of which this
Prospectus is a part constitutes the registration statement for the Exchange
Offer which is the subject of the Registration Rights Agreement. Upon the
closing of the Exchange Offer, subject to certain limited exceptions, Holders
of untendered Old Notes will not retain any rights under the Registration
Rights Agreement.
CERTAIN DEFINITIONS
Set forth below are certain defined terms used in the Indenture. Reference
is made to the Indenture for a full disclosure of all such terms, as well as
any other capitalized terms used herein for which no definition is provided.
"Accreted Value" means, as of any date of determination prior to March 15,
2003, with respect to any Note, the sum of (a) the initial offering price to
investors of such Note and (b) the portion of the excess of the principal
amount of such Note over such initial offering price which shall have been
accreted thereon through such date, such amount to be so accreted on a daily
basis at a rate of 12 3/4% per annum of the initial offering price of such
Note, compounded semi-annually on each March 15 and September 15 from the date
of issuance of the Old Notes through the date of determination, computed on the
basis of a 360-day year of twelve 30-day months.
"Acquired Debt" means, with respect to any specified Person, (i)
Indebtedness of any other Person existing at the time such other Person is
merged with or into or became a Restricted Subsidiary of such specified Person,
including, without limitation, Indebtedness incurred in connection with, or in
contemplation of, such other Person merging with or into or becoming a
Restricted Subsidiary of such specified Person, and (ii) Indebtedness secured
by a Lien encumbering any asset acquired by such specified Person.
"Affiliate" of any specified Person means any other Person directly or
indirectly controlling or controlled by or under direct or indirect common
control with such specified Person. For purposes of this definition, "control"
(including, with correlative meanings, the terms "controlling," "controlled by"
and "under common control with"), as used with respect to any Person, shall
mean the possession, directly or indirectly, of the power to direct or cause
the direction of the management or policies of such Person, whether through the
ownership of voting securities, by agreement or otherwise; provided that
beneficial ownership of 10% or more of the Voting Stock of a Person shall be
deemed to be control.
"Asset Sale" means (i) the sale, lease, conveyance or other disposition of
any assets or rights (including, without limitation, by way of a sale and
leaseback) other than sales of inventory in the ordinary
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course of business consistent with past practices (provided that the sale,
lease, conveyance or other disposition of all or substantially all of the
assets of the Company and its Restricted Subsidiaries taken as a whole will be
governed by the provisions of the Indenture described above under the caption
"Repurchase at the Option of Holders--Change of Control" and/or the provisions
described above under the caption "Certain Covenants--Merger, Consolidation or
Sale of Assets" and not by the provisions described under the caption
"--Repurchase at the Option of Holders--Asset Sales"), and (ii) the issue or
sale by the Company or any of its Restricted Subsidiaries of Equity Interests
of any of the Company's Restricted Subsidiaries, in the case of either clause
(i) or (ii), whether in a single transaction or a series of related
transactions (a) that have a fair market value in excess of $2.5 million or (b)
for net proceeds in excess of $2.5 million. Notwithstanding the foregoing, the
following items shall not be deemed to be Asset Sales: (i) a transfer of assets
by the Company to a Restricted Subsidiary or by a Restricted Subsidiary to the
Company or to another Restricted Subsidiary and (ii) a Restricted Payment that
is permitted by the covenant described above under the caption "--Restricted
Payments." The term "all or substantially all" as used in this definition has
not been interpreted under New York law (which is the governing law of the
Indenture) to represent a specific quantitative test. As a consequence, in the
event the holders of the Notes elected to exercise their rights under the
Indenture and the Company elected to contest such election, there could be no
assurance as to how a court interpreting New York law would interpret the
phrase.
"Capital Lease Obligation" means, at the time any determination thereof is
to be made, the amount of the liability in respect of a capital lease that
would at such time be required to be capitalized on a balance sheet in
accordance with GAAP.
"Capital Stock" means (i) in the case of a corporation, corporate stock,
(ii) in the case of an association or business entity, any and all shares,
interests, participations, rights or other equivalents (however designated) of
corporate stock, (iii) in the case of a partnership or limited liability
company, partnership or membership interests (whether general or limited) and
(iv) any other interest or participation that confers on a Person the right to
receive a share of the profits and losses of, or distributions of assets of,
the issuing Person, excluding stock appreciation rights issued in the ordinary
course of business.
"Cash Equivalents" means (i) United States dollars, (ii) securities issued
or directly and fully guaranteed or insured by the United States government or
any agency or instrumentality thereof (provided that the full faith and credit
of the United States is pledged in support thereof) having maturities of not
more than six months from the date of acquisition, (iii) certificates of
deposit and eurodollar time deposits with maturities of six months or less from
the date of acquisition, bankers' acceptances with maturities not exceeding six
months and overnight bank deposits, in each case with any domestic commercial
bank having capital and surplus in excess of $500 million and a Thompson Bank
Watch Rating of "B" or better, (iv) repurchase obligations with a term of not
more than seven days for underlying securities of the types described in
clauses (ii) and (iii) above entered into with any financial institution
meeting the qualifications specified in clause (iii) above, (v) commercial
paper having the highest rating obtainable from Moody's Investors Service, Inc.
or Standard & Poor's Corporation and in each case maturing within one year
after the date of acquisition and (vi) money market funds at least 95% of the
assets of which constitute Cash Equivalents of the kinds described in clauses
(i) - (v) of this definition.
"CEG" means Creative Expressions Group, Inc., and CEG Holdings, LLC.
"Change of Control" means the occurrence of any of the following: (i) the
sale, lease, transfer, conveyance or other disposition (other than by way of
merger or consolidation), in one or a series of related transactions, of all or
substantially all of the assets of the Company and its Restricted Subsidiaries
taken as a whole to any "person" (as such term is used in Section 13(d)(3) of
the Exchange Act) or "group" (as defined in Sections 13(d)(3) and 14(d)(2) of
the Exchange Act) other than the Principals, (ii) the adoption of a plan
relating to the liquidation or dissolution of the Company, (iii) the
consummation of any transaction (including, without limitation, any merger or
consolidation) the result of which is that any "person" or "group" (as defined
above), other than the Principals, becomes the "beneficial owner"
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(as such term is defined in Rule 13d-3 and Rule 13d-5 under the Exchange Act),
directly or indirectly, of more of the voting power of the Voting Stock of the
Company than at that time is beneficially owned by the Principals or (iv) the
first day on which more than a majority of the members of the Board of
Directors of the Company are not Continuing Directors. For purposes of this
definition, any transfer of an equity interest of an entity that was formed for
the purpose of acquiring Voting Stock of the Company will be deemed to be a
transfer of such portion of such Voting Stock as corresponds to the portion of
the equity of such entity that has been so transferred.
The definition of Change of Control includes a phrase relating to the
sale, lease, transfer, conveyance or other disposition of "all or substantially
all" of the assets of the Company and its Subsidiaries taken as a whole.
Although there is a developing body of case law interpreting the phrase
"substantially all," there is no precise established definition of the phrase
under applicable law. Accordingly, the ability of a Holder of Notes to require
the Company to repurchase such Notes as a result of a sale, lease, transfer,
conveyance or other disposition of less than all of the assets of the Company
and its Subsidiaries taken as a whole to another Person or group may be
uncertain.
"Collateral" means all shares of Capital Stock in, and all intercompany
notes issued by, all current and future Restricted Subsidiaries of the Company
that are pledged to the Collateral Agent in accordance with the Indenture and
the Pledge Agreement.
"Consolidated Cash Flow" means, with respect to any Person for any period,
the Consolidated Net Income of such Person and its Restricted Subsidiaries for
such period plus (i) an amount equal to any extraordinary loss plus any net
loss realized in connection with an Asset Sale (to the extent such losses were
deducted in computing such Consolidated Net Income), plus (ii) provision for
taxes based on income or profits of such Person and its Restricted Subsidiaries
for such period, to the extent that such provision for taxes was included in
computing such Consolidated Net Income, plus (iii) consolidated interest
expense of such Person and its Restricted Subsidiaries for such period, whether
paid or accrued and whether or not capitalized (including, without limitation,
amortization of debt issuance costs and original issue discount, non-cash
interest payments, the interest component of any deferred payment obligations,
the interest component of all payments associated with Capital Lease
Obligations, commissions, discounts and other fees and charges incurred in
respect of letter of credit or bankers' acceptance financings, and net payments
(if any) pursuant to Hedging Obligations), to the extent that any such expense
was deducted in computing such Consolidated Net Income, plus (iv) depreciation,
amortization (including amortization of goodwill and other intangibles but
excluding amortization of prepaid cash expenses that were paid in a prior
period) and other non-cash charges (excluding any such non-cash charge to the
extent that it represents an accrual of or reserve for cash charges in any
future period or amortization of a prepaid cash expense that was paid in a
prior period) of such Person and its Restricted Subsidiaries for such period to
the extent that such depreciation, amortization and other non-cash charges were
deducted in computing such Consolidated Net Income, minus (v) non-cash items
increasing such Consolidated Net Income for such period, in each case, on a
consolidated basis and determined in accordance with GAAP. Notwithstanding the
foregoing, the provision for taxes on the income or profits of, and the
depreciation and amortization and other non-cash charges of, a Restricted
Subsidiary of the referent Person shall be added to Consolidated Net Income to
compute Consolidated Cash Flow only to the extent that a corresponding amount
would be permitted at the date of determination to be dividended to the Company
by such Restricted Subsidiary without prior governmental approval (that has not
been obtained), and without direct or indirect restriction pursuant to the
terms of its charter and all agreements, instruments, judgments, decrees,
orders, statutes, rules and governmental regulations applicable to that
Restricted Subsidiary or its stockholders.
"Consolidated Net Income" means, with respect to any Person for any
period, the aggregate of the Net Income of such Person and its Restricted
Subsidiaries for such period, on a consolidated basis, determined in accordance
with GAAP; provided that (i) the Net Income (but not loss) of any Person that
is not a Restricted Subsidiary or that is accounted for by the equity method of
accounting shall be included only to the extent of the amount of dividends or
distributions paid in cash to the referent Person or a Wholly Owned Restricted
Subsidiary thereof, (ii) the Net Income of any Restricted Subsidiary shall be
excluded to the extent that the declaration or payment of dividends or similar
distributions by that
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Restricted Subsidiary of that Net Income is not at the date of determination
permitted without any prior governmental approval (that has not been obtained)
or, directly or indirectly, by operation of the terms of its charter or any
agreement, instrument, judgment, decree, order, statute, rule or governmental
regulation applicable to that Restricted Subsidiary or its stockholders, (iii)
the Net Income of any Person acquired in a pooling of interests transaction for
any period prior to the date of such acquisition shall be excluded, (iv) the
cumulative effect of a change in accounting principles shall be excluded and
(v) income of any Unrestricted Subsidiary shall be excluded whether or not
distributed to the Company or any of its Restricted Subsidiaries.
"Consolidated Net Worth" means, with respect to any Person as of any date,
the sum of (i) the consolidated equity of the common stockholders of such
Person and its consolidated Restricted Subsidiaries as of such date plus (ii)
the respective amounts reported on such Person's balance sheet as of such date
with respect to any series of preferred stock (other than Disqualified Stock)
that by its terms is not entitled to the payment of dividends unless such
dividends may be declared and paid only out of net earnings in respect of the
year of such declaration and payment, but only to the extent of any cash
received by such Person upon issuance of such preferred stock, less (x) all
write-ups (other than write-ups resulting from foreign currency translations
and write-ups of tangible assets of a going concern business made within 12
months after the acquisition of such business) subsequent to the date of the
Indenture in the book value of any asset owned by such Person or a consolidated
Restricted Subsidiary of such Person, (y) all investments as of such date in
unconsolidated Subsidiaries and in Persons that are not Subsidiaries (except,
in each case, Permitted Investments), and (z) all unamortized debt discount and
expense and unamortized deferred charges as of such date, all of the foregoing
determined in accordance with GAAP.
"Continuing Directors" means, as of any date of determination, any member
of the Board of Directors of the Company who (i) was a member of such Board of
Directors on the date of the Indenture or (ii) was nominated for election or
elected to such Board of Directors with the approval of a majority of the
Continuing Directors who were members of such Board at the time of such
nomination or election.
"Default" means any event that is or with the passage of time or the
giving of notice or both would be an Event of Default.
"Disqualified Stock" means any Capital Stock that, by its terms (or by the
terms of any security into which it is convertible, or for which it is
exchangeable, at the option of the holder thereof), or upon the happening of
any event, matures or is mandatorily redeemable, pursuant to a sinking fund
obligation or otherwise, or redeemable at the option of the Holder thereof, in
whole or in part, on or prior to the date that is 91 days after the date on
which the New Notes mature; provided, however, that any Capital Stock that
would constitute Disqualified Stock solely because the holders thereof have the
right to require the Company to repurchase such Capital Stock upon the
occurrence of a Change of Control or an Asset Sale shall not constitute
Disqualified Stock if the terms of such Capital Stock provide that the Company
may not repurchase or redeem any such Capital Stock pursuant to such provisions
unless such repurchase or redemption complies with the covenant described above
under the caption "--Certain Covenants--Restricted Payments."
"Equity Interests" means Capital Stock and all warrants, options or other
rights to acquire Capital Stock (but excluding any debt security that is
convertible into, or exchangeable for, Capital Stock).
"Equity Offering" means an underwritten public offering of common stock
(other than Disqualified Stock) of the Company registered under the Securities
Act (other than a public offering registered on Form S-8 under the Securities
Act).
"Existing Indebtedness" means Indebtedness of the Company and its
Restricted Subsidiaries in existence on the date of the Indenture, including
Indebtedness represented by the Demand Note, until such amounts are repaid.
"Fixed Charges" means, with respect to any Person for any period, the sum,
without duplication, of (i) the consolidated interest expense of such Person
and its Restricted Subsidiaries for such period, whether paid or accrued
(including, without limitation, amortization of debt issuance costs and
original issue discount, non-cash interest payments, the interest component of
any deferred payment obligations,
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the interest component of all payments associated with Capital Lease
Obligations, commissions, discounts and other fees and charges incurred in
respect of letter of credit or bankers' acceptance financings, and net payments
(if any) pursuant to Hedging Obligations) and (ii) the consolidated interest of
such Person and its Restricted Subsidiaries that was capitalized during such
period, and (iii) any interest expense on Indebtedness of another Person that
is Guaranteed by such Person or one of its Restricted Subsidiaries or secured
by a Lien on assets of such Person or one of its Restricted Subsidiaries
(whether or not such Guarantee or Lien is called upon) and (iv) the product of
(a) all dividend payments, whether or not in cash, on any series of preferred
stock of such Person, other than dividend payments on Equity Interests payable
solely in Equity Interests of the Company (other than Disqualified Stock) or to
the Company or a Restricted Subsidiary of the Company, times (b) a fraction,
the numerator of which is one and the denominator of which is one minus the
then current combined federal, state and local statutory tax rate of such
Person, expressed as a decimal, in each case, on a consolidated basis and in
accordance with GAAP.
"Fixed Charge Coverage Ratio" means with respect to any Person for any
period, the ratio of the Consolidated Cash Flow of such Person for such period
to the Fixed Charges of such Person for such period. In the event that the
referent Person or any of its Restricted Subsidiaries incurs, assumes,
Guarantees or redeems any Indebtedness (other than revolving credit borrowings)
or issues or redeems preferred stock subsequent to the commencement of the
period for which the Fixed Charge Coverage Ratio is being calculated but prior
to the date on which the event for which the calculation of the Fixed Charge
Coverage Ratio is made (the "Calculation Date"), then the Fixed Charge Coverage
Ratio shall be calculated giving pro forma effect to such incurrence,
assumption, Guarantee or redemption of Indebtedness, or such issuance or
redemption of preferred stock, as if the same had occurred at the beginning of
the applicable four-quarter reference period. In addition, for purposes of
making the computation referred to above, (i) acquisitions that have been made
by the Company or any of its Restricted Subsidiaries, including through mergers
or consolidations and including any related financing transactions, during the
four-quarter reference period or subsequent to such reference period and on or
prior to the Calculation Date shall be deemed to have occurred on the first day
of the four-quarter reference period and Consolidated Cash Flow for such
reference period shall be calculated without giving effect to clause (iii) of
the proviso set forth in the definition of Consolidated Net Income, and (ii)
the Consolidated Cash Flow attributable to discontinued operations, as
determined in accordance with GAAP, and operations or businesses disposed of
prior to the Calculation Date, shall be excluded, and (iii) the Fixed Charges
attributable to discontinued operations, as determined in accordance with GAAP,
and operations or businesses disposed of prior to the Calculation Date, shall
be excluded, but only to the extent that the obligations giving rise to such
Fixed Charges will not be obligations of the referent Person or any of its
Subsidiaries following the Calculation Date.
"Fonda" means The Fonda Group, Inc.
"GAAP" means generally accepted accounting principles set forth in the
opinions and pronouncements of the Accounting Principles Board of the American
Institute of Certified Public Accountants and statements and pronouncements of
the Financial Accounting Standards Board or in such other statements by such
other entity as have been approved by a significant segment of the accounting
profession, which are in effect on the date of the Indenture.
"Guarantee" means a guarantee (other than by endorsement of negotiable
instruments for collection in the ordinary course of business), direct or
indirect, in any manner (including, without limitation, by way of a pledge of
assets or through letters of credit or reimbursement agreements in respect
thereof), of all or any part of any Indebtedness.
"Hedging Obligations" means, with respect to any Person, the obligations
of such Person under (i) interest rate swap agreements, interest rate cap
agreements and interest rate collar agreements and (ii) other agreements or
arrangements designed to protect such Person against fluctuations in interest
rates.
"Indebtedness" means, with respect to any Person, any indebtedness of such
Person, whether or not contingent, in respect of borrowed money or evidenced by
bonds, notes, debentures or similar instruments
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or letters of credit (or reimbursement agreements in respect thereof) or
banker's acceptances or representing Capital Lease Obligations or the balance
deferred and unpaid of the purchase price of any property or representing any
Hedging Obligations, except any such balance that constitutes an accrued
expense or trade payable, if and to the extent any of the foregoing (other than
letters of credit and Hedging Obligations) would appear as a liability upon a
balance sheet of such Person prepared in accordance with GAAP, as well as all
Indebtedness of others secured by a Lien on any asset of such Person (whether
or not such Indebtedness is assumed by such Person) and, to the extent not
otherwise included, the Guarantee by such Person of any indebtedness of any
other Person. The amount of any Indebtedness outstanding as of any date shall
be (i) the accreted value thereof, in the case of any Indebtedness issued with
original issue discount, and (ii) the principal amount thereof, together with
any interest thereon that is more than 30 days past due, in the case of any
other Indebtedness.
"Investments" means, with respect to any Person, all investments by such
Person in other Persons (including Affiliates) in the forms of direct or
indirect loans (including guarantees of Indebtedness or other obligations),
advances or capital contributions (excluding commission, travel and similar
advances to officers and employees made in the ordinary course of business),
purchases or other acquisitions for consideration of Indebtedness, Equity
Interests or other securities, together with all items that are or would be
classified as investments on a balance sheet prepared in accordance with GAAP.
If the Company or any Restricted Subsidiary of the Company sells or otherwise
disposes of any Equity Interests of any direct or indirect Subsidiary of the
Company such that, after giving effect to any such sale or disposition, such
Person is no longer a Subsidiary of the Company, the Company shall be deemed to
have made an Investment on the date of any such sale or disposition equal to
the fair market value of the Equity Interests of such Subsidiary not sold or
disposed of in an amount determined as provided in the final paragraph of the
covenant described above under the caption "--Restricted Payments."
"Lien" means, with respect to any asset, any mortgage, lien, pledge,
charge, security interest or encumbrance of any kind in respect of such asset,
whether or not filed, recorded or otherwise perfected under applicable law
(including any conditional sale or other title retention agreement, any lease
in the nature thereof, any option or other agreement to sell or give a security
interest in and any filing of or agreement to give any financing statement
under the Uniform Commercial Code (or equivalent statutes) of any
jurisdiction).
"Net Income" means, with respect to any Person, the net income (loss) of
such Person, determined in accordance with GAAP and before any reduction in
respect of preferred stock dividends, excluding, however, (i) any gain (but not
loss), together with any related provision for taxes on such gain (but not
loss), realized in connection with (a) any Asset Sale (including, without
limitation, dispositions pursuant to sale and leaseback transactions) or (b)
the disposition of any securities by such Person or any of its Restricted
Subsidiaries or the extinguishment of any Indebtedness of such Person or any of
its Restricted Subsidiaries and (ii) any extraordinary or nonrecurring gain
(but not loss), together with any related provision for taxes on such
extraordinary or nonrecurring gain (but not loss).
"Net Proceeds" means the aggregate cash proceeds received by the Company
or any of its Restricted Subsidiaries in respect of any Asset Sale (including,
without limitation, any cash received upon the sale or other disposition of any
non-cash consideration received in any Asset Sale), net of the direct costs
relating to such Asset Sale (including, without limitation, legal, accounting
and investment banking fees, and sales commissions) and any relocation expenses
incurred as a result thereof, taxes paid or payable as a result thereof (after
taking into account any available tax credits or deductions and any tax sharing
arrangements), amounts required to be applied to the repayment of Indebtedness
secured by a Lien on the asset or assets that were the subject of such Asset
Sale, and any reserve for adjustment in respect of the sale price of such asset
or assets established in accordance with GAAP.
"Non-Recourse Debt" means Indebtedness (i) as to which neither the Company
nor any of its Restricted Subsidiaries (a) provides credit support of any kind
(including any undertaking, agreement or instrument that would constitute
Indebtedness), (b) is directly or indirectly liable (as a guarantor or
otherwise), or (c) constitutes the lender; and (ii) no default with respect to
which (including any rights that the holders thereof may have to take
enforcement action against an Unrestricted Subsidiary) would
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permit (upon notice, lapse of time or both) any holder of any other
Indebtedness (other than the New Notes being offered hereby) of the Company or
any of its Restricted Subsidiaries to declare a default on such other
Indebtedness or cause the payment thereof to be accelerated or payable prior to
its stated maturity; and (iii) as to which the lenders have been notified in
writing that they will not have any recourse to the stock or assets of the
Company or any of its Restricted Subsidiaries.
"Obligations" means any principal, interest, penalties, fees,
indemnifications, reimbursements, damages and other liabilities payable under
the documentation governing any Indebtedness.
"Permitted Business" means the business of producing and selling food
service, packaging, tissue and party goods products and such other businesses
as the Company and its Restricted Subsidiaries are engaged in on the date of
the Indenture, and reasonable expansions and extensions thereof.
"Permitted Investments" means (a) any Investment in the Company or in a
Restricted Subsidiary of the Company; (b) any Investment in Cash Equivalents;
(c) any Investment by the Company or any Restricted Subsidiary of the Company
in a Person that is evidenced by Capital Stock or Subsidiary Intercompany Notes
that are pledged to the Trustee as Collateral for the New Notes, if as a result
of such Investment (i) such Person becomes a Restricted Subsidiary of the
Company or (ii) such Person is merged, consolidated or amalgamated with or
into, or transfers or conveys substantially all of its assets to, or is
liquidated into, the Company or a Restricted Subsidiary of the Company; (d) any
Investment made as a result of the receipt of non-cash consideration from an
Asset Sale that was made pursuant to and in compliance with the covenant
described above under the caption "--Repurchase at the Option of Holders--Asset
Sales;" (e) a $2.6 million loan from Fonda to CEG, as in effect on the date of
the Indenture as such loan may be amended or refinanced in a manner not adverse
to Fonda, the Company or the Holders of the New Notes; and (f) other
Investments in an aggregate amount not to exceed $5.0 million.
"Permitted Liens" means (i) Liens on Indebtedness of the Company's
Restricted Subsidiaries that was permitted by the terms of the Indenture to be
incurred; (ii) Liens in favor of the Company or any of its Restricted
Subsidiaries; (iii) Liens on property of a Person existing at the time such
Person is merged into or consolidated with the Company or any Restricted
Subsidiary of the Company; provided that such Liens were in existence prior to
the contemplation of such merger or consolidation and do not extend to any
assets other than those of the Person merged into or consolidated with the
Company or any Restricted Subsidiary; (iv) Liens on property existing at the
time of acquisition thereof by the Company or any Restricted Subsidiary of the
Company, provided that such Liens were in existence prior to the contemplation
of such acquisition; (v) Liens to secure the performance of statutory
obligations, surety or appeal bonds, performance bonds or other obligations of
a like nature incurred in the ordinary course of business; (vi) Liens to secure
Indebtedness (including Capital Lease Obligations) permitted by clause (iv) of
the third paragraph of the covenant entitled "Incurrence of Indebtedness and
Issuance of Preferred Stock" covering only the assets acquired with such
Indebtedness; (vii) Liens existing on the date of the Indenture; (viii) Liens
for taxes, assessments or governmental charges or claims that are not yet
delinquent or that are being contested in good faith by appropriate proceedings
promptly instituted and diligently concluded, provided that any reserve or
other appropriate provision as shall be required in conformity with GAAP shall
have been made therefor; (ix) Liens incurred in the ordinary course of business
of the Company or any Restricted Subsidiary of the Company with respect to
obligations that do not exceed $2.5 million at any one time outstanding and
that (a) are not incurred in connection with the borrowing of money or the
obtaining of advances or credit (other than trade credit in the ordinary course
of business) and (b) do not in the aggregate materially detract from the value
of the property or materially impair the use thereof in the operation of
business by the Company or such Restricted Subsidiary; (x) Liens in favor of
the holders of New Notes; and (xi) renewals or refundings of any Liens referred
to in clauses (iii) through (x) above provided that any such renewal or
refunding does not extend to any assets or secure any Indebtedness not securing
or secured by the Liens being renewed or refinanced.
"Permitted Refinancing Indebtedness" means any Indebtedness of the Company
or any of its Restricted Subsidiaries issued in exchange for, or the net
proceeds of which are used to extend, refinance, renew, replace, defease or
refund other Indebtedness of the Company or any such Restricted Subsidiary;
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provided that: (i) the principal amount (or accreted value, if applicable) of
such Permitted Refinancing Indebtedness does not exceed the principal amount of
(or accreted value, if applicable), plus accrued interest on, the Indebtedness
so extended, refinanced, renewed, replaced, defeased or refunded (plus the
amount of reasonable expenses incurred in connection therewith); (ii) such
Permitted Refinancing Indebtedness has a final maturity date later than the
final maturity date of, and has a Weighted Average Life to Maturity equal to or
greater than the Weighted Average Life to Maturity of, the Indebtedness being
extended, refinanced, renewed, replaced, defeased or refunded; (iii) if the
Indebtedness being extended, refinanced, renewed, replaced, defeased or
refunded is subordinated in right of payment to the New Notes, such Permitted
Refinancing Indebtedness has a final maturity date later than the final
maturity date of, and is subordinated in right of payment to, the New Notes on
terms at least as favorable to the Holders of New Notes as those contained in
the documentation governing the Indebtedness being extended, refinanced,
renewed, replaced, defeased or refunded; and (iv) such Indebtedness is incurred
either by the Company or by the Subsidiary who is the obligor on the
Indebtedness being extended, refinanced, renewed, replaced, defeased or
refunded.
"Principals" means Dennis Mehiel, his lineal descendants and any trust,
corporation, partnership, association, limited liability company or other
entity in which Dennis Mehiel and/or his lineal descendants hold at least 80%
of the total, combined outstanding voting power or similar controlling
interest.
"Restricted Investment" means an Investment other than a Permitted
Investment.
"Restricted Subsidiary" of a Person means any Subsidiary of the referent Person
that is not an Unrestricted Subsidiary.
"Significant Subsidiary" means any Restricted Subsidiary that would be a
"significant subsidiary" as defined in Article 1, Rule 1-02 of Regulation S-X,
promulgated pursuant to the Act, as such Regulation is in effect on the date
hereof.
"Subsidiary" means, with respect to any Person, (i) any corporation,
association or other business entity of which more than 50% of the total voting
power of shares of Capital Stock entitled (without regard to the occurrence of
any contingency) to vote in the election of directors, managers or trustees
thereof is at the time owned or controlled, directly or indirectly, by such
Person or one or more of the other Subsidiaries of that Person (or a
combination thereof) and (ii) any partnership (a) the sole general partner or
the managing general partner of which is such Person or a Subsidiary of such
Person or (b) the only general partners of which are such Person or of one or
more Subsidiaries of such Person (or any combination thereof); provided,
however, that Sweetheart shall be deemed to be a Subsidiary of the Company for
so long as the Company directly or indirectly owns at least 50% of Sweetheart's
aggregate outstanding common stock.
"Subsidiary Intercompany Notes" means the intercompany notes, subordinate
in right of payment to the New Notes issued by Subsidiaries of the Company in
favor of the Company to evidence advances by the Company, in each case, in the
form attached as Annex B to the Indenture.
"Sweetheart" means Sweetheart Holdings Inc. and its Subsidiaries.
"Unrestricted Subsidiary" means (i) any Subsidiary (other than Fonda or
Sweetheart or any successor to any of them) that is designated by the Board of
Directors as an Unrestricted Subsidiary pursuant to a Board Resolution; but
only to the extent that such Subsidiary: (a) has no Indebtedness other than
Non-Recourse Debt; (b) is not party to any agreement, contract, arrangement or
understanding with the Company or any Restricted Subsidiary of the Company
unless the terms of any such agreement, contract, arrangement or understanding
are no less favorable to the Company or such Restricted Subsidiary than those
that might be obtained at the time from Persons who are not Affiliates of the
Company; (c) is a Person with respect to which neither the Company nor any of
its Restricted Subsidiaries has any direct or indirect obligation (x) to
subscribe for additional Equity Interests or (y) to maintain or preserve such
Person's financial condition or to cause such Person to achieve any specified
levels of operating results; (d) has not guaranteed or otherwise directly or
indirectly provided credit support for any Indebtedness of the Company or any
of its Restricted Subsidiaries; and (e) has at least one director on its board
of directors that is not a director or executive officer of the Company or any
of its Restricted
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Subsidiaries and has at least one executive officer that is not a director or
executive officer of the Company or any of its Restricted Subsidiaries. Any
such designation by the Board of Directors shall be evidenced to the Trustee by
filing with the Trustee a certified copy of the Board Resolution giving effect
to such designation and an Officers' Certificate certifying that such
designation complied with the foregoing conditions and was permitted by the
covenant described above under the caption "Certain Covenants--Restricted
Payments." If, at any time, any Unrestricted Subsidiary would fail to meet the
foregoing requirements as an Unrestricted Subsidiary, it shall thereafter cease
to be an Unrestricted Subsidiary for purposes of the Indenture and any
Indebtedness of such Subsidiary shall be deemed to be incurred by a Restricted
Subsidiary of the Company as of such date (and, if such Indebtedness is not
permitted to be incurred as of such date under the covenant described under the
caption "Incurrence of Indebtedness and Issuance of Preferred Stock," the
Company shall be in default of such covenant). The Board of Directors of the
Company may at any time designate any Unrestricted Subsidiary to be a
Restricted Subsidiary; provided that such designation shall be deemed to be an
incurrence of Indebtedness by a Restricted Subsidiary of the Company of any
outstanding Indebtedness of such Unrestricted Subsidiary and such designation
shall only be permitted if (i) such Indebtedness is permitted under the
covenant described under the caption "Certain Covenants--Incurrence of
Indebtedness and Issuance of Preferred Stock," calculated on a pro forma basis
as if such designation had occurred at the beginning of the four-quarter
reference period, and (ii) no Default or Event of Default would be in existence
following such designation.
"Voting Stock" of any Person as of any date means the Capital Stock of
such Person that is at the time entitled to vote in the election of the Board
of Directors of such Person.
"Weighted Average Life to Maturity" means, when applied to any
Indebtedness at any date, the number of years obtained by dividing (i) the sum
of the products obtained by multiplying (a) the amount of each then remaining
installment, sinking fund, serial maturity or other required payments of
principal, including payment at final maturity, in respect thereof, by (b) the
number of years (calculated to the nearest one-twelfth) that will elapse
between such date and the making of such payment, by (ii) the then outstanding
principal amount of such Indebtedness.
"Wholly Owned Restricted Subsidiary" of any Person means a Restricted
Subsidiary of such Person all of the outstanding Capital Stock or other
ownership interests of which (other than directors' qualifying shares) shall at
the time be owned by such Person or by one or more Wholly Owned Restricted
Subsidiaries of such Person and one or more Wholly Owned Restricted
Subsidiaries of such Person.
PROVISIONS GENERALLY APPLICABLE TO ALL SECURITIES
BOOK-ENTRY, DELIVERY AND FORM
Except as set forth below, the New Notes will be issued in registered,
global form in minimum denominations of $1,000 and integral multiples of $1,000
in excess thereof. New Notes will be issued at the closing of the Exchange
Offer (the "Closing") only against payment in immediately available funds.
The New Notes initially will be issued in the form of one global note (the
"Global Note"). The Global Note will be deposited upon issuance with the
Trustee as custodian for The Depository Trust Company ("DTC"), in New York, New
York, and registered in the name of DTC or its nominee, in each case for credit
to an account of a direct or indirect participant in DTC as described below.
Except as set forth below, the Global Note may be transferred, in whole
and not in part, only to another nominee of DTC or to a successor of DTC or its
nominee. Beneficial interests in the Global Note may not be exchanged for
Securities in certificated form except in the limited circumstances described
below. See "--Exchange of Book-Entry Securities for Certificated Securities."
Except in the limited circumstances described below, owners of beneficial
interests in the Global Note will not be entitled to receive physical delivery
of Certificated Securities (as defined below).
Initially, the Trustee will act as Paying Agent and Registrar with respect
to the New Notes. The New Notes may be presented for registration of transfer
and exchange at the offices of the Registrar.
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DEPOSITORY PROCEDURES
The following description of the operations and procedures of DTC,
Euroclear and Cedel are provided solely as a matter of convenience. These
operations and procedures are solely within the control of the respective
settlement systems and are subject to changes by them from time to time. The
Company takes no responsibility for these operations and procedures and urges
investors to contact the system or their participants directly to discuss these
matters.
DTC has advised the Company that DTC is a limited-purpose trust company
created to hold securities for its participating organizations (collectively,
the "Participants") and to facilitate the clearance and settlement of
transactions in those securities between Participants through electronic
book-entry changes in accounts of its Participants. The Participants include
securities brokers and dealers (including the Initial Purchasers), banks, trust
companies, clearing corporations and certain other organizations. Access to
DTC's system is also available to other entities such as banks, brokers,
dealers and trust companies that clear through or maintain a custodial
relationship with a Participant, either directly or indirectly (collectively,
the "Indirect Participants"). Persons who are not Participants may beneficially
own securities held by or on behalf of DTC only through the Participants or the
Indirect Participants. The ownership interests in, and transfers of ownership
interests in, each actual purchaser of each security held by or on behalf of
DTC are recorded on the records of the Participants and Indirect Participants.
DTC has also advised the Company that, pursuant to procedures established
by it, (i) upon deposit of the Global Note, DTC will credit the accounts of
Participants designated by the Initial Purchasers with portions of the
principal amount of the Global Note and (ii) ownership of the New Notes
evidenced by the Global will be shown on, and the transfer of ownership thereof
will be effected only through, records maintained by DTC (with respect to the
Participants) or by the Participants and the Indirect Participants (with
respect to other owners of beneficial interest in the Global Securities).
Investors in the Global Note may hold their interests therein directly
through DTC, if they are Participants in such system, or indirectly through
organizations (including Euroclear and Cedel) which are Participants in such
system. Prospective purchasers are advised that the laws of some states require
that certain persons take physical delivery in definitive form of securities
that they own. Consequently, the ability to transfer beneficial interests in a
Global Note to such persons will be limited to that extent. Because DTC can act
only on behalf of Participants, which in turn act on behalf of Indirect
Participants and certain banks, the ability of a person having beneficial
interests in a Global Note to pledge such interests to persons or entities that
do not participate in the DTC system, or otherwise take actions in respect of
such interests, may be affected by the lack of a physical certificate
evidencing such interests. For certain other restrictions on the
transferability of the New Notes, see "--Exchange of Book-Entry Securities for
Certificated Securities."
Except as described below, owners of interests in the Global Note will not
have New Notes registered in their names, will not receive physical delivery of
New Notes in certificated form and will not be considered the registered owners
or "Holders" thereof under the Indenture for any purpose.
Payments in respect of the principal of, premium, if any, interest and
Liquidated Damages, if any, on any New Notes registered in the name of DTC or
its nominee will be payable by the Trustee to DTC in its capacity as the
registered Holder under the Indenture. Under the terms of the Indenture, the
Company and the Trustee will treat the persons in whose names the New Notes are
registered as the owners thereof for the purpose of receiving such payments and
for any and all other purposes whatsoever. Consequently, neither the Company
nor the Trustee nor any agent of the Company or the Trustee has or will have
any responsibility or liability for (i) any aspect of DTC's records or any
Participant's or Indirect Participant's records relating to or payments made on
account of beneficial ownership interest in the Global Notes, or for
maintaining, supervising or reviewing any of DTC's records or any Participant's
or Indirect Participant's records relating to the beneficial ownership
interests in the Global Notes or (ii) any other matter relating to the actions
and practices of DTC or any of its Participants or Indirect Participants. DTC
has advised the Company that its current practice, upon receipt of any payment
in respect of securities such as the New Notes (including principal and
interest), is to credit the accounts of the relevant Participants with the
payment on the payment date, in amounts proportionate to their respective
holdings
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in the principal amount of beneficial interest in the relevant security as
shown on the records of DTC unless DTC has reason to believe it will not
receive payment on such payment date. Payments by the Participants and the
Indirect Participants to the beneficial owners of New Notes will be governed by
standing instructions and customary practices and will be the responsibility of
the Participants or the Indirect Participants and will not be the
responsibility of DTC, the Trustee or the Company. Neither the Company nor the
Trustee will be liable for any delay by DTC or any of its Participants in
identifying the beneficial owners of the New Notes, and the Company, the
Trustee may conclusively rely on and will be protected in relying on
instructions from DTC or its nominee for all purposes.
Interests in the Global Note are expected to be eligible to trade in DTC's
Same-Day Funds Settlement System and secondary market trading activity in such
interests will, therefore, settle in immediately available funds, subject in
all cases to the rules and procedures of DTC and its Participants. See "--Same
Day Settlement and Payment."
Transfers between Participants in DTC will be effected in accordance with
DTC's procedures, and will be settled in same day funds, and transfers between
participants in Euroclear and Cedel will be effected in the ordinary way in
accordance with their respective rules and operating procedures.
Cross-market transfers between the Participants in DTC, on the one hand,
and Euroclear or Cedel participants, on the other hand, will be effected
through DTC in accordance with DTC's rules on behalf of Euroclear or Cedel, as
the case may be, by its respective depositary; however, such cross-market
transactions will require delivery of instructions to Euroclear or Cedel, as
the case may be, by the counterparty in such system in accordance with the
rules and procedures and within the established deadlines (Brussels time) of
such system. Euroclear or Cedel, as the case may be, will, if the transaction
meets its settlement requirements, deliver instructions to its respective
depositary to take action to effect final settlement on its behalf by
delivering or receiving interests in the Global Note in DTC, and making or
receiving payment in accordance with normal procedures for same-day funds
settlement applicable to DTC. Euroclear participants and Cedel participants may
not deliver instructions directly to the depositories for Euroclear or Cedel.
DTC has advised the Company that it will take any action permitted to be
taken by a Holder of New Notes only at the direction of one or more
Participants to whose account DTC has credited the interests in the Global Note
and only in respect of such portion of the aggregate principal amount of the
New Notes as to which such Participant or Participants has or have given such
direction. However, if there is an Event of Default under the New Notes, DTC
reserves the right to exchange the Global Note for legended Securities in
certificated form, and to distribute such Securities to its Participants.
Although DTC, Euroclear and Cedel have agreed to the foregoing procedures
to facilitate transfers of interests in the Global Note among Participants in
DTC, Euroclear and Cedel, they are under no obligation to perform or to
continue to perform such procedures, and such procedures may be discontinued at
any time. Neither the Company nor the Trustee, nor any of their respective
agents will have any responsibility for the performance by DTC, Euroclear or
Cedel or their respective participants or indirect participants of their
respective obligations under the rules and procedures governing their
operations.
EXCHANGE OF BOOK-ENTRY SECURITIES FOR CERTIFICATED SECURITIES
A beneficial interest in the Global Note is exchangeable for New Notes in
the form of registered certificated securities if (i) DTC (x) notifies the
Company that it is unwilling or unable to continue as depositary for the Global
Note and the Company thereupon fails to appoint a successor depositary or (y)
has ceased to be a clearing agency registered under the Exchange Act, (ii) the
Company, at its option, notifies the Trustee in writing that it elects to cause
the issuance of the Certificated Securities or (iii) there shall have occurred
and be continuing a Default or Event of Default with respect to the New Notes.
In addition, beneficial interests in the Global Note may be exchanged for New
Notes in the form of Certificated Securities upon request but only upon prior
written notice given to the Trustee by or on behalf of DTC in accordance with
the Indenture. In all cases, Certificated Securities delivered in exchange for
any Global Note or beneficial interests therein will be registered in the
names, and issued in any
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approved denominations, requested by or on behalf of the depositary (in
accordance with its customary procedures) unless the Company determines
otherwise in compliance with applicable law.
SAME DAY SETTLEMENT AND PAYMENT
The Indenture will require that payments in respect of the New Notes
represented by the Global Note (including principal, premium, if any, interest
and Liquidated Damages, if any) be made by wire transfer of immediately
available funds to the accounts specified by the Global Note Holder. With
respect to Certificated Securities, the Company will make all payments of
principal, premium, if any, interest and Liquidated Damages, if any, by wire
transfer of immediately available funds to the accounts specified by the
Holders thereof or, if no such account is specified, by mailing a check to each
such Holder's registered address. The New Notes represented by the Global Notes
are expected to be eligible to trade in the PORTAL market and to trade in the
Depositary's Same-Day Funds Settlement System, and any permitted secondary
market trading activity in such New Notes will, therefore, be required by the
Depositary to be settled in immediately available funds. The Company expects
that secondary trading in the Certificated Securities will also be settled in
immediately available funds.
Because of time zone differences, the securities account of a Euroclear or
Cedel participant purchasing an interest in the Global Note from a Participant
in DTC will be credited, and any such crediting will be reported to the
relevant Euroclear or Cedel participant, during the securities settlement
processing day (which must be a business day for Euroclear and Cedel)
immediately following the settlement date of DTC. DTC has advised the Company
that cash received in Euroclear or Cedel as a result of sales of interests in
the Global Note by or through a Euroclear or Cedel participant to a Participant
in DTC will be received with value on the settlement date of DTC but will be
available in the relevant Euroclear or Cedel cash account only as of the
business day for Euroclear or Cedel following DTC's settlement date.
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DESCRIPTION OF CERTAIN INDEBTEDNESS
FONDA CREDIT FACILITY
General. Fonda is a party to a credit facility with IBJ Schroder Bank &
Trust Company, as agent, providing for available borrowings of up to $50.0
million (the "Fonda Credit Facility"). Borrowings under the Fonda Credit
Facility have a final maturity date of March 31, 2000. As of January 25, 1998,
$6.0 million was outstanding under the Fonda Credit Facility.
Interest Rates. Borrowings under the Fonda Credit Facility bear interest,
at the Company's election, at a rate per annum equal to (i) LIBOR plus 2.25% or
(ii) an Alternate Base Rate (being the higher of the (a) Base Rate publicly
announced by the Agent and (b) Federal Funds Rate in effect on such day plus
0.5%) plus 0.25%.
Prepayments. Prior to March 30, 1998, Fonda has the right, without penalty
or premium, to permanently reduce borrowings under the Fonda Credit Facility,
in minimum amounts of $1.0 million, up to $3.0 million.
Covenants. The obligation to advance funds is subject to certain
conditions customary for facilities of similar size and nature. In addition,
Fonda is subject to certain affirmative and negative covenants customarily
contained in agreements of this type, including, without limitation, covenants
that restrict, subject to specified exceptions (i) mergers, consolidations,
asset sales or changes in capital structure, (ii) creation or acquisition of
subsidiaries, (iii) purchase or redemption of capital stock or declaration or
payment of dividends or distributions on such capital stock, (iv) incurrence of
additional indebtedness, (v) investment activities, (vi) granting or incurrence
of liens to secure other indebtedness, (vii) prepayment or modification of the
terms of subordinated indebtedness and (viii) engaging in transactions with
affiliates.
In addition, the Fonda Credit Facility requires Fonda to satisfy certain
financial covenants, including the maintenance of an interest coverage ratio of
not less than 2.0 to 1.0. The Fonda Credit Facility also provides for customary
events of default.
Security. The Fonda Credit Facility is secured by accounts receivable,
inventory, certain general intangibles and the proceeds on the sale of accounts
receivable and inventory.
FONDA INDENTURE
General. In 1997, Fonda issued $120.0 million of its 9 1/2% Senior
Subordinated Notes due 2007 (the "Fonda Notes"). Payment of the principal of,
and interest on, the Fonda Notes is subordinate in right of payment to the
prior payment of Senior Debt (as defined therein), which includes the Fonda
Credit Facility.
Interest. Interest is payable semi-annually in arrears on the Fonda Notes
at a rate of 9 1/2% per annum.
Repayment. The principal amount of the Fonda Notes is payable on February
28, 2007. Fonda may, at its election, redeem the Fonda Notes at any time after
March 1, 2002 at a redemption price equal to a percentage (104.750% after March
1, 2002 and declining to 103.166% after March 1, 2003, 101.583% after March 1,
2004 and to 100% after March 1, 2005) of the principal amount thereof plus
accrued interest. The Fonda Notes provide that upon the occurrence of a Change
of Control (as defined therein), the holders thereof will have the option to
require the redemption of the Fonda Notes at a redemption price equal to 101%
of the principal amount thereof plus accrued interest.
Covenants. The indenture relating to the Fonda Notes (the "Fonda
Indenture") contains certain affirmative and negative covenants customarily
contained in agreements of this type, including, without limitation, covenants
that restrict, subject to specified exceptions (i) purchase or redemption of
Fonda's capital stock or declaration or payment of dividends or distributions
on such capital stock, (ii) incurrence
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of additional indebtedness, (iii) investment activities, (iv) mergers,
consolidations, asset sales or changes in capital structure, (v) creation or
acquisition of subsidiaries, (vi) granting or incurrence of liens to secure
other indebtedness, and (vii) engaging in transactions with affiliates. The
Fonda Indenture also provides for customary events of default.
SWEETHEART CREDIT FACILITIES
SWEETHEART U.S. CREDIT FACILITY
General. On October 24, 1997, Sweetheart and Sweetheart Cup entered into
the Sweetheart U.S. Credit Facility with BankAmerica, which provides for a
revolving credit facility in the amount of up to $135.0 million, subject to
certain borrowing base limitations. Borrowings under the Sweetheart U.S. Credit
Facility have a final maturity date of September 30, 2000. As of January 31,
1998, $103.0 million was outstanding under the Sweetheart U.S. Credit Facility.
Interest Rate. Borrowings under the Sweetheart U.S. Credit Facility bear
interest, at Sweetheart's election, at a rate per annum equal to (i) LIBOR plus
2.25% or (ii) the Base Rate publicly announced by Bank of American National
Trust and Savings Association plus 1.00%.
Termination. If the Sweetheart U.S. Credit Facility is terminated during
the period from October 24, 1997 to October 24, 1998, Sweetheart will be
obligated to pay BankAmerica $2.7 million. If the Sweetheart U.S. Credit
Facility is terminated during the period from October 24, 1998 to October 24,
1999, Sweetheart will be obligated to pay BankAmerica $1.35 million.
Covenants. Sweetheart is subject to certain affirmative and negative
covenants customarily contained in agreements of this type, including, without
limitation, covenants that restrict, subject to specified exceptions (i)
mergers, consolidations, asset sales or changes in capital structure, (ii)
creation or acquisition of subsidiaries, (iii) purchase or redemption of
Sweetheart's capital stock or declaration or payment of dividends or
distributions on such capital stock, (iv) incurrence of additional
indebtedness, (v) investment activities, (vi) granting or incurrence of liens
to secure other indebtedness, (vii) prepayment or modification of the terms of
subordinated indebtedness and (viii) engaging in transactions with affiliates.
In addition, the Sweetheart U.S. Credit Facility requires Sweetheart to
satisfy certain financial covenants. The Sweetheart U.S. Credit Facility also
provides for customary events of default and change of control provisions.
Security. The Sweetheart U.S. Credit Facility is secured by accounts
receivable, inventory, equipment, intellectual property, general intangibles
and the proceeds on the sale of any of the foregoing.
SWEETHEART CANADIAN CREDIT FACILITY
General. In 1989, Lily Cups entered into a term and revolving credit
facilities agreement (the "Sweetheart Canadian Credit Facility"), as amended,
with The Bank of Nova Scotia, as agent, which provides for (i) a term loan
facility in the amount of up to Cdn. $14.0 million; (ii) a revolving credit
facility in the amount of up to Cdn. $7.0 million; and (iii) a revolving
overdraft credit facility with standby or guarantee letters of credit in the
amount of up to Cdn. $1.0 million. The total amount outstanding under the
Canadian Credit Facility cannot exceed Cdn. $21.0 million. Term loan borrowings
under the Sweetheart Canadian Credit Facility are due and payable in
installments on October 31 of each year through 1998. Revolving credit
borrowings under the Sweetheart Canadian Credit Facility have a final maturity
date of October 31, 1998. As of January 31, 1998, Cdn. $6.5 million was
outstanding under the Sweetheart Canadian Credit Facility.
Interest Rate. Borrowings under the Sweetheart Canadian Credit Facility
bear interest, at Sweetheart's election, at a rate per annum equal to (i) LIBOR
plus 2.0%, (ii) the U.S. Base Rate (as defined therein) plus 1.25%, or (iii)
the Prime Rate plus 1.25%.
Prepayments. In the event that Lily Cups sells the property located at
Danforth Road, Scarborough, Ontario, Lily Cups is required to use certain net
proceeds of such sale to repay term loans outstanding on the first day
following the second anniversary of the date on which the Danforth Road
property is sold. In the event Lily Cups sells any of its assets, Lily Cups is
required to use certain net proceeds of such sale to repay term loans
outstanding.
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Covenants. Lily Cups is subject to certain affirmative and negative
covenants customarily contained in agreements of this type, including, without
limitation, covenants that restrict, subject to specified exceptions (i)
mergers, consolidations, asset sales or changes in capital structure, (ii)
creation or acquisition of subsidiaries, (iii) purchase or redemption of Lily
Cups' capital stock or declaration or payment of dividends or distributions on
such capital stock, (iv) incurrence of additional indebtedness, (v) investment
activities, (vi) granting or incurrence of liens to secure other indebtedness,
(vii) prepayment or modification of the terms of subordinated indebtedness and
(viii) engaging in transactions with affiliates.
Security. The Sweetheart Canadian Credit Facility is secured by accounts
receivable, inventory, property, plant and equipment held by Lily Cups located
in Canada and the proceeds on the sale of any of the foregoing.
SWEETHEART INDENTURES
SWEETHEART SECURED NOTE INDENTURE
General. In 1993, Sweetheart Cup issued $190.0 million of 9 5/8% Senior
Secured Notes due 2000. Payment of the principal of, and interest on, the
Sweetheart Secured Notes is guaranteed by Sweetheart.
Interest. Interest is payable semi-annually in arrears on the Sweetheart
Secured Notes at a rate of 9 5/8% per annum.
Repayment. The principal amount of the Sweetheart Secured Notes is payable
on August 31, 2000. Sweetheart Cup may, at its election, redeem the Sweetheart
Secured Notes at any time at a redemption price equal to a percentage
(currently 103.208% and declining to 101.604% after August 31, 1998 and to 100%
after August 31, 1999) of the principal amount thereof, plus accrued interest.
The Sweetheart Secured Notes provide that upon the occurrence of a Change of
Control (as defined therein), the holders thereof will have the option to
require the redemption of the Sweetheart Secured Notes at a redemption price
equal to 101% of the principal amount thereof plus accrued interest.
Covenants. The indenture relating to the Sweetheart Secured Notes (the
"Sweetheart Secured Notes Indenture") contains certain affirmative and negative
covenants customarily contained in agreements of this type, including, without
limitation, covenants that restrict, subject to specified exceptions (i)
purchase or redemption of Sweetheart Cup's capital stock or declaration or
payment of dividends or distributions on such capital stock, (ii) incurrence of
additional indebtedness, (iii) investment activities, (iv) mergers,
consolidations, asset sales or changes in capital structure, (v) creation or
acquisition of subsidiaries, (vi) granting or incurrence of liens to secure
other indebtedness, and (vii) engaging in transactions with affiliates. The
Sweetheart Secured Notes Indenture also provides for customary events of
default.
Security. The Sweetheart Secured Notes are secured by mortgages on the
real property owned by Sweetheart Cup and by a pledge of the capital stock of
the subsidiaries of Sweetheart Cup. Sweetheart's guarantee of the Sweetheart
Secured Notes is secured by mortgages on the real property owned by Sweetheart.
SWEETHEART SUBORDINATED INDENTURE
General. In 1993, Sweetheart Cup issued $110.0 million of 10 1/2% Senior
Subordinated Notes due 2003. Payment of the principal of, and interest on, the
Sweetheart Subordinated Notes is guaranteed by Sweetheart. Payment of the
principal of, and interest on, the Subordinated Notes is subordinate in right
of payment to the prior payment of Senior Indebtedness (as defined therein),
which includes the Sweetheart U.S. Credit Facility and the Sweetheart Secured
Notes.
Interest. Interest is payable semi-annually in arrears on the Sweetheart
Subordinated Notes at a rate of 10 1/2% per annum.
Repayment. The entire principal amount of the Sweetheart Subordinated
Notes is payable on August 31, 2003. Sweetheart Cup may, at its election,
redeem the Sweetheart Subordinated Notes at any time after August 31, 1998 at a
redemption price equal to a percentage (103.938% after August 31, 1998
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and declining to 102.625% after August 31, 1999, 101.313% after August 31, 2000
and to 100% after August 31, 2001) of the principal amount thereof, plus
accrued interest. The Sweetheart Subordinated Notes provide that upon the
occurrence of a Change of Control (as defined therein), the holders thereof
will have the option to require the redemption of the Sweetheart Subordinated
Notes at a redemption price equal to 101% of the principal amount thereof plus
accrued interest.
Covenants. The indenture relating to the Sweetheart Subordinated Notes
(the "Sweetheart Subordinated Notes Indenture") contains certain affirmative
and negative covenants customarily contained in agreements of this type,
including, without limitation, covenants that restrict, subject to specified
exceptions (i) purchase or redemption of Sweetheart Cup's capital stock or
declaration or payment of dividends or distributions on such capital stock,
(ii) incurrence of additional indebtedness, (iii) investment activities, (iv)
mergers, consolidations, asset sales or changes in capital structure, (v)
creation or acquisition of subsidiaries, (vi) granting or incurrence of liens
to secure other indebtedness, and (vii) engaging in transactions with
affiliates. The Sweetheart Subordinated Notes Indenture also provides for
customary events of default.
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DESCRIPTION OF CAPITAL STOCK
COMMON STOCK
The Company is authorized to issue an aggregate of 18,000,000 shares of
common stock, par value $.001 per share, consisting of 15,000,000 shares of
Class A Common Stock, 1,000,000 shares of Class B Common Stock and 2,000,000
shares of Class C Common Stock. There are currently 5,625,838 shares of Class A
Common Stock, 564,586 shares of Class B Common Stock, and 399,000 shares of
Class C Common Stock outstanding. The shares of Class A Common Stock are held
by four stockholders of record and the shares of Class B Common Stock are held
by one stockholder of record. The rights of holders of Class A, Class B and
Class C Common Stock are identical except as to voting and conversion rights.
Each share of Class A Common Stock is entitled to one vote per share on
all matters to be voted upon by stockholders and does not have cumulative
voting rights in the election of directors. Each share of Class B Common Stock
is entitled to one-tenth of a vote per share and shall vote together with the
Class A Common Stock as a single class; provided, however, that the vote of the
holders of a majority of the shares of Class B Common Stock shall be required
for the amendment or modification of the Certificate of Incorporation of the
Company in any way that would adversely affect the powers, preferences and
rights of the Class B Common Stock. The holders of Class C Common Stock are not
entitled to any vote whatsoever, except to the extent otherwise provided by
law.
The holders of all classes of Common Stock are entitled, among other
things, (i) to share ratably in dividends if, when and as declared by the Board
of Directors out of funds legally available therefor, and (ii) in the event of
liquidation, distribution or sale of assets, dissolution or winding-up of the
Company, to share ratably in the distribution of assets legally available
therefor. The holders of Common Stock have no preemptive rights to subscribe
for additional shares of the Company. All currently outstanding shares of the
Common Stock are fully paid and nonassessable.
Each share of Class B Common Stock may, at any time, be converted into a
fully paid and non-assessable share of Class A Common Stock at the option of
any holder other than a "Non-Converting Holder" (as defined in SF Holdings'
certificate of incorporation), or at the option of any Non-Converting Holder
concurrently with a sale or other transfer of shares of Class B Common Stock to
any person, firm or corporation other than a Non-Converting Holder. In
addition, the current holder of the Class B Common Stock has anti-dilution
protections.
Each share of Class C Common Stock may, following an underwritten initial
public offering of shares of Common Stock of the Company, be converted into a
fully paid and non-assessable share of Class A Common Stock at the option of
any holder, or at the option of the Company.
PREFERRED STOCK
The Company is authorized to issue an aggregate of 120,000 shares of
preferred stock, par value $.001 per share, consisting of 20,000 shares of
Exchangeable Preferred Stock (the "Exchangeable Preferred Stock") and 100,000
shares of Class B Preferred Stock (the "Class B Preferred"). There are
currently 3,000 shares of Exchangeable Preferred Stock and 15,000 shares of
Class B Series 1 Preferred issued and outstanding.
Exchangeable Preferred Stock. The holders of the Exchangeable Preferred
Stock are entitled to receive cumulative dividends at an annual rate equal to
1.0% over the interest rate of the New Notes. Until the fifth anniversary of
the consummation of the Sweetheart Investment, dividends on the Exchangeable
Preferred Stock will be payable quarterly in arrears, at the option of the
Company, (i) in cash or (ii) by issuing shares of Exchangeable Preferred Stock
with an aggregate liquidation value equal to the amount of such dividends. From
and after such time, dividends are payable quarterly in arrears in cash,
subject to certain exceptions.
The Exchangeable Preferred Stock is convertible into subordinated
indebtedness of SF Holdings, subject to certain conditions, at the option of SF
Holdings, which shall have terms comparable to the Exchangeable Preferred
Stock.
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The Exchangeable Preferred Stock is required to be redeemed on the date
immediately following the 11th anniversary of the consummation of the
Sweetheart Investment at a redemption price per share, in cash, equal to the
aggregate liquidation value, plus the cash value of any accrued and unpaid
dividends payable in kind and the amount of any accrued and unpaid cash
dividends.
The Company has the right but not the obligation to redeem the
Exchangeable Preferred Stock, in whole or in part, (i) at any time after the
fifth anniversary of the consummation of the Sweetheart Investment and (ii)
prior to the third anniversary of the consummation of the Sweetheart Investment
at any time following an initial public offering by the Company, subject to
certain restrictions, on the same terms and at comparable percentages as
specified under "Description of New Notes--Optional Redemption," with respect
to the optional redemption of the New Notes.
In the event of a Change of Control, each holder of Exchangeable Preferred
Stock has the right to require the Company to repurchase its stock at a
purchase price equal to 101% of the liquidation value, plus the cash value of
any accrued and unpaid dividends payable in kind and the amount of any accrued
and unpaid cash dividends.
The holders of Exchangeable Preferred Stock are not entitled to any voting
rights, except as described below or as otherwise required by applicable law.
In the event the Company fails to (i) pay dividends for six or more quarters,
(ii) satisfy any mandatory redemption obligation, (iii) make a "repurchase
offer" within 30 days following a "Change of Control" or (iv) comply with any
of the covenants set forth in the Indenture for a period of 30 days, the
Company's board of directors will be increased by two members and the holders
of a majority of the outstanding shares of the Exchangeable Preferred Stock,
voting as a separate class, will be entitled to elect two members to the
Company's board of directors. The approval of the holders of a majority of the
Exchangeable Preferred Stock, voting as a separate class, is also required for
(i) the authorization of any series of preferred stock senior to the
Exchangeable Preferred Stock, (ii) the amendment or modification of any
provisions of the Company's Certificate of Incorporation in a manner that would
adversely affect the voting powers, designation, preferences and rights of the
Exchangeable Preferred Stock and (iii) any merger or consolidation or sale of
all or substantially all of the assets of the Company if the terms of such
transaction do not provide for the repurchase or redemption of all of the
Exchangeable Preferred Stock.
Class B Preferred. The Board of Directors is authorized to issue shares of
Class B Preferred, from time to time, in one or more series, and to determine,
among other things, with respect to each such series, (i) the dividend rate and
conditions and the dividend preferences, if any; (ii) whether dividends would
be cumulative; (iii) whether, and to what extent, the holders of such series
would enjoy voting rights, if any, in addition to those prescribed by law; (iv)
whether, and upon what terms, such series would be convertible into or
exchangeable for shares of any other class of capital stock; (v) whether, and
upon what terms, such series would be redeemable; (vi) whether or not a sinking
fund or redemption or purchase account would be provided for such series and,
if so, the terms and conditions thereof; and (vii) the preference, if any, to
which such series would be entitled in the event of voluntary or involuntary
liquidation, distribution or sale of assets, dissolution or winding up of the
Company.
Issuance of Class B Preferred, while providing flexibility in connection
with possible acquisitions and other corporate purposes, could make it more
difficult for a third party to acquire a majority of the outstanding voting
stock. Accordingly, the issuance of Class B Preferred may be used as an "anti-
takeover" device without further action on the part of the stockholders of the
Company. The Company has no present plans to issue any shares of Class B
Preferred.
Class B Series 1 Preferred. The holder of the Class B Series 1 Preferred
is not entitled to receive dividends. The Class B Series 1 Preferred is
convertible, at any time, into 1,334,945 shares of Class A Common Stock, at the
option of the holder and is required to be redeemed on the date immediately
following the 12th anniversary of the consummation of the Sweetheart Investment
at a redemption price per share, in cash, equal to the aggregate liquidation
value. The holder of the Class B Series 1 Preferred is not entitled to any
voting rights, except as otherwise required by law. In the event any shares of
Class B Series 1 Preferred are redeemed (the "Redemption Amount"), the
Sweetheart Stockholders will have the right to redeem that number of the
Exchange Warrants or shares of Class C Common Stock issuable upon exercise of
the Exchange Warrants, as the case may be, equal to 10% of the value of the
Redemption Amount.
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REGISTRATION RIGHTS
After the earlier to occur of March 15, 2002 or the occurrence of a
Triggering Event (as defined herein), the holders of one-quarter or more of the
Shares will be entitled to require the Company to effect one registration (a
"Demand Registration") under the Securities Act of the Shares, subject to
certain limitations. Upon a demand, the Company will (a) notify the holders of
all of the Shares that a demand registration has been requested, (b) prepare,
file and use its best efforts to cause to become effective within 120 days of
such demand registration statement in respect of all of the Shares which
holders request, no later than 30 days after the date of such notice, to have
included therein (the "Included Securities"); provided, that if such demand
occurs during the "lock up" or "black out" period (not to exceed 180 days)
imposed on the Company pursuant to any underwriting or purchase agreement
relating to an underwritten Rule 144A or registered public offering of Common
Stock or securities convertible into or exchangeable or exercisable for Common
Stock, the Company shall not be required to so notify holders of the Shares and
file such demand registration statement prior to the end of such "lock up" or
"black out" period, in which event the Company will use its best efforts to
cause such demand registration statement to become effective no later than 30
days after the end of such "lock up" or "black out" period and (c) keep such
registration statement continuously effective for the shorter of (i) 180 days
(the "Effectiveness Period") and (ii) such period of time as all of the Shares
included in such registration statement shall have been sold thereunder;
provided, that the Company may postpone the filing period, suspend the
effectiveness of any registration statement, suspend the use of any prospectus
and shall not be required to amend or supplement the registration statement,
any related prospectus or any document incorporated therein by reference (other
than an effective registration statement being used for an underwritten
offering) in the event that, and for a period (a "Black Out Period") not to
exceed an aggregate of 45 days with respect to a Demand Registration, (i) an
event or circumstance occurs and is continuing as a result of which the
registration statement, any related prospectus or any document incorporated
therein by reference as then amended or supplemented would, in the Company's
good faith judgment, contain an untrue statement of a material fact or omit to
state a material fact necessary in order to make the statements therein, in the
light of the circumstances under which they were made, not misleading, and
(ii)(A) the Company determines in its good faith judgment that the disclosure
of such an event at such time would have a material adverse effect on the
business, operations or prospects of the Company or (B) the disclosure
otherwise relates to a material business transaction which has not yet been
publicly disclosed; provided further, that the Effectiveness Period shall be
extended by the number of days in any Black Out Period. In the event of any
"lock up" or "black out" period in any underwriting or purchase agreement, the
Company will so notify the holders of the Shares.
Holders of Shares will also have the right to include the Shares in any
registration statement under the Securities Act filed by the Company for its
own account or for the account of any of its security holders covering the sale
of Common Stock (other than (a) a registration statement on Form S-4 or S-8 or
(b) a registration statement filed in connection with an offer of securities
solely to existing security holders or (c) a Demand Registration) for sale on
the same terms and conditions as the securities of the Company or any other
selling security holder included therein (a "Piggy-Back Registration") if and
whenever any such registration statement is filed under the Securities Act,
except that the Piggy-Back Registration right of holders of the Shares shall
not apply to any Equity Offering that is the initial Equity Offering of the
Company unless the securities of other selling security holders are to be
included therein. In the case of a Piggy-Back Registration, the number of the
Shares requested to be included therein is subject to a reduction (a "Cut
Back") to the extent that the Company is advised by the managing underwriter,
if any, therefor that the total number or type of the Shares to be included
therein is such as to materially and adversely affect the success of the
offering. Any such reduction shall be pro rata among holders of the Shares. If
the Company grants any Piggy-Back Registration rights to any person other than
to such persons who have Piggy-Back Registration rights existing on the date of
the closing of the offering, such securities subject to the Piggy-Back
Registration rights shall be cut back prior to any of the Shares.
If the Company has complied with all its obligations with respect to a
Demand Registration or a Piggy-Back Registration relating to an underwritten
public offering, all holders of the Shares, upon request of the lead managing
underwriter with respect to such underwritten public offering, will be
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required to not sell or otherwise dispose of any of the Shares owned by them
for a period not to exceed 180 days from the consummation of such underwritten
public offering, provided, that such requirement shall apply to the Shares not
sold in a Demand Registration or Piggy-Back Registration due to a Cut Back for
a period not to exceed 90 days from such date of consummation.
As used herein, "Triggering Event" means the occurrence of any of the
following events: (i) the day immediately prior to a Change of Control, (ii)
the 90th day (or such earlier date as determined by the Company in its sole
discretion) following the initial Equity Offering of the Company or (iii) other
than as a result of the initial Equity Offering of the Company, the day on
which a class of common equity securities of the Company is listed on a
national securities exchange or authorized for quotation on the Nasdaq National
Market System or is otherwise subject to registration under the Exchange Act.
As used herein, "Equity Offering" shall have the same meaning as set forth in
the "Description of New Notes."
See "The Sweetheart Investment" for registration rights granted to the
Sweetheart Stockholders.
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CERTAIN FEDERAL INCOME TAX CONSEQUENCES
GENERAL
The following is a discussion of certain U.S. federal income tax
consequences of the purchase, ownership and disposition of Notes as of the date
hereof applicable to initial Holders who purchased Units pursuant to the
Offering. This summary applies only to Notes acquired by the holders thereof
and held as capital assets within the meaning of Section 1221 of the Internal
Revenue Code of 1986, as amended (the "Code"). It does not discuss all of the
tax consequences that may be relevant to a Holder in light of its particular
circumstances or to Holders subject to special rules, such as dealers in
securities or foreign currencies, financial institutions, life insurance
companies, or regulated investment companies, or to Holders whose functional
currency is not the United States dollar or who hold the Notes as part of a
synthetic security, conversion transaction, or certain "straddle" or hedging
transactions.
The U.S. federal income tax considerations set forth below are based upon
the Code and regulations, rulings and judicial decisions thereunder as of the
date hereof, and such authorities may be repealed, revoked or modified,
possibly with retroactive effect, so as to result in U.S. federal income tax
consequences different from those presented below.
TAX CONSEQUENCES TO U.S. HOLDERS
The following discussion describes United States federal income tax
consequences with respect to U.S. Holders.
For purposes of this discussion, a "U.S. Holder" is a Holder that is an
individual who is a citizen or resident of the United States, a corporation or
a partnership that is created or organized in the United States or under the
laws of the United States or any state thereof or an estate whose income is
includable in gross income regardless of its source. A trust generally is a
U.S. Holder only if a court within the United States is able to exercise
primary supervision over its administration and one or more United States
persons have the authority to control all substantial decisions of the trust.
THE NOTES
Original Issue Discount. The Notes will be issued with original issue
discount ("OID"). As a result, a U.S. Holder will generally be required to
include OID in income as it accrues, rather than upon the receipt of cash
attributable to such income, whether such U.S. Holder uses the cash or accrual
method of accounting.
The amount of OID on a Note generally is the excess of its "stated
redemption price at maturity" over its "issue price." A Note's stated
redemption price at maturity includes all payments required to be made over the
term of the Note other than the payment of "qualified stated interest," which
includes interest that is unconditionally payable in cash or property (other
than debt instruments of the issuer) at least annually at a single fixed rate.
The Notes will not provide for the payment of any qualified stated interest. In
general, the issue price of a Note will be the price at which a substantial
amount of the Units are sold, reduced by the portion of the purchase price of
the Units allocable to Shares. The Company will allocate the purchase price of
a Unit between the Shares and the Note based on their relative fair market
values. Such allocation will be binding on a U.S. Holder, unless the Holder
discloses on a statement attached to its income tax return that it is using a
different allocation.
A U.S. Holder must include in income for the taxable year (whether on the
cash or accrual method of accounting) the sum of the daily portions of OID
accrued for each day of the taxable year in which the Holder held the Note. The
daily portions of OID are determined by determining the OID attributable to
each accrual period and allocating a ratable portion of such amount to each day
in the accrual period. The accrual period may be of any length and may vary in
length over the term of the Note, provided that each accrual period is no
longer than one year and each scheduled payment of principal and interest
occurs on the final day of an accrual period or on the first day of an accrual
period. In general, OID allocable to an accrual period equals the product of
the (i) adjusted issue price at the beginning of the accrual period (i.e.,
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the original issue price plus previously accrued OID minus prior payments made
on the Note other than payments of qualified stated interest) multiplied by
(ii) the yield to maturity of the Note (determined on the basis of compounding
at the end of each accrual period). The yield to maturity is the discount rate
that, when used in computing the present value of all principal and interest
payments to be made on the Note, produces an amount equal to the issue price.
In general, payments of interest will be treated first as a payment of
previously accrued OID and then as payment of principal. Such amounts generally
will not be treated as additional interest income. The exchange of a Note for
an Exchange Note pursuant to the Exchange Offer should not be taxable to
Holders. While not free from doubt, any Liquidated Damages paid should
generally be taxable to Holders as ordinary income in accordance with their
method of accounting.
Sale, Exchange or Redemption of a Note. A U.S. Holder will recognize gain
or loss upon the sale, exchange, redemption or other taxable disposition of a
Note in an amount equal to the difference, if any, between the amount received
therefor and the Holder's adjusted tax basis in the Note (generally, the Note's
adjusted issue price). Such gain or loss generally will be long-term capital
gain or loss if the Note was held for more than one year as of the date of
disposition. Long-term capital gain recognized by a U.S. Holder that is an
individual will be taxed at the lowest rates applicable to capital gains if the
U.S. Holder has held the Note for more than 18 months as of the date of
disposition.
Deductibility of OID. If the yield to maturity on the Notes is more than
five percentage points in excess of the applicable Federal rate in effect at
the time the Notes are issued (such rate for February 1998 is 5.84%, based on
semiannual compounding), the Notes will constitute "high yield discount
obligations." In that event, the Company will not be able to deduct accrued OID
until it is paid. In addition, if the yield to maturity exceeds such applicable
Federal rate by more than six percentage points, a portion of the OID
(generally, the portion of the OID reflecting the portion of the yield that
exceeds the applicable Federal rate plus five percentage points) will not be
deductible by the Company even when paid (the "disqualified portion").
Corporate U.S. Holders will be entitled to a dividends received deduction with
respect to the accrual of the disqualified portion of OID, if any, to the
extent of the Company's current and accumulated earnings and profits.
TAX CONSEQUENCES TO NON-U.S. HOLDERS
The following discussion describes United States federal income and estate
tax consequences with respect to the Non-U.S. Holders. Non-U.S. Holders are
Holders who are not U.S. Holders.
INTEREST ON THE NOTES
Interest and previously accrued OID paid by the Company to a Non-U.S.
Holder will not be subject to United States federal income or withholding tax
if such interest is not effectively connected with the conduct of a trade or
business within the United States by such Non-U.S. Holder and such Non-U.S.
Holder (i) does not actually or constructively own 10% or more of the total
combined voting power of all classes of stock of the Company; (ii) is not a
controlled foreign corporation with respect to which the Company is a "related
person" within the meaning of the Code and (iii) certifies, under penalties of
perjury, that such holder is not a United States person and provides such
holder's name and address.
Interest and previously accrued OID paid to a Non-U.S. Holder of the Notes
that is effectively connected with a United States trade or business conducted
by such Non-U.S. Holder is taxed at the graduated rates applicable to United
States citizens, resident aliens and domestic corporations, and is not subject
to withholding tax, if the Non-U.S. Holder gives an appropriate statement to
the Company or its paying agent in advance of the payment. In addition to the
graduated tax, effectively connected interest received by a Non-U.S. Holder
that is a corporation may also be subject to an additional branch profits tax
at a rate of 30% (or such lower rate as may be specified by an applicable
income tax treaty). Interest or previously accrued OID paid to a Non-U.S.
Holder that is not effectively connected with a United States trade or
business, but to which clause(s) (i), (ii), or (iii) in the preceding paragraph
does not apply will be subject to withholding at a rate of 30%, unless the rate
is reduced or eliminated by treaty.
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GAIN ON DISPOSITION OF NOTES
A Non-U.S. Holder will generally not be subject to United States federal
income tax on gain recognized on a sale, redemption or other disposition of a
Note unless (i) the gain is effectively connected with the conduct of a trade
or business within the United States by the Non-U.S. Holder or (ii) in the case
of a Non-U.S. Holder who is a nonresident alien individual and holds the Note
as a capital asset, such holder is present in the United States for 183 or more
days in the taxable year and certain other requirements are met.
If a Non-U.S. Holder falls under clause (i) in the preceding paragraph,
the holder will be taxed on the net gain derived from the sale under the
graduated United States federal income tax rates that are applicable to United
States citizens, resident aliens and domestic corporations, as the case may be,
and may be subject to withholding under certain circumstances (and, with
respect to corporate Non-U.S. Holders, may also be subject to the branch
profits tax described above). If an individual Non-U.S. Holder falls under
clause (ii) in the preceding paragraph, the holder generally will be subject to
United States federal income tax at a rate of 30% on the gain derived from the
sale and may be subject to withholding under certain circumstances.
FEDERAL ESTATE TAXES
If interest on the Notes is exempt from withholding of United States
federal income tax under the rules described above, the Notes will not be
included in the estate of a deceased Non-U.S. Holder for United States federal
estate tax purposes.
NEW WITHHOLDING REGULATIONS
The Treasury Department recently promulgated final regulations regarding
the withholding and information reporting rules applicable to Non-U.S. Holders
(the "New Withholding Regulations"). In general, the New Withholding
Regulations do not significantly alter the substantive withholding and
information reporting requirements but rather unify current certification
procedures and forms and clarify reliance standards. The New Withholding
Regulations are generally effective for payments made after December 31, 1999,
subject to certain transition rules. Non-U.S. Holders should consult their own
tax advisors with respect to the impact, if any, of the New Withholding
Regulations.
INFORMATION REPORTING AND BACKUP WITHHOLDING
The Company will, where required, report to the holders of Notes and the
Internal Revenue Service the amount of any interest (including OID) paid on the
Notes in each calendar year and the amounts of tax withheld, if any, with
respect to such payments.
A U.S. Holder of a Note may be subject to information reporting and
possible backup withholding. If applicable, backup withholding would apply at a
rate of 31% with respect to payments of interest or OID on, or the proceeds of
a sale, exchange, redemption, retirement or other disposition of, a Note,
unless (i) such Holder is a corporation or comes within certain other exempt
categories and, when required, demonstrates this fact, or (ii) provides a
taxpayer identification number, certifies as to no loss of exemption from
backup withholding and otherwise complies with applicable backup withholding
rules.
A Non-U.S. Holder of Notes may also be subject to certain information
reporting or backup withholding if certain requisite certification is not
received or other exemptions do not apply.
THE U.S. FEDERAL INCOME TAX DISCUSSION SET FORTH ABOVE IS INTENDED FOR
GENERAL INFORMATION ONLY AND MAY NOT BE APPLICABLE TO A PARTICULAR HOLDER'S
SITUATION. PERSONS CONSIDERING A PURCHASE OF THE NOTES SHOULD CONSULT THEIR OWN
TAX ADVISORS REGARDING THE PARTICULAR TAX CONSEQUENCES OF PURCHASING, OWNING
AND DISPOSING OF THE NOTES, INCLUDING THE TAX CONSEQUENCES UNDER STATE, LOCAL
OR FOREIGN LAWS AND OTHER TAX LAWS AND THE POSSIBLE EFFECTS OF CHANGES
(POSSIBLY INCLUDING RETROACTIVE CHANGES) IN U.S. FEDERAL AND OTHER TAX LAWS.
112
<PAGE>
PLAN OF DISTRIBUTION
Based on interpretations by the staff of the Commission set forth in
no-action letters issued to third parties, the Company believes that New Notes
issued pursuant to the Exchange Offer to an Eligible Holder in exchange for Old
Notes may be offered for resale, resold and otherwise transferred by such
Eligible Holder (other than (i) a broker-dealer who purchased the Old Notes
directly from the Company for resale pursuant to Rule 144A under the Securities
Act or any other available exemption under the Securities Act, or (ii) a person
that is an affiliate of the Company within the meaning of Rule 405 under the
Securities Act), without compliance with the registration and prospectus
delivery provisions of the Securities Act, provided that the Eligible Holder is
acquiring the New Notes in the ordinary course of business and is not
participating, and has no arrangement or understanding with any person to
participate, in a distribution of the New Notes.
Each broker-dealer that holds Old Notes which were acquired for its own
account as a result of market-making activities or other trading activities
(other than Old Notes acquired directly from the Company or an affiliate of the
Company), may exchange the Old Notes for New Notes in the Exchange Offer.
However, such broker-dealer may be deemed an "underwriter" within the meaning
of the Securities Act and, therefore, must deliver a prospectus in connection
with any resales of the New Notes received by such broker-dealer in the
Exchange Offer. This prospectus delivery requirement may be satisfied by
delivery of this Prospectus, as it may be amended or supplemented from time to
time. The Company has agreed that it will provide sufficient copies of the
latest version of the Prospectus to broker-dealers promptly upon request at any
time during the 270 day period following the effective date of this Prospectus
to facilitate such resales.
The Company will not receive any proceeds from any sale of the New Notes
by broker-dealers. New Notes received by broker-dealers for their own accounts
pursuant to the Exchange Offer may be sold from time to time in one or more
transactions in the over-the-counter market, in negotiated transactions,
through the writing of options on the New Notes or a combination of such
methods of resale, at market prices at the time of resale, at prices related to
such prevailing market prices or negotiated prices. Any such resales may be
made directly to purchasers or to or through brokers or dealers who may receive
compensation in the form of commissions or concessions from any such
broker-dealer and/or the purchasers of any such New Notes. Any broker-dealer
that resells New Notes that were received by it for its own account pursuant to
the Exchange Offer and any broker or dealer that participates in a distribution
of such New Notes may be deemed to be an "underwriter' within the meaning of
the Securities Act and any profit on any such resale of New Notes and any
commissions or concessions received by any such persons may be deemed to be
underwriting compensation under the Securities Act. The Letter of Transmittal
states that, by acknowledging that it will deliver and by delivering a
prospectus, a broker-dealer will not be deemed to admit that it is an
"underwriter" within the meaning of the Securities Act.
By acceptance of the Exchange Offer, each broker-dealer and Holder that
receives New Notes pursuant to the Exchange Offer hereby agrees to notify the
Company prior to using the Prospectus in connection with the sale or transfer
of New Notes, and each broker-dealer and Holder agrees that upon receipt of any
notice from the Company of the existence of any fact or the happening of any
event that makes any statement of a material fact in the Prospectus, or any
amendment or supplement hereto, or any document incorporated herein by
reference untrue or requires the making of any additions or changes in the
Prospectus (the "Notice"), such broker-dealer or Holder will forthwith
discontinue the disposition of the New Notes until such broker-dealer or Holder
(i) receives copies of a supplemental prospectus or (ii) is advised in writing
by the Company that the use of the Prospectus may be resumed and has received
copies of any additional or supplemental filings that are incorporated herein
by reference. Upon the Company's request and at its expense, each Holder will
deliver to the Company all copies, other than permanent file copies in such
Holder's possession, of the Prospectus covering such New Notes that was current
at the time of receipt of such Notice.
LEGAL MATTERS
The legality of the New Notes being offered hereby will be passed upon for
the Company by Kramer, Levin, Naftalis & Frankel, New York, New York.
113
<PAGE>
EXPERTS
The financial statements of Fonda as of July 28, 1996 and July 27, 1997,
and for each of the three years in the period ended July 27, 1997 included in
this Prospectus have been audited by Deloitte & Touche LLP, independent
auditors, as stated in their report appearing herein, and have been so included
in reliance upon the report of such firm given upon their authority as experts
in accounting and auditing.
The financial statements of Sweetheart as of September 30, 1996 and 1997,
and for each of the three years in the period ended September 30, 1997 included
in this Prospectus have been audited by Arthur Andersen LLP, independent public
accountants, as stated in their report appearing herein, and have been so
included in reliance upon the report of such firm given upon their authority as
experts in accounting and auditing.
114
<PAGE>
UNAUDITED PRO FORMA CONDENSED FINANCIAL DATA OF SWEETHEART AND FONDA
The Sweetheart Pro Forma Statements of Operations have been derived from
Sweetheart's historical statements of operations for the fiscal year ended
September 30, 1997 and the six and twelve months ended December 31, 1997, and
give effect to (i) the Sweetheart Bakery Disposition and (ii) the Sweetheart
Closures, as if each such transaction had occurred on the first day of
Sweetheart's fiscal year ended September 30, 1997. The Sweetheart Pro Forma
Statement of Operations for the six months ended December 31, 1997 combines the
first quarter of Fiscal 1998 and the fourth quarter of Fiscal 1997. The Fonda
Pro Forma Statements of Income have been derived from Fonda's historical
statements of income for the fiscal year ended July 27, 1997 and the six and
twelve months ended January 25, 1998, and give effect to (i) the 1997 Fonda
Acquisitions, (ii) the February 24, 1997 issuance of the Fonda Notes, (iii) the
Leisureway Acquisition and (iv) the Natural Dam Mill Disposition, as if each
such transaction had occurred on the first day of Fonda's fiscal year ended
July 27, 1997.
SWEETHEART UNAUDITED PRO FORMA CONDENSED
STATEMENT OF OPERATIONS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
YEAR ENDED SEPTEMBER 30, 1997
---------------------------------------------------------------------------------------
HISTORICAL BAKERY OTHER SWEETHEART
SWEETHEART DISPOSITION (A) ADJUSTMENTS RECLASSIFICATIONS (B) PRO FORMA
------------ ----------------- ------------------ ----------------------- -------------
<S> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Net sales ............................. $ 886,017 $ (31,652) $ 854,365
Cost of sales ......................... 722,539 (26,438) $ (5,472)(c) $ 95,974 786,603
--------- --------- --------- --------- ---------
Gross income ......................... 163,478 (5,214) 5,472 (95,974) 67,762
--------- --------- --------- --------- ---------
Transportation ........................ 98,482 (2,508) (95,974) --
Selling, general and administrative
expenses ............................. 66,792 (1,164) 65,628
Loss on asset disposal and
impairment ........................... 24,550 -- 24,550
Restructuring charges ................. 9,680 -- (9,680)(c) --
Other income, net ..................... -- -- (73) (73)
--------- --------- --------- --------- ---------
Income from operations ............... (36,026) (1,542) 15,152 73 (22,343)
Other income .......................... (1,620) -- (1,620) --
Interest expense, net ................. 41,812 -- (1,547) 40,265
--------- --------- --------- --------- ---------
Income (loss) before taxes,
cumulative effect of an accounting
change and extraordinary loss ........ (76,218) (1,542) 15,152 (62,608)
Income tax (benefit) expense (d) ...... (30,487) (617) 6,061 (25,043)
--------- --------- --------- ---------
Income (loss) before cumulative
effect of an accounting change and
extraordinary loss ................... $ (45,731) $ (925) $ 9,091 $ (37,565)
========= ========= ========= =========
OTHER GAAP FINANCIAL DATA:
Cash interest expense (e) ............. $ 38,241 $ 38,241
Capital expenditures .................. 47,757 $ (1,568) 46,189
Depreciation and amortization (f) ..... 44,152 (888) $ (88) 43,176
OTHER NON-GAAP FINANCIAL DATA:
EBITDA (g) ............................ $ 43,976 $ 46,930
Ratio of EBITDA to cash interest
expense (g)(e) ....................... 1.1x 1.2x
</TABLE>
See Notes to Sweetheart Unaudited Pro Forma Condensed Statements of Operations.
P-1
<PAGE>
SWEETHEART UNAUDITED PRO FORMA CONDENSED
STATEMENT OF OPERATIONS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
SIX MONTHS ENDED DECEMBER 31, 1997
-------------------------------------------------------------------------------
HISTORICAL BAKERY OTHER RECLASS- SWEETHEARTS
SWEETHEART DISPOSITION (A) ADJUSTMENTS IFICATIONS (B) PRO FORMA
------------ ----------------- ------------------ ---------------- ------------
<S> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Net sales ................................. $ 437,901 $ (12,158) $ 425,743
Cost of sales ............................. 352,115 (9,805) $ (1,029)(c) $ 49,060 390,341
--------- --------- --------- --------- ---------
Gross income ............................. 85,786 (2,353) 1,029 (49,060) 35,402
--------- --------- --------- --------- ---------
Transportation ............................ 50,055 (995) (49,060) --
Selling, general and administrative
expenses ................................. 36,647 (461) 36,186
Loss on asset disposal and
impairment ............................... 24,550 -- 24,550
Restructuring charges ..................... 9,680 -- (9,680)(c) --
Other income, net ......................... -- -- (3,514) (3,514)
--------- --------- --------- --------- ---------
Income from operations ................... (35,146) (897) 10,709 3,514 (21,820)
Other income .............................. (4,184) -- 4,184 --
Interest expense, net ..................... 22,084 -- (670) 21,414
--------- --------- --------- --------- ---------
Income (loss) before taxes,
cumulative effect of an accounting
change and extraordinary loss ............ (53,046) (897) 10,709 (43,234)
Income tax (benefit) expense (d) .......... (21,213) (359) 4,284 (17,288)
--------- --------- --------- ---------
Income (loss) before cumulative
effect of an accounting change and
extraordinary loss ....................... $ (31,833) $ (538) $ 6,425 $ (25,946)
========= ========= ========= =========
OTHER GAAP FINANCIAL DATA:
Cash interest expense (e) ................. $ 20,565 $ 20,565
Capital expenditures ...................... 17,388 $ (230) 17,158
Depreciation and amortization (f) ......... 22,112 (305) $ (28) 21,779
OTHER NON-GAAP FINANCIAL DATA:
EBITDA (g) ................................ $ 21,921 $ 21,720
Ratio of EBITDA to cash interest
expense (g)(e) ........................... 1.1x 1.1x
</TABLE>
See Notes to Sweetheart Unaudited Pro Forma Condensed Statements of Operations.
P-2
<PAGE>
SWEETHEART UNAUDITED PRO FORMA CONDENSED
STATEMENT OF OPERATIONS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
TWELVE MONTHS ENDED DECEMBER 31, 1997
--------------------------------------------------------------------------------
HISTORICAL BAKERY OTHER RECLASS- SWEETHEART
SWEETHEART DISPOSITION (A) ADJUSTMENTS IFICATIONS (B) PRO FORMA
------------ ----------------- ------------------ ---------------- -------------
<S> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Net sales ................................. $ 885,867 $ (30,578) $ 855,289
Cost of sales ............................. 710,021 (27,258) $ (4,104)(c) $ 97,251 775,910
--------- --------- --------- --------- ---------
Gross income ............................. 175,846 (3,320) 4,104 (97,251) 79,379
--------- --------- --------- --------- ---------
Transportation ............................ 99,685 (2,434) (97,251) --
Selling, general and administrative
expenses ................................. 69,678 (919) 68,759
Loss on asset disposal and
impairment ............................... 24,550 -- 24,550
Restructuring charges ..................... 9,680 -- (9,680)(c) --
Other income, net ......................... -- -- (3,436) (3,436)
--------- --------- --------- --------- ---------
Income from operations ................... (27,747) 33 13,784 3,436 (10,494)
Other income .............................. (4,928) -- 4,928 --
Interest expense, net ..................... 42,986 -- (1,492) 41,494
--------- --------- --------- --------- ---------
Income (loss) before taxes,
cumulative effect of an accounting
change and extraordinary loss ............ (65,805) 33 13,784 (51,988)
Income tax (benefit) expense (d) .......... (26,321) (13) 5,514 (20,794)
--------- --------- --------- ---------
Income (loss) before cumulative
effect of an accounting change and
extraordinary loss ....................... $ (39,484) $ 20 $ 8,270 $ (31,194)
========= ========= ========= =========
OTHER GAAP FINANCIAL DATA:
Cash interest expense (e) ................. $ 39,672 $ 39,672
Capital expenditures ...................... 45,368 $ (1,412) 43,956
Depreciation and amortization (f) ......... 44,300 (752) $ (110) 43,469
OTHER NON-GAAP FINANCIAL DATA:
EBITDA (g) ................................ $ 52,252 $ 55,558
Ratio of EBITDA to cash interest
expense (g)(e) ........................... 1.3x 1.4x
</TABLE>
See Notes to Sweetheart Unaudited Pro Forma Condensed Statements of Operations.
P-3
<PAGE>
NOTES TO SWEETHEART UNAUDITED PRO FORMA CONDENSED STATEMENTS OF OPERATIONS
(a) Reflects the elimination of the results of operations of
Sweetheart's bakery operations as a result of the Sweetheart Bakery
Disposition.
(b) Reflects certain reclassifications for consistency with Fonda's
presentation, as follows:
(i) transportation costs, including freight, warehousing and
distribution, are reclassified from transportation to cost of
sales;
(ii) interest income is reclassified from other income to interest
expense, net; and
(iii) other income is reclassified to operating income.
(c) Reflects the elimination of certain costs as a result of the
Sweetheart Closures, as well as the elimination of the restructuring
charge incurred in connection therewith.
(d) For pro forma purposes, the income tax provision was calculated at
40% based on enacted statutory rates applied to pro forma pre-tax
income and the provision of SFAS No. 109.
(e) Cash interest expense consists of interest expense, excluding
amortization of deferred financing costs of $3,571, $1,519 and
$3,313 for Fiscal 1997 and the six and twelve months ended December
31, 1997, respectively.
(f) Depreciation and amortization excludes amortization of debt issuance
costs which are included in interest expense.
(g) EBITDA represents income from operations before interest expense,
provision for income taxes, depreciation and amortization, loss on
asset disposal and impairment, and gain on the Sweetheart Bakery
Disposition of $3,459 in the six and twelve month periods ended
December 31, 1997. EBITDA is generally accepted as providing
information regarding a company's ability to service debt. EBITDA
should not be considered in isolation or as a substitute for net
income, cash flows from operations, or other income or cash flow
data prepared in accordance with generally accepted accounting
principles or as a measure of a company's profitability or
liquidity.
P-4
<PAGE>
FONDA UNAUDITED PRO FORMA CONDENSED
STATEMENT OF INCOME
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
YEAR ENDED JULY 27, 1997
------------------------------------------------------------------------------
NATURAL
FONDA DAM MILL ACQUISITIONS OTHER FONDA
HISTORICAL DISPOSITION (A) HISTORICAL (B) ADJUSTMENTS PRO FORMA
------------ ----------------- ---------------- ----------------- ------------
<S> <C> <C> <C> <C> <C>
STATEMENT OF INCOME DATA:
Net sales ................................. $252,513 $ (19,340) $29,677 $262,850
Cost of goods sold ........................ 196,333 (13,114) 21,595 $ 90(c) 204,904
-------- --------- ------- --------- --------
Gross profit .............................. 56,180 (6,226) 8,082 (90) 57,946
-------- --------- ------- --------- --------
Selling, general and administrative
expenses ................................. 37,168 (2,125) 5,908 (1,561)(d) 39,390
Other income, net ......................... (1,608) -- -- (1,608)
-------- --------- ------- --------- --------
Income from operations .................... 20,620 (4,101) 2,174 1,471 20,164
Interest expense, net ..................... 9,017 -- -- 3,067(e) 12,084
-------- --------- ------- --------- --------
Income before taxes and
extraordinary loss ....................... 11,603 (4,101) 2,174 (1,596) 8,080
Income taxes (f) .......................... 4,872 (1,722) 913 (670) 3,393
-------- --------- ------- --------- --------
Income before extraordinary loss .......... $ 6,731 $ (2,379) $ 1,261 $ (926) $ 4,687
======== ========= ======= ========= ========
OTHER GAAP FINANCIAL DATA:
Cash interest expense (g) ................. $ 8,309 $ 11,520
Capital expenditures ...................... 10,363 $ (8,601) 1,762
Depreciation and amortization (h) ......... 4,440 (171) $ 351 $ 786 5,406
OTHER NON-GAAP FINANCIAL DATA:
EBITDA (i) ................................ $ 23,942 $ 23,962
Ratio of EBITDA to cash interest
expense (i)(g) ........................... 2.9x 2.1x
</TABLE>
See Notes to Fonda Unaudited Pro Forma Condensed Statement of Income.
P-5
<PAGE>
FONDA UNAUDITED PRO FORMA CONDENSED
STATEMENT OF INCOME
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
SIX MONTHS ENDED JANUARY 25, 1998
-----------------------------------------------------------------------------
NATURAL
FONDA DAM MILL ACQUISITIONS OTHER FONDA
HISTORICAL DISPOSITION (A) HISTORICAL (B) ADJUSTMENTS PRO FORMA
------------ ----------------- ---------------- --------------- -------------
<S> <C> <C> <C> <C> <C>
STATEMENT OF INCOME DATA:
Net sales ................................. $ 136,674 $ (8,893) $4,292 $ 132,073
Cost of goods sold ........................ 108,077 (7,742) 3,253 35(c) 103,623
--------- -------- ------ -- ---------
Gross profit .............................. 28,597 (1,151) 1,039 (35) 28,450
--------- -------- ------ --- ---------
Selling, general and administrative
expenses ................................. 19,814 (610) 930 (130)(d) 20,004
Income from operations .................... 8,783 (541) 109 95 8,446
Interest expense, net ..................... 6,003 -- -- 6,003
--------- -------- ------ --- ---------
Income before taxes and
extraordinary loss ....................... 2,780 (541) 109 95 2,443
Income taxes (f) .......................... 1,168 (227) 46 40 1,027
--------- -------- ------ ---- ---------
Income before extraordinary loss .......... $ 1,612 $ (314) $ 63 $ 55 $ 1,416
========= ======== ====== ======= =========
OTHER GAAP FINANCIAL DATA:
Cash interest expense (g) ................. $ 5,924 $ 5,731
Capital expenditures ...................... 4,408 $ (1,692) 2,716
Depreciation and amortization (h) ......... 2,694 (110) $ 23 $ 140 2,747
OTHER NON-GAAP FINANCIAL DATA:
EBITDA (i) ................................ $ 11,670 $ 11,193
Ratio of EBITDA to cash interest
expense (i)(g) ........................... 2.0x 2.0x
</TABLE>
See Notes to Fonda Unaudited Pro Forma Condensed Statement of Income.
P-6
<PAGE>
FONDA UNAUDITED PRO FORMA CONDENSED
STATEMENT OF INCOME
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
TWELVE MONTHS ENDED JANUARY 25, 1998
-----------------------------------------------------------------------------
NATURAL
FONDA DAM MILL ACQUISITIONS OTHER FONDA
HISTORICAL DISPOSITION (A) HISTORICAL (B) ADJUSTMENTS PRO FORMA
------------ ----------------- ---------------- --------------- -------------
<S> <C> <C> <C> <C> <C>
STATEMENT OF INCOME DATA:
Net sales ................................. $264,808 $ (19,037) $17,424 $ 263,195
Cost of goods sold ........................ 207,423 (14,357) 13,334 77(c) 206,477
-------- --------- ------- --- ---------
Gross profit .............................. 57,385 (4,680) 4,090 (77) 56,718
-------- --------- ------- ---- ---------
Selling, general and administrative
expenses ................................. 37,462 (1,685) 2,923 (22)(d) 38,678
Other income, net ......................... (1,608) -- -- (1,608)
-------- --------- ------- -------
Income from operations .................... 21,531 (2,995) 1,167 (55) 19,648
Interest expense, net ..................... 10,480 -- -- 1,582(e) 12,062
-------- --------- ------- ------- ---------
Income before taxes and
extraordinary loss ....................... 11,051 (2,995) 1,167 (1,637) 7,586
Income taxes (f) .......................... 4,640 (1,257) 490 (687) 3,186
-------- --------- ------- ------- ---------
Income before extraordinary loss .......... $ 6,411 $ (1,738) $ 677 $ (950) $ 4,400
======== ========= ======= ======== =========
OTHER GAAP FINANCIAL DATA:
Cash interest expense (g) ................. $ 10,233 $ 11,498
Capital expenditures ...................... 12,697 $ (9,159) 3,538
Depreciation and amortization (h) ......... 4,275 285 $ 184 $ 651 5,395
OTHER NON-GAAP FINANCIAL DATA:
EBITDA (i) ................................ $ 24,881 $ 23,435
Ratio of EBITDA to cash interest
expense (i)(g) ........................... 2.4x 2.0x
</TABLE>
See Notes to Fonda Unaudited Pro Forma Condensed Statement of Income.
P-7
<PAGE>
NOTES TO FONDA UNAUDITED PRO FORMA CONDENSED STATEMENTS OF INCOME
(a) Reflects the elimination of the results of operations of the Natural
Dam mill as a result of the Natural Dam Mill Disposition.
(b) The results of operations of each entity acquired in the 1997 Fonda
Acquisitions are included in Fonda's historical results of
operations commencing with such entity's respective acquisition
date. The adjustments reflect (i) the additional results of
operations of the acquired entities as if such acquisitions had
occurred at the beginning of the year ended July 27, 1997 and (ii)
the results of operations of the Leisureway Acquisition as if it had
occurred at the beginning of the year ended July 27, 1997.
(c) Reflects an increase in depreciation expense resulting from the
allocation of the purchase price to the long-term assets acquired
based on fair value and an average life ranging from 8 to 30 years.
(d) Reflects adjustments to general and administrative expenses
resulting from the 1997 Fonda Acquisitions and the Leisureway
Acquisition, as follows:
<TABLE>
<CAPTION>
SIX MONTHS TWELVE MONTHS
YEAR ENDED ENDED ENDED
JULY 27, 1997 JANUARY 25, 1998 JANUARY 25, 1998
--------------- ------------------ -----------------
<S> <C> <C> <C>
Goodwill amortization over twenty years:
1997 Fonda Acquisitions ..................... $ 440 $ 176
Leisureway Acquisition ...................... 373 $ 155 342
Contractual reduction in officer compensation:
1997 Fonda Acquisitions ..................... (1,439) --
Leisureway Acquisition ...................... (935) (285) (540)
-------- ------ ------
$ (1,561) $ (130) $ (22)
======== ====== ======
</TABLE>
(e) Reflects (i) the elimination of interest income attributable to cash
used to finance a portion of the 1997 Fonda Acquisitions, (ii)
additional interest expense resulting from the issuance of the Fonda
Notes and borrowings under the Fonda Credit Facility to finance the
1997 Fonda Acquisitions and the Leisureway Acquisition and (iii) the
elimination of interest expense relating to indebtedness that was
repaid with a portion of the proceeds of the Fonda Notes and the
Natural Dam Mill Disposition.
(f) For pro forma purposes, the income tax provision was calculated at
42% based on enacted statutory rates applied to pro forma pre-tax
income and the provisions of SFAS No. 109.
(g) Cash interest expense consists of interest expense, excluding
amortization of deferred financing costs of $564, $272 and $564 for
Fiscal 1997 and the six and twelve months ended January 25, 1998,
respectively.
(h) Depreciation and amortization excludes amortization of deferred
financing costs, which are included in interest expense.
(i) EBITDA represents income from operations before interest expense,
provision for income taxes, other income and depreciation and
amortization. EBITDA is generally accepted as providing information
regarding a company's ability to service debt. EBITDA should not be
considered in isolation or as a substitute for net income, cash
flows from operations, or other income or cash flow data prepared in
accordance with generally accepted accounting principles or as a
measure of a company's profitability or liquidity.
EBITDA does not reflect the elimination of $2.8 million and $1.4
million of fixed costs in Fiscal 1997 and the twelve months ended
January 25, 1998, respectively, that would not have been incurred
had the Three Rivers and Long Beach facilities been closed at the
beginning of the year ended July 27, 1997.
P-8
<PAGE>
SF HOLDINGS GROUP, INC.
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<S> <C>
PAGE
THE FONDA GROUP, INC.:
Independent Auditors' Report ............................................................ F-2
Balance Sheets as of July 28, 1996 and July 27, 1997 and (unaudited) January 25, 1998 ... F-3
Statements of Income for the Years Ended July 30, 1995, July 28, 1996 and July 27, 1997
and (unaudited) the Six Months Ended January 26, 1997 and January 25, 1998 ............ F-4
Statements of Cash Flows for the Years Ended July 30, 1995, July 28, 1996 and July 27,
1997 and (unaudited) the Six Months ended January 26, 1997 and January 25, 1998 ....... F-5
Notes to Financial Statements ........................................................... F-6
SWEETHEART HOLDINGS INC.:
Report of Independent Public Accountants ................................................ F-18
Consolidated Balance Sheets as of September 30, 1996 and 1997 and (unaudited)
December 31, 1997 ..................................................................... F-19
Consolidated Statements of Operations for the Years Ended September 30, 1995, 1996 and
1997 and (unaudited) the Three Months Ended December 31, 1996 and 1997 ................ F-20
Consolidated Statements of Cash Flows for the Years Ended September 30, 1995, 1996 and
1997 and (unaudited) the Three Months Ended December 31, 1996 and 1997 ................ F-21
Consolidated Statements of Shareholders' Equity for the Years Ended September 30, 1995,
1996 and 1997 and (unaudited) the Three Months ended December 31, 1997 ................ F-22
Notes to Financial Statements ........................................................... F-23
</TABLE>
F-1
<PAGE>
INDEPENDENT AUDITORS' REPORT
Board of Directors
The Fonda Group, Inc.
We have audited the accompanying balance sheets of The Fonda Group, Inc.
as of July 28, 1996 and July 27, 1997 and the related statements of income and
cash flows for each of the three years in the period ended July 27, 1997. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, such financial statements present fairly, in all material
respects, the financial position of The Fonda Group, Inc. as of July 28, 1996
and July 27, 1997 and the results of its operations and its cash flows for each
of the three years in the period ended July 27, 1997 in conformity with
generally accepted accounting principles.
DELOITTE & TOUCHE LLP
Stamford, Connecticut
September 25, 1997
(March 24, 1998 as to Note 16)
F-2
<PAGE>
THE FONDA GROUP, INC.
BALANCE SHEETS
(DOLLARS IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
JULY 28, 1996 JULY 27, 1997 JANUARY 25, 1998
--------------- --------------- -----------------
(UNAUDITED)
<S> <C> <C> <C>
ASSETS
Current assets:
Cash ...................................................... $ 1,467 $ 5,908 $ 524
Accounts receivable, less allowance for doubtful
accounts of $549, $961 and $1,070, respectively ......... 27,173 30,009 31,725
Due from affiliates ....................................... 994 1,207 2,072
Inventories ............................................... 37,467 40,834 39,434
Deferred income taxes ..................................... 5,435 6,780 7,177
Refundable income taxes ................................... 822 1,657 969
Other current assets ...................................... 1,160 4,178 921
-------- -------- --------
Total current assets .................................... 74,518 90,573 82,822
Property, plant and equipment, net ......................... 46,350 59,261 61,354
Goodwill, net .............................................. 5,400 15,405 22,459
Other assets, net .......................................... 9,900 14,365 14,202
-------- -------- --------
TOTAL ASSETS ............................................... $136,168 $179,604 $180,837
======== ======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable .......................................... $ 14,671 $ 7,340 $ 10,389
Accrued expenses .......................................... 14,893 24,611 24,038
Current maturities of long-term debt ...................... 6,023 619 537
-------- -------- --------
Total current liabilities ............................... 35,587 32,570 34,964
Long-term debt ............................................. 81,740 122,368 128,172
Other liabilities .......................................... 2,345 1,436 1,865
Deferred income taxes ...................................... 2,444 6,144 6,926
-------- -------- --------
Total liabilities ....................................... 122,116 162,518 171,927
Redeemable common stock, $.01 par value, 7,000
shares issued, 7,000, 6,500 and 6,500 shares
outstanding, respectively ................................. 2,179 2,076 2,108
Stockholders' equity ....................................... 11,873 15,010 6,802
-------- -------- --------
TOTAL LIABILITIES AND STOCKHOLDERS'
EQUITY .................................................... $136,168 $179,604 $180,837
======== ======== ========
</TABLE>
See notes to financial statements.
F-3
<PAGE>
THE FONDA GROUP, INC.
STATEMENTS OF INCOME
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
YEARS ENDED SIX MONTHS ENDED
---------------------------------- --------------------------
JULY 30, JULY 28, JULY 27, JANUARY 26, JANUARY 25,
1995 1996 1997 1997 1998
---------- ---------- ------------ ------------- ------------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Net sales .......................................... $97,074 $204,903 $252,513 $124,379 $136,674
Cost of goods sold ................................. 76,252 161,304 196,333 96,987 108,077
------- -------- -------- -------- --------
Gross profit .................................... 20,822 43,599 56,180 27,392 28,597
Selling, general and administrative expenses ....... 13,568 29,735 37,168 19,520 19,814
Other income, net .................................. -- -- (1,608) -- --
Management fee ..................................... 544 -- -- -- --
------- -------- -------- -------- --------
Income from operations ............................ 6,710 13,864 20,620 7,872 8,783
Interest expense (net of $490 interest income in
Fiscal 1997 and $193 in Fiscal 1998 six
months) ........................................... 2,943 7,934 9,017 4,540 6,003
------- -------- -------- -------- --------
Income before income taxes and extraordinary
loss .............................................. 3,767 5,930 11,603 3,332 2,780
Provision for income taxes ......................... 1,585 2,500 4,872 1,400 1,168
------- -------- -------- -------- --------
Income before extraordinary loss .................. 2,182 3,430 6,731 1,932 1,612
Extraordinary loss from debt extinguishment,
net ............................................... -- -- 3,495 -- --
------- -------- -------- -------- --------
Net income ........................................ $ 2,182 $ 3,430 $ 3,236 $ 1,932 $ 1,612
======= ======== ======== ======== ========
</TABLE>
See notes to financial statements.
F-4
<PAGE>
THE FONDA GROUP, INC.
STATEMENTS OF CASH FLOWS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
YEARS ENDED SIX MONTHS ENDED
-------------------------------------- --------------------------
JULY 30, JULY 28, JULY 27, JANUARY 26, JANUARY 25,
1995 1996 1997 1997 1998
------------ ------------ ------------ ------------- ------------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Operating activities:
Net income ......................................... $ 2,182 $ 3,430 $ 3,236 $ 1,932 $ 1,612
Adjustments to reconcile net income to net
cash provided by (used in) operating
activities:
Depreciation and amortization .................... 1,669 3,450 4,440 2,859 2,694
Amortization and write-off of debt issuance
costs ........................................... 560 1,021 2,640 190 272
Elimination of unamortized debt discount ......... -- -- 2,108 -- --
Provision for doubtful accounts .................. 184 148 457 121 108
Deferred income taxes ............................ (1,690) 533 3,005 594 538
Gain on sale of equipment ........................ -- -- -- -- (466)
Interest capitalized on debt ..................... -- 165 684 350 --
Changes in assets and liabilities (net of
business acquisitions):
Accounts receivable ............................. (6,543) 6,826 (2,007) 2,777 (736)
Due from affiliates ............................. 464 (994) (213) 336 (865)
Inventories ..................................... (6,648) (299) (1,178) (1,036) 1,973
Other current assets ............................ (309) (26) (3,273) 116 3,275
Accounts payable and accrued expenses ........... 3,840 8,782 (1,019) (2,001) 553
Income taxes payable (refundable) ............... 3,029 (3,644) (1,280) (868) 499
Other ........................................... (1,512) (1,719) 673 (587) (133)
--------- --------- --------- -------- ---------
Net cash provided by (used in) operating
activities ...................................... (4,774) 17,673 8,273 4,783 9,324
--------- --------- --------- -------- ---------
Investing activities:
Capital expenditures ............................... (1,608) (1,314) (10,363) (2,074) (4,408)
Proceeds from disposition of equipment ............. -- -- -- -- 479
Payments for business acquisitions ................. (27,985) (45,218) (23,043) -- (6,712)
Note receivable from affiliate ..................... -- -- (2,600) -- --
--------- --------- --------- -------- ---------
Net cash used in investing activities ........... (29,593) (46,532) (36,006) (2,074) (10,641)
--------- --------- --------- -------- ---------
Financing activities:
Net increase (decrease) in revolving credit
agreement ........................................ (7,225) 14,745 (32,842) (786) 6,029
Proceeds from long-term debt ....................... 47,520 18,803 120,000 -- --
Repayments of long-term debt ....................... (3,638) (2,499) (49,879) (3,063) (308)
Debt issuance costs ................................ (2,395) (843) (4,902) --
Acquisition of common stock ........................ -- -- (203) -- (9,788)
--------- --------- --------- -------- ---------
Net cash provided by (used in) financing
activities ....................................... 34,262 30,206 32,174 (3,849) (4,067)
--------- --------- --------- -------- ---------
Net increase (decrease) in cash ..................... (105) 1,347 4,441 (1,140) (5,384)
Cash, beginning of period ........................... 225 120 1,467 1,467 5,908
--------- --------- --------- -------- ---------
Cash, end of period ................................. $ 120 $ 1,467 $ 5,908 $ 327 $ 524
========= ========= ========= ======== =========
Supplemental cash flow information:
Cash paid during the period for:
Interest, including $163 capitalized in Fiscal
1997 and $192 in Fiscal 1998 six months ......... $ 2,114 $ 6,029 $ 5,018 $ 3,383 $ 6,163
Income taxes, net of refunds ..................... -- 5,611 614 1,630 98
Businesses acquired:
Fair value of assets acquired .................... $ 37,777 $ 59,090 $ 23,637 $ 9,147
Cash paid ........................................ 27,985 45,218 23,043 6,712
--------- --------- --------- ---------
Liabilities assumed (including notes payable
to sellers of $9,250 during Fiscal 1996) ........ $ 9,792 $ 13,872 $ 594 $ 2,435
========= ========= ========= =========
</TABLE>
See notes to financial statements.
F-5
<PAGE>
FONDA GROUP, INC.
NOTES TO FINANCIAL STATEMENTS
1. BUSINESS DESCRIPTION AND ORGANIZATION
The Fonda Group, Inc. (the "Company") is a leading converter and marketer
of a broad line of disposable paper food service products. Prior to March 30,
1995, the Company was a wholly-owned subsidiary of Four M Corporation ("Four
M"). On March 30, 1995, Four M distributed approximately 96% of the Company's
common stock to Four M's sole stockholder at such time. The remaining 4% of the
Company's common stock was distributed to American International Life Insurance
Company of New York ("AIG") (see Note 16).
2. SIGNIFICANT ACCOUNTING POLICIES
MANAGEMENT ESTIMATES -- The preparation of financial statements in
conformity with generally accepted accounting principles requires management to
make estimates and assumptions that affect the reported amounts of assets and
liabilities and the disclosure of contingent assets and liabilities at the date
of the financial statements and the reported amounts of revenue and expenses
during the reporting periods. Actual results could differ from those estimates.
FISCAL YEAR -- The Company's fiscal year is the fifty-two or fifty-three
week period which ends on the last Sunday in July. The 1995, 1996 and 1997
fiscal years were fifty-two week periods ended July 30, 1995, July 28, 1996 and
July 27, 1997, respectively.
INVENTORIES -- Inventories are valued at the lower of cost (first-in,
first-out method) or market.
PROPERTY, PLANT AND EQUIPMENT -- Property, plant and equipment is stated
at cost or fair market value for business acquisitions. Depreciation is
computed by use of the straight-line method over the estimated useful lives of
the assets.
GOODWILL -- Goodwill represents the excess of the purchase price over the
fair value of tangible and identifiable intangible net assets acquired and is
amortized on a straight-line basis over twenty years. The carrying value of
goodwill is reviewed when facts and circumstances suggest that it may be
impaired. The Company assesses its recoverability by determining whether the
amortization of the goodwill balance over its remaining life can be recovered
through undiscounted projected future cash flows.
INCOME TAXES -- Deferred income taxes are provided on the differences
between the basis of assets and liabilities for financial reporting and income
tax purposes using presently enacted tax rates.
DEBT ISSUANCE COSTS -- Included in other assets are unamortized debt
issuance costs of $2.8 million at July 28, 1996 and $4.8 million at July 27,
1997 incurred in connection with obtaining financing which are being amortized
over the terms of the respective borrowing agreements.
FAIR VALUE OF FINANCIAL INSTRUMENTS -- The carrying value of financial
instruments including cash, accounts receivable and accounts payable
approximate fair value because of the relatively short maturities of these
instruments. The carrying value of long-term debt, including the current
portion and subordinated debt, approximate fair value based upon market rates
for similar instruments.
INTERIM FINANCIAL STATEMENTS -- The accompanying balance sheet as of
January 25, 1998 and the statements of income and cash flows for the six months
ended January 26, 1997 and January 25, 1998 are unaudited but, in the opinion
of management, include all adjustments (consisting of normal, recurring
adjustments) necessary for a fair presentation of results for these interim
periods. Results for interim periods are not necessarily indicative of results
for the entire year.
IMPACT OF RECENTLY ISSUED ACCOUNTING STANDARDS -- In June 1997, the
Financial Accounting Standards Board issued Statement of Financial Accounting
Standards (SFAS) No. 131, Disclosures about Segments of an Enterprise and
Related Information, which will be effective for the Company beginning August
1, 1998. SFAS No. 131 redefines how operating segments are determined and
requires disclosure of certain financial and descriptive information about a
company's operating segments. The Company has not yet completed its analysis of
which operating segments, if any, it will report on.
F-6
<PAGE>
FONDA GROUP, INC.
NOTES TO FINANCIAL STATEMENTS -- CONTINUED
3. BUSINESS ACQUISITIONS
The following acquisitions have been accounted for under the purchase
method and their results of operations have been included in the statements of
income since the respective dates of acquisition. Goodwill amortization was
less than $.1 million in Fiscal 1995, $.2 million in Fiscal 1996 and $.4
million in Fiscal 1997.
The following summarized, unaudited pro forma results of operations assume
the business acquisitions occurred as of the beginning of the respective years
(in thousands).
<TABLE>
<CAPTION>
YEARS ENDED
-------------------------------------
JULY 30, JULY 28, JULY 27,
1995 1996 1997
---------- ---------- -----------
<S> <C> <C> <C>
Net sales ................................ $238,645 $286,849 $271,777
Income before extraordinary loss ......... $ 1,764 $ 6,308 $ 7,412
</TABLE>
1998 ACQUISITION
In January 1998, the Company acquired certain net assets of Leisureway,
Inc., a manufacturer of white paper plates for $7.3 million, including a
deferred payment of $.6 million and acquisition costs, subject to a working
capital adjustment. The excess of the purchase price over the Company's
preliminary evaluation of the fair value of the net assets acquired was $7.5
million and has been recorded as goodwill.
1997 ACQUISITIONS
In June 1997, the Company acquired all of the outstanding capital stock of
Heartland Mfg. Corp., a manufacturer of paper plates, for $12.6 million,
including acquisition costs. The excess of the purchase price over the
Company's evaluation of the fair value of the net assets acquired was $9.3
million and has been recorded as goodwill.
Also in June 1997, the Company acquired from Tenneco Inc. net assets
relating to the manufacture of placemats and other disposable tabletop products
for $6.6 million, including acquisition costs. The excess of the purchase price
over the Company's evaluation of the fair value of the net assets acquired was
$1.3 million and has been recorded as goodwill.
1996 ACQUISITIONS
In May 1996, the Company acquired certain net assets of two divisions
(James River-California and Natural Dam) of the Specialties Operations Division
(the "Division") of James River Paper Corporation ("James River") for $13.1
million (including a final purchase price adjustment consummated in Fiscal
1997), including acquisition costs. The purchase price consisted of cash and a
promissory note to the seller for $7 million, see Note 9 (which was later
reduced to $2.2 million in a final settlement of this note simultaneous with
the final purchase price adjustment). In Fiscal 1997, management decided to
close the James River--California facility which produced tissue-based
products. The Natural Dam mill produces specialty and deep-toned colored tissue
paper. Natural Dam hosts a co-generation facility on its property which
produces steam for internal use and which is expected to provide significant
cost savings. Natural Dam received all of its steam energy requirements at 50%
of historical cost in calendar 1997 and expects to receive significantly
increased savings for the next 40 years thereafter. In addition, Natural Dam
expects to receive land lease payments from the operator of the land occupied
by the co-generation facility. See Note 15. The $10 million in benefits from
the co-generation facility is included in long-term assets acquired and is
being amortized based upon Natural Dam's annual savings over the 42-year
remaining life of the contract. See Note 16. The excess of the Company's
evaluation of the fair value of the net assets acquired (including $10 million
in benefits from the co-generation facility) over the final adjusted
F-7
<PAGE>
FONDA GROUP, INC.
NOTES TO FINANCIAL STATEMENTS -- CONTINUED
3. BUSINESS ACQUISITIONS--(CONTINUED)
purchase price was $6.3 million and has been allocated to long-term assets. The
remaining net assets and business of the Division were acquired by Creative
Expressions Group, Inc. ("CEG"), a company under common ownership with the
Company, in a separate transaction.
In December 1995, the Company acquired the Chesapeake Consumer Products
Company ("Chesapeake") from Chesapeake Corporation for $29 million, including
acquisition costs. Chesapeake produces design-intensive and solid-colored
premium napkins, tablecovers and crepe paper. The excess of the purchase price
over the Company's evaluation of the fair value of the net assets acquired was
$4.6 million and has been recorded as goodwill.
In November 1995, the Company acquired substantially all of the net assets
of Alfred Bleyer & Co., Inc. ("Maspeth"), a manufacturer of paper plates and
cups, for $10 million, including acquisition costs. The purchase price
consisted of cash and a promissory note to the seller for $2.25 million. The
excess of the Company's evaluation of the fair value of the net assets over the
purchase price was $.1 million and has been allocated to the long-term assets.
1995 ACQUISITION
In March 1995, the Company acquired substantially all of the net assets of
the Scott Foodservice Division ("Hoffmaster") from Scott Paper Company
("Scott") for $28 million, including acquisition costs. Hoffmaster produces
colored and custom-printed napkins and placemats. The excess of the purchase
price over the Company's evaluation of the fair value of the net assets
acquired was $.8 million and has been recorded as goodwill.
4. OTHER INCOME, NET
Other income, net in Fiscal 1997 includes a net $2.9 million from the
settlement of a lawsuit. Partially offsetting this gain was a $1.3 million
charge for costs of the closure of the Company's Three Rivers, Michigan
facility. The charge covers the costs for the termination of employees as well
as ongoing costs to maintain the facility until its disposition.
5. INVENTORIES
Inventories consist of the following (in thousands):
<TABLE>
<CAPTION>
JULY 28, JULY 27, JANUARY 25,
1996 1997 1998
---------- ---------- ------------
(UNAUDITED)
<S> <C> <C> <C>
Raw materials ........... $17,015 $18,143 $18,299
Work-in-process ......... 339 391 277
Finished goods .......... 19,126 20,345 18,739
Other ................... 987 1,955 2,119
------- ------- -------
$37,467 $40,834 $39,434
======= ======= =======
</TABLE>
F-8
<PAGE>
FONDA GROUP, INC.
NOTES TO FINANCIAL STATEMENTS -- CONTINUED
6. PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment consists of the following (in thousands):
<TABLE>
<CAPTION>
LIVES IN JULY 28, JULY 27, JANUARY 25,
YEARS 1996 1997 1998
---------- ------------ ------------ ------------
(UNAUDITED)
<S> <C> <C> <C> <C>
Land and buildings ..................... 20-40 $ 17,675 $ 21,703 $ 21,792
Machinery and equipment ................ 3-12 42,492 46,108 46,145
Leasehold improvements ................. 5-10 950 955 797
Construction in progress ............... 767 8,794 12,526
--------- --------- ---------
61,884 77,560 81,260
Less: accumulated depreciation ......... (15,534) (18,299) (19,906)
--------- --------- ---------
$ 46,350 $ 59,261 $ 61,354
========= ========= =========
</TABLE>
Property, plant and equipment includes property and equipment under
capital lease as follows (in thousands):
<TABLE>
<CAPTION>
JULY 28, JULY 27, JANUARY 25,
1996 1997 1998
---------- ---------- ------------
(UNAUDITED)
<S> <C> <C> <C>
Building ............................... $2,217 $2,217 $2,217
Equipment .............................. 350 -- --
Less: accumulated depreciation ......... (830) (554) (591)
------ ------ ------
$1,737 $1,663 $1,626
====== ====== ======
</TABLE>
Depreciation expense was $1.7 million in Fiscal 1995, $3.2 million in
Fiscal 1996 and $3.9 million in 1997.
7. CONCENTRATIONS OF CREDIT RISK
Financial instruments which potentially subject the Company to
concentrations of credit risk consist principally of trade receivables.
Concentrations of credit risk with respect to trade receivables are limited due
to the large number of customers comprising the Company's customer base, and
their dispersion across many different geographical regions. The Company had
sales to one customer representing approximately 11% of net sales in Fiscal
1996.
8. ACCRUED EXPENSES
Accrued expenses consist of the following (in thousands):
<TABLE>
<CAPTION>
JULY 28, JULY 27, JANUARY 25,
1996 1997 1998
---------- ---------- ------------
(UNAUDITED)
<S> <C> <C> <C>
Accrued compensation ......... $ 4,367 $ 8,149 $ 7,084
Accrued interest ............. 639 4,716 4,629
Accrued promotion ............ 2,310 2,555 3,670
Other ........................ 7,577 9,191 8,655
------- ------- -------
$14,893 $24,611 $24,038
======= ======= =======
</TABLE>
F-9
<PAGE>
FONDA GROUP, INC.
NOTES TO FINANCIAL STATEMENTS -- CONTINUED
9. LONG-TERM DEBT
Long-term debt consists of the following (in thousands):
<TABLE>
<CAPTION>
JULY 28, JULY 27, JANUARY 25,
1996 1997 1998
---------- ---------- ------------
(UNAUDITED)
<S> <C> <C> <C>
Revolving credit agreement ................................... $32,842 $ -- $ 6,029
9 1/2% Series A Senior Subordinated Notes due 2007 ........... -- 120,000 120,000
Subordinated notes payable to the Equitable .................. 13,796 -- --
Subordinated note payable to James River (see Note 3), plus
capitalized interest of $165,000, due May 2007, bearing
interest at 10% ............................................. 7,165 -- --
Term loan payable to a bank, with interest payable monthly at
LIBOR plus 2.5%, principal payable monthly through
March 31, 2000; collateralized by machinery and equipment
and certain real estate ..................................... 25,236 -- --
Term loan payable to a bank, due March 31, 2000, with interest
payable monthly at 2.50% above the prime rate, collaterized
by machinery and equipment and certain real estate .......... 4,500 -- --
Other ........................................................ 4,224 2,987 2,680
------- -------- --------
87,763 122,987 128,709
Less amounts due within one year ............................. 6,023 619 537
------- -------- --------
$81,740 $122,368 $128,172
======= ======== ========
</TABLE>
On February 27, 1997, the Company issued $120 million of 9 1/2% Series A
Senior Subordinated Notes due 2007 (the "Notes"). Interest is payable
semi-annually in March and September. Proceeds from the issuance of the Notes
were primarily used to retire debt. The Company incurred a $3.5 million
extraordinary loss (net of a $2.5 million income tax benefit) in connection
with the early retirement of debt consisting of the write-off of unamortized
debt issuance costs, elimination of unamortized discount and prepayment
penalties.
In Fiscal 1997, the Company entered into a $50 million revolving credit
agreement with a bank, expiring March 31, 2000 and collateralized by eligible
accounts receivable and inventories. At July 27, 1997, there was no outstanding
balance and $37.1 million was the maximum advance available based upon eligible
collateral. At October 26, 1997, $8 million was outstanding and $37.6 million
was the maximum advance available. A commitment fee of .375% per annum is
charged on the unutilized portion of the facility. At July 27, 1997, borrowings
were available at the bank's prime rate (8.50%) plus .25% and at LIBOR
(approximately 5.65%) plus 2.25%. The revolving credit agreement and the Notes
contain certain restrictive covenants with respect to, among others, (i)
mergers and acquisitions, (ii) capital expenditures, (iii) dividends, and (iv)
additional indebtedness. In addition, the revolving credit agreement requires
that the Company satisfy certain financial covenants.
On May 24, 1995, the Company issued $10 million of 14% subordinated notes
due May 24, 2002 to The Equitable Life Assurance Society of the United States
(the "Equitable"). In connection therewith, the Company granted warrants, which
expire in May 2003, to the Equitable to purchase 9,176 shares of its Class B
common stock for $.01 per share. See Note 16. The fair value of the warrants
($1.2 million) at the date of issuance was recorded as paid-in capital with a
corresponding reduction in the carrying value of the subordinated notes. On
December 29, 1995, the Company issued $6 million of 14% subordinated notes due
December 30, 2002 to the Equitable. In connection therewith, the Company issued
3,666 shares of its Class B common stock to the Equitable (the "Equitable
Shares"). The fair value of the common
F-10
<PAGE>
FONDA GROUP, INC.
NOTES TO FINANCIAL STATEMENTS -- CONTINUED
9. LONG-TERM DEBT--(CONTINUED)
stock ($1.3 million) at the date of issuance was recorded as common stock and
paid-in capital with a corresponding reduction in the carrying value of the
subordinated notes. The discounts on the subordinated notes were amortized as
additional interest expense over the terms of such notes until the subordinated
notes were repaid with proceeds from the issuance of the Notes. Such discount
amortization was $.1 million in Fiscal 1995, $.3 million in Fiscal 1996 and $.1
million in Fiscal 1997.
10. STOCKHOLDERS' EQUITY AND REDEEMABLE COMMON STOCK
Stockholders' equity consists of the following (in thousands, except share
data):
<TABLE>
<CAPTION>
JULY 28, JULY 27, JANUARY 25,
1996 1997 1998
---------- ---------- ------------
(UNAUDITED)
<S> <C> <C> <C>
Preferred Stock, $.01 par value, 1,000 shares
authorized, none issued ........................................ $ -- $ -- $ --
Preferred Stock Class B, $.01 par value,
100,000 shares authorized, none issued ......................... -- -- --
Common Stock Class A, $.01 par value,
400,000 shares authorized, 184,000 issued and outstanding in
Fiscal 1996 and 1997, 111,500 outstanding at January 25, 1998 2 2 2
Common Stock Class B, $.01 par value,
20,000 shares authorized, 3,666 issued, 3,666, 2,666
and 2,666 outstanding, respectively ............................ -- -- --
Common Stock Class C, $.01 par value,
200,000 shares authorized, none issued ......................... -- -- --
Paid-in capital ................................................. 3,500 3,500 3,500
Retained earnings ............................................... 8,371 11,643 13,223
Treasury stock, at cost, 1,000 shares Class B Common Stock and
72,500 shares Class A Common Stock at January 25, 1998 ......... -- (135) (9,923)
------- ------- --------
$11,873 $15,010 $ 6,802
======= ======= ========
</TABLE>
In connection with the March 30, 1995 distribution of the Company's common
stock by Four M, 7,000 shares of the Company's Class A Common Stock were
distributed to AIG (the "AIG Shares") in partial satisfaction of a $4 million
subordinated note made by Four M in favor of AIG. In Fiscal 1997, 500 AIG
Shares were acquired by the Company pursuant to the Stock Repurchase (as
defined below). Concurrent with the distribution, the Company and AIG entered
into a redemption agreement, whereby AIG has the right to require the Company
to repurchase all of the AIG Shares at the earlier of March 31, 2007 or the
date of a merger or consolidation of the Company with another entity in which
the Company is not the surviving party. The aggregate repurchase price for the
outstanding AIG Shares is $2.8 million discounted from March 31, 2007 at a rate
of 3% per annum. The redemption agreement also contains redemption rights
whereby the Company can require AIG to redeem the remaining AIG Shares after
March 31, 2000 on the same terms specified above. The AIG Shares are disclosed
at the present value of their liquidation value on the balance sheets. The 1995
transfer of the present value of the liquidation value of the redeemable common
stock and the annual accretion to liquidation value has been charged to
retained earnings.
In April 1997, the Company offered to repurchase up to 74,000 shares of
common stock at $135 per share from the Company's stockholders on a pro rata
basis (the "Stock Repurchase"). In Fiscal 1997, pursuant to the Stock
Repurchase, the Company redeemed 500 of the AIG Shares and 1,000 of the
Equitable Shares for $135 per share. The repurchase of the 500 AIG Shares for
less than the present value
F-11
<PAGE>
FONDA GROUP, INC.
NOTES TO FINANCIAL STATEMENTS -- CONTINUED
10. STOCKHOLDERS' EQUITY AND REDEEMABLE COMMON STOCK--(CONTINUED)
of the liquidation amount as of the date of repurchase resulted in a credit to
retained earnings. The Equitable Shares have been reported as Treasury Stock.
In September 1997 and January 1998, pursuant to the Stock Repurchase, the
Company redeemed 61,865 and 10,635 shares of Class A common stock for $8.4
million and $1.4 million, respectively, which have been included as treasury
stock within stockholders' equity. The Company has completed such stock
repurchase.
In September 1997, the Board of Directors granted the majority stockholder
15,000 options to purchase Class A Common Stock at an option price of $135 per
share. Options to purchase 5,000 shares vest on October 1, 1997, and options to
purchase an additional 5,000 shares vest on October 1, 1998 and October 1, 1999
respectively, or upon an initial public offering of the Company's common stock,
whichever occurs first; provided that the majority stockholder is employed by
the Company on the applicable vesting date (see Note 16).
The changes in retained earnings consists of the following (in thousands):
<TABLE>
<CAPTION>
YEARS ENDED SIX MONTHS
------------------------------------- ENDED
JULY 30, JULY 28, JULY 27, JANUARY 25,
1995 1996 1997 1998
----------- ---------- ---------- ------------
(UNAUDITED)
<S> <C> <C> <C> <C>
Balance, beginning of year .................... $ 4,938 $5,005 $ 8,371 $11,643
Net income ................................... 2,182 3,430 3,236 1,612
Transfer of liquidation value of redeemable
common stock ............................... (2,094) -- 100 --
Accretion of redeemable common stock ......... (21) (64) (64) (32)
-------- ------ ------- -------
Balance, end of year .......................... $ 5,005 $8,371 $11,643 $13,223
======== ====== ======= =======
</TABLE>
Effective August 1, 1995, the Company adopted The Fonda Group, Inc. Stock
Appreciation Unit Plan (the "Plan"). The Plan provides for the granting of up
to 200,000 units to key executives of the Company. A grantee is entitled to the
appreciation in a unit's value from the date of the grant to the date of its
redemption. Unit value is based upon a formula consisting of net income and
book value criteria and grants vest over a five-year period. The Company
granted 5,850 in Fiscal 1995, 9,500 in Fiscal 1996 and 10,980 units in Fiscal
1997 at an aggregate value on the date of grant of $.2 million, $.3 million and
$.4 million, respectively. The Company recorded compensation expense of $.1
million in Fiscal 1996 and less than $.1 million in Fiscal 1997.
F-12
<PAGE>
FONDA GROUP, INC.
NOTES TO FINANCIAL STATEMENTS -- CONTINUED
11. INCOME TAXES
The provision (benefit) for income taxes consists of the following (in
thousands):
<TABLE>
<CAPTION>
YEARS ENDED
-----------------------------------
JULY 30, JULY 28, JULY 27,
1995 1996 1997
---------- ---------- ---------
<S> <C> <C> <C>
Current:
Federal ......... $ 2,577 $1,526 $1,449
State ........... 698 441 418
-------- ------ ------
3,275 1,967 1,867
-------- ------ ------
Deferred:
Federal ......... (1,381) 423 2,328
State ........... (309) 110 677
-------- ------ ------
(1,690) 533 3,005
-------- ------ ------
$ 1,585 $2,500 $4,872
======== ====== ======
</TABLE>
Deferred income taxes reflect the tax effects of temporary differences
between the carrying amounts of assets and liabilities for financial reporting
and income tax purposes. Deferred tax assets (liabilities) result from
temporary differences as follows (in thousands):
<TABLE>
<CAPTION>
JULY 28, JULY 27,
1996 1997
---------- -----------
<S> <C> <C>
Deferred tax assets:
Capitalized inventory costs ....................................... $ 881 $ 785
Allowance for doubtful accounts receivable ........................ 180 349
Accruals for health insurance and other employee benefits ......... 1,824 1,911
Inventory and sales related reserves .............................. 662 567
Pension reserve ................................................... 1,158 433
Benefit of tax carryforwards ...................................... -- 370
Other ............................................................. 1,495 1,485
-------- --------
6,200 5,900
Deferred tax liabilities:
Depreciation ...................................................... (3,209) (5,264)
-------- --------
$ 2,991 $ 636
======== ========
</TABLE>
A reconciliation of the income tax provision to the amount computed using
the Federal statutory rate is as follows (in thousands):
<TABLE>
<CAPTION>
YEARS ENDED
-----------------------------------
JULY 30, JULY 28, JULY 27,
1995 1996 1997
---------- ---------- ---------
<S> <C> <C> <C>
Income tax at statutory rate ........................ $1,281 $2,076 $4,061
State income taxes (net of Federal benefit) ......... 232 365 712
Other ............................................... 72 59 99
------ ------ ------
$1,585 $2,500 $4,872
====== ====== ======
</TABLE>
F-13
<PAGE>
FONDA GROUP, INC.
NOTES TO FINANCIAL STATEMENTS -- CONTINUED
12. LEASES
The Company leases certain of its facilities and equipment under operating
leases. Future minimum payments under noncancellable operating leases with
remaining terms of one year or more are $1.2 million in Fiscal 1998, $.9
million in Fiscal 1999, $.9 million in Fiscal 2000, $.8 million in Fiscal 2001,
$.8 million in Fiscal 2002, and $2.6 million thereafter.
Rent expense was $1.2 million in Fiscal 1995, $1.8 million in Fiscal 1996
and $2 million in Fiscal 1997.
13. RELATED PARTY TRANSACTIONS
The Company subleased a portion of a building in Jacksonville, Florida
from Four M prior to January 1, 1995. Effective January 1, 1995, the Company
leases the entire facility from its majority stockholder. Annual payments under
the lease are $.2 million plus annual increases based on changes in the
Consumer Price Index ("CPI") through December 31, 2014. In addition, from
January 1, 1998 to July 31, 2006, the majority stockholder may require the
Company to purchase the facility for $1.5 million, subject to a CPI-based
escalation. The purchase price would be $.4 million in cash and the balance in
a seven-year note secured by a lien covering the facility with interest payable
at 2% over prime. Rent expense, net of sublease income on a portion of the
premises subleased to Four M, was $.1 million in each of the fiscal years 1995,
1996 and 1997. See Note 16.
On February 27, 1997, the Company loaned $2.6 million to CEG for five
years at an interest rate of 10%, the proceeds of which were applied to CEG's
prepayment of certain obligations to James River.
Net sales to CEG were $1.9 million in Fiscal 1996 and $7.8 million in
Fiscal 1997. Net sales to Fibre Marketing Group, LLC, a waste paper recovery
business of which Four M and a Director of the Company are members, were $.2
million in Fiscal 1995, $4 million in Fiscal 1996 and $3.6 million in Fiscal
1997. Net purchases of corrugated containers from Four M were $.2 million in
Fiscal 1996 and $.9 million in Fiscal 1997. The Company believes that the terms
on which it sold or purchased products from related parties were at least as
favorable as those it could otherwise have obtained from unrelated third
parties and were negotiated on an arm's length basis.
During the period that the Company was owned by Four M, the Company was
charged a management fee by Four M for certain general and administrative
services. The $.5 million fee in 1995 was based on the time allocated to the
Company's matters by certain Four M corporate personnel and a pro rata amount
for various expenses such as insurance, directors' fees, and other
miscellaneous expenses. At any point in time there were seven to ten Four M
individuals who performed various functions on behalf of the Company, each
allocating between 25% and 75% of their time to the Company. The Company
believes that the allocation methods used for Four M's charges are reasonable
and include all expenses that Four M incurred on the Company's behalf.
14. EMPLOYEE BENEFIT PLANS
The Company provides certain union and non-union employees with retirement
and disability income benefits under defined benefit pension plans. Pension
costs are based upon the actuarially determined normal costs plus interest on
and amortization of the unfunded liabilities. On December 31, 1996, the benefit
accruals were frozen for participants in the non-union pension plans resulting
in a $.7 million reduction in the pension liability. The Company's policy has
been to fund annually the minimum contributions required by applicable
regulations.
Pursuant to the Asset Purchase Agreement covering the Hoffmaster
acquisition, Scott made required aggregate contributions of $.9 million to the
Hoffmaster plans. As such, in Fiscal 1997, the Company reversed a $.7 million
pension reserve that it had previously accrued for such contributions.
F-14
<PAGE>
FONDA GROUP, INC.
NOTES TO FINANCIAL STATEMENTS -- CONTINUED
14. EMPLOYEE BENEFIT PLANS--(CONTINUED)
The net periodic pension cost for benefits earned in the respective years
is computed as follows (in thousands):
<TABLE>
<CAPTION>
YEARS ENDED
-----------------------------------
JULY 30, JULY 28, JULY 27,
1995 1996 1997
---------- ---------- ---------
<S> <C> <C> <C>
Service cost ...................... $ 269 $ 731 $ 433
Interest cost ..................... 204 455 403
Return on plan assets ............. (123) (313) (751)
Deferred gain ..................... -- -- 487
------ ------ ------
Net periodic pension cost ......... $ 350 $ 873 $ 572
====== ====== ======
</TABLE>
The funded status of the plans and the amount recognized in the balance
sheets is as follows (in thousands):
<TABLE>
<CAPTION>
JULY 28, 1996 JULY 27, 1997
--------------------------- --------------------------
ASSETS ACCUMULATED ASSETS ACCUMULATED
EXCEED BENEFITS EXCEED BENEFITS
ACCUMULATED EXCEED ACCUMULATED EXCEED
BENEFITS ASSETS BENEFITS ASSETS
------------- ------------- ------------- ------------
<S> <C> <C> <C> <C>
Accumulated benefit obligation:
Vested .............................................. $1,307 $2,964 $2,004 $3,515
Non-vested .......................................... 35 33 30 49
------ ------ ------ ------
Total ................................................ $1,342 $2,997 $2,034 $3,564
====== ====== ====== ======
Projected benefit obligation ......................... $2,499 $2,997 $2,034 $3,564
Plan assets at fair value, primarily common stocks
and government obligations .......................... 930 1,689 2,170 2,846
------ ------ ------ ------
Projected benefit obligation in excess of plan assets 1,569 1,308 (136) 718
Unrecognized net gain (loss) ......................... (81) 1 136 329
------ ------ ------ ------
Accrued pension cost ................................. $1,488 $1,309 $ -- $1,047
====== ====== ====== ======
</TABLE>
The actuarial present values of accumulated and projected benefit
obligations were determined using discount rates of 8%, except for non-union
plans which used 7% in Fiscal 1997, and an assumed rate of increase in
compensation levels of 4%. The expected rate of return on assets was assumed to
be 8%.
The Company provides 401(k) savings and investment plans for the benefit
of non-union employees. Employee contributions are matched at the discretion of
the Company. On January 1, 1997, the Company adopted a defined contribution
benefit plan for all non-union employees for which contributions and costs are
based on participant earnings. The costs for these plans were less than $.1
million in Fiscal 1995, $.4 million in Fiscal 1996 and $.8 million in Fiscal
1997.
The Company also participates in multi-employer pension plans for certain
of its union employees. Contributions to these plans, at a defined rate per
hour worked, amounted to $.9 million in Fiscal 1995, $1.3 million in Fiscal
1996, and $.6 million in Fiscal 1997.
15. COMMITMENTS AND CONTINGENCIES
The Company is subject to legal proceeding and other claims arising in the
ordinary course of its business. The Company maintains insurance coverage of
types and in amounts which it believes to be
F-15
<PAGE>
FONDA GROUP, INC.
NOTES TO FINANCIAL STATEMENTS -- CONTINUED
15. COMMITMENTS AND CONTINGENCIES--(CONTINUED)
adequate and believes that it is not presently a party to any litigation, the
outcome of which could reasonably be expected to have a material adverse effect
on its financial condition or results of operations.
The Company has commitments to purchase paperboard from three major
vendors. The total annual commitment is for the purchase of 49,200 tons of
paperboard through April 2001. The price per ton will be based on market rates,
less applicable rebates for all of these commitments. In addition, the Company
has a commitment through calendar 1999 to purchase 14,500 tons of tissue paper
in 1997, 11,000 tons in 1998 and 10,000 tons in 1999, at market rates.
16. SUBSEQUENT EVENTS
In February 1998, the Company decided to close its Jacksonville, Florida
facility. The costs to close such facility are not expected to have a material
adverse effect on the Company's results of operations.
On February 11, 1998, the Company reached an agreement with the owner of
the co-generation facility hosted by the Company at its Natural Dam mill,
whereby among other things (a) the operator will terminate its obligations to
supply steam to Natural Dam; and (b) the operator will not be obligated to make
fixed rent payments for three years following the consummation of such
agreement and will have the right to terminate the land lease payments in
return for a lump sum cash payment and the delivery of certain equipment. The
consummation of this agreement is subject to various conditions, including the
negotiation and execution of a definitive agreement. The Company expects to
record a gain upon the consummation of the transaction contemplated by this
agreement, however, there can be no assurance that such transaction will be
consummated.
On March 12, 1998, the Company entered into an agreement with CEG, subject
to extension, whereby CEG will manufacture and distribute certain party goods
products currently manufactured by the Company for a period of five years. In
connection therewith, the Company will receive a royalty equal to 5% of CEG's
cash flow, as determined in accordance with a formula specified in such
agreement. In Fiscal 1997, the Company's net sales of such party goods products
were approximately $30 million.
On March 12, 1998, SF Holdings Group, Inc. ("SF Holdings"), a Delaware
corporation principally owned by the majority stockholder of the Company,
issued and sold $77.5 million in gross proceeds of units, each unit consisting
of 12 3/4% Senior Secured Notes due 2008 and Two shares of Class C common stock
of SF Holdings. The net proceeds of such offering were used to fund the
acquisition (the "Sweetheart Investment") by SF Holdings of 90% of the total
outstanding common stock, including 48% of the voting stock, of Sweetheart
Holdings, Inc. ("Sweetheart"). The Company also consummated the following
transactions:
(1) All of the shares of the Company were converted into shares of SF
Holdings pursuant to a merger of a subsidiary of SF Holdings into the Company.
(the "Stockholders Exchange") and the Company became a wholly-owned subsidiary
of SF Holdings;
(2) The 15,000 options to purchase Class A common stock of the Company
granted to the majority stockholder (see Note 10) were converted into options
to purchase Class A common stock of SF Holdings;
(3) Prior to the Stockholders Exchange, outstanding warrants to purchase
9,176 shares of Class B common stock of the Company (see Note 9) were exercised
and such shares were converted into shares of Class B common stock of SF
Holdings; and
(4) SF Holdings assigned substantially all of its rights under the
Management Services Agreement between SF Holdings and American Industrial
Partners Management Company, Inc. ("AIPM"), as amended, to the Company in
consideration for the payment of $7.0 million. During the term of the
Management Services Agreement, Fonda has the right, subject to the direction of
the board of directors of Sweetheart, to manage Sweetheart's day-to-day
operations for and on behalf of Sweetheart, including
F-16
<PAGE>
FONDA GROUP, INC.
NOTES TO FINANCIAL STATEMENTS -- CONTINUED
16. SUBSEQUENT EVENTS--(CONTINUED)
but not limited to, the right to cause Sweetheart to (i) acquire and dispose of
assets; (ii) employ, determine compensation of and terminate employees of
Sweetheart other than the Chief Executive Officer, Chief Operating Officer and
Chief Financial Officer; and (iii) take all other actions associated with the
management of the day-to-day operations of the business of Sweetheart. For the
first three years after the consummation of the Sweetheart Investment, AIPM
will continue to provide certain financial advisory services to Sweetheart for
which it will receive certain fees. In consideration of Fonda's performance of
services, it will receive certain fees during the term of the agreement.
On March 24, 1998, the Company consummated an agreement to sell
substantially all of the fixed assets and certain related working capital of
Natural Dam, pursuant to which Fonda realized net proceeds, after expenses, of
approximately $25 million, subject to a post-closing adjustment for working
capital.
F-17
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Board of Directors of
Sweetheart Holdings Inc.:
We have audited the accompanying consolidated balance sheets of Sweetheart
Holdings Inc. (a Delaware corporation) and subsidiaries as of September 30,
1996 and 1997 and the related consolidated statements of operations,
shareholders' equity and cash flows for the years ended September 30, 1995,
1996 and 1997. These financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Sweetheart Holdings Inc.
and Subsidiaries as of September 30, 1996 and 1997, and the consolidated
results of their operations and their cash flows for the years ended September
30, 1995, 1996 and 1997 in conformity with generally accepted accounting
principles.
ARTHUR ANDERSEN LLP
Baltimore, Maryland
December 8, 1997
(except with respect to
the matter discussed in
Note 20, as to which the
date is March 12, 1998)
F-18
<PAGE>
SWEETHEART HOLDINGS INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(DOLLARS IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
SEPTEMBER 30,
------------------------- DECEMBER 31,
1996 1997 1997
----------- ----------- -------------
(UNAUDITED)
<S> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents ........................... $ 4,371 $ 2,650 $ 4,687
Restricted cash ..................................... 28,870 29,016
Cash in escrow ...................................... -- 13,323 23,720
Receivables, less allowances of $2,466, $1,740 and
$1,851, respectively .............................. 88,183 85,774 72,417
Inventories ......................................... 172,838 148,845 140,941
Deferred income taxes ............................... 1,771 2,471 2,471
Assets held for sale, net ........................... -- 8,466 --
Other current assets ................................ 20,099 20,868 19,532
-------- --------- ---------
Total current assets .............................. 316,132 311,413 263,768
Property, plant and equipment ........................ 527,394 527,999 526,770
Less--Accumulated depreciation ....................... 99,561 145,508 154,052
Net property, plant and equipment .................... 427,833 382,491 372,718
Deferred income taxes ................................ -- 12,471 19,083
Other assets ......................................... 18,645 13,155 17,482
-------- --------- ---------
TOTAL ASSETS ......................................... $762,610 $ 719,530 $ 673,051
======== ========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable .................................... $ 70,472 $ 58,933 $ 50,870
Accrued payroll and related costs ................... 47,828 40,528 35,770
Other current liabilities ........................... 33,918 43,815 45,819
Current portion of long-term debt and bonds ......... 1,535 1,369 5,516
-------- --------- ---------
Total current liabilities ......................... 153,753 144,645 137,975
Long-term debt ...................................... 381,879 426,799 397,258
Long-term bonds ..................................... 3,700 3,700 3,700
Deferred income taxes ............................... 17,803 -- --
Other non-current liabilities ....................... 84,060 69,775 69,062
Shareholders' equity:
Common stock--
Par value $.01 per share; 3,000,000 shares
authorized; 1,046,000 shares issued and
outstanding ...................................... 101,100 101,100 101,100
Cumulative translation adjustment ................... (322) (507) (926)
Retained earnings (accumulated deficit) ............. 21,060 (25,611) (34,747)
Note receivable related to purchase of common
stock ............................................. (423) (371) (371)
-------- --------- ---------
Total shareholders' equity ........................ 121,415 74,611 65,056
-------- --------- ---------
TOTAL LIABILITIES AND SHAREHOLDERS'
EQUITY ........................................... $762,610 $ 719,530 $ 673,051
======== ========= =========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-19
<PAGE>
SWEETHEART HOLDINGS INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
FOR THE YEAR ENDED THREE MONTHS ENDED
SEPTEMBER 30, DECEMBER 31,
----------------------------------------- ---------------------------
1995 1996 1997 1996 1997
----------- ----------- ------------- ------------- -----------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Net sales ............................ $ 986,618 $ 959,818 $ 886,017 $ 202,102 $ 201,952
Cost of sales ........................ 779,497 748,055 722,539 176,859 164,341
--------- --------- --------- --------- ---------
Gross income ........................ 207,121 211,763 163,478 25,243 37,611
--------- --------- --------- --------- ---------
Transportation ....................... 95,096 98,664 98,482 22,462 23,665
Selling, general, and
administrative ...................... 66,089 61,788 66,792 16,216 19,102
Loss on asset disposal and
impairment .......................... -- -- 24,550 -- --
Restructuring charges ................ -- -- 9,680 -- --
--------- --------- --------- --------- ---------
Operating income (loss) ............. 45,936 51,311 (36,026) (13,435) (5,156)
Interest expense ..................... (38,655) (38,832) (41,812) (9,952) (11,126)
Other income (expense) ............... 2,442 (2,956) 1,620 268 3,576
--------- --------- --------- --------- ---------
Income (loss) before income
taxes, cumulative effect of
an accounting change and
extraordinary loss ................ 9,723 9,523 (76,218) (23,119) (12,706)
Income tax expense (benefit) ......... 3,903 3,809 (30,487) (9,247) (5,081)
--------- --------- --------- --------- ---------
Income (loss) before
cumulative effect of an
accounting change and
extraordinary loss ................ 5,820 5,714 (45,731) (13,872) (7,625)
Cumulative effect of a change
in accounting principle (net of
income taxes of $1,007) ............. -- -- -- -- (1,511)
Extraordinary loss on debt
extinguishment (net of
income taxes of $627) ............... -- -- 940 -- --
--------- --------- --------- --------- ---------
Net income (loss) ................. $ 5,820 $ 5,714 $ (46,671) $ (13,872) $ (9,136)
========= ========= ========= ========= =========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-20
<PAGE>
SWEETHEART HOLDINGS INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
FOR THE YEAR ENDED THREE MONTHS ENDED
SEPTEMBER 30, DECEMBER 31,
------------------------------------------- ----------------------------
1995 1996 1997 1996 1997
------------ ------------ ------------- ------------ -------------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Cash flows from operating activities:
Net (loss) income ...................... $ 5,820 $ 5,714 $ (46,671) (13,872) (9,136)
Depreciation and amortization .......... 37,741 43,373 47,723 11,494 11,415
Asset impairment expense ............... -- -- 24,550 -- --
Gain on sale of assets ................. -- -- -- -- (4,245)
Cumulative effect of change in
accounting principle ................. -- -- -- -- 1,511
Extraordinary loss, net of tax ......... -- -- 940 -- --
Deferred income taxes .................. 3,144 2,645 (30,487) (9,222) (5,081)
Changes in operating assets and
liabilities:
Receivables .......................... (17,863) 14,103 (1,341) 17,886 13,357
Inventories .......................... 21,055 (20,878) 23,993 22,638 7,904
Accounts payable ..................... 4,852 5,259 (11,541) (27,011) (8,063)
Other ................................ (3,850) (6,708) (10,408) (4,751) (6,924)
---------- ---------- ---------- ------- ------
Net cash provided by (used in)
operating activities .............. 50,899 43,508 (3,242) (2,838) 738
---------- ---------- ---------- ------- ------
Cash flows from investing activities:
Additions to property, plant, and
equipment ............................ (51,625) (50,236) (47,757) (9,523) (7,134)
Proceeds from sales of property,
plant, and equipment ................. 111 -- 17,843 -- 15,767
---------- ---------- ---------- ------- ------
Net cash provided by (used in)
investing activities .............. (51,514) (50,236) (29,914) (9,523) 8,633
---------- ---------- ---------- ------- ------
Cash flows from financing activities:
Proceeds from debt ..................... 103,852 194,160 331,216 85,150 149,467
Repayment of debt ...................... (103,535) (178,235) (286,364) (64,533) (174,585)
Payment received on common
stock note receivable ................ -- 77 52 -- --
Increase in restricted cash ............ (3,932) (12,904) (146) (6,284) 29,016
Increase in cash in escrow ............. -- -- (13,323) -- (10,397)
Payment of financing fees .............. -- -- -- -- (835)
---------- ---------- ---------- ------- --------
Net cash provided by (used in)
financing activities .............. (3,615) 3,098 31,435 14,333 (7,334)
---------- ---------- ---------- ------- --------
Net decrease in cash and cash
equivalents ............................ (4,230) (3,630) (1,721) 1,972 2,037
Cash and cash equivalents, beginning
of year ................................ 12,231 8,001 4,371 4,371 2,650
---------- ---------- ---------- ------- --------
Cash and cash equivalents, end of
year ................................... $ 8,001 $ 4,371 $ 2,650 $ 6,343 $ 4,687
========== ========== ========== ========= ==========
Supplemental cash flow disclosures:
Interest paid .......................... $ 35,748 $ 35,767 $ 38,818 $ 1,813 $ 2,348
========== ========== ========== ========= ==========
Income taxes paid ...................... $ 1,061 $ 2,226 $ -- $ 69 $ 335
========== ========== ========== ========= ==========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-21
<PAGE>
SWEETHEART HOLDINGS INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
(DOLLARS IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
CUMULATIVE TOTAL
COMMON TRANSLATION RETAINED NOTE SHAREHOLDERS'
STOCK ADJUSTMENT EARNINGS RECEIVABLE EQUITY
----------- ------------- ------------ ------------ --------------
<S> <C> <C> <C> <C> <C>
Balance, September 30, 1994 ......... $101,100 $ (171) $ 9,526 $ (500) $ 109,955
Net income .......................... -- -- 5,820 -- 5,820
Translation adjustment .............. -- 30 -- -- 30
-------- ------ --------- ------ ---------
Balance, September 30, 1995 ......... 101,100 (141) 15,346 (500) 115,805
Net income .......................... -- -- 5,714 -- 5,714
Payment received on note
receivable ......................... -- -- -- 77 77
Translation adjustment .............. -- (181) -- -- (181)
-------- ------ --------- ------ ---------
Balance, September 30, 1996 ......... 101,100 (322) 21,060 (423) 121,415
Net loss ............................ -- -- (46,671) -- (46,671)
Payment received on note receivable -- -- -- 52 52
Translation adjustment .............. -- (185) -- -- (185)
-------- ------ --------- ------ ---------
Balance, September 30, 1997 ......... 101,100 (507) (25,611) (371) 74,611
Net loss ............................ -- -- (9,136) -- (9,136)
Translation adjustment .............. -- (419) -- -- (419)
-------- ------ --------- ------ ---------
Balance, December 31, 1997
(unaudited) ........................ $101,100 $ (926) $ (34,747) $ (371) $ 65,056
======== ====== ========= ====== =========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-22
<PAGE>
SWEETHEART HOLDINGS INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
As used in these notes, unless the context otherwise requires, the
"Company" shall refer to Sweetheart Holdings Inc. and its subsidiaries,
including Sweetheart Cup Company Inc.
1. SIGNIFICANT ACCOUNTING POLICIES
a. Principles of Consolidation and Translation
The financial statements include all of the accounts of the Company and
its subsidiaries on a consolidated basis as of September 30, 1996 and 1997 and
for the years ended September 30, 1995, 1996 and 1997. For all periods
presented, the consolidated financial statements include all of the accounts of
the Company's United States operations (Sweetheart Holdings Inc. and its
domestic subsidiaries, Sweetheart Cup Company Inc. and Sweetheart Receivables
Corporation) and Lily Cups Inc., a Canadian subsidiary. Assets and liabilities
of Lily Cups Inc. are translated at the rates of exchange in effect at the
balance sheet date. Income amounts are translated at the average of the monthly
exchange rates. The cumulative effect of translation adjustments is deferred
and classified as a cumulative translation adjustment. All significant
intercompany and intergroup accounts and transactions have been eliminated. The
accompanying balance sheet as of December 31, 1997 and the statements of
operations and cash flows for the three months ended December 31, 1996 and
December 31, 1997 are unaudited but, in the opinion of management, include all
adjustments (consisting of normal, recurring adjustments) necessary for a fair
presentation of results for these interim periods. Results for interim periods
are not necessarily indicative of results for the entire year.
b. Cash and Cash Equivalents
The Company considers all highly liquid investments with a maturity of
three months or less when purchased to be cash equivalents. Cash overdrafts are
reclassified to accounts payable and accrued payroll and related costs. Cash
balances related to Sweetheart Receivables Corporation are restricted from
transfer to other entities within the Company. Restricted cash is shown
separately on the balance sheet. The balance of restricted cash was $29.0
million and $28.9 million at September 30, 1997 and 1996, respectively. Cash
received as proceeds from the sale of assets is restricted to qualified capital
expenditures under the Bond Indentures (see Note 10), and is held in escrow
with the trustee until utilized. The balance of cash in escrow was $13.3
million at September 30, 1997.
c. Inventories
Inventories are carried at the lower of cost or market as described in
Note 2. Spare parts of $20.1 million at September 30, 1996 were reclassified
from inventories to other current assets.
d. Assets held for sale
Property, plant, and equipment for the Bakery division was reclassified as
held for sale at September 30, 1997. The Bakery division was sold on November
30, 1997, as discussed in Note 15.
e. Property, Plant and Equipment
Property, plant and equipment is recorded at cost, less accumulated
depreciation, and is depreciated on the straight-line method over the estimated
useful lives of the assets, with the exception of property, plant, and
equipment acquired prior to January 1, 1991, which is depreciated on the
declining balance method.
The asset lives of buildings and fixtures range between 12 and 50 years
and have an average useful life of 38 years. The asset lives of equipment range
between 5 and 18 years and have an average useful life of 13 years.
F-23
<PAGE>
f. Revenue Recognition
Sales of the Company's products are recorded based on shipment of
products.
g. Income Taxes
Deferred income taxes are provided to recognize temporary differences
between the financial reporting basis and the tax basis of the Company's assets
and liabilities. The principal differences relate to depreciation expense,
pension and postretirement benefits and LIFO inventory.
No deferred income taxes have been provided on the cumulative
undistributed earnings of the Canadian subsidiary of Sweetheart Cup Company
Inc. Those earnings (approximately $12.8 million) are considered permanently
reinvested under Accounting Principles Bulletin No. 23. The incremental U.S.
tax costs (deferred taxes) of repatriating these earnings would not be
material.
h. Employee Benefit Plans (also see Note 7)
The Company has various defined benefit plans and a defined contribution
plan for substantially all employees who meet eligibility requirements.
Benefits under the defined benefit plans are based on years of service, and
funding is in accordance with actuarial requirements of the plans, subject to
provisions of the Employee Retirement Income Security Act. The Company makes
contributions to the defined contribution plan in accordance with the plan's
provisions.
i. Postretirement Health Care Plans (also see Note 8)
The Company sponsors various defined benefit postretirement health care
plans that cover substantially all employees who meet eligibility requirements.
These plans are not funded by the Company.
j. Reclassifications
The Company has reclassified certain amounts for current year presentation
from prior year presentation. Spare parts, previously reported as a component
of inventories, is now reported as other current assets.
Within the statement of operations, freight charges, previously reported
as a component of net sales, are now reported as transportation; warehousing
and fleet costs, previously reported as costs of sales, are now reported as
transportation; plant administration costs, previously reported as selling,
general, and administrative costs, are now reported as costs of sales; and
certain other revenues, previously reported as other income, are now reported
as a component of net sales.
All prior periods have been restated to conform to the current year
presentation.
k. Impact of Recently Issued Accounting Standards
In October 1996, the Company adopted Statement of Financial Accounting
Standards (SFAS) No. 123, Accounting for Stock Based Compensation, which
provides an alternative to APB Opinion No. 25, Accounting for Stock Issued to
Employees in accounting for stock based compensation issued to employees. The
Company has adopted only the disclosure provisions of Statement 123, and the
impact was not material.
In October 1996, the Company adopted SFAS No. 121, Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of,
which requires impairment losses to be recorded on long-lived assets used in
operations when indicators of impairment are present and the undiscounted cash
flows estimated to be generated by those assets are less than the assets'
carrying amount. Statement 121 also addresses the accounting for long-lived
assets that are expected to be disposed of. The adoption of SFAS 121 did not
have a material impact on net income. In the fourth quarter of fiscal year
1997, the Company recorded a loss on asset disposal and impairment. See Note
14.
F-24
<PAGE>
During 1997, the Financial Accounting Standards Board issued SFAS No. 128,
Earnings per Share, No. 129, Disclosure of Information about Capital Structure,
No. 130, Reporting Comprehensive Income, and No. 131, Disclosures about
Segments of an Enterprise and Related Information. These statements address
presentation and disclosure matters and will have no impact on the Company's
financial position or results of operations. These statements become effective
during the Company's fiscal years 1998 and 1999 and will be adopted as
applicable.
On November 20, 1997, the Emerging Issues Task Force (EITF) reached a
consensus on Issue 97-13 regarding reengineering costs. This consensus provides
guidance about what activities constitute business process reengineering in
connection with the development and installation of software for internal use
and concludes that all reengineering costs, including those incurred in
connection with a software installation, should be expensed as incurred. The
Company has capitalized costs such as those described above through fiscal year
1997, and as required by this consensus, $1.5 million (net of a $1 million
income tax benefit) (unaudited) of these costs were expensed as a cumulative
change in accounting principle in the first quarter of fiscal year 1998.
l. Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting periods. Actual results could differ from those estimates.
2. INVENTORIES
The components of inventories and their valuation methods are as follows
(in thousands):
<TABLE>
<CAPTION>
SEPTEMBER 30, SEPTEMBER 30, DECEMBER 31,
1996 1997 1997
--------------- --------------- -------------
(UNAUDITED)
<S> <C> <C> <C>
Components
Raw materials and supplies .................... $ 35,166 $ 32,302 $ 39,721
Finished and partly finished products ......... 137,672 116,543 101,220
-------- -------- --------
$172,838 $148,845 $140,941
======== ======== ========
Valued at lower of cost or market
First in, first out ("FIFO") .................. $ 17,011 $ 15,300 $ 14,717
Last in, first out ("LIFO") ................... 155,827 133,545 126,224
-------- -------- --------
$172,838 $148,845 $140,941
======== ======== ========
</TABLE>
Had inventories valued on the LIFO basis been stated on a FIFO basis,
inventories would have been $4,598,000, $889,000 and $139,000 higher than
reported at September 30, 1996 and 1997, and December 31, 1997, respectively.
Cost of sales on a FIFO basis would have been higher by $17,856,000 for the
year ended September 30, 1995, and lower by $12,310,000 and $3,709,000 for the
years ended September 30, 1996 and 1997, respectively.
F-25
<PAGE>
3. PROPERTY, PLANT AND EQUIPMENT
The Company's major classes of property, plant and equipment are as
follows (in thousands):
<TABLE>
<CAPTION>
SEPTEMBER 30, SEPTEMBER 30, DECEMBER 31,
1996 1997 1997
--------------- --------------- -------------
(UNAUDITED)
<S> <C> <C> <C>
Land ...................................... $ 26,008 $ 23,801 $ 22,820
Buildings ................................. 90,760 85,808 85,962
Machinery and equipment ................... 375,404 394,754 389,756
Construction in progress .................. 35,222 23,636 28,232
-------- -------- --------
Total .................................... 527,394 527,999 526,770
-------- -------- --------
Accumulated depreciation .................. 99,561 145,508 154,052
-------- -------- --------
Net property, plant and equipment ......... $427,833 $382,491 $372,718
======== ======== ========
</TABLE>
4. OTHER ASSETS
The components of long term other assets are as follows (in thousands):
<TABLE>
<CAPTION>
SEPTEMBER 30, SEPTEMBER 30, DECEMBER 31,
1996 1997 1997
--------------- --------------- -------------
(UNAUDITED)
<S> <C> <C> <C>
Debt issuance costs, net of accumulated
amortization ................................. $12,874 $ 8,159 $ 7,989
Intangible pension asset (see Note 7) ......... 2,484 860 860
Prepaid assets ................................ 1,299 2,423 6,248
Other ......................................... 1,988 1,713 2,385
------- ------- -------
Total long-term .............................. $18,645 $13,155 $17,482
======= ======= =======
</TABLE>
Amortization of the above debt issuance costs totaled approximately $3.5
million, $3.6 million and $5.2 million for the years ended September 30, 1995,
1996 and 1997, respectively, of which $3.6 million of the 1997 costs are
included as interest expense in the accompanying statement of operations.
During the year ended September 30, 1997, the Company accelerated $1.6 million
of amortization for the debt issuance costs related to Sweetheart Receivables
Corporation and the 1993 Credit Agreement, both of which were refinanced
subsequent to year end (See Note 10). This charge is shown as an extraordinary
loss (net of $627,000 of income taxes) on the consolidated statement of
operations.
5. OTHER CURRENT LIABILITIES
The components of other current liabilities are as follows (in thousands):
<TABLE>
<CAPTION>
SEPTEMBER 30, SEPTEMBER 30, DECEMBER 31,
1996 1997 1997
--------------- --------------- -------------
(UNAUDITED)
<S> <C> <C> <C>
Sales allowances ......................................... $ 6,023 $ 7,052 $ 5,334
Restructuring costs ...................................... 4,934 13,201 10,433
Taxes other than income taxes ............................ 2,288 2,841 2,966
Litigation, claims and assessments (see Note 16) ......... 15,196 15,445 15,372
Interest payable ......................................... 2,798 2,806 10,953
Other .................................................... 2,679 2,470 771
------- ------- -------
Total ................................................... $33,918 $43,815 $45,829
======= ======= =======
</TABLE>
F-26
<PAGE>
6. OTHER NON-CURRENT LIABILITIES
The components of other non-current liabilities are as follows (in
thousands):
<TABLE>
<CAPTION>
SEPTEMBER 30, SEPTEMBER 30, DECEMBER 31,
1996 1997 1997
--------------- --------------- -------------
(UNAUDITED)
<S> <C> <C> <C>
Post retirement health care benefits (see Note 8) ......... $58,725 $57,983 $57,959
Pensions .................................................. 13,620 9,761 9,337
Other ..................................................... 11,715 2,031 1,766
------- ------- -------
Total .................................................... $84,060 $69,775 $69,062
======= ======= =======
</TABLE>
7. EMPLOYEE BENEFIT PLANS
A majority of the employees ("participants") are covered under a 401(k)
defined contribution plan. The Company's annual contributions to this defined
contribution plan represent a 50% match on participant contributions. The
Company's match is limited to participant contributions up to 6% of participant
salaries. In addition, the Company is allowed to make discretionary
contributions. Costs charged against operations for this defined contribution
plan were approximately $3,681,000, $3,715,000 and $3,586,000 for the years
ended September 30, 1995, 1996 and 1997, respectively. Certain employees are
covered under defined benefit plans. Benefits under the plans are generally
based on fixed amounts for each year of service.
The components of net pension expense for domestic defined benefit plans
are as follows (in thousands):
<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED YEAR ENDED
SEPTEMBER 30, 1995 SEPTEMBER 30, 1996 SEPTEMBER 30, 1997
-------------------- -------------------- -------------------
<S> <C> <C> <C>
Service cost ....................... $ 952 $ 1,078 $ 1,111
Interest cost ...................... 3,230 3,545 3,720
Projected return on assets ......... (1,637) (2,874) (3,212)
Net amortization ................... 16 188 262
-------- -------- --------
Net pension expense ............... $ 2,561 $ 1,937 $ 1,881
======== ======== ========
</TABLE>
The status of defined benefit pension plans using data as of the most
recent actuarial valuation dates is as follows (in thousands):
<TABLE>
<CAPTION>
SEPTEMBER 30, SEPTEMBER 30,
1996 1997
--------------- --------------
<S> <C> <C>
Actuarial present value of benefit obligations
Vested benefits ........................................... $ 37,231 $ 41,616
Nonvested benefits ........................................ 10,741 11,094
Accumulated and projected benefit obligation ............... 47,972 52,710
Plan assets at fair value .................................. 31,023 39,243
Funded status ............................................. (16,949) (13,467)
Unrecognized prior service cost ............................ 2,484 1,529
Unrecognized net gain ...................................... (626) 473
Adjustment required to recognize minimum liability ......... (2,484) (860)
--------- ---------
Net pension liability ..................................... $ (17,575) $ (12,325)
========= =========
</TABLE>
As required by SFAS No. 87, "Employers' Accounting for Pensions," the
Company recognized additional pension liabilities of $2,484,000 and $860,000 as
of September 30, 1996 and 1997, respectively, and equal amounts as other
assets.
F-27
<PAGE>
Actuarial assumptions used in calculating the above amounts include a 10%
return on plan assets for the years ended September 30, 1996 and 1997, an 8.0%
discount rate on benefit obligations as of September 30, 1996, a 7.75% weighted
average discount rate for the first six months and 8.0% for the second six
months of the year ended September 30, 1996, and a 7.5% discount rate on
benefit obligations as of September 30, 1997, and a weighted average discount
rate of 7.5% for the year ended September 30, 1997.
Data with respect to the Lily Cups Inc., Canada defined benefit plan is
not material and is not included in the above data.
8. POSTRETIREMENT HEALTH CARE PLANS
The Company sponsors various defined benefit postretirement health care
plans that cover substantially all full-time employees. The plans, in most
cases, pay stated percentages of most medical expenses incurred by retirees,
after subtracting payments by Medicare or other providers and after a stated
deductible has been met. Participants generally become eligible after reaching
age 60 with one year of participation. The majority of the Company's plans are
contributory, with retiree contributions adjusted annually. The accounting for
the plans anticipates future cost-sharing changes to the written plan that are
consistent with the Company's announced policies. The Company does not fund the
plans.
The following table analyzes the plans' unfunded, accrued postretirement
health care cost liability as reflected on the balance sheet (in thousands):
<TABLE>
<CAPTION>
SEPTEMBER 30, SEPTEMBER 30,
1996 1997
--------------- --------------
<S> <C> <C>
Accumulated Postretirement Benefit Obligation:
Retirees .................................................. $25,596 $24,936
Other fully eligible participants ......................... 6,472 5,731
Other active participants ................................. 17,577 12,166
------- -------
49,645 42,833
Unrecognized prior service cost ........................... 1,536 4,861
Unrecognized actuarial gain ............................... 10,644 13,389
------- -------
Accrued postretirement health care cost liability ......... $61,825 $61,083
======= =======
</TABLE>
The components of net postretirement health care cost are as follows (in
thousands):
<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED YEAR ENDED
SEPTEMBER 30, 1995 SEPTEMBER 30, 1996 SEPTEMBER 30, 1997
-------------------- -------------------- -------------------
<S> <C> <C> <C>
Service cost benefits attributed to service
during the period ........................... $1,497 $1,533 $ 859
Interest cost on accumulated post retirement
benefit obligation .......................... 4,134 3,868 3,098
Net amortization and deferral ................ (118) (187) (1,326)
------ ------ --------
Net postretirement health care cost ......... $5,513 $5,214 $ 2,631
====== ====== ========
</TABLE>
The weighted average discount rate used in determining the accumulated
postretirement benefit obligation was 8.0%, and 7.5% at September 30, 1996 and
1997, respectively. Net postretirement health care cost was computed using a
weighted average discount rate of 8.5% for the year ended September 30, 1995,
7.75% for the year ended September 30, 1996, and 8.0% for the year ended
September 30, 1997. For measuring the expected postretirement benefit
obligation, a 10% annual rate of increase in the per capita claims cost was
assumed for 1997. This rate is assumed to decrease by 1.0% per year to an
ultimate rate of 5.0%. The health care cost trend rate assumption has a
significant effect on the amounts reported. To
F-28
<PAGE>
illustrate, increasing the assumed health care cost trend rates by one
percentage point in each year would increase the accumulated postretirement
benefit obligation as of September 30, 1996 and September 30, 1997 by
approximately $2.8 million and $2.2 million, respectively, and the aggregate of
the service and interest cost components of net postretirement health care cost
$0.4 million for each of the years ended September 30, 1995 and 1996, and by
approximately $0.2 million for the year ended September 30, 1997.
9. INCOME TAXES
The income tax benefit (provision) includes the following components (in
thousands):
<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED YEAR ENDED
SEPTEMBER 30, 1995 SEPTEMBER 30, 1996 SEPTEMBER 30, 1997
-------------------- -------------------- -------------------
<S> <C> <C> <C>
Current ...................
Federal .................. $ -- $ -- $ --
State .................... -- -- --
Foreign .................. (759) (1,164) --
-------- -------- -------
Total current .......... (759) (1,164) --
-------- -------- -------
Deferred ..................
Federal .................. (2,829) (2,315) 26,165
State .................... (315) (330) 3,738
Foreign .................. -- -- 584
-------- -------- -------
Total deferred ......... (3,144) (2,645) 30,487
-------- -------- -------
$ (3,903) $ (3,809) $30,487
======== ======== =======
</TABLE>
The effective tax rate varied from the U.S. Federal tax rate of 35% for
the years ended September 30, 1995, 1996 and 1997 as a result of the following:
<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED YEAR ENDED
SEPTEMBER 30, 1995 SEPTEMBER 30, 1996 SEPTEMBER 30, 1997
-------------------- -------------------- -------------------
<S> <C> <C> <C>
U.S. Federal tax rate ..................... 35% 35% 35%
State income taxes, net of U.S. Federal tax
impact ................................... 4 4 4
Other, net ................................ 1 1 1
-- -- --
Effective tax rate ....................... 40% 40% 40%
== == ==
</TABLE>
At September 30, 1997, the Company had deferred tax liabilities of $167
million, of which $32 million are current in nature, and deferred tax assets of
$182 million, of which $35 million are current in nature. Deferred tax assets
and liabilities have been netted as a current asset and a non-current liability
in the accompanying Consolidated Balance Sheets. The principal temporary
differences included above are depreciation, a $75 million liability, LIFO
inventory, a $22 million liability, net operating loss carryforwards, a $67
million asset, postretirement health and pension benefits, a $28 million asset,
and $17 million of other net miscellaneous asset items.
The Company has net operating loss carryforwards for income tax purposes
of approximately $170 million, of which $5 million expire in 2004, $51 million
expire in 2005, $25 million expire in 2006, $13 million expire in 2007, $28
million expire in 2008, and $48 million expire in 2012.
F-29
<PAGE>
10. LONG-TERM OBLIGATIONS
Long-term debt, including amounts payable within one year, is as follows
(in thousands):
<TABLE>
<CAPTION>
SEPTEMBER 30, SEPTEMBER 30, DECEMBER 31,
1996 1997 1997
--------------- --------------- -------------
<S> <C> <C> <C>
(i) Sweetheart Cup Company Inc.
Senior Secured Notes, at 9.625%, interest payable
semiannually on March 1 and September 1 of each
year, commencing March 1, 1994, due on
September 1, 2000, and are subject to redemption
on or after September 1, 1997 at the option of the
Company, in whole or in part, at the redemption
prices set forth below (expressed as percentages of
the principal amount), plus accrued interest to the
redemption date, for redemptions during the 12
month period beginning September 1, of the
following years: 1997--103.208%, 1998--101.604%,
and 1999--100.000% ................................. $190,000 $190,000 $190,000
Senior Subordinated Notes, at 10.50%, interest
payable semiannually on March 1 and September 1
of each year, commencing March 1, 1994, due on
September 1, 2003, and are subject to redemption
on or after September 1, 1998 at the option of the
Company, in whole or in part, at the redemption
prices set forth below (expressed as percentages of
the principal amount), plus accrued interest to the
redemption date, for redemption during the 12
month period beginning September 1, of the
following years: 1998--103.938%, 1999--102.625%,
2000--101.313%, and 2001 and
thereafter--100.000% ............................... 110,000 110,000 110,000
Revolving Loan at Bankers Trust's prime rate plus
1.50%, or Bankers Trust's Eurodollar rate plus
2.50%, subject to certain limitations as well as
downward adjustment for any interest period
beginning after October 1, 1994 upon the
satisfaction of certain financial criteria, due on
August 30, 1998 (interest rates--7.91% and 10.0%
at September 30, 1996 and 1997) .................... 15,800 60,000 --
Revolving Credit Facility with Bank of America
Business Credit, see Note 15. ...................... -- -- 97,258
(ii) Sweetheart Receivables Corporation
Sweetheart Receivables Corporation Series 1994-1
A-V Trade Receivables-Backed Notes, a private
placement, at Telerate one month LIBOR plus
.40%. Interest payable monthly commencing on
October 17, 1994 through the Scheduled Pay-Out
Period starting July 31, 1999 (interest rates--5.90%
and 6.06% at September 30, 1996 and 1997) .......... 60,000 60,000 --
(iii) Lily Cups Inc.
Term Facility, at Bank of Nova Scotia's prime rate
plus 1.25% payable quarterly, due in equal annual
repayments commencing October 31, 1994 and
ending October 31, 1998 (interest rates--7.0% and
6.0% at September 30, 1996 and 1997) ............... 4,210 2,737 1,321
</TABLE>
F-30
<PAGE>
<TABLE>
<CAPTION>
SEPTEMBER 30, SEPTEMBER 30, DECEMBER 31,
1996 1997 1997
-------------- --------------- --------------
<S> <C> <C> <C>
Operating Facility, at Bank of Nova Scotia's prime
rate plus 1.25%, repaid and reborrowed until
October 31, 1998, subject to satisfaction of certain
conditions on the date of any such borrowing
(interest rates--7.0% and 6.0% at September 30,
1996 and 1997) ..................................... 3,404 5,431 4,195
----- ----- -----
383,314 428,168 402,774
Less: Current portion of long-term debt ............. (1,435) (1,369) (5,516)
------- ------- -------
$381,879 $426,799 $397,258
======== ======== ========
</TABLE>
The aggregate annual maturities of long-term debt at September 30, 1997
are as follows (in thousands):
<TABLE>
<S> <C>
1998 ........................ $ 1,369
1999 ........................ 66,799
2000 ........................ 250,000
2001 ........................ --
2002 ........................ --
2003 and thereafter ......... 110,000
--------
$428,168
========
</TABLE>
Long-term bonds consist of four industrial development bonds and a loan
from the State of Maryland with interest rates ranging from 6.0% to 6.75%, due
in varying amounts through 2006. The aggregate annual maturities of long-term
bonds at September 30, 1997 are as follows (in thousands):
<TABLE>
<S> <C>
1998 ........................ $ --
1999 ........................ 2,500
2000 ........................ --
2001 ........................ --
2002 ........................ --
2003 and thereafter ......... 1,200
------
$3,700
======
</TABLE>
The maximum month-end balances outstanding, average amounts outstanding,
and the weighted average interest rates on the domestic Revolving Loan Facility
and Canadian Operating Facility during the years ended September 30 were as
follows (in thousands, except for interest rates):
<TABLE>
<CAPTION>
DOMESTIC REVOLVING LOAN CANADIAN OPERATING
FACILITY FACILITY
------------------------- -----------------------
1996 1997 1996 1997
------------ ------------ ----------- -----------
<S> <C> <C> <C> <C>
Maximum month-end balances outstanding ..... $ 23,000 $ 60,000 $ 4,321 $ 6,123
======== ======== ======= =======
Average amounts outstanding ................ $ 8,660 $ 48,194 $ 3,564 $ 4,843
======== ======== ======= =======
Weighted average interest rates ............ 8.63% 8.52% 8.16% 6.10%
</TABLE>
The 1993 Credit Agreement and the Sweetheart Receivables Corporation
Series 1994-1 A-V Trade Receivables-Backed Notes were refinanced subsequent to
September 30, 1997. See Note 15 for details.
F-31
<PAGE>
1993 Credit Agreement
On August 30, 1993, the Company entered into the 1993 Credit Agreement,
which provided for a $40 million Term Loan and a $75 million Revolving Loan
Facility. The Company prepaid the $40 million Term Loan on September 20, 1994
in connection with the issuance of the Sweetheart Receivables Corporation
1994-1 A-V Trade Receivables-Backed Notes and it may not be reborrowed.
Additionally, certain terms and conditions of the Credit Agreement were
amended. The Revolving Loan Facility is limited to 50% of eligible inventory of
Sweetheart Cup Company Inc. (up to a maximum of $150 million of eligible
inventory). In addition, the combined borrowings outstanding under the Revolver
plus the Sweetheart Receivables Corporation 1994-1 A-V Trade Receivables-Backed
Notes less the aggregate amount of cash on deposit in certain Sweetheart
Receivables Corporation accounts may not exceed $115 million in aggregate. The
Revolving Loan borrowings were $15.8 million at September 30, 1996 and $60.0
million at September 30, 1997.
The borrowings under the 1993 Credit Agreement bear interest, at
Sweetheart Cup Company Inc.'s option, at Bankers Trust Company's prime rate
plus 1.50% or, subject to certain limitations, at Bankers Trust Company's
Eurodollar rate plus 2.50%. Interest rates may be reduced by 0.25% as of
October 1, 1994, and on the first day of any fiscal quarter thereafter,
depending upon Sweetheart Cup Company Inc.'s ratios of cash flow coverage to
interest expense. Up to $15 million of the Revolving Loan Facility may be
utilized to issue Letters of Credit. Approximately $9.7 million in Letters of
Credit were issued on behalf of Sweetheart Cup Company Inc. as of September 30,
1996 and 1997. The 1993 Credit Agreement also provides for the payment of a
commitment fee of 0.5% per annum on the daily average unused amount of the
commitments under the Revolving Loan Facility (approximately $299,600 and
$104,600 for the years ended September 30, 1996 and 1997, respectively, as well
as a 2.75% per annum fee on outstanding Letters of Credit (approximately
$272,400 and $254,000 for the years ended September 30, 1996 and 1997,
respectively).
Loans made pursuant to the Revolving Loan Facility can be borrowed,
repaid, and reborrowed from time to time until final maturity on August 30,
1998. The 1993 Credit Agreement provides for partial mandatory prepayments upon
the issuance of equity by Sweetheart Holdings Inc. or any of its subsidiaries,
and full repayment upon any change of control (as defined in the 1993 Credit
Agreement). The Revolving Loan Facility also requires a $20 million clear-down
period between December 1 and January 31 of each year, commencing December 1,
1994, whereby the average unused revolver during any consecutive 31-day period
within the clear-down period must average $20 million; failure to do so results
in an immediate reduction of the Revolving Loan Facility by $20 million
effective immediately succeeding February 1.
The indebtedness of Sweetheart Cup Company Inc. under the 1993 Credit
Agreement is guaranteed by Sweetheart Holdings Inc. and secured by a first
priority perfected security interest in inventory, spare parts and all proceeds
of the foregoing of Sweetheart Cup Company Inc., a first priority security
interest, shared with the holders of the Senior Secured Notes, in Shared
Collateral (as defined in the 1993 Credit Agreement to include primarily all
capital stock owned by Sweetheart Holdings Inc. and Sweetheart Cup Company Inc.
and of each of their respective present and future direct subsidiaries, all
intercompany indebtedness payable to Sweetheart Holdings Inc. or Sweetheart Cup
Company Inc. by Sweetheart Holdings Inc., Sweetheart Cup Company Inc. or their
respective present and future subsidiaries, and any proceeds from business
interruption insurance), and a second priority perfected security interest in
the Senior Secured Note collateral as described below.
Senior Secured Notes and Senior Subordinated Notes
Sweetheart Cup Company Inc. is the obligor with respect to $190 million of
Senior Secured Notes and $110 million of Senior Subordinated Notes. The Senior
Secured Notes were issued pursuant to an Indenture among Sweetheart Cup Company
Inc., Sweetheart Holdings Inc., as Guarantor, and United States Trust Company
of New York, as Trustee (the "Senior Secured Indenture"). The Senior Secured
Notes bear interest at 9.625% per annum, payable semi-annually in arrears on
March 1 and September 1 each year to holders of record on February 15 or August
15 next preceding the interest payment date. The Senior Secured Notes mature on
September 1, 2000 and were issued in denominations of $1,000 and integral
multiples thereof.
F-32
<PAGE>
The Senior Secured Notes are secured by a first priority lien on the
Senior Secured Note collateral (which includes all material properties and
equipment and substantially all of the other assets of Sweetheart Cup Company
Inc., but excludes collateral under the 1993 Credit Agreement, the capital
stock of its subsidiaries, and intercompany indebtedness) and by a second lien
on collateral under the 1993 Credit Agreement (primarily accounts receivable,
inventory, and proceeds thereof as described above). The Senior Secured Notes
and borrowings under the 1993 Credit Agreement are also jointly secured by
Shared Collateral (comprised of pledges of the capital stock of Lily Canada,
the capital stock of any direct subsidiaries formed or acquired in the future,
future intercompany notes, and the proceeds of business interruption
insurance).
The Senior Secured Indenture contains various covenants which prohibit, or
limit, among other things, asset sales, change of control, dividend payments,
equity repurchases or redemptions, the incurrence of additional indebtedness,
the issuance of disqualified stock, certain transactions with affiliates, the
creation of additional liens, and certain other business activities. The Senior
Secured Notes may be redeemed at the dates and prices indicated in the table
above.
The Senior Subordinated Notes were issued pursuant to an Indenture among
Sweetheart Cup Company Inc., Sweetheart Holdings Inc., as Guarantor, and U.S.
Trust Company of Texas, N.A., as Trustee (the "Senior Subordinated Indenture").
The Senior Subordinated Notes bear interest at 10.50% per annum, payable
semi-annually in arrears on March 1 and September 1 each year to holders of
record on the February 15 or August 15 next preceding the interest payment
date. The Senior Subordinated Notes mature on September 1, 2003 and were issued
in denominations of $1,000 and integral multiples thereof.
The Senior Subordinated Notes are subordinate in right of payment to the
prior payment in full of all Senior Secured Notes, all borrowings under the
1993 Credit Agreement, and all other indebtedness not otherwise prohibited. As
a result of the subordination provisions, and in the event of an insolvency or
liquidation proceeding, holders of the Senior Subordinated Notes may recover a
lesser percentage of their investment than other creditors of the Company.
The Senior Subordinated Indenture contains various covenants which
prohibit, or limit, among other things, asset sales, change of control,
dividend payments, equity repurchases or redemptions, the incurrence of
additional indebtedness, the issuance of disqualified stock, certain
transactions with affiliates, the creation of additional liens, and certain
other business activities. The Senior Subordinated Notes may be redeemed at the
dates and prices indicated in the table above.
Sweetheart Receivables Corporation Series 1994-1 A-V Trade Receivables-Backed
Notes
Sweetheart Cup Company Inc. securitizes its receivables through its wholly
owned limited purpose, bankruptcy-remote finance subsidiary, Sweetheart
Receivables Corporation ("SRC"). This structure is intended to segregate
receivables from Sweetheart Cup Company Inc.'s other assets or liabilities and
achieve a lower cost of funds based on the credit quality of the receivables.
On September 20, 1994, SRC issued and sold to Bankers Trust as Placement
Agent, $60 million of Series 1994-1 A-V Trade Receivables-Backed Notes (the
"Notes"), under an indenture and security agreement. The proceeds of the notes
were used to purchase substantially all of the receivables of Sweetheart Cup
Company Inc. on the closing date. SRC's share of the proceeds of collections on
those receivables will be used to purchase newly generated receivables from
Sweetheart Cup Company Inc. on an ongoing basis.
SRC's purchase of receivables from Sweetheart Cup Company Inc. is intended
to be a "true sale" for bankruptcy law purposes and without recourse to
Sweetheart Cup Company Inc., except that Sweetheart Cup Company Inc. will be
required to make payment to SRC for certain dilution of the receivables and
will remain liable for making payments in connection of certain customary
representations and covenants.
SRC grants the Trustee, Manufacturer's and Traders Trust, a first
perfected security interest in the receivables and certain other related
assets, subject to certain limited exceptions. The holders of the Notes have no
recourse to the assets of SRC in respect of obligations under the Notes.
Noteholders are
F-33
<PAGE>
protected by over-collateralization of receivables on the Notes requiring
certain amounts to be set aside in an equalization account and four months of
interest set aside in the carrying cost account by the Trustee. These amounts
may be invested by SRC in highly rated liquid investments such as A-1+
commercial paper and AAA moneymarket funds as rated by Standard & Poors
Corporation. These amounts are shown on the consolidated balance sheet as
restricted cash. Restricted cash totaled $29.0 million and $28.9 million at
September 30, 1997 and 1996, respectively. Sweetheart Cup Company Inc. retains
a promissory note which pays interest monthly at prime rate, subject to certain
limitations, on these and other balances due from SRC.
Sweetheart Cup Company Inc. acts as servicer of the receivables sold. The
interest rate is based on Telerate's one month LIBOR plus .40% and is paid
monthly. The Notes have a first scheduled principal payment date of July 31,
1999 and have a stated maturity date of September 30, 2000. There are certain
early voluntary and involuntary liquidation events. Noteholders are entitled to
certain breakage payments if the Notes are prepaid in part or whole prior to
July 31, 1998. The breakage payment is equal to the present value of the .40%
spread for the period from the prepayment date until the first scheduled
principal payment date, multiplied by the amount of principal prepayment.
The SRC promissory note and equity held by Sweetheart Cup Company Inc.
constitute Shared Collateral which is a first priority interest shared under
the Credit Agreement and Senior Secured Notes.
Canadian Credit Agreement
On December 20, 1989, Lily Cups Inc. entered into a Term and Revolving
Credit Facilities Agreement (the "Canadian Credit Agreement"), consisting of
CDN $14.0 million of Term Advances and CDN $6.0 million of Operating Advances.
Effective August 30, 1993, the Canadian Credit Agreement was renegotiated and
extended to provide for equal annual repayments on the remaining CDN $9.5
million Term Facility of CDN $1.9 million beginning October 31, 1994 and ending
October 31, 1998 and to provide for an additional CDN $1.0 million of Operating
Advances in addition to the CDN $6.0 million Operating Facility previously
available. The renegotiated and extended Operating Facility provides for a
final repayment on October 31, 1998. Lily Cups Inc. has pledged substantially
all its assets as collateral for the Canadian Credit Agreement. The Company is
charged a 0.5% fee with respect to any unused balance available under the
Canadian Credit Agreement as renegotiated and extended. At September 30, 1996
and 1997, the available capacity under the Canadian Credit Agreement was CDN
$2.4 million and CDN $1.4 million, respectively (U.S. $1.8 million and U.S.
$1.0 million, respectively).
11. DISCLOSURES ABOUT FAIR VALUE OF FINANCIAL INSTRUMENTS
The following methods and assumptions were used to estimate the fair value
of each class of financial instruments held by the Company:
CURRENT ASSETS AND CURRENT LIABILITIES -- The carrying amount approximates
fair value because of the short maturity of those instruments.
LONG-TERM BONDS -- The carrying amount approximates fair value based on
the nature of the instrument.
LONG-TERM DEBT -- The fair value of the Company's Senior Secured Notes and
the Senior Subordinated Notes are based on the quoted market prices at the end
of the fiscal years. The other instruments have variable interest rates that
fluctuate along with current market conditions.
F-34
<PAGE>
The estimated fair values of the Company's financial instruments at
September 30 are as follows (in thousands):
<TABLE>
<CAPTION>
1996 1997
----------------------- -----------------------
CARRYING FAIR CARRYING FAIR
AMOUNT VALUE AMOUNT VALUE
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Cash and cash equivalents ................. $ 4,371 $ 4,371 $ 2,650 $ 2,650
Other current assets ...................... 311,761 311,761 308,763 308,763
Current portion of long-term debt and bonds 1,535 1,535 1,369 1,369
Other current liabilities ................. 152,218 152,218 163,276 163,276
Long-term bonds ........................... 3,700 3,700 3,700 3,700
Long-term debt ............................ 381,879 388,792 426,799 428,271
</TABLE>
The fair value of the Company's long-term debt is estimated to be
$6,913,000 higher than the carrying value at September 30, 1996 and $1,472,000
higher than the carrying value at September 30, 1997. The differences are
primarily the result of fluctuations in the interest rate market since the
issuance of the Company's Senior Secured Notes and Senior Subordinated Notes.
12. LEASE COMMITMENTS
The Company leases certain transportation vehicles, warehouse and office
facilities, and machinery and equipment under both cancelable and
non-cancelable operating leases, most of which expire within ten years and may
be renewed by the Company. Rent expense under such arrangements totaled
$12,417,000, $15,636,000 and $16,756,000 for the years ended September 30,
1995, 1996 and 1997, respectively. Future minimum rental commitments under
non-cancelable operating leases in effect at September 30, 1997 are as follows
(in thousand of dollars):
<TABLE>
<S> <C>
1998 ........................ $12,116
1999 ........................ 11,207
2000 ........................ 9,083
2001 ........................ 7,533
2002 ........................ 6,767
2003 and thereafter ......... 11,026
-------
$57,732
=======
</TABLE>
Data with respect to Lily Cups Inc.'s rental commitments for the years
1998 and thereafter is not material and is not included in the above table.
13. SHAREHOLDERS' EQUITY
Sweetheart Holdings Inc. has a single-class capital structure consisting
of 3,000,000 shares of common stock, par value $.01 per share. As of August 30,
1993, 1,040,000 shares of single-class stock were issued to AIP, First Plaza
Group Trust (Mellon Bank, N.A., as Trustee) and AT&T Master Pension Trust
(Leeway and Company as nominee) for approximately $100.5 million. All
outstanding shares of single-class common stock are deemed fully paid and
nonassessable. The single-class common stock is neither redeemable nor
convertible, and the holders thereof have no preemptive or other subscription
rights to purchase any securities of Sweetheart Holdings Inc. There currently
is no public market for this common stock. During the third quarter of fiscal
year 1994, the Company issued 6,000 authorized shares of common stock for $100
per share. The Company received approximately $100,000 in cash and a $500,000
promissory note in consideration for the shares. The promissory note is
reflected as a reduction to shareholders' equity in the consolidated balance
sheet. There were 1,046,000 shares of single-class common stock outstanding as
of September 30, 1996 and 1997.
F-35
<PAGE>
Subject to Delaware law and limitations in certain debt instruments
(Senior Secured Notes, Senior Subordinated Notes, and borrowings under the 1993
Credit Agreement), common shareholders are entitled to receive such dividends
as may be declared by Sweetheart Holdings Inc.'s Board of Directors out of
funds legally available thereof. In the event of a liquidation, dissolution or
winding up of Sweetheart Holdings, Inc., common shareholders are entitled to
share ratably in all assets remaining after payment or provision for payment of
debts or other liabilities of Sweetheart Holdings Inc. Each outstanding common
share is entitled to one vote on any matter submitted to a vote of
stockholders. This single-class common stock has no cumulative voting rights.
The Board of Directors of Sweetheart Holdings Inc. approved the Stock
Option and Purchase Plan (the "Plan") during fiscal year 1994 which provides
for the granting of nonqualified and incentive stock options as defined by the
Internal Revenue Code. The Plan is administered by the Compensation Committee
(the "Committee") of the Board of Directors. The Committee has the authority to
select participants, grant stock purchase options, and make all necessary
determinations for the administration of the Plan. The exercise price per share
of common stock under each option is fixed by the Committee at the time of the
grant of the option and is equal to at least 100% of the fair market value of a
share of common stock on the date of grant, but not less than $100 per share.
The Committee determines the term of each option which may not exceed ten years
from the date of grant of the option. Options are exercisable in equal
increments over fiscal years 1994, 1995, 1996, and 1997, depending on certain
operating results of the Company. Any options not exercisable within the above
years are exercisable on the ninth anniversary of the grant of the option.
Under the provisions of the Plan, the Committee may also grant participants the
short-term option to purchase shares of common stock at a price per share equal
to not less than the fair market value of the common stock on the date of
grant. Short-term options expire 30 days after the date of grant to the extent
not exercised.
The Plan provides for the issuance of up to 103,000 shares of common stock
in connection with the stock options granted under the Plan. Options that are
canceled or expire unexercised are available for future grants. All options are
granted via approval of the Board of Directors. The Company granted 10,400 and
30,135 options during 1996 and 1997, respectively. Options canceled totaled
6,140 and 11,035 during 1996 and 1997, respectively. At September 30, 1997,
31,827 shares were available for the granting of additional options. As the
Company's stock is privately held, the value of the common stock is assumed to
be $100 per share at all times during the year. Although no options were
exercised during fiscal year 1996, and 13,818 shares were exercisable at
September 30, 1997.
14. NON-RECURRING CHARGES
The Company incurred non-recurring charges in 1997 attributable to plant
restructuring and an impairment of certain long-lived assets.
In the fourth quarter of fiscal 1997, the Company adopted a restructuring
plan designed to improve efficiency and enhance its competitiveness.
Restructuring charges consist of cash charges primarily related to severance
costs, as well as costs to close and exit the Riverside facility, and cease
paper operations at the Springfield facility, substantially all of which will
be paid in fiscal 1998. The Company anticipates substantial completion of this
restructuring in fiscal 1998.
As a result of market conditions experienced by the Company and the
decision to close facilities as described above, the Company reviewed the
carrying value of its long-lived assets. Certain assets were identified which
would be disposed of, abandoned or become obsolete prior to the end of their
accounting useful lives, and were written-down accordingly, resulting in a
pre-tax non-cash charge totaling $24.6 million.
The loss on asset disposal and impairment had no impact on the Company's
1997 cash flow or its ability to generate cash flow in the future. As a result
of this charge, depreciation expense related to these assets will decrease in
future periods.
F-36
<PAGE>
15. SUBSEQUENT EVENTS
1997 Amended and Restated Credit Agreement
On October 24, 1997, the Company entered into the 1997 Amended and
Restated Credit Agreement, which provides for a $135 million Revolving Credit
Facility with Bank of America Business Credit, as Agent and various other
Financial Institutions. At closing on October 24, 1997, Bank of America
Business Credit acquired the outstanding amount of loans from Bankers Trust
Company, made under the 1993 Credit Agreement, referred to in Note 10. The 1993
Credit Agreement was Amended and Restated to increase the facility size to $135
million, and include receivables as collateral, which had previously been sold
to Sweetheart Receivables Corporation as described in Note 10. The Company then
reacquired the receivables at SRC with the proceeds of the 1997 Amended and
Restated Credit Agreement, enabling SRC to repay the Sweetheart Receivables
Corporation 1994-1 A-V Trade Receivables-Backed Notes with those proceeds and
existing restricted cash. Additionally, certain other terms and conditions of
the Credit Agreement were amended.
Availability under the Amended and Restated Credit Agreement is limited to
60% of eligible inventory constituting raw material and work-in-process, and
65% of eligible inventory constituting finished goods, and 40% of eligible
inventory constituting in-transit inventory of Sweetheart Cup Company Inc. (up
to a maximum of $100 million of eligible inventory). Additionally, eligible
accounts from customers, subject to certain restrictions, are allowed to 85%.
These calculations are subject to an overall maximum 80% of account's not more
than 60 days past due, plus 50% of book value of inventory.
The borrowings under the 1997 Amended and Restated Credit Agreement bear
interest, at Sweetheart Cup Company Inc.'s option, at Bank of America's prime
rate plus 1.00% or, subject to certain limitations, at Bank of America's
Eurodollar rate plus 2.25%. Additionally, the Company must pay certain other
annual and on-going expenses to Bank of America, as Agent. Up to $15 million of
the Facility may be utilized to issue Letters of Credit. The letter of Credit
Fee is 1.75% per annum, plus out of pocket fees and expense. The 1997 Amended
and Restated Credit Agreement also provides for the payment of a commitment fee
of 0.5% per annum on the daily average unused amount of the commitments under
the Facility.
Loans made pursuant to the Revolving Loan Facility can be borrowed,
repaid, and reborrowed from time to time until final maturity on August 1,
2000. The 1997 Amended and Restated Credit Agreement provides for partial
mandatory prepayments upon the issuance of equity by Sweetheart Holdings Inc.
or any of its subsidiaries, and full repayment upon any change of control (as
defined in the Agreement).
The indebtedness of Sweetheart Cup Company Inc. under the 1997 Amended and
Restated Credit Agreement is guaranteed by Sweetheart Holdings Inc. and secured
by a first priority perfected security interest in inventory, spare parts,
accounts receivable and all proceeds of the foregoing of Sweetheart Cup Company
Inc., a first priority security interest, shared with the holders of the Senior
Secured Notes, in Shared Collateral (as defined in the 1993 Credit Agreement to
include primarily all capital stock owned by Sweetheart Holdings Inc. and
Sweetheart Cup Company Inc. and of each of their respective present and future
direct subsidiaries, all intercompany indebtedness payable to Sweetheart
Holdings Inc. or Sweetheart Cup Company Inc. by Sweetheart Holdings Inc.,
Sweetheart Cup Company Inc. or their respective present and future
subsidiaries, and any proceeds from business interruption insurance), and a
second priority perfected security interest in the Senior Secured Note
collateral as described below.
The 1997 Amended and Restated Credit Agreement contains various covenants
which limit, or restrict, among other things, indebtedness, dividends, leases,
capital expenditures, the use of proceeds from asset sales and certain other
business activities. Additionally, the Company must maintain on a consolidated
basis, certain specified ratios at specified times, including, without
limitation, maintenance of minimum fixed charge coverage ratio. The Company is
currently in compliance with all covenants under the 1997 Amended and Restated
Credit Agreement.
Bakery Sale
On November 30, 1997, the Company entered into an agreement to sell assets
of its bakery operation to Ace Baking Company Limited Partnership. Assets sold
included property, plant, and equipment, which
F-37
<PAGE>
have been reclassified to assets held for sale, and inventories. Consideration
of $22.3 million was received, including $20.3 million of cash, and a $2
million non-interest bearing note. A gain of $4.5 million will be recognized in
fiscal year 1998. Bakery operations represented 3% of net sales in fiscal year
1997.
16. RELATED-PARTY TRANSACTIONS
AIP, which is Sweetheart Holdings Inc.'s largest stockholder and is a
private investment partnership which makes equity investments, principally in
industrial and manufacturing companies in the United States, is managed by
AIPM, an affiliate of AIP. AIPM receives an annual fee of approximately $1.85
million for providing general management, financial and other corporate
advisory services, and is reimbursed for certain out-of-pocket expenses. The
fees are paid to AIPM pursuant to a management services agreement among AIPM,
Sweetheart Holdings Inc. and Sweetheart Cup Company Inc.
In addition, for the year ended September 30, 1996, the Company reimbursed
AIPM for $950,000 of expenses incurred in connection with an investigation of
the Company's strategic alternatives.
17. BUSINESS SEGMENT AND MAJOR CUSTOMERS
The Company operates in a single industry which is the manufacture and
distribution of paper and plastic related products in foodservice and food
packaging disposables. Sales to a major customer accounted for 13.0%, 13.6% and
13.7% for the years ended September 30, 1995, 1996 and 1997, respectively.
18. CONTINGENCIES
A lawsuit entitled Aldridge v. Lily-Tulip, Inc. Salary Retirement Plan
Benefits Committee and Fort Howard Cup Corporation was initially filed in state
court in Georgia in April 1987, and is currently pending against the Company in
federal court. The remaining issue involved in the case is a claim that the
Company wrongfully terminated the Lily-Tulip , Inc. Salary Retirement Plan (the
"Plan") in violation of the Employee Retirement Income Security Act of 1974, as
amended ("ERISA"). In December 1994, the United States Circuit Court of Appeals
for the Eleventh Circuit (the "Circuit Court") ruled that the Plan was
terminated on December 31, 1986. Following that decision, the plaintiffs sought
a rehearing which was denied, and subsequently filed a petition for a writ of
certiorari with the United States Supreme Court, which was also denied.
Following remand, in March 1996 the United States District Court for the
Southern District of Georgia entered a judgment in favor of the Company.
Following denial of a motion for reconsideration, the plaintiffs in April 1997
filed an appeal with the Circuit Court.
Management believes that the Company will ultimately prevail on the
remaining issues in the Aldridge litigation. Due to the complexity involved in
connection with the claims asserted in this case, the Company cannot determine
at present with any certainty the amount of damages it would be required to pay
should the plaintiffs prevail; accordingly, there can be no assurance that such
amount would not have a material adverse effect on the Company's financial
position or results of operations.
The Company is subject to a variety of environmental and pollution control
laws and regulations in all jurisdictions in which it operates. The Company is
also involved in various other claims and lawsuits incidental to its business.
In the opinion of management, the ultimate liabilities, if any, after
considering the reserves established relating to these matters, will not
materially affect the Company's financial position or results of operations.
F-38
<PAGE>
19. SUMMARIZED FINANCIAL INFORMATION FOR SWEETHEART CUP COMPANY INC.
The following tables provide summarized financial information for
Sweetheart Cup Company Inc. and subsidiaries (in thousands):
<TABLE>
<CAPTION>
SEPTEMBER 30, SEPTEMBER 30,
1996 1997
--------------- --------------
<S> <C> <C>
Current assets ................. $572,259 $562,731
Noncurrent assets .............. 174,006 176,382
Current liabilities ............ 127,728 114,415
Noncurrent liabilities ......... 519,635 563,065
</TABLE>
Prior year amounts below have been reclassified as noted in Note 1, item
(j):
<TABLE>
<CAPTION>
FOR THE FOR THE FOR THE
YEAR ENDED YEAR ENDED YEAR ENDED
SEPTEMBER 30, 1995 SEPTEMBER 30, 1996 SEPTEMBER 30, 1997
-------------------- -------------------- -------------------
<S> <C> <C> <C>
Net sales .............................. $986,618 $959,819 $ 886,017
Gross income ........................... 166,101 193,191 134,401
Income (loss) from continuing operations
before extraordinary loss ............. 766 20,213 (36,143)
Net income (loss) ...................... 766 20,213 (37,083)
</TABLE>
20. SUBSEQUENT EVENT
On March 12, 1998, the stockholders of the Company consummated an
agreement with SF Holdings Group, Inc. ("Buyer") and Creative Expressions
Group, Inc., an affiilate of Buyer. Pursuant to the agreement, Buyer acquired
from the Company's stockholders 48% of the Company's outstanding common stock
and all of a new class of non-convertible, non-voting common stock, as a result
of which Buyer holds 90% of the total number of outstanding shares of both
classes of the Company's common stock. Upon consummation of the transaction,
the Company's existing stockholders nominated three of the Company's five
directors and Buyer nominated two directors. Significant actions by the
Company's Board of Directors will require the vote of four directors.
Additionally, pursuant to the agreement, The Fonda Group, Inc., an affiliate of
Buyer, manages the day-to-day operations of the Company. The Company incurred
$2.6 million of severance expenses as a result of the termination of certain
officers of the Company pursuant to certain executive separation agreements.
The Company also incurred financial advisory and legal expenses of
approximately $4.4 million in connection with the transaction.
F-39
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATIONS OTHER THAN THOSE CONTAINED IN THIS PROSPECTUS, AND, IF GIVEN OR
MADE, SUCH INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING
BEEN AUTHORIZED. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL OR THE
SOLICITATION OF AN OFFER TO BUY ANY SECURITIES OTHER THAN THE SECURITIES TO
WHICH IT RELATES OR ANY OFFER TO SELL OR THE SOLICITATION OF AN OFFER TO BUY
SUCH SECURITIES IN ANY CIRCUMSTANCES IN WHICH SUCH OFFER OR SOLICITATION IS
UNLAWFUL. NEITHER THE DELIVERY OF THIS PROSPECTUS NOR ANY SALE MADE HEREUNDER
SHALL, UNDER ANY CIRCUMSTANCES, CREATE ANY IMPLICATION THAT THERE HAS BEEN NO
CHANGE IN THE AFFAIRS OF THE COMPANY SINCE THE DATE HEREOF OR THAT ANY
INFORMATION CONTAINED HEREIN IS CORRECT AS OF ANY TIME SUBSEQUENT TO ITS DATE.
-----------------------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
---------
<S> <C>
Available Information ........................ 2
Prospectus Summary ........................... 4
Risk Factors ................................. 20
The Sweetheart Investment .................... 27
Use of Proceeds .............................. 29
The Exchange Offer ........................... 30
Capitalization ............................... 38
Unaudited Pro Forma Financial
Information ............................... 39
Unaudited Pro Forma Combined
Condensed Balance Sheet ................... 40
Unaudited Pro Forma Combined
Condensed Statements of Income ............ 43
Selected Historical Financial Data of
Fonda ..................................... 48
Selected Historical Consolidated Financial
Data of Sweetheart ........................ 50
Management's Discussion and Analysis
of Financial Condition and Results
of Operations ............................. 52
Business ..................................... 63
Management ................................... 72
Principal Stockholders ....................... 74
Certain Relationships and Related
Transactions .............................. 75
Description of New Notes ..................... 76
Description of Certain Indebtedness .......... 102
Description of Capital Stock ................. 106
Certain Federal Income Tax
Consequences .............................. 110
Plan of Distribution ......................... 113
Legal Matters ................................ 113
Experts ...................................... 114
Unaudited Pro Forma Condensed
Financial Data of Sweetheart and
Fonda ..................................... P-1
Index to Financial Statements ................ F-1
</TABLE>
SF HOLDINGS GROUP, INC.
OFFER TO EXCHANGE ITS
12 3/4% SERIES B SENIOR
SECURED DISCOUNT NOTES DUE 2008
WHICH HAVE BEEN REGISTERED
UNDER THE SECURITIES ACT
FOR ANY AND ALL OF ITS
OUTSTANDING
12 3/4% SERIES A SENIOR
SECURED DISCOUNT NOTES DUE 2008
--------------------------------
PROSPECTUS
--------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 20. INDEMNIFICATION OF DIRECTORS AND OFFICERS
The Certificate of Incorporation of the Company provides that the Company
shall, to the fullest extent permitted by the laws of the State of Delaware,
indemnify any and all persons whom it shall have power to indemnify under such
laws to the extent that such indemnification is permitted under such laws, as
such laws may from time to time be in effect. Section 145 of the Delaware
General Corporation Law ("DGCL") permits the Company to indemnify and hold
harmless any director, officer, employee or agent of the Company and any person
serving at the request of the Company as a director, officer, employee or agent
of another corporation, partnership, joint venture, trust or other enterprise
(including an employee benefit plan) against expenses (including attorneys'
fees), judgments, fines (including excise taxes assessed on a person with
respect to an employee benefit plan), and amounts paid in settlement that may
be imposed upon or incurred by him or her in connection with, or as a result
of, any proceeding, whether civil, criminal, administrative or investigative
(other than an action by or in the right of the Company), in which he or she
may become involved, as a party or otherwise, by reason of the fact that he or
she is or was such a director, officer, employee or agent of the Company or is
or was serving at the request of the Company as a director, officer, employee
or agent of another corporation, partnership, joint venture, trust or other
enterprise (including an employee benefit plan). The indemnification provided
by the Certificate of Incorporation shall not be deemed exclusive of any other
rights to which those indemnified may be entitled under any by-law, any
agreement, by vote of directors or stockholders or otherwise, both as to action
in his or her official capacity and as to action in another capacity while
holding such office, shall continue as to a person who has ceased to be a
director, officer, employee or agent and shall inure to the benefit of the
heirs, executors and administrators of such a person.
The Certificate of Incorporation provides that a director of the Company
shall not be personally liable to the Company or its stockholders for monetary
damages for breach of fiduciary duty as a director, except for liability (i)
for any breach of the director's duty or loyalty to the Company or its
stockholders, (ii) for acts or omissions not in good faith or which involve
intentional misconduct or a knowing violation of law, (iii) under Section 174
of the DGCL or (iv) for any transaction from which the director derived any
improper personal benefit.
Insofar as indemnification for liabilities arising under the Securities
Act of 1933 (the "Securities Act") may be permitted to directors, officers and
controlling persons of the registrant pursuant to the foregoing provisions, or
otherwise, the registrant has been advised that in the opinion of the
Securities and Exchange Commission such indemnification is against public
policy as expressed in the Securities Act and is, therefore, unenforceable. In
the event that a claim for indemnification against such liabilities (other than
the payment by the registrant of expenses incurred or paid by a director,
officer or controlling person of the registrant in the successful defense of
any action, suit or proceeding) is asserted by such director, officer or
controlling person in connection with the securities being registered, the
registrant will, unless in the opinion of its counsel the matter has been
settled by controlling precedent, subject to a court of appropriate
jurisdiction the question of whether such indemnification by it is against
public policy as expressed in the Securities Act and will be governed by the
final adjudication of such issue.
II-1
<PAGE>
ITEM 21. EXHIBITS AND FINANCIAL SCHEDULES
(a) Exhibits.
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF EXHIBIT
------ ----------------------
<S> <C>
2.1* Investment Agreement, dated as of December 29, 1997, among the Stockholders of Sweetheart
Holdings Inc. ("Sweetheart Holdings"), Creative Expressions Group, Inc. ("CEG") and SF
Holdings Group, Inc. (the "Company").
3.1* Restated Certificate of Incorporation of the Company.
3.2* By-laws of the Company.
4.1* Indenture, dated as of March 12, 1998, between the Company and The Bank of New York.
4.2* Form of 12 3/4% Series A and Series B Senior Secured Discount Notes, dated as of March 12, 1998
(incorporated by reference to Exhibit 4.1).
4.3* Registration Rights Agreement, dated as of March 12, 1998, among the Company, Bear, Stearns
& Co. Inc. and SBC Warburg Dillon Read Inc. (the "Initial Purchasers").
5.1** Opinion of Kramer, Levin, Naftalis & Frankel.
10.1* Stockholders' Rights Agreement, dated as of March 12, 1998, among the Company and the
persons listed on Schedule I thereto.
10.2* Stockholders' Agreement, dated as of March 12, 1998, among Sweetheart Holdings, the Company
and the Original Stockholders.
10.3* Stockholders Agreement, dated as of March 12, 1998, among the Company and the Initial
Purchasers.
10.4* Pledge Agreement, dated as of March 12, 1998, between SF Holdings Group, Inc. and The Bank
of New York.
10.5* Tax Sharing Agreement, dated as of March 12, 1998, among SF Holdings Group, Inc. and The
Fonda Group, Inc ("Fonda").
10.6* Second Restated Management Services Agreement, dated as of March 12, 1998, among
Sweetheart Holdings, Sweetheart Cup Company Inc. ("Sweetheart Cup"), American Industrial
Partners Management Company, Inc. ("AIPM") and the Company.
10.7* Amendment No. 1 to Second Restated Management Services Agreement, dated as of March 12,
1998, among Sweetheart Holdings, Sweetheart Cup, AIPM and the Company.
10.8* Assignment and Assumption Agreement, dated as of March 12, 1998, between the Company and
Fonda.
12.1* Statements re Computation of Ratios.
21.1* Subsidiaries of the Registrant.
23.1* Consent of Deloitte & Touche LLP.
23.2* Consent of Arthur Andersen LLP.
24.1** Power of Attorney (incorporated by reference in the signature pages).
25.1* Form T-1 Statement of Eligibility and Qualification of The Bank of New York, as trustee.
99.1** Form of Letter of Transmittal.
99.2** Form of Notice of Guaranteed Delivery.
99.3** Form of Exchange Agent Agreement.
</TABLE>
- ----------
* Filed herewith.
** To be filed by amendment.
II-2
<PAGE>
(b) The Financial Statement Schedule filed as part of this Registration
Statement is as follows:
SCHEDULE II -- VALUATION AND QUALIFYING ACCOUNTS
Information required by other schedules is not applicable or the required
information is included in the Financial Statements or Notes thereto.
ITEM 22. UNDERTAKING
(a) Insofar as indemnification for liabilities arising under the
Securities Act of 1933 may be permitted to directors, officers and controlling
persons of the registrant pursuant to the foregoing provisions, or otherwise,
the registrant has been advised that in the opinion of the Securities and
Exchange Commission such indemnification is against public policy as expressed
in the Act and is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by the
registrant of expenses incurred or paid by a director, officer or controlling
person of the registrant in the successful defense of any action, suit or
proceeding) is asserted by such director, officer or controlling person in
connection with the securities being registered, the registrant will, unless in
the opinion of its counsel the matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction the question whether
such indemnification by it is against public policy as expressed in the
Securities Act and will be governed by the final adjudication of such issue.
(b) The undersigned registrant hereby undertakes to respond to requests
for information that is incorporated by reference into the prospectus pursuant
to Items 4, 10(b), 11, or 13 of this Form, within one business day of receipt
of such request, and to send the incorporated documents by first class mail or
other equally prompt means. This includes information contained in documents
filed subsequent to the effective date of the Exchange Offer Registration
Statement through the date of responding to the request.
(c) The undersigned registrant hereby undertakes to supply by means to a
post-effective amendment all information concerning a transaction, and the
company being acquired involved therein, that was not the subject of and
included in the Exchange Offer Registration Statement when it became effective.
II-3
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act, the Registrant has
duly caused this registration statement or amendment to be signed on its behalf
by the undersigned, thereto duly authorized, in the City of New York, New York,
on April 20, 1998.
SF HOLDINGS GROUP, INC.
By: /s/ Dennis Mehiel
------------------------------------
Dennis Mehiel
Chairman and Chief Executive Officer
Pursuant to the requirements of the Securities Act of 1933, this
registration statement or amendment has been signed by the following persons in
the capacities and on the date indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- ------------------------------- ---------------------------------------- ---------------
<S> <C> <C>
/s/ Dennis Mehiel Chairman and Chief Executive Officer April 20, 1998
- ------------------------------
Dennis Mehiel
/s/ Thomas Uleau President, Chief Operating Officer and April 20, 1998
- ------------------------------ Director
Thomas Uleau
/s/ Hans Heinsen Senior Vice President, Chief Financial April 20, 1998
- ------------------------------ Officer and Treasurer
Hans Heinsen
/s/ Alfred DelBello Vice Chairman April 20, 1998
- ------------------------------
Alfred DelBello
Director April , 1998
- ------------------------------
James Armenakis
Director April , 1998
- ------------------------------
W. Richard Bingham
/s/ Gail Blanke Director April 20, 1998
- ------------------------------
Gail Blanke
/s/ John A. Catsimatidis Director April 20, 1998
- ------------------------------
John A. Catsimatidis
/s/ Chris Mehiel Director April 20, 1998
- ------------------------------
Chris Mehiel
/s/ Jerome T. Muldowney Director April 20, 1998
- ------------------------------
Jerome T. Muldowney
/s/ G. William Seawright Director April 20, 1998
- ------------------------------
G. William Seawright
/s/ Lowell P. Weicker, Jr. Director April 20, 1998
- ------------------------------
Lowell P. Weicker, Jr.
</TABLE>
II-4
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Board of Directors of
Sweetheart Holdings Inc.:
We have audited, in accordance with generally accepted auditing standards,
the consolidated balance sheets, statements of operations, shareholders' equity
and cash flows of Sweetheart Holdings Inc. and Subsidiaries included in this
Form S-4 and have issued our report thereon dated December 8, 1997 (except with
respect to the matter discussed in Note 20, as to which the date is March 12,
1998.) Our audit was made for the purpose of forming an opinion on the basic
financial statements taken as a whole. The schedule listed in the accompanying
index is the responsibility of the Company's management and is presented for
purposes of complying with the Securities and Exchange Commission's rules and
is not part of the basic financial statements. This schedule has been subjected
to the auditing procedures applied in the audit of the basic financial
statements and, in our opinion, fairly states in all material respect the
financial data required to be set forth therein in relation to the basic
financial statements taken as a whole.
ARTHUR ANDERSEN LLP
Baltimore, Maryland
December 8, 1997
S-1
<PAGE>
SCHEDULE II
SWEETHEART HOLDINGS INC. AND SUBSIDIARIES
VALUATION AND QUALIFYING ACCOUNTS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
ADDITIONS
------------------------------
BALANCE AT CHARGED TO CHARGED TO
BEGINNING COSTS AND OTHER BALANCE AT END
CLASSIFICATIONS OF PERIOD EXPENSES(1) ACCOUNTS (2) DEDUCTIONS (3) OF PERIOD
- --------------------------------------- ------------ ------------- -------------- ---------------- ---------------
<S> <C> <C> <C> <C> <C>
Allowance for Doubtful Accounts:
Year ended September 30, 1997 ......... $2,466 $446 $51 $1,223 $1,740
Year ended September 30, 1996 ......... 2,524 369 46 473 2,466
Year ended September 30, 1995 ......... 2,468 556 9 509 2,524
</TABLE>
- ----------
(1) Current year provision for doubtful accounts.
(2) Includes recoveries on accounts previously written off, translation
adjustments and reclassifications.
(3) Accounts written off.
S-2
<PAGE>
INDEPENDENT AUDITORS' CONSENT AND REPORT ON SCHEDULE
Board of Directors
The Fonda Group, Inc.
We consent to the use in this Registration Statement of SF Holdings Group,
Inc. on Form S-4 of our report dated September 25, 1997 (March 24, 1998 as to
Note 16) on the financial statements of The Fonda Group, Inc., appearing in the
Prospectus, which is part of the Registration Statement, and to the references
to us under the headings "Selected Historical Financial Data of Fonda" and
"Experts" in such Prospectus.
Our audits of the financial statements referred to in our aforementioned
report also included the financial statement schedule of The Fonda Group, Inc.
listed in Item 21(b). This financial statement schedule is the responsibility
of the management of The Fonda Group, Inc. Our responsibility is to express an
opinion on this financial statement schedule based on our audits. In our
opinion, such financial statement schedule, when considered in relation to the
basic financial statements taken as a whole, presents fairly, in all material
respects, the information set forth therein.
DELOITTE & TOUCHE LLP
Stamford, Connecticut
April 21, 1998
S-3
<PAGE>
SCHEDULE II
THE FONDA GROUP, INC.
VALUATION AND QUALIFYING ACCOUNTS
(IN THOUSANDS)
<TABLE>
<CAPTION>
COLUMN A COLUMN B COLUMN C COLUMN D COLUMN E
- ------------------------------------------ ------------ ---------------------------- --------------- -----------
ADDITIONS
----------------------------
CHARGED TO
BALANCE AT CHARTED TO OTHER BALANCE AT
BEGINNING COST AND ACCOUNTS DEDUCTIONS -- END OF
DESCRIPTION OF PERIOD EXPENSES DESCRIBE DESCRIBE PERIOD
- ------------------------------------------ ------------ ------------ ------------- --------------- -----------
<S> <C> <C> <C> <C> <C>
Year ended July 27, 1997
Allowance for doubtful accounts ......... $549 $457 $ 45(1) $961
Year ended July 28, 1996
Allowance for doubtful accounts ......... 401 148 $ 100(2) 100(1) 549
Year ended July 30, 1995
Allowance for doubtful accounts ......... 174 184 50(2) 7 (1) 401
</TABLE>
- ----------
(1) Amounts written off
(2) Additions related to acquisitions
S-4
<PAGE>
EXHIBIT INDEX
-------------
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF EXHIBIT
------ ----------------------
<S> <C>
2.1* Investment Agreement, dated as of December 29, 1997, among the Stockholders of Sweetheart
Holdings Inc. ("Sweetheart Holdings"), Creative Expressions Group, Inc. ("CEG") and SF
Holdings Group, Inc. (the "Company").
3.1* Restated Certificate of Incorporation of the Company.
3.2* By-laws of the Company.
4.1* Indenture, dated as of March 12, 1998, between the Company and The Bank of New York.
4.2* Form of 12 3/4% Series A and Series B Senior Secured Discount Notes, dated as of March 12, 1998
(incorporated by reference to Exhibit 4.1).
4.3* Registration Rights Agreement, dated as of March 12, 1998, among the Company, Bear, Stearns
& Co. Inc. and SBC Warburg Dillon Read Inc. (the "Initial Purchasers").
5.1** Opinion of Kramer, Levin, Naftalis & Frankel.
10.1* Stockholders' Rights Agreement, dated as of March 12, 1998, among the Company and the
persons listed on Schedule I thereto.
10.2* Stockholders' Agreement, dated as of March 12, 1998, among Sweetheart Holdings, the Company
and the Original Stockholders.
10.3* Stockholders Agreement, dated as of March 12, 1998, among the Company and the Initial
Purchasers.
10.4* Pledge Agreement, dated as of March 12, 1998, between SF Holdings Group, Inc. and The Bank
of New York.
10.5* Tax Sharing Agreement, dated as of March 12, 1998, among SF Holdings Group, Inc. and The
Fonda Group, Inc ("Fonda").
10.6* Second Restated Management Services Agreement, dated as of March 12, 1998, among
Sweetheart Holdings, Sweetheart Cup Company Inc. ("Sweetheart Cup"), American Industrial
Partners Management Company, Inc. ("AIPM") and the Company.
10.7* Amendment No. 1 to Second Restated Management Services Agreement, dated as of March 12,
1998, among Sweetheart Holdings, Sweetheart Cup, AIPM and the Company.
10.8* Assignment and Assumption Agreement, dated as of March 12, 1998, between the Company and
Fonda.
12.1* Statements re Computation of Ratios.
21.1* Subsidiaries of the Registrant.
23.1* Consent of Deloitte & Touche LLP.
23.2* Consent of Arthur Andersen LLP.
24.1** Power of Attorney (incorporated by reference in the signature pages).
25.1* Form T-1 Statement of Eligibility and Qualification of The Bank of New York, as trustee.
99.1** Form of Letter of Transmittal.
99.2** Form of Notice of Guaranteed Delivery.
99.3** Form of Exchange Agent Agreement.
</TABLE>
- ----------
* Filed herewith.
** To be filed by amendment.
<PAGE>
INVESTMENT AGREEMENT
AGREEMENT, dated as of December 29, 1997, among AMERICAN
INDUSTRIAL PARTNERS CAPITAL FUND, L.P., a Delaware limited partnership ("AIP"),
FIRST PLAZA GROUP TRUST, a New York trust ("First Plaza"), LEEWAY & CO., a
Massachusetts partnership ("Leeway" and, together with First Plaza and AIP, the
"Principal Stockholders"), the other persons listed on Annex A (the "Other
Stockholders" and, together with the Principal Stockholders, the
"Stockholders"), AMERICAN INDUSTRIAL PARTNERS MANAGEMENT COMPANY, INC., a
Delaware corporation ("AIPM"), CREATIVE EXPRESSIONS GROUP, INC., a Delaware
corporation ("CEG") and SF HOLDINGS GROUP, INC., a Delaware corporation
("Buyer").
W I T N E S S E T H:
- - - - - - - - - -
WHEREAS, Sweetheart Holdings Inc., a Delaware corporation
("Holdings"), and The Fonda Group, Inc., a Delaware corporation ("Fonda"), are
each engaged in the business of manufacturing paper and plastic disposable
beverage service and meal service products and food packaging products for the
foodservice industry;
WHEREAS, the Stockholders are the beneficial and record owners
of all of the outstanding capital stock of Holdings;
WHEREAS, each of CEG, Buyer and Fonda is controlled by Dennis
Mehiel ("Mehiel");
WHEREAS, in order to induce the Stockholders to enter into
this Agreement, Mehiel is concurrently entering into an agreement with AIP for
the benefit of the Stockholders in the form attached hereto as Exhibit A with
respect to the capitalization of Buyer ("the Mehiel Agreement");
WHEREAS, prior to the closing of the transactions contemplated
by this Agreement (the "Closing"), Buyer will be the beneficial and record
owner of all of the outstanding capital stock of Fonda; and
WHEREAS, the Stockholders, CEG and Buyer desire to realize
the benefits of jointly operating the businesses of Fonda and Holdings and, in
connection therewith, the Stockholders desire to sell, and Buyer wishes to
purchasefrom the Stockholders, an interest in Holdings on the terms and
conditions set forth herein in exchange for, among other consideration, an
equity interest in Buyer.
<PAGE>
NOW, THEREFORE, in consideration of the mutual agreements
hereinafter set forth, and intending to be legally bound hereby, the parties
hereto agree as follows:
ARTICLE I
INVESTMENT
1.01. Preliminary Corporate Actions. Prior to the Closing,
the Stockholders will cause Holdings to (i) file the amendment to its
certificate of incorporation described on Exhibit B hereto (the "Charter
Amendment") and amend its by-laws as described on Exhibit B hereto
(collectively with the Charter Amendment, the "Amendments") and (ii) pay a pro
rata dividend-in-kind on the outstanding Common Stock, par value $.01 per
share, of Holdings ("Holdings Common Stock") consisting of shares of Non-Voting
Common Stock, par value $.01 per share ("Holdings Non-Voting Common Stock") on
the basis of 4.2 shares of Holdings Non-Voting Common Stock for each outstanding
share of Holdings Common Stock (the "Dividend").
1.02. The Investment. Upon the terms and subject to the
conditions of this Agreement, at the Closing, each Stockholder will sell,
assign, transfer and deliver to Buyer, and Buyer will purchase from such
Stockholder, the number of shares of Holdings Common Stock and Holdings
Non-Voting Common Stock owned by such Stockholder as set forth on Annex A, free
and clear of all claims, liens, encumbrances, security interests, charges or
restrictions on transfer of any nature whatsoever (each, an "Encumbrance"),
except those created in favor of Buyer under this Agreement. The shares of
Holdings Common Stock and Holdings Non-Voting Common Stock to be purchased by
Buyer from the Stockholders are collectively referred to herein as the
"Shares."
1.03. Consideration. Upon the terms and subject
to the conditions contained in this Agreement, in consideration of the
aforesaid sale, assignment, transfer and delivery of the Shares at the Closing,
Buyer will pay or cause to be paid to the Stockholders for the Shares: (i) an
aggregate of $88,000,000 in cash (the "Cash Purchase Price"), (ii) a demand
promissory note of Buyer in the aggregate principal amount of $7,000,000 (the
"Demand Note") and (iii) an aggregate of $30,000,000 in aggregate stated value
of a series of exchangeable preferred stock of Buyer having the terms set forth
on Exhibit C hereto (the "Buyer Preferred Stock" or, alternatively, "Buyer
Securities").
-2-
<PAGE>
ARTICLE II
RELATED MATTERS
2.01. Fonda Acquisition. Prior to the Closing,
in connection with the consummation of the transactions contemplated hereby,
Buyer shall acquire all of the outstanding capital stock of Fonda (the "Fonda
Acquisition").
2.02. Capitalization of Buyer. CEG shall capitalize Buyer
with not less than $23 million in cash available for use to pay a portion of
the Cash Purchase Price; provided, however, that Fonda may provide up to $9
million of such funds.
2.03. Buyer Financing. Mehiel has obtained a highly confident
letter from a nationally recognized investment bank, a copy of which has been
delivered to AIP, with respect to the offering (the "High Yield Offering") by
Buyer of $78,000,000 aggregate principal amount of Senior Discount Notes of
Buyer (the "Discount Notes"). Buyer agrees to use its reasonable best efforts
to consummate the High Yield Offering. Buyer will not include any information
with respect to the Stockholders in the offering memorandum prepared in
connection with the High Yield Offering without the prior written consent of
AIP, which shall not be unreasonably delayed or withheld.
2.04. Options. At the Closing, all outstanding options to
purchase shares of Holdings Common Stock ("Options") shall become immediately
exercisable in full, all Options shall be settled by the Stockholders in
exchange for cash (the "Option Payment") and the Stockholders shall deliver
evidence reasonably satisfactory to Buyer that all rights of all holders in
respect of the Options have been released.
2.05. Management Services Agreement. At the
Closing, in recognition of the management services to be rendered by Buyer,
AIPM will assign a portion of its rights and Buyer will assume a portion of
AIPM's obligations under the Restated Management Services Agreement, dated
August 31, 1993 (the "Existing Management Agreement"), among Holdings,
Sweetheart Cup Company, Inc. ("Cup") and AIPM pursuant to an assignment (the
"Management Agreement Assignment") on the terms attached hereto as Exhibit
2.05.
2.06. Certain Expenses. At the Closing, Holdings will pay the
first $4,500,000 plus 50% of the next $500,000, up to an aggregate of
$4,750,000, of the fees and expenses listed in Section 2.06 of the Stockholders
Disclosure Schedule and the Stockholders agree to pay any such fees and
expenses in excess thereof.
-3-
<PAGE>
2.07. Certain Agreements. (a) At the Closing, the
Stockholders and Buyer will execute a Stockholders' Agreement, on the terms set
forth in Exhibit D hereto (the "Holdings Stockholders Agreement"), pursuant to
which the Stockholders and Buyer will agree to certain matters with respect to
the voting and transfer of the Holdings Common Stock and the Holdings
Non-Voting Common Stock following the Closing.
(b) At the Closing, the Stockholders and Buyer will execute a
Stockholders' Agreement, on the terms set forth in Exhibit E hereto (the "Buyer
Stockholders' Agreement"), pursuant to which (i) the Stockholders will agree to
certain transfer restrictions with respect to the Buyer Securities which the
Stockholders receive from Buyer at the Closing and (ii) Buyer will agree to
provide to the Stockholders certain registration rights with respect to the
Buyer Securities which the Stockholders receive from Buyer at the Closing.
ARTICLE III
THE CLOSING
3.01. Time and Place of Closing. Upon the terms and subject
to the conditions contained in this Agreement, the closing of the transactions
contemplated by this Agreement (the "Closing") will take place at the offices
of Kramer, Levin, Naftalis & Frankel, 919 Third Avenue, New York, New York
10022 at 9:30 A.M. (local time) on the second Business Day (as hereinafter
defined) following the date on which all of the conditions to each party's
obligations hereunder have been satisfied or waived; or at such other place or
time or both as the parties may agree. The date on which the Closing actually
occurs and the transactions contemplated hereby become effective is referred to
herein as the "Closing Date."
3.02. Deliveries by AIP. At the Closing, AIP, as
representative of the Stockholders, will deliver or cause to be delivered the
following to Buyer:
(a) Stock certificates representing the Shares
accompanied by stock powers duly endorsed in blank or accompanied by
duly executed instruments of transfer.
(b) The stock books, stock ledgers, minute books and
corporate seals of Holdings.
(c) The Holdings Stockholders' Agreement, the Buyer
Stockholders' Agreement and the Management Agreement Assignment.
-4-
<PAGE>
(d) The certificates and other documents contemplated
by Article IX hereof.
(e) Certified copies of Holdings' Certificate of
Incorporation and By-Laws, as amended by the Amendments.
(f) Such other documentation as may be reasonably
necessary for the consummation of the transactions contemplated hereby.
3.03. Deliveries by Buyer. At the Closing, Buyer will
deliver or cause to be delivered the following to AIP, as representative of the
Stockholders:
(a) The Cash Purchase Price in immediately available
funds to an account designated in writing by AIP at least one Business
Day prior to the Closing.
(b) Buyer Preferred Stock registered in the names of
the Stockholders.
(c) If issued pursuant to Section 1.03(c), Discount
Notes registered in the names of the Stockholders.
(d) The Holdings Stockholders Agreement, the Buyer
Stockholders' Agreement and the Management Agreement Assignment.
(e) The certificates and other documents contemplated
by Article VIII hereof.
(f) Such other documentation as may be reasonably
necessary for the consummation of the transactions contemplated hereby.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES
OF THE STOCKHOLDERS
Each Stockholder (with respect to matters relating to such
Stockholder) and each Principal Stockholder (with respect to matters relating
to Holdings and the Holdings Subsidiaries (as hereinafter defined)), severally
but not jointly, hereby represents and warrants to Buyer (all such
representations and warranties relating to Holdings and the Holdings
Subsidiaries being made to the best knowledge of such Principal Stockholder
based on discussions with and inquiries of management of Holdings and Cup) as
follows:
4.01. Corporate Organization; Etc. Each of Holdings and the
Subsidiaries (as hereinafter defined) of
-5-
<PAGE>
Holdings (each a "Holdings Subsidiary" and collectively, the "Holdings
Subsidiaries"), is a corporation duly organized, validly existing and in good
standing under the laws of the jurisdiction of its incorporation and has all
requisite corporate power and authority to conduct its business as it is now
being conducted and to own, lease and operate its property and assets. Each of
Holdings and the Holdings Subsidiaries is qualified or licensed to do business
as a foreign corporation and is in good standing in each jurisdiction in which
ownership of property or the conduct of its business requires such
qualification or license except where the failure to be so qualified or
licensed is not reasonably likely to have a material adverse effect on the
business, properties, financial condition or results of operations of Holdings
and the Holdings Subsidiaries, taken as a whole (a "Holdings Material Adverse
Effect"). Section 4.01 of the Stockholders Disclosure Schedule sets forth a
complete and correct list of all jurisdictions in which Holdings and each
Holdings Subsidiary is qualified or licensed to do business. True and complete
copies of the Certificate of Incorporation and By-Laws (or other comparable
governing documents) of each of Holdings and the Holdings Subsidiaries, as
presently in effect, have been heretofore delivered to Buyer.
4.02. Capitalization of Holdings and Cup. The authorized
capital stock of Holdings consists of 3,000,000 shares of Holdings Common
Stock, of which 1,046,000 are issued and outstanding and owned by the
Stockholders. Upon filing of the Charter Amendment, the authorized capital
stock of Holdings will be increased to include 7,000,000 shares of Holdings
Non-Voting Common Stock. Such Stockholder is the record and beneficial owner of
the number of shares of Holdings Common Stock, and following the Dividend will
also be the record and beneficial owner of the number of shares of Holdings
Non-Voting Common Stock, set forth opposite such Stockholder's name in Annex A.
Such Stockholder has good title to such shares of Holdings Common Stock, and
will have good title to such shares of Holdings Non-Voting Common Stock, in
each case free and clear of all Encumbrances, except for the restrictions on
transfer contained in the Stockholders Agreement, dated as of August 30, 1993
(the "Existing Stockholders Agreement"), by and among, AIP, First Plaza, Leeway
and the other stockholders named therein (none of which will prevent the
consummation of the transactions contemplated hereby). The authorized capital
stock of Cup consists of 1,000 shares of common stock, par value $.05 per share
(the "Cup Common Stock"), all of which are issued and outstanding and are
owned, of record and beneficially, by Holdings. As of the date of this
Agreement, 74,073 shares of Holdings Common Stock were reserved for issuance
upon the exercise of outstanding Options. All the issued and outstanding shares
of Holdings Common Stock and Cup Common Stock are, and all of the shares of
Holdings Common Stock issued in the Dividend will be,
-6-
<PAGE>
duly authorized, validly issued, fully paid and nonassessable and were not
issued in violation of any preemptive rights. Except as set forth above, there
are no outstanding (a) securities convertible into or exchangeable for the
capital stock of Holdings or of Cup, (b) options, warrants or other rights to
purchase or subscribe for capital stock of Holdings or of Cup, or (c)
contracts, commitments, agreements, understandings or arrangements of any kind
relating to the issuance of any capital stock of Holdings or of Cup, any such
convertible or exchangeable securities or any such options, warrants or rights,
pursuant to which, in any of the foregoing cases, Holdings or any Holdings
Subsidiary is subject or bound. The consummation of the transactions
contemplated hereby will convey to Buyer good title to the Shares set forth
opposite such Stockholder's name on Annex A, free and clear of all proxies,
voting agreements and other Encumbrances, except for those created in favor of
Buyer under this Agreement.
4.03. Holdings Subsidiaries. All of the Holdings Subsidiaries
are listed in Section 4.03(a) of the Stockholders Disclosure Schedule together
with their jurisdictions of incorporation or organization and the percentage
interest held directly or indirectly by Holdings. All issued and outstanding
capital stock of the Holdings Subsidiaries is duly authorized, validly issued,
fully paid and nonassessable, and, except as set forth in Section 4.03(b) of
the Stockholders Disclosure Schedule, is owned, directly or indirectly by
Holdings, free and clear of all Encumbrances. There are no outstanding (a)
securities convertible into or exchangeable for the capital stock of any of the
Holdings Subsidiaries, (b) options, warrants or other rights to purchase or
subscribe for capital stock of any of the Holdings Subsidiaries or (c)
contracts, commitments, agreements, understandings or arrangements of any kind
relating to the issuance of any capital stock of any of the Holdings
Subsidiaries, any such convertible or exchangeable securities or any such
options, warrants or rights pursuant to which, in any of the foregoing cases,
Holdings or any Holdings Subsidiary is subject or bound.
4.04. Authority Relative to this Agreement. Such Stockholder
has all requisite legal authority and power to execute and deliver this
Agreement, the Holdings Stockholders' Agreement and the Buyer Stockholders'
Agreement and to consummate the transactions contemplated hereby and thereby.
The execution and delivery of this Agreement, the Holdings Stockholders'
Agreement and the Buyer Stockholders' Agreement and the consummation of the
transactions contemplated hereby and thereby by such Stockholder have been duly
and validly authorized by all required action, if any, on the part of such
Stockholder and no other proceedings on the part of such Stockholder are
necessary to authorize this Agreement, the Holdings Stockholders' Agreement or
the Buyer Stockholders' Agreement
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or to consummate the transactions contemplated hereby or thereby. This
Agreement has been duly and validly executed and delivered by such Stockholder
and, assuming this Agreement has been duly authorized, executed and delivered
by Buyer and the other Stockholders, constitutes a valid and binding agreement
of such Stockholder, enforceable against such Stockholder in accordance with
its terms. Upon the execution and delivery thereof by such Stockholder (and
assuming the due authorization, execution and delivery thereof by Buyer and the
other Stockholders), the Holdings Stockholders' Agreement and the Buyer
Stockholders' Agreement will constitute valid and binding agreements of such
Stockholder, enforceable against such Stockholder in accordance with their
terms. BY ITS EXECUTION OF THIS AGREEMENT, SUCH STOCKHOLDER HAS DULY EMPOWERED
AIP TO ACT AS ITS REPRESENTATIVE FOR THE PURPOSES SET FORTH IN THIS AGREEMENT.
4.05. Consents and Approvals; No Violations. Except as set
forth in Section 4.05 of the StockholdersDisclosure Schedule, neither the
execution and delivery of this Agreement, the Holdings Stockholders' Agreement
or the Buyer Stockholders' Agreement by such Stockholder nor the consummation
of the transactions contemplated hereby or thereby by such Stockholder will (a)
violate any provision of the Certificate of Incorporation or By-Laws (or other
comparable governing documents) of Holdings or the organizational documents, if
any, of such Stockholder, (b) require any consent, waiver, approval,
authorization or permit (a "Consent") of, or filing with or notification to,
any governmental or regulatory authority, agency or commission, including
courts of competent jurisdiction, domestic or foreign (a "Governmental
Entity"), except (i) for filings with the Federal Trade Commission (the "FTC")
and with the Antitrust Division of the United States Department of Justice
(the "DOJ") pursuant to the Hart-Scott-Rodino Antitrust Improvements Act of
1976, as amended, and the rules and regulations promulgated thereunder (the
"HSR Act"), (ii) for filings with the Securities and Exchange Commission (the
"SEC") pursuant to the Securities Exchange Act of 1934, as amended (the
"Exchange Act"), (iii) filings under the Investment Canada Act (Canada) and the
Competition Act (Canada), and (iv) where the failure to obtain such Consent or
make such filing or notification is not reasonably likely to have a Holdings
Material Adverse Effect, (c) result in a violation or breach of, or constitute
(with or without due notice or lapse of time or both) a default or give rise to
any right of termination or cancellation under, any of the terms, conditions or
provisions of any indenture, mortgage, note, bond, encumbrance, license,
government registration, contract, lease, agreement or other instrument or
obligation (each, an "Obligation") to which Holdings or any Holdings Subsidiary
is a party or by which Holdings or any Holdings Subsidiary or any of their
respective property or assets may be bound, except such
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violations, breaches and defaults which are not reasonably likely to have a
Holdings Material Adverse Effect or those to which requisite waivers or
consents have been obtained (which waivers or consents have been disclosed to
Buyer) or (d) violate any order, writ, judgment, injunction, writ, decree, law,
statute, ordinance, rule or regulation (each, an "Order") of any Governmental
Entity applicable to such Stockholder, Holdings or any Holdings Subsidiary,
except such violations which are not reasonably likely to have a Holdings
Material Adverse Effect.
4.06. Financial Statements. Holdings has previously provided
to Buyer the audited consolidated balance sheets and the related consolidated
statements of operations, shareholders' equity and cash flows (including any
related notes) as of and for the fiscal years ended September 30, 1995, 1996
and 1997 (such balance sheet as of September 30, 1997 being hereinafter
referred to as the "Balance Sheet" and all such financial statements being
hereinafter collectively referred to as the "Financial Statements"). The
Financial Statements fairly present the consolidated financial position and the
consolidated results of operations, shareholders' equity and cash flows of
Holdings and its consolidated Subsidiaries as of the dates or for the periods
presented therein in conformity with generally accepted accounting principles
("GAAP"), applied on a consistent basis during the periods involved, except as
otherwise noted therein.
4.07. Absence of Certain Changes. Except as set forth in
Section 4.07 of the Stockholders Disclosure Schedule, since the date of the
Balance Sheet, neither Holdings nor any Holdings Subsidiary has (a) suffered
any adverse change in its business, operations or financial position, except
such changes which, in the aggregate, are not reasonably likely to have a
Holdings Material Adverse Effect, (b) suffered any damage, destruction or loss,
whether covered by insurance or not, which would reasonably be expected to have
a Holdings Material Adverse Effect, (c) conducted its business in any respect
not in the ordinary and usual course consistent with past practice, except in
connection with the transactions contemplated hereby, (d) changed in any
respect any accounting principle or policy, (e) except in the ordinary course
of business consistent with past practice, sold, transferred or otherwise
disposed of, any of its property or assets in excess of $200,000, (f) made any
loan to, or entered into any other transaction with, any of its directors or
officers or any Stockholder or any Affiliate (as hereinafter defined) of a
Stockholder (excluding Holdings and the Holdings Subsidiaries), (g) made any
capital expenditure or series of related capital expenditures either involving
more than $1,000,000 or other than in the ordinary course of business, (h)
other than as contemplated by the Dividend, made any dividend payment or other
distribution with respect to shares of its capital
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stock (other than to Holdings or another Holdings Subsidiary) or repurchased,
redeemed or otherwise acquired any shares of its capital stock or (i) suffered
any adverse change in its relationships with its employees, unions, suppliers
or customers which is reasonably likely to have a Holdings Material Adverse
Effect.
4.08. Compliance with Law. Except as set forth in Section
4.08(a) of the Stockholders Disclosure Schedule, Holdings and the Holdings
Subsidiaries have complied and are currently in compliance with all applicable
Orders of any Governmental Entity, except such non-compliances which, in the
aggregate, are not reasonably likely to have a Holdings Material Adverse
Effect. Except as set forth in Section 4.08(b) of the Stockholders Disclosure
Schedule, Holdings and the Holdings Subsidiaries have all governmental licenses
and permits to conduct their businesses as currently conducted, except where
the failure to have such licenses and permits, in the aggregate, is not
reasonably likely to have a Holdings Material Adverse Effect.
4.09. Contracts and Commitments. Section 4.09(a) of the
Stockholders Disclosure Schedule sets forth a complete list of all (a)
employment, severance, termination, consulting and retirement agreements to
which Holdings or any of the Holdings Subsidiaries is presently a party or by
which Holdings or any of the Holdings Subsidiaries is bound (the "Benefit
Arrangements"), (b) collective bargaining agreements, (c) agreements (including
leases) which provide for aggregate future payments by or to Holdings or any
Holdings Subsidiary of more than $250,000 which are not terminable by Holdings
or any Holdings Subsidiary on less than ninety days' notice without penalty
(other than purchase orders entered into in the ordinary course of business),
(d) agreements containing covenants limiting the freedom of Holdings or any
Holdings Subsidiary to compete with any person in any line of business or in
any area or territory, (e) license agreements, (f) indentures, mortgages and
notes or other debt instruments evidencing indebtedness, (g) agreements with
any Stockholder or any Affiliate of a Stockholder (excluding Holdings and the
Holdings Subsidiaries), (h) agreements under which it has advanced or loaned
any amount to any of its directors or officers other than in the ordinary
course of business, (i) guarantees of any obligations for borrowing or
performance, (j) agreements or arrangements for the sale or lease of any of its
assets other than in the usual, regular and ordinary course of business, (k)
agreements or other arrangements for the purchase of any real estate,
machinery, equipment, or other capital assets in excess of $250,000, (l)
agreements or arrangements pursuant to which it is or may be obligated,
contingent or otherwise, on account of or arising out of prior acquisitions or
sales of businesses or assets, (m) leases or other agreements for the use of
personal property with rent in excess of $250,000 per year, (n) agreements or
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arrangements for the future purchase of materials, supplies, services,
merchandise or equipment parts in excess of $250,000, or (o) agreements or
arrangements relating to cleanup, abatement or other actions in connection with
environmental liabilities (collectively, the "Contracts") to which Holdings or
any Holdings Subsidiary is a party. Each Contract listed or required to be
listed in Section 4.09(a) of the Stockholders Disclosure Schedule is valid,
binding and enforceable against Holdings or any Holdings Subsidiary and the
other parties thereto in accordance with its terms and is in full force and
effect, except where the failure to be so valid, binding and enforceable or in
full force and effect would not have a Holdings Material Adverse Effect. Each
of Holdings and the Holdings Subsidiaries has performed all material
obligations required to be performed by it to date under each of the Contracts.
Except as set forth in Section 4.09(b) of the Stockholders Disclosure Schedule,
Holdings and the Holdings Subsidiaries are not in default under any of the
Contracts (nor has any event occurred which, with notice or lapse of time or
both, would constitute a default), except such defaults which, in the
aggregate, are not reasonably likely to have a Holdings Material Adverse
Effect. Except pursuant to the express provisions of the instruments set forth
in Section 4.09(c) of the Stockholders Disclosure Schedule, neither Holdings
nor any Holdings Subsidiary is a party to any agreement which would require any
payment to be made by Holdings or any Holdings Subsidiary to any other party in
connection with the consummation of the transactions contemplated by this
Agreement (either alone or upon the occurrence of any additional acts or
events).
4.10. No Undisclosed Liabilities. Neither Holdings nor any
Holdings Subsidiary has any liability (whether accrued, absolute, contingent or
otherwise and whether known or unknown) other than (a) liabilities reflected or
reserved against (to the extent of the reserves therefor) in the Balance Sheet
(or, to the extent expressly quantified therein, in the notes thereto), (b)
obligations incurred or arising in the ordinary course of business of Holdings
or such Holdings Subsidiary since the date of the Balance Sheet, (c)
liabilities with respect to the matters described in Section 4.10 of the
Stockholders Disclosure Schedule and (d) other liabilities which, either
individually or in the aggregate, would not be required to be reflected on a
balance sheet prepared in accordance with GAAP.
4.11. No Default. Except as set forth in Section 4.11 of the
Stockholders Disclosure Schedule, neither Holdings nor any Holdings Subsidiary
is in default or violation (and no event has occurred which with notice or the
lapse of time or both would constitute a default or violation) of any term,
condition or provision of (a) its Certificate of Incorporation or By-Laws (or
other comparable governing documents) or (b) any Order of any Governmental
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Entity applicable to Holdings or any Holdings Subsidiary, except with respect
to clause (b) such defaults and violations which, in the aggregate, are not
reasonably likely to have a Holdings Material Adverse Effect.
4.12. Litigation. Except as set forth in Section 4.12(a) of
the Stockholders Disclosure Schedule, there is no action, suit or proceeding
pending or threatened against Holdings or any Holdings Subsidiary before any
Governmental Entity none of which is reasonably likely to have a Holdings
Material Adverse Effect. Except as set forth in Section 4.12(b) of the
Disclosure Schedule, neither Holdings nor any Holdings Subsidiary has received
notice that it is subject to any outstanding Order of any Governmental Entity
none of which is reasonably likely to have a Holdings Material Adverse Effect.
4.13. Taxes. (a) Except as set forth in Section 4.13(a) of
the Stockholders Disclosure Schedule, Holdings and each Holdings Subsidiary has
duly filed all material returns, declarations, reports, estimates, information
returns and statements ("Returns") required to be filed with respect to it in
respect of any Taxes (as hereinafter defined) and Holdings and each Holdings
Subsidiary has timely paid all Taxes that are shown to be due and payable
on such Returns. Except as set forth in Section 4.13 of the Stockholders
Disclosure Schedule, neither Holdings nor any Holdings Subsidiary has requested
any extension of time within which to file any currently unfiled Returns, and
no extension of a statute of limitations relating to any Taxes is in effect
with respect to Holdings or any Holdings Subsidiary. Except as set forth in
Section 4.13(b) of the Stockholders Disclosure Schedule and except for Taxes
which are not in the aggregate material, all Taxes due and owing by Holdings
and each Holdings Subsidiary have been paid or adequately provided for, net of
any reserves provided for matters set forth in Section 4.13(b) of the
Disclosure Schedule, in the Financial Statements. Except as set forth in
Section 4.13(b) of the Stockholders Disclosure Schedule, no material
deficiencies for any Taxes have been asserted in writing or assessed against
Holdings or any Holdings Subsidiary which remain unpaid or for which adequate
provision, net of any reserves provided for matters set forth in Section
4.13(b) of the Stockholders Disclosure Schedule, has not been made in the
Financial Statements, and there are no pending or threatened actions, suits,
proceedings, audits, investigations or claims for or relating to any liability
in respect of Taxes of Holdings or of any Holdings Subsidiary which is
reasonably likely to have a Holdings Material Adverse Effect. There are no
liens for Taxes upon the assets of Holdings or of any Holdings Subsidiary which
are reasonably likely to have a Holdings Material Adverse Effect. For purposes
of this Agreement, "Taxes" shall mean all taxes, assessments and charges
imposed by any federal, provincial, state, local, municipal
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or foreign taxing authority including interest, penalties and additions
thereto.
(b) The Stockholders are the beneficial owners of the Shares
and are not "foreign persons" within the meaning of Section 1445(b)(2) of the
Internal Revenue Code of 1986, as amended (the "Code").
(c) Except as set forth in Section 4.13(c) of the
Stockholders Disclosure Schedule, (i) neither Holdings nor any Holdings
Subsidiary has, with respect to any assets or property held, filed a consent to
the application of Section 341(f) of the Code; (ii) neither Holdings nor any
Holdings Subsidiary is a party to or bound by any Tax allocation or Tax sharing
agreement or has any current or potential contractual obligation to indemnify
any other person with respect to Taxes; (iii) since August 30, 1993, neither
Holdings nor any Holdings Subsidiary has been a member of an affiliated group
within the meaning of Section 1504 of the Code, or filed or been included in a
combined, consolidated or unitary return of any person, other than of Holdings
and each Holdings Subsidiary; (iv) neither Holdings nor any Holdings Subsidiary
has agreed or is required, as a result of a change in method of accounting or
otherwise, to include any adjustment under Section 481 of the Code (or any
corresponding provision of state, local or foreign law) in taxable income; and
(v) neither Holdings nor any Holdings Subsidiary is a party to any agreement,
contract, arrangement or plan that would result (taking into account the
transactions contemplated by this Agreement), separately or in the aggregate,
in the payment of any "excess parachute payments" within the meaning of Section
280G of the Code.
4.14. Employee Benefit Plans; ERISA. (a) Section 4.14(a) of
the Stockholders Disclosure Schedule contains a complete list of all employee
benefit plans within the meaning of Section 3(3) of the Employee Retirement
Income Security Act of 1974, as amended ("ERISA"), and all severance, bonus or
other incentive compensation, deferred compensation, relocation, tuition
assistance, stock purchase, stock option or award, vacation or disability
plans, programs and policies (the "Plans") that Holdings or any Holdings
Subsidiary maintains or contributes to on behalf of its current or former
employees, officers, and/or their dependents or beneficiaries or that Holdings,
any Holdings Subsidiary, any predecessors thereto, or any entity that is or was
a member of the same controlled group (within the meaning of Section 414(b),
(c) or (m) of the Code or Section 4001(a)(4) of ERISA) as Holdings or any
Holdings Subsidiary have maintained, contributed to, sponsored, or had an
obligation to contribute to since their commencement of business to the extent
that Holdings or any Holdings Subsidiary has or may have any potential
liability with respect to such Plan. Holdings has heretofore delivered to Buyer
true and complete copies of each Plan and
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each related trust agreement maintained or contributed to by Holdings or any
Holdings Subsidiary as well as, if applicable, (i) complete copies of each of
the latest reports filed with respect to such Plan with the Internal Revenue
Service (the "IRS"), the Department of Labor, the Pension Benefit Guaranty
Corporation (the "PBGC") or any other governmental agency and (ii) copies of
the latest ruling and determination letters issued with respect to such Plan
and (iii) copies of the most recent insurance contracts, summary plan
descriptions and summary of material modifications. There is no Plan that is a
multi-employer plan within the meaning of Section 3(37) of ERISA as to which
Holdings or any Holdings Subsidiary has any liability, contingent or otherwise.
(b) Except as set forth in Section 4.14(b) of the
Stockholders Disclosure Schedule, (i) there have been no non-exempt prohibited
transactions within the meaning of Section 406 of ERISA, or Section 4975 of the
Code with respect to any of the Plans; (ii) there is no outstanding liability
under Title IV of ERISA with respect to any of the Plans other than for payment
of premiums to the PBGC; (iii) the PBGC has not instituted proceedings to
terminate any of the Plans; (iv) none of the Plans has incurred any
"accumulated funding deficiency" (as defined in Section 302 of ERISA or Section
412 of the Code) whether or not waived, as of the last day of the most recent
fiscal year of each of the Plans ended prior to the date of this Agreement and
since such date, there has not been a material adverse change in the funded
status of any Plan and all required contributions under each Plan for all
periods through and including the Closing shall have been timely made; (v) each
of the Plans has been operated and administered in all material respects in
accordance with its terms and applicable laws, no transaction has occurred with
respect to any Plan which could subject Holdings or any Holdings Subsidiary to
any tax or penalty under ERISA, the Code or other applicable laws that is
reasonably likely to have a Holdings Material Adverse Effect, and all assets of
the pension plans set forth in Section 4.14(a) of the Stockholders Disclosure
Schedule are under the control of trustees and/or investment managers appointed
exclusively by Holdings or a Holdings Subsidiary; (vi) each Employee Benefit
Plan which is an "employee pension benefit plan" within the meaning of Section
3(2) of ERISA (a "Qualified Plan") and which is subject to Parts 2 and 4 of
Subtitle B of Title I of ERISA has received a favorable determination letter
from the Internal Revenue Service covering all amendments required by the Tax
Reform Act of 1986 and prior legislation including all amendments required to
have been adopted through the last day of the 1995 Plan year and nothing has
occurred since the date of such determination letters that would adversely
affect the qualified status of such plans or the tax exempt status of such
trusts; and (vii) no Plan is a "multiple employer plan" as described in
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Section 3(40) of ERISA or Section 413(c) of the Code; (ix) no amendment to a
plan requiring the provision of security to such Plan, pursuant to Section 307
of ERISA, has been adopted; (x) the consummation of the transactions
contemplated hereby will not accelerate the vesting or the timing of payment of
any benefits under any Plan nor the funding of such benefits with any trust or
otherwise; (xi) for the 1997 Plan year, each Qualified Plan satisfies the
coverage requirements of Section 410(b)(1) or (b)(2) of the Code; (xii) neither
Holdings nor any Holdings Subsidiary has received or is aware of any actions,
claims (other than routine claims for benefits), lawsuits or arbitrations
pending or, to the best knowledge of Holdings, threatened with respect to any
Employee Benefit Plan or against any fiduciary of any Employee Benefit Plan,
and neither Holdings nor any Holdings Subsidiary has knowledge of any facts
that could give rise to any such actions, claims lawsuits or arbitrations which
could reasonably be expected to have a Holdings Material Adverse Effect; (xiii)
no Employee Benefit Plan provides for the continuation of coverage for medical,
health or death benefits (through insurance or otherwise) for any participant
or any dependent or beneficiary of any participant after such participant's
retirement or other termination of employment except as may be required by Part
6 of Subtitle B of Title I of ERISA and Section 4980B of the Code ("COBRA");
(xiv) no reportable event within the meaning of Section 4043 of ERISA with
respect to which the 30-day notice has not been waived has occurred within the
preceding 24 months with respect to any Employee Benefit Plan subject to Title
IV of ERISA, nor would the consummation of the transactions contemplated hereby
require any notice to the PBGC pursuant to Section 4043(b) of ERISA; and (xv)
the sum of the amount previously reserved on Holdings' financial statements and
the amount of corporate assets intended to be used to satisfy and currently
invested in fixed income assets with respect to the unfunded benefit
liabilities of the Sweetheart Cup Co. Inc. Lily-Tulip Inc. Salary Retirement
Plan is not less than $17.7 million as of the date hereof.
4.15. Properties. (a) Section 4.15(a) of the Stockholders
Disclosure Schedule lists all real property owned by Holdings and the Holdings
Subsidiaries and Section 4.15(b) contains a list of all leases and subleases,
together with any amendments thereto, with respect to all real property leased
by Holdings and the Holdings Subsidiaries. Each of Holdings and the Holdings
Subsidiaries has good, valid and, in the case of real property, marketable fee
simple, title to all of the assets and properties which it owns and which are
reflected on the Balance Sheet (except for assets and properties sold, consumed
or otherwise disposed of by Holdings or any Holdings Subsidiary in the ordinary
course of business since the date of the Balance Sheet), and such assets and
properties are owned free and clear of all Encumbrances,
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except for (i) Encumbrances listed in Section 4.15(c) of the Stockholders
Disclosure Schedule, (ii) liens for current Taxes not yet due and payable or
for Taxes the validity of which is being contested in good faith, (iii)
Encumbrances to secure indebtedness reflected on the Balance Sheet or
indebtedness incurred in the ordinary course of business and consistent with
past practice after the date thereof, (iv) mechanic's, materialmen's and other
Encumbrances which have arisen in the ordinary course of business and (v)
Encumbrances which, in the aggregate, are not reasonably likely to have a
Holdings Material Adverse Effect or materially adversely interfere with the use
of such material assets and properties as they are presently being used.
(b) Each of Holdings and the Holdings Subsidiaries has a valid
and binding leasehold interest in all material real and personal assets and
properties used or held for use in connection with the conduct of their
respective businesses and operations as heretofore conducted and as presently
planned to be conducted, other than such real and personal assets and
properties as are owned by Holdings or a Holdings Subsidiary.
(c) Except as set forth in Section 4.15(d) of the Stockholders
Disclosure Schedule, the plants, buildings, structures and equipment of
Holdings and the Holdings Subsidiaries are in all material respects in good
operating condition and repair (reasonable wear and tear and routine repairs
and maintenance excepted) and adequate in quality and quantity for the current
normal operations of the businesses of Holdings and the Holdings Subsidiaries.
4.16. Patents, Trademarks, Etc. Section 4.16(a) of the
Stockholders Disclosure Schedule sets forth a list of all United States and
Canadian patents, trademarks, trade names, service marks, copyrights and
applications, including foreign applications, therefor which are material to
the conduct of the business of Holdings and the Holdings Subsidiaries taken as
a whole (the "Patent and Trademark Rights"). Section 4.16(a) of the Disclosure
Schedule also sets forth the owner or licensor and any licensee of the Patent
and Trademark Rights. Except as set forth in Section 4.16(b) of the
Stockholders Disclosure Schedule, (a) Holdings and the Holdings Subsidiaries
own or possess adequate licenses or other valid rights to use all Patent
and Trademark Rights, (b) the validity of the Patent and Trademark Rights and
the title thereto of Holdings or any Holdings Subsidiary are not being
questioned in any litigation to which Holdings or any Holdings Subsidiary is a
party, nor is any such litigation threatened, (c) none of Holdings or the
Holdings Subsidiaries has granted a license or reached an understanding with
any third party or entered into a written agreement relating in whole or in
part to any of the Patent and Trademark Rights and (d) the conduct of the
business of Holdings and the Holdings Subsidiaries as
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now conducted does not infringe or otherwise conflict with any valid patents,
trademarks, trade name, service marks or copyrights of others in any way which
is reasonably likely to have a Holdings Material Adverse Effect.
4.17. Insurance. All material insurance policies (the
"Insurance Policies") with respect to the property, assets, operations and
business of Holdings and the Holdings Subsidiaries are valid and enforceable in
accordance with their terms and are in full force and effect. Except as set
forth in Section 4.17 of the Stockholders Disclosure Schedule, as of the date
of this Agreement, there are no pending material claims against the Insurance
Policies by Holdings or any Holdings Subsidiary as to which the insurers have
denied liability. Each Stockholder makes no representation or warranty that
such insurance will be continued or is continuable after the Closing.
4.18. Environmental Matters. (a) Except as set forth in
Section 4.18 of the Stockholders Disclosure Schedule, Holdings and the Holdings
Subsidiaries hold, and are in substantial compliance with, all material
permits, licenses and government authorizations required for Holdings and the
Holdings Subsidiaries to conduct their respective businesses under any federal
and state statutes and regulations relating to pollution or protection of human
health or the environment, including the Comprehensive Environmental Response,
Compensation, and Liability Act, the Resource Conservation and Recovery Act,
the Clean Air Act, the Clean Water Act, and similar state laws ("Environmental
Laws"), and Holdings and the Holdings Subsidiaries are otherwise in compliance
with all applicable Environmental Laws, except where the failure to be in
compliance would not be reasonably likely to have a Holdings Material Adverse
Effect.
(b) Except as set forth in Section 4.18 of the Stockholders
Disclosure Schedule, neither Holdings nor any Holdings Subsidiary has received
any written request for information, or has been notified that it is a
potentially responsible party, under the Comprehensive Environmental Response,
Compensation, and Liability Act or any similar state law with respect to any
on-site or off-site location for which liability is currently being asserted.
(c) Except as set forth in Section 4.18 of the Stockholders
Disclosure Schedule, neither Holdings nor any Holdings Subsidiary has entered
into or agreed to, and is not subject to, any Order relating to compliance with
any Environmental Law or to investigation or cleanup of regulated substances
under any Environmental Law.
(d) Except as set forth in Section 4.18 of the Stockholders
Disclosure Schedule, no asbestos-containing material that could reasonably be
expected to pose a current
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hazard to health is present at any facility or property owned or operated by
Holdings or any Holdings Subsidiary that could reasonably be expected to have a
Holdings Material Adverse Effect.
(e) Except as set forth in Section 4.18 of the Stockholders
Disclosure Schedule, neither Holdings nor any Holdings Subsidiary has either
expressly or by operation of law assumed or otherwise become subject to the
liability of any other person pursuant to any Environmental Law or any related
common law theory that could reasonably be expected to have a Holdings Material
Adverse Effect.
(f) Except as set forth in Section 4.18 of the Stockholders
Disclosure Schedule, no other facts, events, or circumstances with respect to
the past or present operations or sites of Holdings, any Holdings Subsidiary,
or any predecessor or Affiliate thereof would form the basis for any liability
(including contingent liability) or corrective or remedial obligation pursuant
to any Environmental Law or any related common law theory, including without
limitation any liability or obligation for onsite or offsite cleanup costs,
fines or penalties, property damage, personal injury or natural resources
damages that could reasonably be expected to have a Holdings Material Adverse
Effect.
4.19. Labor Relations. Except as set forth in
Section 4.19 of the Stockholders Disclosure Schedule, no unionization drive or
election is currently being conducted with respect to any employees of Holdings
or any of Holdings Subsidiaries. Except as set forth in Section 4.19 of the
Stockholders Disclosure Schedule, there is no unfair labor practice complaint
or other proceeding against Holdings or any Holdings Subsidiary pending before
the National Labor Relations Board or the Ontario Labor Relations Board or any
other Governmental Authority, which, if adversely decided, is reasonably likely
to have a Holdings Material Adverse Effect, and there is no labor strike
pending or involving or threatened against Holdings or any Holdings Subsidiary
which is reasonably likely to have a Holdings Material Adverse Effect.
4.20. Brokers and Finders. Except for Goldman, Sachs & Co.,
none of the Stockholders, Holdings, any Holdings Subsidiary or any of their
respective officers, directors or employees has employed any broker or finder
or incurred any liability for any investment banking fees, brokerage fees,
commissions or finders' fees in connection with the transactions contemplated
by this Agreement.
4.21. SEC Documents. Holdings and Cup have timely filed all
reports, schedules and definitive proxy statements required to be filed under
the Exchange Act with the Securities and Exchange Commission (the "SEC") since
September 1, 1993 (as such documents have since the time of
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their filing been amended, the "Sweetheart SEC Documents"). As of their
respective dates, the Sweetheart SEC Documents complied in all material
respects with the requirements of the Exchange Act and the rules and
regulations of the SEC promulgated thereunder applicable to such Sweetheart SEC
Documents and none of the Sweetheart SEC Documents contained any untrue
statement of a material fact or omitted to state a material fact required to be
stated therein or necessary to make the statements therein, in light of the
circumstances under which they were made, not misleading.
4.22. Acquisition of Buyer Securities for Investment. Such
Stockholder is acquiring the Buyer Preferred Stock, Discount Notes, if any, and
Bridge Notes, if any, set forth opposite such Stockholder's name on Annex B for
investment and not with a view toward, or for sale in connection with, any
distribution thereof, nor with any present intention of distributing or selling
any such Buyer Securities. Such Stockholder agrees that such Buyer Securities
may not be sold, transferred, offered for sale, pledged, hypothecated or
otherwise disposed of without registration under the Securities Act, except
pursuant to an exemption from such registration under the Securities Act.
4.23. Canadian Subsidiary. (a) The value of all of the assets
of Lily Cups, Inc. ("Lily Cups") based on the financial statements of Lily Cups
for the fiscal year immediately preceding the Closing Date is less than Cdn
$172 million and is less than 50% of the total of all the assets of Holdings
and the Holdings Subsidiaries as shown on the consolidated financial statements
of such entities for the fiscal year immediately preceding the Closing Date.
(b) As of November 30, 1997, (i) the aggregate book value of
the assets in Canada owned by Lily Cups was less than $32,390,000 and (ii) the
gross aggregate revenues from sales in, from or into Canada of Holdings and the
Holdings Subsidiaries and their Affiliates (as such terms and values are
defined and determined pursuant to the Competition Act (Canada) were less than
$64,900,000.
ARTICLE V
REPRESENTATIONS AND WARRANTIES OF CEG AND BUYER
CEG and Buyer, jointly and severally, represent and warrant
to the Stockholders as follows:
5.01. Corporate Organization; Etc. Each of CEG and Buyer is a
corporation duly organized, validly existing and in good standing under the
laws of the jurisdiction of its incorporation and has all requisite corporate
power and authority to conduct its business as it is now being conducted and to
own, lease and operate its property and
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assets. Fonda is a corporation duly organized, validly existing and in good
standing under the laws of the jurisdiction of its incorporation and has all
requisite corporate power and authority to conduct its business as it is now
being conducted and to own, lease and operate its property and assets, except
where the failure to have such power or authority (a) is not, in the aggregate,
reasonably likely to have a material adverse effect on the business, financial
condition or results of operations of Fonda or (b) would not materially impair,
hinder or adversely affect the ability of CEG or Buyer to perform any of its
obligations under this Agreement or to consummate the transactions contemplated
hereby (either of such effects, a "Buyer Material Adverse Effect").
5.02. Capitalization of Buyer and Fonda. Upon consummation
of the Fonda Acquisition, the authorized capital stock of Buyer will consist of
(i) 400,000 shares of Class A Common Stock, par value $0.001 per share, of
which 118,270 shares will be issued and outstanding, subject to increase for
shares issued in connection with the CEG capitalization pursuant to Section
2.02, (ii) 20,000 shares of Class B Common Stock, par value $.001 per share, of
which 2,666 shares will be issued and outstanding, (iii) 100,000 shares of
Class C Common Stock, par value $0.001 per share, of which no shares are issued
and outstanding as of the date hereof, (iv) such number of shares of Preferred
Stock as is necessary to consummate the transactions contemplated hereby, of
which no shares are issued and outstanding as of the date hereof; and (v)
100,000 shares of Class B Preferred Stock, par value $.01 per share, of which
no shares are issued and outstanding as of the date hereof. Upon consummation
of the Fonda Acquisition, the authorized capital stock of Fonda will consist of
100,000 shares of Common Stock, par value $.01 per share ("Fonda Common
Stock"), of which 100,000 shares will be issued and outstanding and owned by
Buyer. Upon consummation of the Fonda Acquisition, all of the issued and
outstanding shares of capital stock of Buyer and Fonda will be duly authorized,
validly issued, fully paid and nonassessable and will not have been issued in
violation of any preemptive rights. Except as set forth on Section 5.02 of the
Disclosure Schedule being delivered by Buyer in connection with the execution
of this Agreement (the "Buyer Disclosure Schedule"), there are no, and upon
consummation of the Fonda Acquisition there will not be any, outstanding (a)
securities convertible into or exchangeable for the capital stock of Buyer or
Fonda, (b) options, warrants or other rights to purchase or subscribe for
capital stock of Buyer or Fonda or (c) contracts, commitments, agreements,
understandings or arrangements of any kind relating to the issuance of any
capital stock of Buyer or Fonda, any such convertible or exchangeable
securities or any such options, warrants or rights, pursuant to which, in any
of the foregoing cases, Buyer or Fonda will be subject or bound.
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When issued to the Stockholders, the Buyer Preferred Stock will be duly
authorized, validly issued, fully paid and nonassessable and not issued in
violation of any preemptive rights.
5.03. Authority Relative to this Agreements. (a) Buyer has all
requisite corporate authority and power to execute and deliver this Agreement,
the Buyer Securities, the Holdings Stockholders' Agreement and the Buyer
Stockholders' Agreement and to consummate the transactions contemplated hereby
and thereby. CEG has all requisite corporate authority and power to execute and
deliver this Agreement and to consummate the transactions contemplated hereby.
The execution and delivery of this Agreement, and, in the case of Buyer, the
Buyer Securities, the Holdings Stockholders' Agreement and the Buyer
Stockholders' Agreement and the consummation of the transactions contemplated
hereby and thereby have been duly and validly authorized by all required
corporate action on the part of CEG and Buyer, as the case may be, and no other
corporate proceedings on the part of CEG or Buyer are necessary to authorize
this Agreement, the Buyer Securities, the Holdings Stockholders' Agreement or
the Buyer Stockholders' Agreement or to consummate the transactions
contemplated hereby or thereby. This Agreement has been duly and validly
executed and delivered by each of CEG and Buyer and, assuming this Agreement
has been duly authorized, executed and delivered by the Stockholders,
constitutes a valid and binding agreement of each of CEG and Buyer, enforceable
against each of CEG and Buyer in accordance with its terms. Upon the execution
and delivery thereof by Buyer (and, in the case of the Holdings Stockholders'
Agreement and the Buyer Stockholders' Agreement, assuming such agreements have
been duly authorized, executed and delivered by the Stockholders), the Buyer
Securities, the Holdings Stockholders' Agreement and the Buyer Stockholders'
Agreement will constitute valid and binding agreements of Buyer, enforceable
against Buyer in accordance with their terms.
5.04. Consents and Approvals; No Violations. Except as set
forth in Section 5.04 of the Buyer Disclosure Schedule, neither the execution
and delivery of this Agreement, the Buyer Securities, the Holdings
Stockholders' Agreement or the Buyer Stockholders' Agreement by CEG and/or
Buyer, as the case may be, nor the consummation of the transactions
contemplated hereby or thereby by CEG or Buyer, as the case may be, will (a)
violate any provision of the Certificate of Incorporation or By-Laws of CEG,
Buyer or Fonda, (b) require any Consent of, or filing with or notification to,
any Governmental Entity, except (i) for filings with the FTC and the DOJ
pursuant to the HSR Act, (ii) for filings with the SEC pursuant to the Exchange
Act, (iii) for filings under the Investment Canada Act (Canada) and the
Competition Act (Canada) and (iv) where the failure
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to obtain such Consent or make such filing or notification is not reasonably
likely to have a Buyer Material Adverse Effect, (c) result in a violation or
breach of, or constitute (with or without due notice or lapse of time or
both) a default (or give rise to any right of termination or cancellation)
under, any of the terms, conditions or provisions of any Obligation to which
CEG, Buyer or Fonda is a party or by which CEG, Buyer or Fonda or any of its
properties or assets may be bound, except such violations, breaches and
defaults which are not reasonably likely to have a Buyer Material Adverse
Effect or (d) violate any Order of any Governmental Entity applicable to CEG,
Buyer or Fonda, except such violations which are not reasonably likely to have
a Buyer Material Adverse Effect.
5.05. SEC Documents. Fonda has timely filed all reports,
schedules and definitive proxy statements required to be filed under the
Exchange Act with the Securities and Exchange Commission (the "SEC") since July
27, 1997 (as such documents have since the time of their filing been amended,
the "Fonda SEC Documents"). As of their respective dates, the Fonda SEC
Documents complied in all material respects with the requirements of the
Exchange Act and the rules and regulations of the SEC promulgated thereunder
applicable to such Fonda SEC Documents and none of the Fonda SEC Documents
contained any untrue statement of a material fact or omitted to state a
material fact required to be stated therein or necessary to make the statements
therein, in light of the circumstances under which they were made, not
misleading.
5.06. Acquisition of Stock for Investment. Buyer is
is acquiring the Shares for investment and not with a view toward, or for sale
in connection with, any distribution thereof, nor with any present intention of
distributing or selling such Shares. Buyer agrees that the Shares may not be
sold, transferred, offered for sale, pledged, hypothe- cated or otherwise
disposed of without registration under the Securities Act, except pursuant to
an exemption from such registration under the Securities Act.
5.07. Financial Capability. The funds to be borrowed
pursuant to the High Yield Offering, together with the funds to be provided
pursuant to the Mehiel Agreement will provide all of the funds required to pay
the Cash Purchase Price.
5.08. Brokers and Finders. Except for SBC Warburg Dillon
Read Inc. and the investment bank referred to in Section 2.03, whose fees will
be paid by Buyer, none of Buyer or Fonda or any of their officers, directors or
employees has employed any investment banker, broker or finder or incurred any
liability for any investment banking fees, brokerage fees, commissions or
finders' fees in connection with the transactions contemplated by this
Agreement.
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5.09. Buyer's Sophistication. Buyer is an informed and
sophisticated purchaser, and has engaged expert advisors, experienced in the
evaluation and purchase of companies such as Holdings and the Holdings
Subsidiaries. Buyer has undertaken such investigation as it has deemed
necessary to enable it to make an informed and intelligent decision with
respect to this Agreement and the transactions contemplated hereby. Buyer
acknowledges that none of the Stockholders or Holdings (or their agents or
representatives) has made any representation or warranty as to Holdings or any
Holdings Subsidiary or their prospects (financial or otherwise), except as
expressly set forth in this Agreement, the Stockholders Disclosure Schedule and
the Exhibits hereto and any other certificate or instrument delivered pursuant
to the terms hereof or thereof. It is therefore expressly understood and agreed
that, except as expressly set forth in this Agreement, the Stockholders
Disclosure Schedule and the Exhibits hereto and any other certificate or
instrument delivered pursuant to the terms hereof or thereof, Buyer accepts the
condition of the properties of Holdings and the Holdings Subsidiaries "AS IS,
WHERE IS" without any representation, warranty or guarantee, express or
implied, as to merchantability, fitness for a particular purpose or otherwise
as to the condition, size, extent, quantity, type or value of such property.
ARTICLE VI
COVENANTS OF THE PARTIES
6.01. Conduct of Business of Holdings. Except as contemplated
by this Agreement, as set forth in Section 6.01 of the Stockholders Disclosure
Schedule or with the prior written consent of Buyer during the period from the
date of this Agreement to the Closing Date, the Stockholders will use their
reasonable best efforts to cause Holdings and each Holdings Subsidiary to (i)
conduct its business and operations in the ordinary course of business
consistent with past practice except as contemplated hereby and (ii) use their
reasonable best efforts consistent therewith to preserve intact its properties,
assets and business organizations, to keep available the services of its
officers and employees and to maintain satisfactory relationships with
customers, suppliers, distributors and others having commercially beneficial
business relationships with it, in each case in the ordinary course of business
consistent with past practice. Without limiting the generality of the
foregoing, and except as otherwise provided in this Agreement or as
contemplated hereby (including by the Dividend) or as set forth in Section 6.01
of the Stockholders Disclosure Schedule, the Stockholders will cause Holdings,
Cup or any other Holdings Subsidiary not to, prior to the Closing Date, without
the prior written consent of Buyer:
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(a) issue, sell or pledge, or authorize or propose the
issuance, sale or pledge of (i) additional shares of capital stock, or
securities convertible into any such shares, or any rights, warrants or options
to acquire any such shares or other convertible securities or (ii) any other
securities in respect of, in lieu of, or in substitution for, the shares of
capital stock of Holdings outstanding on the date hereof;
(b) except for the Dividend, declare or pay any dividend or
distribution on any shares of capital stock of Holdings;
(c) redeem, purchase or otherwise acquire any outstanding
shares of capital stock of Holdings (or any warrants, rights or options to
acquire shares of capital stock of Holdings);
(d) except for the Amendments, amend its Certificate of
Incorporation or By-Laws (or other comparable governing documents);
(e) incur any indebtedness for borrowed money or issue any
debt securities or assume, guarantee or endorse the obligations of any other
Person (except pursuant to existing agreements consistent with past practice);
(f) (i) increase the rate or terms of compensation of any of
its directors, officers or employees, or (ii) pay or agree to pay any pension,
retirement allowance or other employee benefit not required or permitted by any
existing Plan, Benefit Arrangement or other agreement or arrangement to any
such director, officer or employee, whether past or present;
(g) sell, transfer or otherwise dispose of, any of its
property or assets having a fair market value in excess of $50,000 in the
aggregate (other than inventory in the ordinary course of business) or mortgage
or encumber any of its property or assets having a book value of $50,000 or
more or a fair market value in excess of $50,000 in the aggregate;
(h) except for required payments pursuant to the Management
Services Agreement, make any loan to, or (except for transactions at arms'
length in the ordinary course of business) enter into or effect any other
transaction with any of its directors or officers, or any Stockholder or any
Affiliate of any Stockholder (excluding Holdings and the Holdings
Subsidiaries);
(i) enter into other agreements, commitments or contracts,
except agreements, commitments or contracts made in the ordinary course of
business consistent with past practice; or
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(j) make any capital expenditures other than replacement
capital expenditures without providing Buyer reasonable opportunity to review
and consent to such expenditures, such consent not to be unreasonably withheld;
or
(k) agree or commit to take any of the foregoing actions.
6.02. Access to Information. (a) From the date of this
Agreement to the Closing Date, the Stockholders will use their reasonable best
efforts to cause Holdings and each Holdings Subsidiary to (i) give Buyer and
its authorized representatives reasonable access to all books, records, offices
and other facilities and properties of Holdings and the Holdings Subsidiaries,
(ii) permit Buyer to make such inspections thereof as Buyer may reasonably
request and (iii) cause its officers to furnish Buyer and its authorized
representatives with such financial and operating data and other information
with respect to the business and properties of Holdings and the Holdings
Subsidiaries as Buyer and its authorized representatives may from time to time
reasonably request; provided, however, that any such access shall be conducted
at a reasonable time and in such a manner as not to interfere unreasonably with
the operation of the business of Holdings or the Holdings Subsidiaries; and
provided, further, that such right of access shall not grant to Buyer the right
to conduct invasive environmental testing of any kind. All such information and
access shall be subject to the terms and conditions of the letter agreement
executed in August 1996 (the "Confidentiality Agreement"), between Fonda and
Holdings.
(b) After the Closing, upon reasonable written notice, Buyer
will give or cause to be given to the Stockholders and their authorized
representatives, reasonable access to such information relating to Holdings and
the Holdings Subsidiaries as is reasonably necessary for the preparation or
filing of any tax return, financial statement or report, or is otherwise
reasonably requested; provided, however, that any such access shall be
conducted at a reasonable time and in such a manner as not to interfere
unreasonably with the operations of the business of Holdings or the Holdings
Subsidiaries.
6.03. Disclosure Supplements. From time to time prior to the
Closing Date, the Stockholders will supplement or amend the Stockholders
Disclosure Schedule with respect to any matter hereafter arising which, if
existing or occurring at or prior to the date of this Agreement, would have
been required to be set forth or described in the Stockholders Disclosure
Schedule or which is necessary to complete or correct any information in the
Stockholders Disclosure Schedule or in any representation or warranty of the
Stockholders which has been rendered inaccurate thereby.
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For purposes of determining the satisfaction of the condition set forth in
Section 9.01 hereof and for purposes of Section 10.01(e) hereof, no such
supplement or amendment shall be given effect.
6.04. Consents and Approvals. Each of the parties hereto
shall use its reasonable best efforts to obtain as promptly as practicable all
consents, authorizations, approvals and waivers required in connection with the
consummation of the transactions contemplated by this Agreement.
6.05. Filings. Promptly, after the execution of this
Agreement, each of the parties hereto shall (and the Stockholders shall use its
reasonable best efforts to cause Holdings and each Holdings Subsidiary to)
prepare and make or cause to be made any required filings, submissions and
notifications under the laws of any domestic or foreign jurisdictions to the
extent that such filings are necessary to consummate the transactions
contemplated hereby and will use its reasonable best efforts to take all other
actions necessary to consummate the transactions contemplated hereby in a
manner consistent with applicable law. Each of the parties hereto will furnish
to the other parties such necessary information and reasonable assistance as
such other parties may reasonably request in connection with the foregoing.
6.06. Covenant to Satisfy Conditions. The Stockholders will
use their reasonable best efforts to ensure that the conditions set forth in
Article IX hereof are satisfied, insofar as such matters are within the control
of the Stockholders, and Buyer will use its reasonable best efforts to ensure
that the conditions set forth in Article VIII hereof are satisfied, insofar as
such matters are within the control of Buyer.
6.07. Further Assurances. (a) Subject to the terms and
conditions herein provided, each of the parties hereto agrees to use its
reasonable best efforts to take, or cause to be taken, all action, and to do,
or cause to be done, all things necessary, proper or advisable under applicable
laws and regulations to consummate and make effective the transactions
contemplated by this Agreement. Without limiting the generality of the
foregoing, the parties agree to use their reasonable best efforts to negotiate
definitive forms of the Buyer Securities, the Holdings Stockholders' Agreement,
the Buyer Stockholders' Agreement, the Management Agreement Assignment, the
Demand Note and such documentation as is necessary to consummate the Dividend
and the Fonda Acquisition as soon as practicable following the date hereof (the
"Definitive Documentation"). All of the Definitive Documentation shall be in
form and substance reasonably satisfactory to Buyer and AIP and shall be
consistent with the terms set forth in
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the Exhibits to this Agreement. If at any time after the Closing Date any
further action is necessary or desirable to carry out the purposes of this
Agreement, the parties hereto shall, at Buyer's expense, take or cause to be
taken all such necessary action, including, without limitation, the execution
and delivery of such further instruments and documents as may be reasonably
requested by any party for such purposes or otherwise to consummate and make
effective the transactions contemplated hereby.
(b) Holdings shall indemnify, defend and hold harmless the
Stockholders, their respective Affiliates and, if applicable, their respective
directors, officers, shareholders, partners, attorneys, accountants, agents and
employees and their heirs, successors and assigns from, against and in respect
of any damages, claims, losses, charges, actions, suits, proceedings,
deficiencies, Taxes, interest, penalties, and reasonable costs and expenses
(including, without limitation, reasonable attorneys' fees, removal costs,
remediation costs, closure costs, fines, penalties and expenses of
investigation and ongoing monitoring) imposed on, sustained, incurred or
suffered by or asserted against any such party, directly or indirectly,
relating to or arising out of the ownership by the Stockholders of the Shares
or the operation by Holdings and the Holdings Subsidiaries of their respective
businesses, regardless of when they arose or arise and regardless of by whom or
when asserted. Prior to the Closing the Stockholders shall cause Holdings to
execute an acknowledgement of its obligations under this Section 6.07(b). Buyer
hereby agrees that it will permit and, if and to the extent required from time
to time, authorize Holdings to comply with its obligations under this Section
6.07(b) and that neither Buyer nor its Affiliates will take any action
inconsistent with the intention of this Section 6.07(b) or the fulfillment of
Holdings' obligations under this Section 6.07(b).
6.08. No Solicitation. Each Stockholder agrees that during
the period from the date hereof through the Closing Date, it will not, will use
its best efforts to cause Holdings and Holdings' directors and executive
officers not to, and will use its best efforts to cause Holdings' other
officers, employees and representatives not to, directly or indirectly, (a)
solicit, initiate or encourage the submission of any inquiries, proposals or
offers from any person relating to any acquisition or purchase of any assets
of, or any equity interest in, or any merger, consolidation, liquidation or
similar transaction involving Holdings or any Holdings Subsidiary, (b) enter
into or participate in any discussions or negotiations regarding any of the
foregoing, enter into any agreements or understandings regarding any of the
foregoing or furnish to any person any non-public information with respect to
Holdings or any Holdings Subsidiary, or (c) otherwise
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cooperate in any way with, or assist or participate in, facilitate or
encourage, any effort or attempt by any person to do or seek any of the
foregoing.
6.09. Certain Access. (a) The Stockholders will use
reasonable best efforts to cause (i) the officers of Holdings and the Holdings
Subsidiaries generally to assist Buyer in connection with the financing
required to consummate the transactions contemplated hereby, including, but not
limited to, providing historical financial statements and monthly financial
reports and by assisting in the preparation of pro forma financial statements
and (ii) the auditors of Holdings' audited financial statements (w) to give
Buyer and Buyer's representative reasonable access to their work papers with
respect to such audits, (x) to give their consent to Buyer's use of the audited
Financial Statements in offering materials prepared in connection with the
financing of the transactions contemplated by this Agreement, including any
filings made with the SEC in connection therewith (including, without
limitation, any such filing with respect to a registered exchange offer for
debt securities which were issued in a private placement), (y) generally to
assist Buyer in connection with the financing of the transactions contemplated
hereby, including, but not limited to, assisting in the preparation of pro
forma financial statements which include periods covered by their audit
reports, and (z) generally to assist Buyer in connection with any filings with
the SEC.
(b) CEG and Buyer will keep AIP fully and contemporaneously
informed of all material developments in the sale and/or recapitalization of
CEG and the High Yield Offering.
6.10. Certain Management Changes. Immediately prior to the Closing,
effective as of the Closing, Holdings will effect the management changes
described on Schedule 6.10; provided, however, that assurance satisfactory to
the Stockholders shall be given with respect to Holdings' fulfillment of the
obligations to these individuals set forth on Schedule 6.10. Buyer agrees to
permit and, if and to the extent required from time to time, authorize Holdings
to comply with the obligations set forth on Schedule 6.10 and not to take any
action inconsistent with the intention of this Section 6.10 and the performance
by Holdings of its obligations set forth on Schedule 6.10.
6.11. Execution. AIP agrees to obtain executed signature pages from
the other Stockholders on or before January 15, 1997 failing which AIP agrees
to exercise its drag-along rights under the Existing Stockholders Agreement.
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ARTICLE VII
EMPLOYEES AND EMPLOYEE BENEFITS
7.01. [Intentionally omitted.]
7.02. Employee Benefit Plan. Buyer presently intends to
maintain and cause Holdings and the Holdings Subsidiaries to maintain for a
period of at least one year from the Closing Date the Plans or to substitute
for such Plans other plans and policies which shall provide benefits and
coverage to current and retired employees of the Holdings Subsidiaries that are
in the aggregate no less favorable than the benefits and coverage afforded by
the Plans.
7.03. Indemnification and Insurance. (a) Buyer agrees that
all rights to indemnification or exculpation now existing in favor of the
employees, agents, directors or officers of Holdings and the Holdings
Subsidiaries (the "Holdings Indemnified Parties") (i) as provided in their
respective Certificates of Incorporation or By-Laws (or other comparable
governing documents) or (ii) as provided in an agreement between a Holdings
Indemnified Party and Holdings or any of the Holdings Subsidiaries (the
"Indemnification Agreements") or otherwise in effect on the date hereof, all of
which are set forth in Section 7.03 of the Stockholders Disclosure Schedule,
shall, with respect to matters occurring on or prior to the Closing Date,
continue in full force and effect for a period of not less than seven years
from the Closing Date; provided, however, that, in the event any claim or
claims are asserted or made within such seven-year period, all rights to
indemnification in respect of any such claim or claims shall continue until
disposition of any and all such claims. Any determination required to be made
with respect to whether a Holdings Indemnified Party's conduct complies with
the standards set forth in the Certificate of Incorporation or By-Laws (or
other comparable governing documents) of Holdings or any of the Holdings
Subsidiaries or under the Indemnification Agreements or otherwise shall be made
by independent counsel selected by Holdings reasonably satisfactory to the
Holdings Indemnified Party (whose fees and expenses shall be paid by Holdings).
(b) Buyer agrees to cause Holdings to maintain in effect for
not less than six years from the Closing Date the current policy of the
directors' and officers' liability insurance (the "D&O" Policy") maintained for
Holdings directors and officers as described in Section 7.03 of the
Stockholders Disclosure Schedule; provided, however, that Buyer or Holdings may
substitute therefor policies of at least substantially similar coverage so long
as such substitution shall not result in any gaps or lapse of coverage with
respect to matters occurring prior to the Closing Date to the extent currently
available; and
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provided, further, that in no event will Holdings or Buyer be required to pay
an annual premium that is more than 150% of the annual premium (the "Maximum
Premium") for the D&O Policy in effect on the Closing Date; and provided,
further, that if Holdings or Buyer is unable to obtain insurance at an annual
premium which is equal to or less than the Maximum Premium, then Holdings or
Buyer will obtain as much comparable insurance as is available for the Maximum
Premium.
7.04. Binding on Successors. In the event Holdings or any of
its successors or assigns (a) consolidates with or merges into any other person
and shall not be the continuing or surviving corporation or entity of such
consolidation or merger or (b) transfers all or substantially all of its or
Cup's properties and assets or Cup Common Stock to any person, then and in each
such case, proper provision shall be made so that the successors and assigns of
Holdings (or their successors and assigns) shall assume the obligations set
forth in this Article VII.
ARTICLE VIII
CONDITIONS TO THE STOCKHOLDERS' OBLIGATIONS
The obligations of the Stockholders to effect the transactions
contemplated hereby shall be subject to the fulfillment, or written waiver by
AIP, at or prior to the Closing of each of the following conditions:
8.01. Representations and Warranties True. The representations
and warranties of Buyer contained herein shall be true and correct in all
material respects as of the date hereof and at and as of the Closing Date as
though such representations and warranties were made at and as of such date
(except as otherwise contemplated by this Agreement).
8.02. Performance. Buyer shall have performed and complied in
all material respects with all agreements, obligations, covenants and
conditions required by this Agreement to be performed or complied with by it on
or prior to the Closing.
8.03. No Injunction or Proceeding. No Order shall have been
enacted, entered, promulgated or enforced by any Governmental Entity which
prohibits or restricts the consummation of the transactions contemplated
hereby. No action or proceeding by any Governmental Entity shall have been
commenced (and be pending) against Buyer, any Stockholder, Holdings, Cup or any
of their respective Affiliates, associates, officers or directors seeking to
prevent or delay the transactions contemplated hereby or challenging any of the
terms or provisions of this Agreement or seeking material damages in connection
therewith.
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8.04. Consents. All consents and approvals of Governmental
Entities necessary for consummation of the transactions contemplated hereby
shall have been obtained, other than those which, if not obtained, would not
have a Holdings Material Adverse Effect or a Buyer Material Adverse Effect. A
consent or waiver of Section 11.1(q) of the Amended and Restated Loan and
Security Agreement dated as of October 24, 1997 among the lenders named
therein, BankAmerica Business Credit, Inc., Cup and Holdings (the "Loan
Agreement") shall have been obtained.
8.05. HSR Act. All required waiting periods applicable to
this Agreement and the transactions contemplated hereby under the HSR Act shall
have expired or been terminated.
8.06. Related Matters. The Fonda Acquisition shall have
occurred at or immediately prior to the Closing. The payments required by
Sections 2.04 and 2.06 shall have been made by Holdings at or prior to the
Closing.
8.07. Certificates. Buyer shall have furnished the
Stockholders with a certificate to evidence its compliance with the conditions
set forth in this Article VIII.
8.08. Opinion of Counsel. The Stockholders shall have received
an opinion (subject to customary qualifications) as to the matters set forth in
Sections 5.01, 5.02 (with respect to the last sentence) and 5.03 from Buyer's
counsel.
8.09. No Buyer Material Adverse Effect. Since July 27, 1997,
there shall not have been a Buyer Material Adverse Effect.
ARTICLE IX
CONDITIONS TO BUYER'S OBLIGATIONS
The obligation of Buyer to effect the transactions
contemplated hereby shall be subject to the fulfillment, or written waiver by
Buyer, at or prior to the Closing of each of the following conditions:
9.01. Representations and Warranties True. The
representations and warranties of the Stockholders contained herein shall be
true and correct as of the date hereof and at and as of the Closing Date as
though such representations and warranties were made at and as of such date.
For purposes of determining the satisfaction of the condition set forth in this
Section 9.01, (a) no supplement or amendment to the Stockholders Disclosure
Schedule made after the date of this Agreement pursuant to Section 6.03 shall
be given effect and (b) the condition set forth in this Section
-31-
<PAGE>
9.01 shall be deemed satisfied unless the effect of all breaches of
representations and warranties in the aggregate (the existence of a breach to
be determined, for this purpose, without regard to any qualification as to
materiality, including any requirement that it have "a Holdings Material
Adverse Effect" or similar qualification) is reasonably likely to result in a
Holdings Material Adverse Effect.
9.02. Performance. The Stockholders shall have performed and
complied in all material respects with all agreements, obligations, covenants
and conditions required by this Agreement to be performed or complied with by
them on or prior to the Closing.
9.03. No Injunction or Proceeding. No Order shall have been
enacted, entered, promulgated or enforced by any Governmental Entity which
prohibits or restricts the consummation of the transactions contemplated
hereby. No action or proceeding by any Governmental Entity shall have been
commenced (and be pending) against Buyer, any Stockholder, Holdings, Cup or any
of their respective affiliates, associates, officers or directors seeking to
prevent or delay the transactions contemplated hereby or challenging any of the
terms or provisions of this Agreement or seeking material damages in connection
therewith.
9.04. Consents. All consents and approvals of Governmental
Entities necessary for consummation of the transactions contemplated hereby
shall have been obtained, other than those which, if not obtained, would not
have a Holdings Material Adverse Effect or a Buyer Material Adverse Effect. A
consent or waiver of Section 11.1(q) of the Loan Agreement shall have been
obtained.
9.05. HSR Act. All required waiting periods applicable to
this Agreement and the transactions contemplated hereby under the HSR Act shall
have expired or been terminated.
9.06. Conduct of Business of Holdings. Holdings, Cup and the
other Holdings Subsidiaries shall not, without the prior written consent of
Buyer, have taken any of the actions set forth in Section 6.01(a)-(j) hereof.
9.07. Certificates. AIP, as representative of the
Stockholders, shall have furnished Buyer with a certificate to evidence
compliance by the Stockholders with the conditions set forth in this Article
IX.
9.08. Opinion of Counsel. Buyer shall have received an opinion
(subject to customary qualifications) from Holdings' and the Stockholders'
counsel with respect to the matters set forth in Sections 4.02 (last sentence)
and 4.04 including, where appropriate, reliance letters to
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<PAGE>
Buyer's financing institutions. Buyer shall also have received an opinion from
Holdings' general counsel reasonably satisfactory to Buyer.
9.09. Foreign Person Certificate. Buyer shall have received a
certificate from each Stockholder substantially in the form of Exhibit H
certifying that such Stockholder is not a "foreign person" within the meaning
of Section 1445 (b)(2) of the Code.
9.10. No Holding Material Adverse Effect. Since the date of
the Balance Sheet, there has not been a Holdings Material Adverse Effect.
9.11. Assurance Regarding Repayment of Note. Buyer shall have
reasonable assurance that the note described in Section 9.11 of the
Stockholders Disclosure Schedule shall be repaid as described therein.
ARTICLE X
TERMINATION AND ABANDONMENT
10.01. Termination. This Agreement may be terminated at any
time prior to the Closing Date
(a) by mutual consent of AIP and Buyer;
(b) by either AIP or Buyer at any time after March 31, 1998
if, through no fault of the party seeking termination, the Closing shall not
have occurred; provided that such date may be extended until any date up to and
including April 30, 1998 at the option of either party;
(c) by Buyer, if there has been a violation or breach by a
Stockholder of any agreement, representation or warranty contained in this
Agreement which has rendered the satisfaction of any condition to the
obligations of Buyer impossible and such violation or breach has not been cured
in all material respects after 10 days' written notice or waived by Buyer;
(d) by AIP, if there has been a violation or breach by CEG or
Buyer of any agreement, representation or warranty contained in this Agreement
which has rendered the satisfaction of any condition to the obligations of the
Stockholders impossible and such violation or breach has not been cured in all
material respects after 10 days' written notice or waived by AIP;
(e) by Buyer, if the existence of any fact or circumstance
renders the satisfaction of the condition set forth in Section 9.01 impossible;
or
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<PAGE>
(f) by Buyer, if a consent or waiver of Section 11.1(q) of
the Loan Agreement shall not have been received on or before January 15, 1997.
10.02. Procedure and Effect of Termination. In the event of
termination of this Agreement and abandonment of the transactions contemplated
hereby by any or all of the parties pursuant to Section 10.01 hereof, written
notice thereof shall forthwith be given to the other party or parties hereto
and this Agreement shall terminate and the transactions contemplated hereby
shall be abandoned, without further action by any of the parties hereto. If
this Agreement is terminated as provided herein:
(a) upon request therefor, each party will redeliver all
documents, work papers and other material of any other party or of Holdings or
any Holdings Subsidiary relating to the transactions contemplated hereby,
whether obtained before or after the execution hereof, to the party furnishing
or causing to be furnished the same;
(b) all information received by Buyer with respect to the
business of Holdings or any Holdings Subsidiary shall be held subject to and in
accordance with the terms of the Confidentiality Agreement, which agreement
shall continue notwithstanding the termination of this Agreement;
(c) Any termination pursuant to Section 10.01(d) as a result
of the failure for any reason of Buyer to be capitalized in accordance with the
terms of Exhibit A hereto shall entitle the Stockholders to receipt of payment
on demand of $2,500,000, as liquidated damages and not as a penalty, by CEG as
the Stockholders' sole remedy for such failure.
(d) Except as otherwise provided in clause (c) above, in the
event that (i) the Closing, through no fault of AIP, fails to occur on or
before March 31, 1998 (subject to extension as provided in Section 10.01(b)) or
(ii) if there has been a violation or breach by Buyer of any agreement,
representation or warranty contained in this Agreement which has rendered the
satisfaction of any condition to the obligations of the Stockholders impossible
and such violation or breach has not been cured in all material respects after
10 days' written notice or waived by AIP, the Stockholders' sole and exclusive
remedy under this Agreement, at law, in equity or otherwise, shall be to
terminate this Agreement pursuant to Section 10.01(b) or Section 10.01(d)
hereof and to receive from CEG payment of such damages as may have been
suffered or incurred in connection therewith; provided, however, that in no
event shall such recovery be in excess of $7,500,000 (plus interest on the
recovery from the date of termination).
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<PAGE>
(e) any termination by Buyer pursuant to Sections 10.01(b),
(c) or (e) shall not be deemed a waiver of any rights or remedies otherwise
available under this Agreement, by operation of law or otherwise, to the party
who so terminates; and
(f) all filings, applications and other submissions made
pursuant to Section 6.05 hereof shall, to the extent practicable, be withdrawn
from the agency or other person to which made.
ARTICLE XI
MISCELLANEOUS PROVISIONS
11.01. Amendment and Modification. This Agreement may be
amended, modified or supplemented at any time by the parties hereto. This
Agreement may be amended only by an instrument in writing signed on behalf of
both parties.
11.02. Extension; Waiver. At any time prior to the Closing
Date, the parties entitled to the benefits of the respective term or provision
may (a) extend the time for the performance of any of the obligations or other
acts of the other parties hereto, (b) waive any inaccuracies in the
representations and warranties contained herein or in any document, certificate
or writing delivered pursuant hereto or (c) waive compliance with any
obligation, covenant, agreement or condition contained herein. Any agreement on
the part of any party to any such extension or waiver shall be valid only if
set forth in an instrument in writing signed on behalf of the parties entitled
to the benefits of such extended or waived term or provision.
11.03. Non-Survival of Representations and Warranties. The
representations and warranties made in this Agreement shall not survive beyond
the Closing Date.
11.04. Entire Agreement; Assignment. This Agreement (a)
constitutes the entire agreement among the parties with respect to the subject
matter hereof and supersedes all other prior agreements and understandings,
both written and oral, among the parties or any of them with respect to the
subject matter hereof (other than the Confidentiality Agreement) and (b) shall
not be assigned by operation of law or otherwise; provided, however, that
effective as of the Closing CEG may assign its rights and obligations to Buyer.
11.05. Validity. The invalidity or unenforceability of any
provision of this Agreement shall not affect the validity or enforceability of
any other provisions of this Agreement, each of which shall remain in full
force and effect.
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<PAGE>
11.06. Notices. All notices, requests, claims, demands and
other communications hereunder shall be in writing and shall be deemed given if
delivered personally or by facsimile transmission or telexed or three days
after being mailed by registered or certified mail (return receipt requested),
postage prepaid, to the parties at the following addresses (or at such other
address for a party as shall be specified by like notice; provided, that
notices of a change of address shall be effective only upon receipt thereof):
(a) if to a Stockholder, to:
c/o American Industrial Partners
Management Company, Inc.
One Maritime Plaza
Suite 2475
San Francisco, California 94111
Telephone: (415) 788-7354
Telecopy: (415) 788-5302
Attention: Lawrence W. Ward, Jr.
with a copy to:
Weil, Gotshal & Manges LLP
767 Fifth Avenue
New York, New York 10153
Telephone: (212) 310-8000
Telecopy: (212) 310-8007
Attention: Ellen J. Odoner, Esq.
(b) if to Buyer or CEG, to:
c/o Creative Expressions Group, Inc.
115 Stevens Avenue
Valhalla, New York 10595
Telephone: (914) 749-3202
Telecopy: (914) 749-3280
Attention: Harvey L. Friedman, Esq.
with a copy to:
Kramer, Levin, Naftalis & Frankel
919 Third Avenue
New York, New York 10022
Telephone: (212) 715-9100
Telecopy: (212) 715-8000
Attention: Michael S. Nelson, Esq.
11.07. Governing Law. This Agreement shall be governed by
and construed in accordance with the laws of the State of New York, regardless
of the laws that might otherwise govern under applicable principles of
conflicts of laws thereof.
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<PAGE>
11.08. Specific Performance. Except as otherwise provided in
Section 10.02, the parties hereto agree that if any of the provisions of this
Agreement were not performed in accordance with their specific terms or were
otherwise breached, irreparable damage would occur, no adequate remedy at law
would exist and damages would be difficult to determine, and that the parties
shall be entitled to specific performance of the terms hereof, in addition to
any other remedy at law or equity.
11.09. Publicity. Except as otherwise required by law, for so
long as this Agreement is in effect, neither Buyer nor any Stockholder shall
issue or cause the publication of any press release or other public
announcement with respect to the transactions contemplated by this Agreement
without the express prior written approval of the other party.
11.10. Descriptive Headings. The descriptive headings herein
are inserted for convenience of reference only and are not intended to be part
of or to affect the meaning or interpretation of this Agreement.
11.11. Counterparts. This Agreement may be executed in any
number of counterparts, each of which shall be deemed an original, but all of
which together shall constitute one and the same instrument.
11.12. Fees and Expenses. Whether or not the transactions
contemplated by this Agreement are consummated, and except as set forth in
Sections 2.04 and 2.06 or as otherwise expressly set forth herein, all legal
and other costs and expenses incurred in connection with the transactions
contemplated by this Agreement shall be paid by the party incurring such
expenses.
11.13. Parties in Interest. This Agreement shall be binding
upon and inure solely to the benefit of each party hereto and, except as set
forth in Section 6.10 or Article VII hereof, nothing in this Agreement, express
or implied, is intended by or shall confer upon any other person or persons any
rights, benefits or remedies of any nature whatsoever under or by reason of
this Agreement. Any person who is a beneficiary of any of Section 6.10 or
Article VII shall be entitled to enforce his rights thereunder; provided,
however, that, prior to the Closing, no action to enforce such rights may be
commenced by any such person without the prior written consent of AIP.
11.14. Definitions. As used in this Agreement:
"Affiliate" shall have the meaning set forth in Rule 12b-2 of
the regulations promulgated under the Securities and Exchange Act of 1934, as
amended.
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<PAGE>
"Business Day" shall mean any day in which banks are open for
business in New York City.
"Person" shall mean any individual, corporation,
partnership, trust or other entity.
"Subsidiary" shall mean, with respect to any Person, any
corporation, association or other business entity of which more than 50% of the
total voting power of stock entitled to vote in the election of directors or
managers thereof is at the time owned or controlled, directly or indirectly, by
such Person.
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<PAGE>
IN WITNESS WHEREOF, the undersigned has caused this Agreement
to be signed by its duly authorized officers as of the date first above
written.
AMERICAN INDUSTRIAL PARTNERS CAPITAL
FUND, L.P.
By: American Industrial Partners, L.P.,
General Partner
By: American Industrial Partners
Management Company, Inc., General
Partner
By: /s/ Theodore C. Rogan
----------------------------------------
Name: Theodore C. Rogan
Title: Chairman
CREATIVE EXPRESSIONS GROUP, INC.
By: /s/ Dennis Mehiel
----------------------------------------
Name: Dennis Mehiel
Title: Chairman
S. F. HOLDINGS GROUP, INC.
By: /s/ Dennis Mehiel
----------------------------------------
Name: Dennis Mehiel
Title: Chairman
MELLON BANK, N.A., AS TRUSTEE FOR
FIRST PLAZA GROUP TRUST (as directed
by General Motors Investment
Management Corporation)
By: /s/ Bernadette Risk
----------------------------------------
Name: Bernadette Risk
Title: Authorized signatory
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<PAGE>
LEEWAY & CO.
By: State Street Bank and Trust
Company, a General Partner
By: /s/ Kimberly Moynihan
----------------------------------------
Name: Kimberly Moynihan
Title: Assistant Secretary
/s/ Donald W. Davis
-------------------------------------------
Donald W. Davis
/s/ Robert J. Klein
-------------------------------------------
Robert J. Klein
/s/ Thomas H. Barrett
-------------------------------------------
Thomas H. Barrett
/s/ Kenneth A. Pereira
-------------------------------------------
Kenneth A. Pereira
/s/ Lawrence W. Ward, Jr.
-------------------------------------------
Lawrence W. Ward, Jr.
/s/ William F. McLaughlin
-------------------------------------------
William F. McLaughlin
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<PAGE>
AMERICAN INDUSTRIAL PARTNERS MANAGEMENT
COMPANY INC.
for purposes of Section 2.05 hereof
By: /s/ W. Richard Bingham
----------------------------------------
Name: W. Richard Bingham
Title: Partner
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<PAGE>
ANNEX A
<TABLE>
<CAPTION>
===================================================================================================================================
Name Holdings Common Holdings Common Holdings Non-Voting
Stock Owned Stock to be Sold Common Stock to be
Owned and Sold
<S> <C> <C> <C>
- -----------------------------------------------------------------------------------------------------------------------------------
American Industrial Partners Capital 538,825 258,636 2,263,065
Fund, L.P.
- -----------------------------------------------------------------------------------------------------------------------------------
First Plaza Group Trust 350,000 168,000 1,470,000
- -----------------------------------------------------------------------------------------------------------------------------------
Leeway & Co. 150,000 72,000 630,000
- -----------------------------------------------------------------------------------------------------------------------------------
Donald W. Davis 500 240 2,100
- -----------------------------------------------------------------------------------------------------------------------------------
Robert J. Klein 100 48 420
- -----------------------------------------------------------------------------------------------------------------------------------
Thomas H. Barrett 500 240 2,100
- -----------------------------------------------------------------------------------------------------------------------------------
Kenneth A. Pereira 25 12 105
- -----------------------------------------------------------------------------------------------------------------------------------
Lawrence W. Ward, Jr. 50 24 210
- -----------------------------------------------------------------------------------------------------------------------------------
William F. McLaughlin 6,000 2,880 25,200
===================================================================================================================================
</TABLE>
A-1
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<PAGE>
===============================================================================
INVESTMENT AGREEMENT
AMONG
THE STOCKHOLDERS OF
SWEETHEART HOLDINGS INC.,
CREATIVE EXPRESSIONS GROUP, INC.
AND
SF HOLDINGS GROUP, INC.
Dated as of December 29, 1997
===============================================================================
B-1
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<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C> <C> <C>
ARTICLE I - INVESTMENT................................................................................. 2
1.01. Preliminary Corporate Actions.................................................... 2
1.02. The Investment................................................................... 2
1.03. Consideration.................................................................... 2
ARTICLE II - RELATED MATTERS........................................................................... 3
2.01. Fonda Acquisition................................................................ 3
2.02. Capitalization of Buyer.......................................................... 3
2.03. Buyer Financing.................................................................. 3
2.04. Options.......................................................................... 3
2.05. Management Services Agreement.................................................... 3
2.06. Certain Expenses................................................................. 4
2.07. Certain Agreements............................................................... 4
ARTICLE III - THE CLOSING.............................................................................. 4
3.01. Time and Place of Closing........................................................ 4
3.02. Deliveries by AIP................................................................ 5
3.03. Deliveries by Buyer.............................................................. 5
ARTICLE IV - REPRESENTATIONS AND WARRANTIES
OF THE STOCKHOLDERS.............................................................. 6
4.01. Corporate Organization; Etc...................................................... 6
4.02. Capitalization of Holdings and Cup............................................... 7
4.03. Holdings Subsidiaries............................................................ 8
4.04. Authority Relative to this Agreement............................................. 8
4.05. Consents and Approvals; No Violations............................................ 9
4.06. Financial Statements............................................................. 10
4.07. Absence of Certain Changes....................................................... 10
4.08. Compliance with Law.............................................................. 11
4.09. Contracts and Commitments........................................................ 11
4.10. No Undisclosed Liabilities....................................................... 13
4.11. No Default....................................................................... 13
4.12. Litigation....................................................................... 13
4.13. Taxes............................................................................ 13
4.14. Employee Benefit Plans; ERISA.................................................... 15
4.15. Properties....................................................................... 17
4.16. Patents, Trademarks, Etc......................................................... 18
4.17. Insurance........................................................................ 19
4.18. Environmental Matters............................................................ 19
4.19. Labor Relations.................................................................. 20
4.20. Brokers and Finders.............................................................. 21
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<PAGE>
<CAPTION>
PAGE
----
<S> <C> <C> <C>
4.21. SEC Documents.................................................................... 21
4.22. Acquisition of Buyer Securities for
Investment....................................................................... 21
4.23. Canadian Subsidiary.............................................................. 22
ARTICLE V - REPRESENTATIONS AND WARRANTIES OF CEG AND
BUYER............................................................................ 22
5.01. Corporate Organization; Etc...................................................... 22
5.02. Capitalization of Buyer and Fonda................................................ 22
5.03. Authority Relative to this Agreement............................................. 23
5.04. Consents and Approvals; No Violations............................................ 24
5.05. SEC Documents.................................................................... 25
5.06. Acquisition of Stock for Investment.............................................. 25
5.07. Financial Capability............................................................. 25
5.08. Brokers and Finders.............................................................. 25
5.09. Buyer's Sophistication........................................................... 26
ARTICLE VI - COVENANTS OF THE PARTIES.................................................................. 26
6.01. Conduct of Business of Holdings.................................................. 26
6.02. Access to Information............................................................ 28
6.03. Disclosure Supplements........................................................... 29
6.04. Consents and Approvals........................................................... 29
6.05. Filings.......................................................................... 29
6.06. Covenant to Satisfy Conditions................................................... 30
6.07. Further Assurances............................................................... 30
6.08. No Solicitation.................................................................. 31
6.09. Certain Access................................................................... 31
6.10. Certain Management Changes....................................................... 32
6.11. Execution........................................................................ 32
ARTICLE VII - EMPLOYEES AND EMPLOYEE BENEFITS.......................................................... 32
7.01. [Intentionally omitted.]......................................................... 32
7.02. Employee Benefit Plan............................................................ 33
7.03. Indemnification and Insurance.................................................... 33
7.04. Binding on Successors............................................................ 34
ARTICLE VIII - CONDITIONS TO THE STOCKHOLDERS'
OBLIGATIONS...................................................................... 34
8.01. Representations and Warranties True.............................................. 34
8.02. Performance...................................................................... 34
8.03. No Injunction or Proceeding...................................................... 34
8.04. Consents......................................................................... 35
8.05. HSR Act.......................................................................... 35
8.06. Related Matters.................................................................. 35
8.07. Certificates..................................................................... 35
B-1
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<PAGE>
<CAPTION>
PAGE
----
<S> <C> <C> <C>
8.08. Opinion of Counsel............................................................... 35
8.09. No Buyer Material Adverse Effect................................................. 35
ARTICLE IX - CONDITIONS TO BUYER'S OBLIGATIONS......................................................... 36
9.01. Representations and Warranties True.............................................. 36
9.02. Performance...................................................................... 36
9.03. No Injunction or Proceeding...................................................... 36
9.04. Consents......................................................................... 36
9.05. HSR Act.......................................................................... 37
9.06. Conduct of Business of Holdings.................................................. 37
9.07. Certificates..................................................................... 37
9.08. Opinion of Counsel............................................................... 37
9.09. Foreign Person Certificate....................................................... 37
9.10. No Holding Material Adverse Effect............................................... 37
9.11. Assurance Regarding Repayment of Note............................................ 37
ARTICLE X - TERMINATION AND ABANDONMENT................................................................ 38
10.01. Termination...................................................................... 38
10.02. Procedure and Effect of Termination.............................................. 38
ARTICLE XI - MISCELLANEOUS PROVISIONS.................................................................. 40
11.01. Amendment and Modification....................................................... 40
11.02. Extension; Waiver................................................................ 40
11.03. Non-Survival of Representations and
Warranties....................................................................... 40
11.04. Entire Agreement; Assignment..................................................... 40
11.05. Validity......................................................................... 40
11.06. Notices.......................................................................... 41
11.07. Governing Law.................................................................... 42
11.08. Specific Performance............................................................. 42
11.09. Publicity........................................................................ 42
11.10. Descriptive Headings............................................................. 42
11.11. Counterparts..................................................................... 42
11.12. Fees and Expenses................................................................ 42
11.13. Parties in Interest.............................................................. 43
11.14. Definitions...................................................................... 43
</TABLE>
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<PAGE>
PAGE
----
ANNEXES AND EXHIBITS
Annex A - Stockholders and Shares
Exhibit A - Form of Mehiel Agreement
Exhibit B - Terms of Holdings Amendments
Exhibit C - Terms of Buyer Preferred Stock
Exhibit 2.05 - Terms of Management Agreement
Assignment
Exhibit D - Terms of Holdings Stockholders'
Agreement
Exhibit E - Terms of Buyer Stockholders'
Agreement
Exhibit H - Form of Foreign Person Certificate
B-1
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<PAGE>
RESTATED CERTIFICATE OF INCORPORATION
OF
SF HOLDINGS GROUP, INC.
SF HOLDINGS GROUP, INC., a corporation organized and existing under
the laws of the State of Delaware (the "Corporation"), hereby certifies as
follows:
1. The name of the Corporation is SF Holdings Group, Inc.
2. The original Certificate of Incorporation of the Corporation (the
"Certificate of Incorporation") was filed with the Secretary of State of the
State of Delaware on December 24, 1997.
3. Pursuant to Sections 242 and 245 of the General Corporation Law of
the State of Delaware, this Restated Certificate of Incorporation restates and
amends the provisions of the Certificate of Incorporation, and such amendments
have been duly adopted in accordance with the above-referenced Sections.
4. The text of the Certificate of Incorporation is hereby restated and
amended to read in its entirety as set forth in Exhibit A attached hereto.
IN WITNESS WHEREOF, this Restated Certificate of Incorporation has
been duly executed this 6th day of March, 1998.
SF HOLDINGS GROUP, INC.
By:/s/Hans Heinsen
-----------------------------
Name: Hans Heinsen
Title: Senior Vice
President
1
<PAGE>
EXHIBIT A
RESTATED CERTIFICATE OF INCORPORATION
OF
SF HOLDINGS GROUP, INC.
FIRST: The name of the Corporation is SF Holdings Group,Inc.
SECOND: The address of the registered office of the Corporation in
Delaware is 1013 Centre Road, Wilmington, 19805-1297, in New Castle County,
and the name of the registered agent of the Corporation at such address is
Corporation Service Corporation.
THIRD: The purpose of the Corporation is to engage in any lawful act
or activity for which corporations may be organized under the General
Corporation Law of Delaware.
FOURTH. The total number of shares of all classes of stock which the
Corporation shall have authority to issue is eighteen million one hundred and
twenty thousand (18,120,000) shares, consisting of:
(a) eighteen million (18,000,000) shares of Common Stock, par
value $.001 per share (hereinafter referred to as "Common Stock");
(b) twenty thousand (20,000) shares of Exchangeable Preferred
Stock, par value $.001 per share (hereinafter referred to as "Preferred
Stock"); and
(c) one hundred thousand (100,000) shares of Class B Preferred
Stock, par value $.001 per share (hereinafter referred to as "Class B
Preferred Stock").
The designations, relative rights, preferences and limitations of
shares of each class and the authority of the Board of Directors to fix the
designations, relative rights, preferences and limitations of shares of each
class not fixed hereby shall be as follows:
A. PREFERRED STOCK
The powers, preferences and rights, and the qualifications, limitations
and restrictions, of the Preferred Stock are as follows:
2
<PAGE>
1. The Preferred Stock shall, with respect to dividend distributions
and distributions upon the liquidation, winding up or dissolution of the
Corporation, rank senior to all classes of Common Stock of the Corporation and,
except as provided in the following proviso, to each other class or series of
capital stock issued by the Corporation now or hereafter created (collectively,
"Junior Stock"); provided, however, that the Board of Directors may authorize a
class or series of preferred stock on a parity in powers, preferences and
rights to the Preferred Stock (collectively, "Parity Stock") or senior in
powers, preferences and rights to the Preferred Stock (collectively, "Senior
Stock") if approved by the holders of a majority of the shares of Preferred
Stock.
2. (a) The holders of shares of Preferred Stock shall be entitled to
receive, when, as and if declared by the Board of Directors out of
funds of the Corporation legally available therefor, cumulative
dividends at an annual rate equal to 13.75%. Until March 15, 2003,
dividends on the Preferred Stock will be payable quarterly in arrears
on March 15, June 15, September 15 and December 15 of each year (each,
a "Dividend Payment Date"), commencing June 15, 1998, (i) in cash or,
at the option of the Corporation, (ii) by issuing shares of Preferred
Stock with an aggregate Liquidation Amount (as defined in subparagraph
3 below) equal to the amount of such dividends. From and after such
time, dividends on the Preferred Stock shall be payable quarterly in
arrears in cash except to the extent that the covenants applicable to
Indebtedness (as defined in subparagraph 9 below) of the Corporation
prohibit such cash payments or the covenants applicable to securities
and/or Indebtedness of the Corporation's subsidiaries prohibit such
subsidiaries from distributing the necessary cash to the Corporation.
Dividends in arrears on the Preferred Stock may be paid at any time,
without reference to any regular dividend payment date. Dividends will
accrue and be cumulative from the date of original issue of the
Preferred Stock, whether or not declared for any reason (including if
such declaration is prohibited under any outstanding indebtedness or
borrowing or other contractual provision binding on the Corporation or
any of its subsidiaries) and whether or not there will be funds of the
Corporation legally available for the payment thereof. Dividends
accruing and not declared until March 15, 2003 shall, when declared,
be payable in cash or additional shares of Preferred Stock as
described above. All accrued and unpaid dividends will be compounded
at the dividend rate on a quarterly basis. All dividends that accrue
in accordance with the foregoing provisions shall be cumulative from
and after March 15, 2003.
(b) No dividend or other distribution (payable other than in shares of
Junior Stock) shall be paid to the holders of Junior Stock, and no
shares of Junior Stock shall be purchased, redeemed or otherwise
acquired by the Corporation or any of
3
<PAGE>
its subsidiaries (except by conversion into or in exchange for Junior
Stock), nor shall any monies be paid or made available for a purchase,
redemption or sinking fund for the purchase or redemption of any
Junior Stock unless (i) all dividends on the outstanding shares of
Preferred Stock that shall have accrued through any prior Dividend
Payment Date shall have been paid or declared and funds set apart for
payment thereof; (ii) the Corporation shall not be in default on any
of its obligations to purchase or redeem the Preferred Stock pursuant
to subparagraphs 4, 5 or 6 of this Paragraph A; and (iii) the
Corporation shall not be in default on any of the covenants included
in subparagraph 9 of this Paragraph A. When dividends are not paid in
full upon the shares of Preferred Stock and any Parity Stock, all
dividends declared upon shares of Preferred Stock and all Parity Stock
shall be declared pro rata so that the amount of dividends declared
per share of Preferred Stock and all such Parity Stock shall in all
cases bear to each other the same ratio that accrued dividends per
share on the shares of Preferred Stock and all such Parity Stock bear
to each other.
3. In the event of any liquidation, dissolution or winding up of the
Corporation, whether voluntary or involuntary, no payment or distribution of
assets shall be made to or set apart for the holders of Junior Stock unless the
holders of shares of Preferred Stock shall have received, out of assets legally
available therefor, Ten Thousand Dollars ($10,000.00) per share of Preferred
Stock (the "Liquidation Amount") plus an amount of cash equal to the dividends,
whether or not earned or declared, accrued and unpaid thereon to the date of
final distribution to such holder. If upon any such distribution of assets in
liquidation or dissolution or upon the winding up of the affairs of the
Corporation the amount which would be distributed to the holders of the
outstanding shares of Preferred Stock would be less than this amount, then such
lesser amount shall be distributed pro rata to the holders of then outstanding
shares of Preferred Stock and to the holders of then outstanding shares of
Parity Stock, and no distribution shall be made to the holders of Junior Stock.
None of the consolidation or the merger of the Corporation, or the sale, lease
or transfer by the Corporation of all or any part of its assets, shall be
deemed to be a liquidation, dissolution or winding up of the Corporation for
purposes of this subparagraph 3.
4. The Corporation shall redeem the Preferred Stock on March 15, 2009,
out of funds legally available for such purpose, at a redemption price per
share, in cash, equal to the Liquidation Amount plus an amount of cash equal to
the dividends, whether or not earned or declared, accrued and unpaid thereon to
the date of redemption. Shares of Preferred Stock redeemed pursuant to this
subparagraph 4 shall be cancelled and shall not be reissued.
5. (a) Except as set forth below, the Preferred Stock shall not be
redeemable at the Corporation's option prior to March 15, 2003. From
and after March 15, 2003, the Corporation may,
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at its option, redeem the Preferred Stock, in whole or in part, at the
redemption prices (expressed as percentages of the Liquidation Amount)
set forth below, plus an amount of cash equal to the dividends,
whether or not earned or declared, accrued and unpaid thereon to the
date of redemption, if redeemed during the twelve-month period
beginning on March 15 of the years indicated below:
YEAR PERCENTAGE
---- ----------
2003...................................................... 106.875%
2004...................................................... 104.583%
2005...................................................... 102.293%
2006 and thereafter....................................... 100.000%
(b) Prior to March 15, 2001, the Corporation may, at its option,
redeem up to one-half of the aggregate Liquidation Amount of Preferred
Stock at a redemption price of 113.75% of the Liquidation Amount, plus
an amount of cash equal to the dividends, whether or not earned or
declared, accrued and unpaid thereon to the date of redemption, with
the net cash proceeds of an Equity Offering (as defined below);
provided, however, that at least one-half of the aggregate Liquidation
Amount of Preferred Stock remains outstanding immediately after the
occurrence of such redemption (excluding Preferred Stock held by the
Corporation and its subsidiaries); and provided, further, that any
such redemption shall occur within 60 days of the date of the closing
of such Equity Offering. As used herein, "Equity Offering" means an
underwritten public offering of Common Stock (other than Disqualified
Stock (as defined below)) registered under the Securities Act (other
than a public offering registered on Form S-8 under the Securities
Act).
(c) If less than all outstanding shares of Preferred Stock
are to be redeemed, the shares to be redeemed shall be selected pro
rata (with any fractional shares being rounded to the nearest whole
share) according to the number of whole shares held by each holder of
Preferred Stock.
(d) In the event the Corporation shall redeem shares of
Preferred Stock pursuant to subparagraphs 4 or 5 hereof, notice of
such redemption shall be given by first class mail, postage prepaid,
mailed not less than 30 days nor more than 60 days prior to the
redemption date, to each holder of record of the shares to be redeemed
at such holder's address as the same appears on the stock register of
the Corporation. Each such redemption notice shall state: (i) the
redemption date; (ii) the number of shares of Preferred Stock to be
redeemed and , if fewer than all the shares held by such holder are to
be redeemed, the number of shares to be redeemed from such holder;
(iii) the redemption price; (iv) the place or places
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where certificates for such shares are to be surrendered for payment
of the redemption price; and (v) that dividends on the shares to be
redeemed will cease to accrue on such redemption date. On or after the
date so specified, each holder of then outstanding shares of Preferred
Stock so to be redeemed shall surrender the certificate or
certificates evidencing the Preferred Stock held by such holder to the
Corporation at its principal office (or such other office or agency of
the Corporation as the Corporation may designate in such notice), in
exchange for payment to its order or that of its nominee, as such
holder shall request, in an aggregate amount equal to the aggregate
redemption amount of the shares of Preferred Stock so redeemed. The
Corporation shall reissue to each such holder a certificate for any
shares of Preferred Stock surrendered but not redeemed. All shares of
Preferred Stock which are redeemed pursuant to this subparagraph 5
shall be cancelled and shall not be reissued.
6. (a) In the event of a Change of Control (as defined below), the
Corporation shall be required to make an offer to each holder of
shares of Preferred Stock to repurchase such holder's shares of
Preferred Stock (a "Repurchase Offer") at a purchase price equal to
101% of the Liquidation Amount, plus the cash value of any accrued
and unpaid dividends payable in kind and the amount of any accrued
and unpaid cash dividends (the "Change of Control Payment"). As used
herein, "Change of Control" means the occurrence of any of the
following: (i) the sale, lease, transfer, conveyance or other
disposition (other than by way of merger or consolidation), in one or
a series of related transactions, of all or substantially all of the
assets of the Corporation and its Restricted Subsidiaries (as defined
in subparagraph 9 below) taken as a whole to any "person" (as such
term is used in Section 13(d)(3) of the Exchange Act) or "group" (as
defined in Sections 13(d)(3) and 14(d)(2) of the Exchange Act) other
than the Principals (as defined below), (ii) the adoption of a plan
relating to the liquidation or dissolution of the Corporation, (iii)
the consummation of any transaction (including, without limitation,
any merger or consolidation) the result of which is that any "person"
or "group" (as defined above), other than the Principals, becomes the
"beneficial owner" (as such term is defined in Rule 13d-3 and Rule
13d-5 under the Exchange Act), directly or indirectly, of more of the
voting power of the Voting Stock (as defined below) of the
Corporation than at that time is beneficially owned by the
Principals, or (iv) the first day on which more than a majority of
the directors on the Board of Directors of the Corporation are not
Continuing Directors (as defined below). For purposes of this
definition, any transfer of an equity interest of an entity that was
formed for the purpose of acquiring Voting Stock of the Corporation
will be deemed to be a transfer of such portion of such Voting Stock
as corresponds to the portion of the equity of such entity that has
been so transferred.
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(b) Within ten days following any Change of Control, the Corporation
shall mail a notice to each holder of shares of Preferred Stock
describing the transaction or transactions that constitute the Change
of Control. Such notice shall state: (i) the date of repurchase, which
date shall be no earlier than 30 days and no later than 60 days from
the date such notice is mailed ("the Change of Control Payment Date");
(ii) the place or places where certificates for such shares are to be
surrendered (the "Paying Agent"); and (iii) that dividends on the
shares to be repurchased will cease to accrue on such Change of
Control Payment Date. The Corporation shall comply with the
requirements of Rule 14e-1 under the Exchange Act and any other
securities laws and regulations thereunder to the extent such laws and
regulations are applicable in connection with the repurchase of the
shares of Preferred Stock as a result of a Change of Control.
(c) At least three days before the Change of Control Payment Date,
each holder of then outstanding shares of Preferred Stock which elects
to have some or all of its shares of Preferred Stock repurchased
pursuant to the Repurchase Offer shall surrender the certificate or
certificates evidencing the Preferred Stock held by such holder to the
Paying Agent, with a request for payment to its order or that of its
nominee in an aggregate amount equal to the aggregate Change of
Control Payment. On the Change of Control Payment Date, the
Corporation shall, to the extent lawful, (i) accept for payment all
shares of Preferred Stock properly tendered pursuant to the Repurchase
Offer, and (2) deposit with the Paying Agent an amount equal to the
Change of Control Payment in respect of all shares of Preferred Stock
so tendered. The Paying Agent shall promptly mail to each holder of
shares of Preferred Stock so tendered the Change of Control Payment
for such shares of Preferred Stock. All shares of Preferred Stock
which are repurchased pursuant to this subparagraph 6 shall be
cancelled and shall not be reissued. The Corporation shall publicly
announce the results of the Repurchase Offer on or as soon as
practicable after the Change of Control Payment Date, but in no case
more than five days (excluding legal holidays) after the Change of
Control Payment Date.
(d) Notwithstanding the foregoing, the Corporation shall not be
required to make a Repurchase Offer upon a Change of Control if such
Repurchase Offer would cause an event of default under any of the
agreements governing Indebtedness of the Corporation, or if a third
party makes the Repurchase Offer in the manner, at the times and
otherwise in compliance with the requirements set forth in this
subparagraph 6 applicable to a Repurchase Offer made by the
Corporation and purchases all shares of Preferred Stock validly
tendered and not withdrawn under such Repurchase Offer.
7. (a) The Corporation may, at its option, on any
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Dividend Payment Date with respect to the Preferred Stock, redeem all,
but not less than all, of the then outstanding shares of Preferred
Stock in exchange for the Corporation's 13.75% Subordinated Notes due
March 15, 2009 to be issued pursuant to an indenture between the
Corporation and a trustee and having substantially the terms assigned
to the Preferred Stock as set forth in this Paragraph A of Article
FOURTH (the "Subordinated Notes"), at a rate of one dollar (or
fraction thereof) principal amount of Subordinated Notes for each
dollar (or fraction thereof) in Liquidation Amount plus, subject to
the following paragraph, the cash value of any accrued and unpaid
dividends payable in kind and the amount of any accrued and unpaid
cash dividends, whether or not earned or declared, accrued and unpaid
thereon to the date of exchange (provided that no event of default
under the indenture governing the Subordinated Notes shall have
occurred and be continuing).
(b) Cash dividends on any shares of Preferred Stock exchanged
for Subordinated Notes which have accrued but have not been paid as of
the date of exchange shall be paid, at the option of the Corporation,
in cash or in additional Subordinated Notes in an equivalent principal
amount of such accrued and unpaid dividends. In no event shall the
Corporation issue Subordinated Notes in denominations other than
$1,000 or in an integral multiple thereof. Cash will be paid in lieu
of any such fraction of Subordinated Notes that would otherwise have
been issued (which shall be determined with respect to the aggregate
principal amount of Subordinated Notes to be issued to a holder upon
any such exchange). Interest will accrue on the Subordinated Notes
from the date of exchange.
(c) In the event the Corporation shall exchange shares of
Preferred Stock, notice of such exchange shall be given by first class
mail, postage prepaid, mailed not less than 30 days nor more than 60
days prior to the exchange date, to each holder of record of the
shares of Preferred Stock to be exchanged at such holder's address as
the same appears on the stock register of the Corporation. Each such
exchange notice shall state: (A) the exchange date; (B) the principal
amount of Subordinated Notes to be received by the exchanging holder;
(C) the place or places where the certificate or certificates for such
shares of Preferred Stock are to be exchanged for notes evidencing the
Subordinated Notes to be received by the exchanging holder; and (D)
that dividends on the shares of Preferred Stock to be exchanged will
cease to accrue on such exchange date. On the date so specified, each
holder of then outstanding shares of Preferred Stock shall surrender
the certificate or certificates evidencing the Preferred Stock held by
such holder to the Corporation at its principal office (or such other
office or agency of the Corporation as the Corporation may designate
in such notice), in exchange for the Subordinated Notes to which such
holder is entitled,
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<PAGE>
registered in such holder's name or that of its nominee or payable to
its order or that of its nominee, as such holder shall request, and in
such denominations as such holder shall request. All shares of
Preferred Stock which are redeemed pursuant to this subparagraph 7
shall be cancelled and shall not be reissued.
(d) Prior to giving notice of intention to exchange, the
Corporation shall execute and deliver with a bank or trust company
selected by the Corporation an indenture having substantially the
terms assigned to the Preferred Stock as set forth in this Paragraph A
of Article FOURTH. The Corporation will cause the Subordinated Notes
to be authenticated on the Dividend Payment Date on which the exchange
is effective, and will pay interest on the Subordinated Notes at the
rate and on the dates specified in such indenture from the exchange
date.
(e) The Corporation will not give notice of its intention to
exchange unless it shall file at the place or places (including a
place in the Borough of Manhattan, The City of New York) maintained
for such purpose an opinion of counsel (who may be an employee of the
Corporation) to the effect that (i) the indenture has been duly
authorized, executed and delivered by the Corporation, has been duly
qualified under the Trust Indenture Act of 1939 (or that such
qualification is not necessary) and constitutes a valid and binding
instrument enforceable against the Corporation in accordance with its
terms (subject, as to enforcement, to bankruptcy, insolvency,
reorganization and other laws of general applicability relating to or
affecting creditors' rights and to general equity principles, and
subject to such other qualifications as are then customarily contained
in opinions of counsel experienced in such matters), (ii) the
Subordinated Notes have been duly authorized and, when executed and
authenticated in accordance with the provisions of the indenture and
delivered in exchange for the shares of Preferred Stock, will
constitute valid and binding obligations of the Corporation entitled
to the benefits of the indenture (subject to the aforesaid), (iii)
neither the execution nor delivery of the indenture or the
Subordinated Notes nor compliance with the terms, conditions or
provisions of such instruments will result in a breach or violation of
any of the terms or provisions of, or constitute a default under, any
indenture, mortgage, deed of trust or agreement or instrument, known
to such counsel, to which the Corporation or any of its subsidiaries
is a party or by which it or any of them is bound, or any decree,
judgment, order, rule or regulation, known to such counsel, of any
court or governmental agency or body having jurisdiction over the
Corporation and such subsidiaries or any of their properties, and (iv)
the Subordinated Notes have been duly registered for such exchange
with the Securities and Exchange Commission under a registration
statement that has become effective under the Securities Act of 1933
(the "Act") or that the exchange of the
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<PAGE>
Subordinated Notes for the shares of Preferred Stock is exempt from
registration under the Act.
(f) The exchange shall be deemed to have been effected
immediately prior to the close of business on the relevant Dividend
Payment Date on or prior to which the certificates for shares of
Preferred Stock shall have been surrendered, and the person in whose
name or names the Subordinated Notes shall be issuable upon such
exchange shall be deemed to have become the holder of record of the
Subordinated Notes represented thereby at such time on such Dividend
Payment Date.
(g) Prior to the delivery of any securities which the
Corporation shall be obligated to deliver upon exchange of the
Preferred Stock, the Corporation shall comply with all applicable
federal and state laws and regulations that require action to be taken
by the Corporation. The Corporation will pay any and all documentary
stamp or similar issue or transfer taxes payable in respect of the
issue or delivery of notes evidencing Subordinated Notes on exchange
of the Preferred Stock pursuant hereto; provided that the Corporation
shall not be required to pay any tax which may be payable in respect
of any transfer involved in the issue or delivery of notes evidencing
Subordinated Notes in a name other than that of the holder of the
Preferred Stock to be exchanged and no such issue or delivery shall be
made unless and until the person requesting such issue or delivery has
paid to the Corporation the amount of any such tax or has established,
to the satisfaction of the Corporation, that such tax has been paid.
8. (a) The holders of shares of Preferred Stock shall not be entitled
to any voting rights, except as described below or as otherwise
required by applicable law. In the event the Corporation fails to (i)
pay dividends for six or more quarters (whether or not consecutive),
(ii) satisfy any mandatory redemption obligation with respect to the
Preferred Stock (regardless of whether the reason for such failure is
lack of legally available funds), (iii) make a Repurchase Offer within
30 days following a Change of Control or make an Asset Sale Offer
pursuant to paragraph (f) of subparagraph 9 (regardless of whether
such offer is prohibited by the terms of any Indebtedness of the
Corporation) or (iv) comply with any of the covenants set forth in
subparagraph 9 of this Paragraph A for a period of 30 days after the
receipt of notice of such failure from the registered holders of not
less than twenty-five percent (25%) of the shares of Preferred Stock
then outstanding, the Board of Directors of the Corporation shall be
increased by two members and the holders of a majority of the
outstanding shares of Preferred Stock, voting as a separate class,
shall be entitled to elect two members to the Board of Directors of
the Corporation. The foregoing voting rights shall cease, and the term
of office of any directors elected pursuant to the exercise of the
foregoing voting rights shall terminate, if and when the
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failure by the Corporation giving rise to such voting rights is cured,
but subject always to the vesting of such right in the case of a
similar future event. The foregoing voting rights may be exercised
initially either by written consent or at a special meeting of the
holders of the Preferred Stock, called as hereinafter provided, or at
any annual meeting of stockholders held for the purpose of electing
directors, and thereafter at each subsequent annual meeting. At any
time when such voting rights shall have vested, and if such right
shall not already have been exercised by written consent, a proper
officer of the Corporation may call, and, upon the written request,
addressed to the Secretary of the Corporation, of the record holders
of shares representing twenty-five percent (25%) of the voting power
of the shares then outstanding of the Preferred Stock, shall call a
special meeting of the holders of the Preferred Stock. Such meeting
shall be held at the earliest practicable date upon the notice
required for annual meetings of stockholders at the place for holding
annual meetings of stockholders of the Corporation, or, if none, at a
place designated by the Board of Directors. Notwithstanding the
foregoing, no such special meeting shall be called during a period
within 60 days immediately preceding the date fixed for the next
annual meeting of stockholders. At any meeting held for the purpose of
electing directors at which the holders of Preferred Stock shall have
the right to elect directors as provided herein, the presence in
person or by proxy of the holders of shares representing more than
fifty percent (50%) in voting power of the then outstanding shares of
the Preferred Stock having such right shall be required and shall be
sufficient to constitute a quorum of such class for the election of
directors by such class. Any director elected by holders of Preferred
Stock pursuant to such voting rights shall hold office until the next
annual meeting of stockholders (unless such term has previously
terminated as described above) and any vacancy in respect of any such
director shall be filled only by vote of the remaining director so
elected or, if there be no such remaining director, by the holders of
Preferred Stock by written consent or at a special meeting called in
accordance with the procedures set forth above or, if no special
meeting is called or written consent executed, at the next annual
meeting of stockholders.
(b) The approval of the holders of a majority of the
outstanding shares of Preferred Stock, voting as a separate class,
shall also be required for (i) the authorization by the Corporation of
any series of preferred stock ranked senior or on a parity in powers,
preferences and rights to the Preferred Stock (including any
additional shares of Preferred Stock), (ii) the amendment or
modification of any provisions of the Certificate of Incorporation of
the Corporation in any manner that would adversely affect the voting
powers, designations, preferences and rights of the Preferred Stock
and (iii) any merger or consolidation or sale of all or substantially
all of
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the assets of the Corporation if the terms of such transaction do not
provide for the repurchase or redemption of all of the shares of
Preferred Stock upon consummation of such merger, consolidation or
sale. Notwithstanding the foregoing, upon a refinancing of the
Corporation's 12.75% Senior Secured Discount Notes due 2008 (the
"Discount Notes"), the Certificate of Incorporation of the Corporation
may be amended or modified without any approval of the holders of the
Preferred Stock to reflect covenants in the new notes which are more
favorable to the Corporation than those contained in the Discount
Notes.
9. (a) Whether or not required by the rules and regulations of the
Securities and Exchange Commission (the "Commission"), so long as any
shares of Preferred Stock are outstanding, the Corporation shall
furnish to the holders of record of shares of Preferred Stock (i) all
quarterly and annual financial information that would be required to
be contained in a filing with the Commission on Forms 10-Q and 10-K if
the Corporation were required to file such Forms, including a
"Management's Discussion and Analysis of Financial Condition and
Results of Operations" that describes the financial condition and
results of operations of the Corporation and its consolidated
Subsidiaries (as defined below) (showing in reasonable detail, either
on the face of the financial statements or in the footnotes thereto
and in "Management's Discussion and Analysis of Financial Condition
and Results of Operations," the financial condition and results of
operations of the Corporation and its Restricted Subsidiaries (as
defined below) separate from the financial condition and results of
operations of the Unrestricted Subsidiaries (as defined below) of the
Corporation) and, with respect to the annual information only, a
report thereon by the Corporation's certified independent accountants
and (ii) all current reports that would be required to be filed with
the Commission on Form 8-K if the Corporation were required to file
such reports, in each case within the time periods specified in the
Commission's rules and regulations. In addition, following the
consummation of the exchange offer contemplated by the Registration
Rights Agreement (as defined below), whether or not required by the
rules and regulations of the Commission, the Corporation shall file a
copy of all such information and reports with the Commission for
public availability within the time periods specified in the
Commission's rules and regulations (unless the Commission will not
accept such a filing) and make such information available to
securities analysts and prospective investors upon request. The
Corporation shall also furnish to the holders of Preferred Stock and
to securities analysts and prospective investors, upon their request,
the information required to be delivered pursuant to Rule 144A under
the Act.
(b) So long as any shares of Preferred Stock are
outstanding, the Corporation shall not, and shall not permit
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any of its Restricted Subsidiaries to, directly or indirectly: (i)
declare or pay any dividend or make any other payment or distribution
on account of the Corporation's or any of its Restricted Subsidiaries'
Equity Interests (including, without limitation, any payment in
connection with any merger or consolidation involving the Corporation
or any of its Restricted Subsidiaries), other than a dividend on the
Preferred Stock, or to the direct or indirect holders of the
Corporation's or any of its Restricted Subsidiaries' Equity Interests
in their capacity as such (other than dividends or distributions
payable in Equity Interests (other than Disqualified Stock) of the
Corporation or to the Corporation or any Restricted Subsidiary of the
Corporation); (ii) purchase, redeem or otherwise acquire or retire for
value (including, without limitation, in connection with any merger or
consolidation involving the Corporation) any Equity Interests of the
Corporation or any direct or indirect parent of the Corporation or
other Affiliate of the Corporation (other than any such Equity
Interests owned by the Corporation or any Restricted Subsidiary of the
Corporation); (iii) make any principal payment on or with respect to,
or purchase, redeem, defease or otherwise acquire or retire for value
any Indebtedness that is subordinated to the Senior Secured Discount
Notes, except a payment of principal at Stated Maturity; or (iv) make
any Restricted Investment (all such payments and other actions set
forth in clauses (i) through (iv) above being collectively referred to
as "Restricted Payments"), unless, at the time of and after giving
effect to such Restricted Payment:
(A) no Default or Event of Default shall have
occurred and be continuing or would occur as a consequence
thereof; and
(B) the Corporation would, at the time of such
Restricted Payment and after giving pro forma effect thereto as if
such Restricted Payment had been made at the beginning of the
applicable four-quarter period, have been permitted to incur at least
$1.00 of additional Indebtedness pursuant to the Fixed Charge Coverage
Ratio test set forth in the first paragraph of paragraph (d) of this
subparagraph 9; and
(C) such Restricted Payment, together with the
aggregate amount of all other Restricted Payments made by the
Corporation and its Restricted Subsidiaries after March 12, 1998
(excluding Restricted Payments permitted by clauses (ii), (iii) and
(iv) of the next succeeding paragraph), is less than the sum, without
duplication, of (i) 50% of the Consolidated Net Income of the
Corporation for the period (taken as one accounting period) from the
beginning of the first fiscal quarter commencing after March 12, 1998
to the end of the Corporation's most recently ended fiscal quarter for
which internal financial statements are available at the time of such
Restricted Payment (or, if such Consolidated Net Income
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for such period is a deficit, less 100% of such deficit), plus (ii)
100% of the aggregate net cash proceeds received by the Corporation
since March 12, 1998 as a contribution to its common equity capital or
from the issue or sale of Equity Interests of the Corporation (other
than Disqualified Stock) or from the issue or sale of Disqualified
Stock or debt securities of the Corporation that have been converted
into such Equity Interests (other than Equity Interests (or
Disqualified Stock or convertible debt securities) sold to a
Restricted Subsidiary of the Corporation), plus (iii) to the extent
that any Restricted Investment that was made after March 12, 1998 is
sold for cash or otherwise liquidated or repaid for cash, 100% of the
net cash proceeds thereof (less the cost of disposition, if any), but
only to the extent not included in subclause (i) of this clause (C).
The foregoing provisions shall not prohibit (i) the payments
and applications of the proceeds to be received by the Corporation
from the issuance of the Units as described under the caption "Use of
Proceeds" of the Offering Memorandum governing the issuance of the
Units (ii) the payment of any dividend within 60 days after the date
of declaration thereof, if at said date of declaration such payment
would have complied with the provisions of this subparagraph 9; (iii)
the redemption, repurchase, retirement, defeasance or other
acquisition of any Equity Interests of the Corporation in exchange
for, or out of the net cash proceeds of the substantially concurrent
sale (other than to a Restricted Subsidiary of the Corporation) of,
other Equity Interests of the Corporation (other than any Disqualified
Stock); provided that the amount of any such net cash proceeds that
are utilized for any such redemption, repurchase, retirement,
defeasance or other acquisition shall be excluded from clause (C) of
the preceding paragraph; (iv) the defeasance, redemption, repurchase
or other acquisition of subordinated Indebtedness with the net cash
proceeds from an incurrence of Permitted Refinancing Indebtedness or
the substantially concurrent sale (other than to a Restricted
Subsidiary of the Corporation) of Equity Interests of the Corporation
(other than Disqualified Stock); provided that the amount of any such
net cash proceeds that are utilized for any such defeasance,
redemption or repurchase shall be excluded from clause (C) of the
preceding paragraph; (v) the payment of any dividend by a Restricted
Subsidiary of the Corporation to the holders of its Equity Interests
on a pro rata basis; and (vi) so long as no Default or Event of
Default shall have occurred and be continuing immediately after such
transaction, the repurchase, redemption or other acquisition or
retirement for value of any Equity Interests of the Corporation or any
Restricted Subsidiary of the Corporation held by any member of the
Corporation's (or any of its Restricted Subsidiaries') management;
provided that the aggregate price paid for all such repurchased,
redeemed, acquired or retired Equity Interests shall not exceed $1.0
million in any twelve-month
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period plus the aggregate cash proceeds received by the Corporation
(or any of its Restricted Subsidiaries) during any such twelve-month
period from any issuance of Equity Interests by the Corporation (or
any of its Restricted Subsidiaries) to members of management of the
Corporation (or any of its Restricted Subsidiaries) (provided that
such proceeds are excluded from clause (C) of the preceding paragraph;
and provided, further, that such repurchase, redemption or other
acquisition or retirement may not include any Equity Interests owned,
directly or indirectly, by the Principals.
The Board of Directors may designate any Restricted
Subsidiary to be an Unrestricted Subsidiary if such designation would
not cause a Default. For purposes of making such determination, all
outstanding Investments by the Corporation and its Restricted
Subsidiaries (except to the extent repaid in cash) in the Subsidiary
so designated shall be deemed to be Restricted Payments at the time of
such designation and shall reduce the amount available for Restricted
Payments under the first paragraph of this covenant. All such
outstanding Investments shall be deemed to constitute Investments in
an amount equal to the greatest of (i) the net book value of such
Investments at the time of such designation, (ii) the fair market
value of such Investments at the time of such designation and (iii)
the original fair market value of such Investments at the time they
were made. Such designation shall only be permitted if such Restricted
Payment would be permitted at such time and if such Restricted
Subsidiary otherwise meets the definition of an Unrestricted
Subsidiary.
The amount of all Restricted Payments (other than cash) shall
be the fair market value on the date of the Restricted Payment of the
asset(s) or securities proposed to be transferred or issued by the
Corporation or such Restricted Subsidiary, as the case may be,
pursuant to the Restricted Payment. The fair market value of any
non-cash Restricted Payment shall be determined by the Board of
Directors, such determination to be based upon an opinion or appraisal
issued by an accounting, appraisal or investment banking firm of
national standing if such fair market value exceeds $1.0 million.
(c) So long as any shares of Preferred Stock are outstanding,
the Corporation shall not, and shall not permit any of its Restricted
Subsidiaries to, directly or indirectly, create or otherwise cause or
suffer to exist or become effective any encumbrance or restriction on
the ability of any Restricted Subsidiary to (i)(a) pay dividends or
make any other distributions to the Corporation or any of its
Restricted Subsidiaries (1) on its Capital Stock or (2) with respect
to any other interest or participation in, or measured by, its
profits, or (b) pay any Indebtedness owed to the Corporation or any of
its Restricted Subsidiaries, (ii) make
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loans or advances to the Corporation or any of its Restricted
Subsidiaries or (iii) transfer any of its properties or assets to the
Corporation or any of its Restricted Subsidiaries. However, the
foregoing restrictions shall not apply to encumbrances or restrictions
existing under or by reason of (a) Existing Indebtedness as in effect
on March 12, 1998 and any amendments, modifications, restatements,
renewals, increases, supplements, refundings, replacements or
refinancings thereof; provided that such amendments, modifications,
restatements, renewals, increases, supplements, refundings,
replacement or refinancings are no more restrictive, with respect to
such dividend and other payment restrictions, than those as in effect
on March 12, 1998, (b) the Indenture and the Senior Secured Discount
Notes, (c) applicable law, (d) any instrument governing Indebtedness
or Capital Stock of a Person acquired by the Corporation or any of its
Restricted Subsidiaries as in effect at the time of such acquisition
(except to the extent such Indebtedness was incurred in connection
with or in contemplation of such acquisition), which encumbrance or
restriction is not applicable to any Person, or the properties or
assets of any Person, other than the Person, or the property or assets
of the Person, so acquired; provided that, in the case of
Indebtedness, such Indebtedness was permitted by the terms of
paragraph (d) of this subparagraph 9 to be incurred, (e) customary
non-assignment provisions in leases entered into in the ordinary
course of business and consistent with past practices, (f) purchase
money obligations for property acquired in the ordinary course of
business that impose restrictions of the nature described in clause
(iii) above on the property so acquired, (g) restrictions relating to
a Restricted Subsidiary formed for the sole purpose of engaging in
accounts receivable financing, (h) any agreement for the sale of a
Restricted Subsidiary that restricts distributions by that Restricted
Subsidiary pending its sale, (i) Permitted Refinancing Indebtedness;
provided that the restrictions contained in the agreements governing
such Permitted Refinancing Indebtedness are no more restrictive, taken
as a whole, than those contained in the agreements governing the
Indebtedness being refinanced and (j) secured Indebtedness otherwise
permitted to be incurred pursuant to the provisions of paragraph (d)
of this subparagraph 9 that limits the right of the debtor to dispose
of the assets securing such Indebtedness.
(d) So long as any shares of Preferred Stock are outstanding,
the Corporation shall not, and shall not permit any of its Restricted
Subsidiaries to, directly or indirectly, create, incur, issue, assume,
guarantee or otherwise become directly or indirectly liable,
contingently or otherwise, with respect to (collectively, "incur") any
Indebtedness (including Acquired Debt) and the Corporation shall not
permit any of its Restricted Subsidiaries to issue any shares of
preferred stock; provided, however, that so long as no Default or
Event
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of Default has occurred or is continuing, the Corporation and its
Restricted Subsidiaries may incur Indebtedness (including Acquired
Debt) if the Fixed Charge Coverage Ratio for the Corporation's most
recently ended four full fiscal quarters for which internal financial
statements are available immediately preceding the date on which such
additional Indebtedness is incurred is issued would have been at least
1.75 to 1, if such additional Indebtedness is incurred prior to March
15, 2000, or at least 2.0 to 1, if such additional Indebtedness is
incurred on or after March 15, 2000, in each case, determined on a pro
forma basis (including a pro forma application of the net proceeds
therefrom), as if the additional Indebtedness had been incurred at the
beginning of such four-quarter period.
The provisions of the immediately preceding paragraph shall
not apply to the incurrence of any of the following items of
Indebtedness (collectively, "Permitted Debt"):
(i) the incurrence by the Corporation and its Restricted
Subsidiaries of Indebtedness from a bank or other financial
institution in an aggregate principal amount not to exceed $200.0
million at any one time outstanding, less any Net Proceeds of Asset
Sales applied to permanently reduce any such Indebtedness pursuant to
paragraph (f) of this subparagraph 9;
(ii) the incurrence by the Corporation and its Restricted
Subsidiaries of the Existing Indebtedness, other than pursuant
to the Fonda Credit Facility or the Sweetheart Credit
Facilities;
(iii) the incurrence by the Corporation of Indebtedness
represented by the Senior Secured Discount Notes and the
Indenture;
(iv) the incurrence by the Corporation or any of its
Restricted Subsidiaries of Indebtedness represented by Capital Lease
Obligations, mortgage financings or purchase money obligations, in
each case incurred for the purpose of financing all or any part of the
purchase price or cost of construction or improvement of property,
plant or equipment used in the business of the Corporation or such
Restricted Subsidiary, in an aggregate principal amount not to exceed
$5.0 million at any time outstanding;
(v) the incurrence by the Corporation or any of its
Restricted Subsidiaries of Indebtedness in connection with the
acquisition of assets or a new Restricted Subsidiary; provided that
such Indebtedness was incurred by the prior owner of such assets or
such Restricted Subsidiary prior to such acquisition by the
Corporation or one of its Restricted Subsidiaries and was not incurred
in connection with, or in contemplation of, such acquisition by the
Corporation or one of its Restricted
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Subsidiaries; and provided further that the principal amount (or
accreted value, as applicable) of such Indebtedness, together with any
other outstanding Indebtedness incurred pursuant to this clause (v)
and any Permitted Refinancing Indebtedness incurred to refund,
refinance or replace any Indebtedness incurred pursuant to this clause
(v), does not exceed $5.0 million;
(vi) the incurrence by the Corporation or any of its
Restricted Subsidiaries of Permitted Refinancing Indebtedness in
exchange for, or the net proceeds of which are used to refund,
refinance or replace Indebtedness (other than intercompany
Indebtedness) that was permitted to be incurred under the first
paragraph hereof or clauses (ii), (iii), (iv) or (v) of this
paragraph;
(vii) the incurrence by the Corporation or any of its
Restricted Subsidiaries of intercompany Indebtedness between or among
the Corporation and any of its Restricted Subsidiaries; provided,
however, that (a) any subsequent issuance or transfer of Equity
Interests that results in any such Indebtedness being held by a Person
other than the Corporation or a Restricted Subsidiary thereof and (b)
any sale or other transfer of any such Indebtedness to a Person that
is not either the Corporation or a Restricted Subsidiary thereof shall
be deemed, in each case, to constitute an incurrence of such
Indebtedness by the Corporation or such Restricted Subsidiary, as the
case may be, that was not permitted by this clause (vii);
(viii)the incurrence by the Corporation or any of its
Restricted Subsidiaries of Hedging Obligations that are incurred for
the purpose of fixing or hedging interest rate risk with respect to
any floating rate Indebtedness that is permitted by the terms of the
Indenture to be outstanding; and
(ix) the incurrence by the Corporation or any of its
Restricted Subsidiaries of additional Indebtedness in an aggregate
principal amount (or accreted value, as applicable) not to exceed
$25.0 million at any one time outstanding.
For purposes of determining compliance with this paragraph
(d), in the event that an item of Indebtedness meets the criteria of
more than one of the categories of Permitted Debt described in clauses
(i) through (ix) above or is entitled to be incurred pursuant to the
first paragraph of this paragraph (d), the Corporation shall, in its
sole discretion, classify such item of Indebtedness in any manner that
complies with this paragraph (d). Accrual of interest, accretion or
amortization of original issue discount, and the payment of interest
on any Indebtedness in the form of additional Indebtedness with the
same terms shall not be deemed to be an incurrence of Indebtedness for
purposes of this paragraph (d); provided, in each such case, that the
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amount thereof is included in Fixed Charges of the Corporation
as accrued.
(e) So long as any shares of preferred Stock are outstanding,
the Corporation shall not, and shall not permit any of its Restricted
Subsidiaries to, make any payment to, or sell, lease, transfer or
otherwise dispose of any of its properties or assets to, or purchase
any property or assets from, or enter into or make or amend any
transaction, contract, agreement, understanding, loan, advance or
guarantee with, or for the benefit of, any Affiliate (each of the
foregoing, an "Affiliate Transaction"), unless (i) such Affiliate
Transaction is on terms that are no less favorable to the Corporation
or the relevant Restricted Subsidiary than those that would have been
obtained in a comparable transaction by the Corporation or such
Restricted Subsidiary with an unrelated Person and (ii) (a) with
respect to any Affiliate Transaction or series of related Affiliate
Transactions involving aggregate consideration in excess of $1.0
million, the Board of Directors shall have passed a resolution
certifying that such Affiliate Transaction complies with clause (i)
above and that such Affiliate Transaction has been approved by a
majority of the disinterested members of the Board of Directors and
(b) with respect to any Affiliate Transaction or series of related
Affiliate Transactions involving aggregate consideration in excess of
$5.0 million, the Board of Directors shall have received an opinion as
to the fairness to the Holders of such Affiliate Transaction from a
financial point of view issued by an accounting, appraisal or
investment banking firm of national standing with total assets in
excess of $1.0 billion, except with respect to transactions in the
ordinary course of business and consistent with past practice between
the Corporation or any of its Restricted Subsidiaries and Four M, CEG
or any of their respective subsidiaries; provided that the following
shall not be deemed to be Affiliate Transactions: (1) the Indenture of
Lease dated as of January 1, 1995, between Dennis Mehiel and Fonda
relating to the Jacksonville Facility except for any purchases of
property by Fonda that may arise thereunder; (2) any employment
agreement entered into by the Corporation or any of its Restricted
Subsidiaries in the ordinary course of business and consistent with
the past practice of the Corporation or such Restricted Subsidiary in
an amount not to exceed $1.00 million per annum; (3) transactions
between or among the Corporation and its Restricted Subsidiaries; (4)
Restricted Payments and Permitted Investments that are permitted by
paragraph (b) of this subparagraph 9; and (5) transactions entered
into in connection with the Transactions.
(f) So long as any shares of Preferred Stock are outstanding,
the Corporation shall not, and shall not permit any of its Restricted
Subsidiaries to, consummate an Asset Sale unless (i) the Corporation
(or the Restricted Subsidiary, as the case may be) receives
consideration at the time of such
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Asset Sale at least equal to the fair market value (evidenced by a
resolution of the Board of Directors) of the assets or Equity
Interests issued or sold or otherwise disposed of and (ii) at least
75% of the consideration therefor received by the Corporation or such
Restricted Subsidiary is in the form of cash; provided that the amount
of (x) any liabilities (as shown on the Corporation's or such
Restricted Subsidiary's most recent balance sheet), of the Corporation
or any Restricted Subsidiary (other than contingent liabilities) that
are assumed by the transferee of any such assets pursuant to a
customary novation agreement that releases the Corporation or such
Restricted Subsidiary from further liability and (y) any securities,
notes or other obligations received by the Corporation or any such
Restricted Subsidiary from such transferee that are contemporaneously
(subject to ordinary settlement periods) converted by the Corporation
or such Restricted Subsidiary into cash (to the extent of the cash
received), shall be deemed to be cash for purposes of this provision.
Within 365 days after the Corporation's or any Restricted
Subsidiary's receipt of any Net Proceeds from an Asset Sale, the
Corporation or such Restricted Subsidiary may apply such Net Proceeds
(a) to permanently repay Indebtedness of a Restricted Subsidiary of
the Corporation (and, in the case of revolving borrowings, to
correspondingly reduce commitments with respect thereto), or (b) to
the acquisition of a majority of the assets of, or a majority of the
Voting Stock of, another Permitted Business, the making of a capital
expenditure or the acquisition of other long-term assets that are used
or useful in a Permitted Business. Pending the final application of
any such Net Proceeds, the Corporation may temporarily reduce
revolving credit borrowings or otherwise invest such Net Proceeds in
any manner that is not prohibited by this Certificate of
Incorporation. Any Net Proceeds from Asset Sales that are not applied
or invested as provided in the first sentence of this paragraph shall
be deemed to constitute Excess Proceeds. When the aggregate amount of
Excess Proceeds exceeds $10.0 million (an "Excess Proceeds Offer
Triggering Event"), the Corporation shall be required to make an offer
to each holders of shares of Preferred Stock (an "Asset Sale Offer")
to repurchase the maximum number of such holder's shares of Preferred
Stock that may be purchased out of the Excess Proceeds, at an offer
price in cash in an amount equal to 100% of the Liquidation Amount,
plus an amount of cash equal to the amount of any accrued and unpaid
dividends, in accordance with the procedures set forth in subparagraph
6 of this Paragraph A with respect to a Change of Control; provided
however, that such offer will not be required if the application of
such Excess Proceeds to repurchase shares of Preferred Stock would
cause an Event of Default under any of the agreements governing
Indebtedness of the Corporation. If the aggregate purchase price of
the shares of Preferred Stock tendered into such Asset Sale Offer
surrendered by the holders
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thereof is less than the amount of Excess Proceeds, the Corporation
may use such Excess Proceeds for general corporate purposes (subject
to the provisions of this Certificate of Incorporation). If the
aggregate purchase price of the shares of Preferred Stock tendered
into such Asset Sale Offer surrendered by the holders thereof exceeds
the amount of Excess Proceeds, the Corporation shall select the Shares
of Preferred Stock to be purchased on a pro rata basis. Upon
completion of such Asset Sale Offer, the amount of Excess Proceeds
shall be reset at zero.
(g) So long as any shares of Preferred Stock are outstanding,
the Corporation (i) shall not, and shall not permit any Wholly Owned
Restricted Subsidiary of the Corporation to, transfer, convey, sell,
lease or otherwise dispose of any Capital Stock in any Wholly Owned
Restricted Subsidiary of the Corporation to any Person (other than the
Corporation or a Wholly Owned Restricted Subsidiary of the
Corporation), unless (a) such transfer, conveyance, sale, lease or
other disposition is of all the Capital Stock in such Wholly Owned
Restricted Subsidiary and (b) the cash Net Proceeds from such
transfer, conveyance, sale, lease or other disposition are applied in
accordance with paragraph (f) hereof, and (ii) shall not permit any
Wholly Owned Restricted Subsidiary of the Corporation to issue any of
its Equity Interests (other than, if necessary, shares of its Capital
Stock constituting directors' qualifying shares) to any Person other
than to the Corporation or a Wholly Owned Restricted Subsidiary of the
Corporation.
(h) So long as any shares of Preferred Stock are outstanding,
neither the Corporation nor any of its Restricted Subsidiaries shall,
directly or indirectly, pay or cause to be paid any consideration,
whether by way of interest, fee or otherwise, to any holder of shares
of Preferred Stock for or as an inducement to any amendment or
modification of any of the terms or provisions of this Certificate of
Incorporation unless such consideration is offered to be paid or is
paid to all holders of shares of Preferred Stock that amend or modify,
or agree to amend or modify, in the time frame set forth in the
solicitation documents relating to such amendment or modification.
(i) So long as any shares of Preferred Stock are outstanding,
the Corporation may not consolidate or merge with or into (whether or
not the Corporation is the surviving entity), or sell, assign,
transfer, lease, convey or otherwise dispose of all or substantially
all of its properties or assets in one or more related transactions,
to another corporation, Person or entity unless (i) the Corporation is
the surviving corporation or the entity or the Person formed by or
surviving any such consolidation or merger (if other than the
Corporation) or to which such sale, assignment, transfer, lease,
conveyance or other disposition shall have
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been made is a corporation organized or existing under the laws of the
United States, any state thereof or the District of Columbia; (ii)
immediately after such transaction no Default or Event of Default
exists; and (iii) except in the case of a merger of the Corporation
with or into a Wholly Owned Restricted Subsidiary of the Corporation,
the Corporation or the entity or Person formed by or surviving any
such consolidation or merger (if other than the Corporation), or to
which such sale, assignment, transfer, lease, conveyance or other
disposition shall have been made (A) shall have Consolidated Net Worth
immediately after the transaction equal to or greater than the
Consolidated Net Worth of the Corporation immediately preceding the
transaction and (B) shall, at the time of such transaction and after
giving pro forma effect thereto as if such transaction had occurred at
the beginning of the applicable four-quarter period, be permitted to
incur at least $1.00 of additional Indebtedness pursuant to the Fixed
Charge Coverage Ratio test set forth in the first paragraph of
paragraph (d) of this subparagraph 9.
(j) So long as any shares of Preferred Stock are outstanding,
the Corporation shall not, and shall not permit any of its Restricted
Subsidiaries to, directly or indirectly, create, incur, assume or
suffer to exist any Lien on any asset now owned or hereafter acquired,
or any income or profits therefrom or assign or convey any right to
receive income therefrom, except Permitted Liens.
(k) So long as any shares of Preferred Stock are outstanding,
the Corporation shall not, and shall not permit any Subsidiary to,
engage in any business other than Permitted Businesses (as defined
below), except to such extent as would not be material to the
Corporation and its Restricted Subsidiaries taken as a whole.
(l) So long as any shares of Preferred Stock are outstanding,
the Corporation shall do or cause to be done all things necessary to
preserve and keep in full force and effect (i) its corporate
existence, and the corporate, partnership or other existence of each
of its Restricted Subsidiaries, in accordance with the respective
organizational documents (as they may be amended from time to time) of
the Corporation or any such Restricted Subsidiary and (ii) the rights
(charter and statutory), licenses and franchises of the Corporation
and its Restricted Subsidiaries; provided, however, that the
Corporation shall not be required to preserve any such right, license
or franchise, or the corporate, partnership or other existence of any
of its Restricted Subsidiaries, if the Board of Directors of the
Corporation shall determine that the preservation thereof is no longer
desirable in the conduct of the business of the Corporation and its
Restricted Subsidiaries, taken as a whole, and that the loss thereof
is not adverse in any material respect to the holders of the shares of
Preferred Stock.
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(m) The restrictions set forth in the preceding paragraphs
(a) through (l) of this subparagraph 9 shall in no way limit the power
and authority of the Corporation to take any of the actions restricted
thereby. Rather, a violation of any such paragraphs shall have the
consequences set forth in paragraph (a) of subparagraph 8 of this
Paragraph A, and only such consequences.
(n) As used herein, the following terms are ascribed
with the following meanings:
"Acquired Debt" means, with respect to any specified Person,
(i) Indebtedness of any other Person existing at the time such other
Person is merged with or into or became a Restricted Subsidiary of
such specified Person, including, without limitation, Indebtedness
incurred in connection with, or in contemplation of, such other Person
merging with or into or becoming a Restricted Subsidiary of such
specified Person, and (ii) Indebtedness secured by a Lien encumbering
any asset acquired by such specified Person.
"Affiliate" of any specified Person means any other Person
(as described below) directly or indirectly controlling or controlled
by or under direct or indirect common control with such specified
Person. For purposes of this definition, "control" (including, with
correlative meanings, the terms "controlling," "controlled by" and
"under common control with"), as used with respect to any Person,
shall mean the possession, directly or indirectly, of the power to
direct or cause the direction of the management or policies of such
Person, whether through the ownership of voting securities, by
agreement or otherwise; provided that beneficial ownership of 10% or
more of the Voting Stock (as described below) of a Person shall be
deemed to be control.
"Asset Sale" means (i) the sale, lease, conveyance or other
disposition of any assets or rights (including, without limitation, by
way of a sale and leaseback) other than (x) sales of inventory in the
ordinary course of business consistent with past practices, and (y)
the sale, lease, conveyance or other disposition of all or
substantially all of the assets of the Corporation and its Restricted
Subsidiaries taken as a whole, and (ii) the issue or sale by the
Corporation or any of its Restricted Subsidiaries of Equity Interests
of any of the Corporation's Restricted Subsidiaries, in the case of
either clause (i) or (ii), whether in a single transaction or a series
of related transactions (a) that have a fair market value in excess of
$2.5 million or (b) for net proceeds in excess of $2.5 million.
Notwithstanding the foregoing, the following items shall not be deemed
to be Asset Sales: (i) a transfer of assets by the Corporation to a
Restricted Subsidiary or by a Restricted Subsidiary to the Corporation
or to another Restricted Subsidiary and (ii) a
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Restricted Payment that is permitted by paragraph (b) of this
subparagraph 9.
"Capital Lease Obligation" means, at the time any
determination thereof is to be made, the amount of the liability in
respect of a capital lease that would at such time be required to be
capitalized on a balance sheet in accordance with GAAP (as defined
below).
"Capital Stock" means (i) in the case of a corporation,
corporate stock, (ii) in the case of an association or business
entity, any and all shares, interests, participations, rights or other
equivalents (however designated) of corporate stock, (iii) in the case
of a partnership or limited liability company, partnership or
membership interests (whether general or limited) and (iv) any other
interest or participation that confers on a Person the right to
receive a share of the profits and losses of, or distributions of
assets of, the issuing Person, excluding stock appreciation rights
issued in the ordinary course of business.
"CEG" means Creative Expressions Group, Inc and CEG
Holdings, LLC.
"Consolidated Cash Flow" means, with respect to any Person
for any period, the Consolidated Net Income of such Person and its
Restricted Subsidiaries for such period plus (i) an amount equal to
any extraordinary loss plus any net loss realized in connection with
an Asset Sale (to the extent such losses were deducted in computing
such Consolidated Net Income), plus (ii) provision for taxes based on
income or profits of such Person and its Restricted Subsidiaries for
such period, to the extent that such provision for taxes was included
in computing such Consolidated Net Income, plus (iii) consolidated
interest expense of such Person and its Restricted Subsidiaries for
such period, whether paid or accrued and whether or not capitalized
(including, without limitation, amortization of debt issuance costs
and original issue discount, non-cash interest payments, the interest
component of any deferred payment obligations, the interest component
of all payments associated with Capital Lease Obligations,
commissions, discounts and other fees and charges incurred in respect
of letter of credit or bankers' acceptance financings, and net
payments (if any) pursuant to Hedging Obligations), to the extent that
any such expense was deducted in computing such Consolidated Net
Income, plus (iv) depreciation, amortization (including amortization
of goodwill and other intangibles but excluding amortization of
prepaid cash expenses that were paid in a prior period) and other
non-cash charges (excluding any such non-cash charge to the extent
that it represents an accrual of or reserve for cash charges in any
future period or amortization of a prepaid cash expense that was paid
in a prior period) of such Person and its
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Restricted Subsidiaries for such period to the extent that such
depreciation, amortization and other non-cash charges were deducted in
computing such Consolidated Net Income, minus (v) non-cash items
increasing such Consolidated Net Income for such period, in each case,
on a consolidated basis and determined in accordance with GAAP.
Notwithstanding the foregoing, the provision for taxes on the income
or profits of, and the depreciation and amortization and other
non-cash charges of, a Restricted Subsidiary of the referent Person
shall be added to Consolidated Net Income to compute Consolidated Cash
Flow only to the extent that a corresponding amount would be permitted
at the date of determination to be dividend to the Corporation by such
Restricted Subsidiary without prior governmental approval (that has
not been obtained), and without direct or indirect restriction
pursuant to the terms of its charter and all agreements, instruments,
judgments, decrees, orders, statutes, rules and governmental
regulations applicable to that Restricted Subsidiary or its
stockholders.
"Consolidated Net Income" means, with respect to any Person
for any period, the aggregate of the Net Income of such Person and its
Restricted Subsidiaries for such period, on a consolidated basis,
determined in accordance with GAAP; provided that (i) the Net Income
(but not loss) of any Person that is not a Restricted Subsidiary or
that is accounted for by the equity method of accounting shall be
included only to the extent of the amount of dividends or
distributions paid in cash to the referent Person or a Wholly Owned
Restricted Subsidiary thereof, (ii) the Net Income of any Restricted
Subsidiary shall be excluded to the extent that the declaration or
payment of dividends or similar distributions by that Restricted
Subsidiary of that Net Income is not at the date of determination
permitted without any prior governmental approval (that has not been
obtained) or, directly or indirectly, by operation of the terms of its
charter or any agreement, instrument, judgment, decree, order,
statute, rule or governmental regulation applicable to that Restricted
Subsidiary or its stockholders, (iii) the Net Income of any Person
acquired in a pooling of interests transaction for any period prior to
the date of such acquisition shall be excluded, (iv) the cumulative
effect of a change in accounting principles shall be excluded and (v)
income of any Unrestricted Subsidiary shall be excluded whether or not
distributed to the Corporation or any of its Restricted Subsidiaries.
"Consolidated Net Worth" means, with respect to any Person as
of any date, the sum of (i) the consolidated equity of the common
stockholders of such Person and its Restricted Subsidiaries as of such
date plus (ii) the respective amounts reported on such Person's
balance sheet as of such date with respect to any series of preferred
stock (other than Disqualified Stock) that by its terms is not
entitled to the
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payment of dividends unless such dividends may be declared and paid
only out of net earnings in respect of the year of such declaration
and payment, but only to the extent of any cash received by such
Person upon issuance of such preferred stock, less (x) all write-ups
(other than write-ups resulting from foreign currency translations and
write-ups of tangible assets of a going concern business made within
12 months after the acquisition of such business) subsequent to March
12, 1998 in the book value of any asset owned by such Person or a
consolidated Subsidiary of such Person, (y) all investments as of such
date in unconsolidated Subsidiaries and in Persons that are not
Subsidiaries (except, in each case, Permitted Investments), and (z)
all unamortized debt discount and expense and unamortized deferred
charges as of such date, all of the foregoing determined in accordance
with GAAP.
"Continuing Directors" means, as of any date of
determination, any member of the Board of Directors of the Corporation
who (i) was a member of such Board of Directors on March 12, 1998 or
(ii) was nominated for election or elected to such Board of Directors
with the approval of a majority of the Continuing Directors who were
members of the Board at the time of such nomination or election.
"Default" means any event that is or with the passage of time
or the giving of notice or both would be an Event of Default.
"Disqualified Stock" means any Capital Stock that, by its
terms (or by the terms of any security into which it is convertible,
or for which it is exchangeable, at the option of the holder thereof),
or upon the happening of any event, matures or is mandatorily
redeemable, pursuant to a sinking fund obligation or otherwise, or
redeemable at the option of the Holder thereof, in whole or in part,
on or prior to June 14, 2008; provided, however, that any Capital
Stock that would constitute Disqualified Stock solely because the
holders thereof have the right to require the Corporation to
repurchase such Capital Stock upon the occurrence of a Change of
Control or an Asset Sale shall not constitute Disqualified Stock if
the terms of such Capital Stock provide that the Corporation may not
repurchase or redeem any such Capital Stock pursuant to such
provisions unless such repurchase or redemption complies with
paragraph (b) of this subparagraph 9.
"Equity Interests" means Capital Stock and all warrants,
options or other rights to acquire Capital Stock (but excluding any
debt security that is convertible into, or exchangeable for, Capital
Stock).
"Event of Default" is ascribed the meaning set forth in
Section 6.01 of the Indenture.
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"Existing Indebtedness" means Indebtedness of the Corporation
and its Restricted Subsidiaries in existence on March 12, 1998,
including Indebtedness represented by the demand notes issued to the
stockholders of Sweetheart, until such amounts are repaid.
"Fixed Charges" means, with respect to any Person for any
period, the sum, without duplication, of (i) the consolidated interest
expense of such Person and its Restricted Subsidiaries for such
period, whether paid or accrued (including, without limitation,
amortization of debt issuance costs and original issue discount,
non-cash interest payments, the interest component of any deferred
payment obligations, the interest component of all payments associated
with Capital Lease Obligations, commissions, discounts and other fees
and charges incurred in respect of letter of credit or bankers'
acceptance financings, and net payments (if any) pursuant to Hedging
Obligations) and (ii) the consolidated interest of such Person and its
Restricted Subsidiaries that was capitalized during such period, and
(iii) any interest expense on Indebtedness of another Person that is
Guaranteed by such Person or one of its Restricted Subsidiaries or
secured by a Lien on assets of such Person or one of its Restricted
Subsidiaries (whether or not such Guarantee or Lien is called upon)
and (iv) the product of (a) all dividend payments, whether or not in
cash, on any series of preferred stock of such Person, other than
dividend payments on Equity Interests payable solely in Equity
Interests of the Corporation (other than Disqualified Stock) or to the
Corporation or a Restricted Subsidiary of the Corporation, times (b) a
fraction, the numerator of which is one and the denominator of which
is one minus the then current combined federal, state and local
statutory tax rate of such Person, expressed as a decimal, in each
case, on a consolidated basis and in accordance with GAAP.
"Fixed Charge Coverage Ratio" means with respect to any
Person for any period, the ratio of the Consolidated Cash Flow of such
Person for such period to the Fixed Charges of such Person for such
period. In the event that the referent Person or any of its Restricted
Subsidiaries incurs, assumes, Guarantees or redeems any Indebtedness
(other than revolving credit borrowings) or issues or redeems
preferred stock subsequent to the commencement of the period for which
the Fixed Charge Coverage Ratio is being calculated but prior to the
date on which the event for which the calculation of the Fixed Charge
Coverage Ratio is made (the "Calculation Date"), then the Fixed Charge
Coverage Ratio shall be calculated giving pro forma effect to such
incurrence, assumption, Guarantee or redemption of Indebtedness, or
such issuance or redemption of preferred stock, as if the same had
occurred at the beginning of the applicable four-quarter reference
period. In addition, for purposes of making the computation referred
to above, (i) acquisitions that have been made by the
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Corporation or any of its Restricted Subsidiaries, including through
mergers or consolidations and including any related financing
transactions, during the four-quarter reference period or subsequent
to such reference period and on or prior to the Calculation Date shall
be deemed to have occurred on the first day of the four-quarter
reference period and Consolidated Cash Flow for such reference period
shall be calculated without giving effect to clause (iii) of the
proviso set forth in the definition of Consolidated Net Income, and
(ii) the Consolidated Cash Flow attributable to discontinued
operations, as determined in accordance with GAAP, and operations or
businesses disposed of prior to the Calculation Date, shall be
excluded, and (iii) the Fixed Charges attributable to discontinued
operations, as determined in accordance with GAAP, and operations or
businesses disposed of prior to the Calculation Date, shall be
excluded, but only to the extent that the obligations giving rise to
such Fixed Charges will not be obligations of the referent Person or
any of its Subsidiaries following the Calculation Date.
"Fonda" means The Fonda Group, Inc.
"Fonda Credit Facility" means the credit facility between
Fonda and IBJ Schroder Bank & Trust Corporation, as agent, providing
for available borrowings of up to $50.0 million.
"Four M" means Four M Corporation.
"GAAP" means generally accepted accounting principles set
forth in the opinions and pronouncements of the Accounting Principles
Board of the American Institute of Certified Public Accountants and
statements and pronouncements of the Financial Accounting Standards
Board or in such other statements by such other entity as have been
approved by a significant segment of the accounting profession, which
are in effect on March 12, 1998.
"Guarantee" means a guarantee (other than by endorsement of
negotiable instruments for collection in the ordinary course of
business), direct or indirect, in any manner (including, without
limitation, by way of a pledge of assets or through letters of credit
or reimbursement agreements in respect thereof), of all or any part of
any Indebtedness (as defined below).
"Hedging Obligations" means, with respect to any Person, the
obligations of such Person under (i) interest rate swap agreements,
interest rate cap agreements and interest rate collar agreements and
(ii) other agreements or arrangements designed to protect such Person
against fluctuations in interest rates.
"Holder" means a Person in whose name a Senior Secured
Discount Note is registered.
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"Indebtedness" means, with respect to any Person, any
indebtedness of such Person, whether or not contingent, in respect of
borrowed money or evidenced by bonds, notes, debentures or similar
instruments or letters of credit (or reimbursement agreements in
respect thereof) or banker's acceptances or representing Capital Lease
Obligations or the balance deferred and unpaid of the purchase price
of any property or representing any Hedging Obligations, except any
such balance that constitutes an accrued expense or trade payable, if
and to the extent any of the foregoing (other than letters of credit
and Hedging Obligations) would appear as a liability upon a balance
sheet of such Person prepared in accordance with GAAP, as well as all
Indebtedness of others secured by a Lien (as defined below) on any
asset of such Person (whether or not such Indebtedness is assumed by
such Person) and, to the extent not otherwise included, the Guarantee
by such Person of any indebtedness of any other Person. The amount of
any Indebtedness outstanding as of any date shall be (i) the accreted
value thereof, in the case of any Indebtedness issued with original
issue discount, and (ii) the principal amount thereof, together with
any interest thereon that is more than 30 days past due, in the case
of any other Indebtedness.
"Indenture" means the Indenture, dated as of March 12, 1998,
between the Corporation and The Bank of New York, as trustee (the
"Trustee"), governing the Corporation's 12.75% Senior Secured Discount
Notes due 2008.
"Investments" means, with respect to any Person, all
investments by such Person in other Persons (including Affiliates) in
the forms of direct or indirect loans (including guarantees of
Indebtedness or other obligations), advances or capital contributions
(excluding commission, travel and similar advances to officers and
employees made in the ordinary course of business), purchases or other
acquisitions for consideration of Indebtedness, Equity Interests or
other securities, together with all items that are or would be
classified as investments on a balance sheet prepared in accordance
with GAAP. If the Corporation or any Restricted Subsidiary of the
Corporation sells or otherwise disposes of any Equity Interests of any
direct or indirect Subsidiary of the Corporation such that, after
giving effect to any such sale or disposition, such Person is no
longer a Subsidiary of the Corporation, the Corporation shall be
deemed to have made an Investment on the date of any such sale or
disposition equal to the fair market value of the Equity Interests of
such Subsidiary not sold or disposed of in an amount determined as
provided in the final paragraph of paragraph (b) of this subparagraph
9.
"Lien" means, with respect to any asset, any mortgage, lien,
pledge, charge, security interest or encumbrance of any kind in
respect of such asset, whether or not filed, recorded
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or otherwise perfected under applicable law (including any conditional
sale or other title retention agreement, any lease in the nature
thereof, any option or other agreement to sell or give a security
interest in and any filing of or agreement to give any financing
statement under the Uniform Commercial Code (or equivalent statutes)
of any jurisdiction).
"Net Income" means, with respect to any Person, the net
income (loss) of such Person, determined in accordance with GAAP and
before any reduction in respect of preferred stock dividends,
excluding, however, (i) any gain (but not loss), together with any
related provision for taxes on such gain (but not loss), realized in
connection with (a) any Asset Sale or (b) the disposition of any
securities by such Person or any of its Restricted Subsidiaries or the
extinguishment of any Indebtedness of such Person or any of its
Restricted Subsidiaries and (ii) any extraordinary or nonrecurring
gain (but not loss), together with any related provision for taxes on
such extraordinary or nonrecurring gain (but not loss).
"Net Proceeds" means the aggregate cash proceeds received by
the Company or any of its Restricted Subsidiaries in respect of any
Asset Sale (including, without limitation, any cash received upon the
sale or other disposition of any non-cash consideration received in
any Asset Sale), net of the direct costs relating to such Asset Sale
(including, without limitation, legal, accounting and investment
banking fees, and sales commissions) and any relocation expenses
incurred as a result thereof, taxes paid or payable as a result
thereof (after taking into account any available tax credits or
deductions and any tax sharing arrangements), amounts required to be
applied to the repayment of Indebtedness secured by a Lien on the
asset or assets that were the subject of such Asset Sale, and any
reserve for adjustment in respect of the sale price of such asset or
assets established in accordance with GAAP.
"Non-Recourse Debt" means Indebtedness (i) as to which
neither the Corporation nor any of its Restricted Subsidiaries (a)
provides credit support of any kind (including any undertaking,
agreement or instrument that would constitute Indebtedness), (b) is
directly or indirectly liable (as a guarantor or otherwise), or (c)
constitutes the lender; and (ii) no default with respect to which
(including any rights that the holders thereof may have to take
enforcement action against an Unrestricted Subsidiary) would permit
(upon notice, lapse of time or both) any holder of any other
Indebtedness (other than the Senior Secured Discount Notes (as defined
below)) of the Corporation or any of its Restricted Subsidiaries to
declare a default on such other Indebtedness or cause the payment
thereof to be accelerated or payable prior to its stated maturity; and
(iii) as to which the lenders have been notified in writing that they
will not have
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any recourse to the stock or assets of the Corporation or any
of its Restricted Subsidiaries.
"Offering" means the Offering of the Units by the
Corporation.
"Offering Memorandum" means the Offering Memorandum, dated
March 5, 1998, governing the Offering of the Units by the Corporation.
"Permitted Business" means the business of producing and
selling food service, packaging, tissue and party goods products and
such other businesses as the Corporation and its Restricted
Subsidiaries are engaged in on the date of the Indenture, and
reasonable expansions and extensions thereof.
"Permitted Investment" means (a) any Investment in the
Corporation or in a Restricted Subsidiary of the Corporation; (b) any
Investment in Cash Equivalents; (c) any Investment by the Corporation
or any Restricted Subsidiary of the Corporation in a Person, if as a
result of such Investment (i) such Person becomes a Restricted
Subsidiary of the Corporation or (ii) such Person is merged,
consolidated or amalgamated with or into, or transfers or conveys
substantially all of its assets to, or is liquidated into, the
Corporation or a Restricted Subsidiary of the Corporation; (d) any
Investment made as a result of the receipt of non-cash consideration
from an Asset Sale made in accordance with the provisions of paragraph
(f) of this paragraph 9; (e) a $2.6 million loan from Fonda to CEG, as
in effect on March 12, 1998 as such loan may be amended or refinanced
in a manner not adverse to Fonda, the Corporation or the Holders of
the Senior Secured Discount Notes; and (f) other Investments in a
Permitted Business in an aggregate amount not to exceed $5.0 million.
"Permitted Liens" means (i) Liens on Indebtedness of the
Corporation's Restricted Subsidiaries that was permitted by the terms
of this subparagraph 9 to be incurred; (ii) Liens in favor of the
Corporation or any of its Restricted Subsidiaries; (iii) Liens on
property of a Person existing at the time such Person is merged into
or consolidated with the Corporation or any Restricted Subsidiary of
the Corporation; provided that such Liens were in existence prior to
the contemplation of such merger or consolidation and do not extend to
any assets other than those of the Person merged into or consolidated
with the Corporation or any Restricted Subsidiary; (iv) Liens on
property existing at the time of acquisition thereof by the
Corporation or any Restricted Subsidiary of the Corporation; provided
that such Liens were in existence prior to the contemplation of such
acquisition; (v) Liens to secure the performance of statutory
obligations, surety or appeal bonds, performance bonds or other
obligations of a like nature incurred in the ordinary course of
business; (vi) Liens to secure Indebtedness (including Capital Lease
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Obligations) permitted by clause (iv) of the second paragraph of
paragraph (d) of this subparagraph 9 covering only the assets acquired
with such Indebtedness; (vii) Liens existing on March 12, 1998; (viii)
Liens for taxes, assessments or governmental charges or claims that
are not yet delinquent or that are being contested in good faith by
appropriate proceedings promptly instituted and diligently concluded,
provided that any reserve or other appropriate provision as shall be
required in conformity with GAAP shall have been made therefor; (ix)
Liens incurred in the ordinary course of business of the Corporation
or any Restricted Subsidiary of the Corporation with respect to
obligations that do not exceed $2.5 million at any one time
outstanding and that (a) are not incurred in connection with the
borrowing of money or the obtaining of advances or credit (other than
trade credit in the ordinary course of business) and (b) do not in the
aggregate materially detract from the value of the property or
materially impair the use thereof in the operation of business by the
Corporation or such Restricted Subsidiary; (x) Liens in favor of the
holders of Senior Secured Discount Notes; and (xi) renewals or
refundings of any Liens referred to in clauses (iii) through (x)
above; provided that any such renewal or refunding does not extend to
any assets or secure any Indebtedness not securing or secured by the
Liens being renewed or refinanced.
"Permitted Refinancing Indebtedness" means any Indebtedness
of the Corporation or any of its Restricted Subsidiaries issued in
exchange for, or the net proceeds of which are used to extend,
refinance, renew, replace, defease or refund other Indebtedness of the
Corporation or any such Restricted Subsidiary; provided that: (i) the
principal amount (or accreted value, if applicable) of such Permitted
Refinancing Indebtedness does not exceed the principal amount of (or
accreted value, if applicable), plus accrued interest on, the
Indebtedness so extended, refinanced, renewed, replaced, defeased or
refunded (plus the amount of reasonable expenses incurred in
connection therewith); (ii) such Permitted Refinancing Indebtedness
has a final maturity date later than the final maturity date of, and
has a Weighted Average Life to Maturity equal to or greater than the
Weighted Average Life to Maturity of, the Indebtedness being extended,
refinanced, renewed, replaced, defeased or refunded; (iii) if the
Indebtedness being extended, refinanced, renewed, replaced, defeased
or refunded is subordinated in right of payment to the Senior Secured
Discount Notes, such Permitted Refinancing Indebtedness has a final
maturity date later than the final maturity date of, and is
subordinated in right of payment to, the Senior Secured Discount Notes
on terms at least as favorable to the Holders of Senior Secured
Discount Notes as those contained in the documentation governing the
Indebtedness being extended, refinanced, renewed, replaced, defeased
or refunded; and (iv) such Indebtedness is incurred either by the
Corporation or by the Subsidiary who is the
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obligor on the Indebtedness being extended, refinanced, renewed,
replaced, defeased or refunded.
"Person" means any individual, corporation, partnership,
joint venture, association, joint-stock company, limited liability
company, trust, unincorporated organization or government or agency or
political subdivision thereof (including any subdivision or ongoing
business of any such entity or substantially all of the assets of any
such entity, subdivision or business).
"Principals" means Dennis Mehiel, his lineal descendants and
any trust, corporation, partnership, association, limited liability
company or other entity in which Dennis Mehiel and/or his lineal
descendants hold at least 80% of the total, combined outstanding
voting power or similar controlling interest.
"Registration Rights Agreement" means the Registration Rights
Agreement, dated as of March 12, 1998, by and among the Corporation
and the other parties named on the signature pages thereof, as such
agreement may be amended, modified or supplemented from time to time.
"Restricted Investment" means an Investment other than a
Permitted Investment.
"Restricted Subsidiary" of a Person means any Subsidiary of
the referent Person that is not an Unrestricted Subsidiary.
"Senior Secured Discount Notes" means the Corporation's
12.75% Senior Secured Discount Notes due 2008.
"Subsidiary" means, with respect to any Person, (i) any
corporation, association or other business entity of which more than
50% of the total voting power of shares of Capital Stock entitled
(without regard to the occurrence of any contingency) to vote in the
election of directors, managers or trustees thereof is at the time
owned or controlled, directly or indirectly, by such Person or one or
more of the other Subsidiaries of that Person (or a combination
thereof) and (ii) any partnership (a) the sole general partner or the
managing general partner of which is such Person or a Subsidiary of
such Person or (b) the only general partners of which are such Person
or of one or more Subsidiaries of such Person (or any combination
thereof); provided, however, that Sweetheart (as defined below) shall
be deemed to be a Subsidiary of the Corporation for so long as the
Corporation directly or indirectly owns at least 50% of Sweetheart's
aggregate outstanding common stock.
"Sweetheart" means Sweetheart Holdings Inc. and its
Subsidiaries.
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"Sweetheart Credit Facilities" means Sweetheart's revolving
credit facility with BankAmerica in the amount of up to $135.0
million, and Sweetheart's term and revolving credit facilities with
The Bank of Nova Scotia, which provides for (i) a term loan facility
in the amount of up to Cdn. $14.0 million; (ii) a revolving credit
facility in the amount of up to Cdn. $7.0 million; and (iii) a
revolving overdraft credit facility with standby or guarantee letters
of credit in the amount of up to Cdn. $1.0 million.
"Transactions" is ascribed the meaning set forth in the
Offering Memorandum.
"Units" means the Units offered in the Offering consisting of
$1,000 in aggregate principal amount at maturity of the Senior Secured
Discount Notes and two (2) shares of Class C Common Stock, par value
$.001 per share of the Corporation.
"Unrestricted Subsidiary" means (i) any Subsidiary (other
than Fonda or Sweetheart or any successor to any of them) that is
designated by the Board of Directors as an Unrestricted Subsidiary
pursuant to a resolution of the Board of Directors; but only to the
extent that such Subsidiary: (a) has no Indebtedness other than
Non-Recourse Debt; (b) is not party to any agreement, contract,
arrangement or understanding with the Corporation or any Restricted
Subsidiary of the Corporation unless the terms of any such agreement,
contract, arrangement or understanding are no less favorable to the
Corporation or such Restricted Subsidiary than those that might be
obtained at the time from Persons who are not Affiliates of the
Corporation; (c) is a Person with respect to which neither the
Corporation nor any of its Restricted Subsidiaries has any direct or
indirect obligation (x) to subscribe for additional Equity Interests
or (y) to maintain or preserve such Person's financial condition or to
cause such Person to achieve any specified levels of operating
results; (d) has not guaranteed or otherwise directly or indirectly
provided credit support for any Indebtedness of the Corporation or any
of its Restricted Subsidiaries; and (e) has at least one director on
its board of directors that is not a director or executive officer of
the Corporation or any of its Restricted Subsidiaries and has at least
one executive officer that is not a director or executive officer of
the Corporation or any of its Restricted Subsidiaries. If, at any
time, any Unrestricted Subsidiary would fail to meet the foregoing
requirements as an Unrestricted Subsidiary, it shall thereafter cease
to be an Unrestricted Subsidiary and any Indebtedness of such
Subsidiary shall be deemed to be incurred by a Restricted Subsidiary
of the Corporation as of such date. The Board of Directors of the
Corporation may at any time designate any Unrestricted Subsidiary to
be a Restricted Subsidiary; provided that such designation shall be
deemed to be an incurrence of Indebtedness by a Restricted Subsidiary
of
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the Corporation of any outstanding Indebtedness of such Unrestricted
Subsidiary and such designation shall only be permitted if (i) such
Indebtedness is permitted under paragraph (d) of this subparagraph 9,
calculated on a pro forma basis as if such designation had occurred at
the beginning of the four-quarter reference period, and (ii) no
Default or Event of Default would be in existence following such
designation.
"Voting Stock" of any Person as of any date means the Capital
Stock of such Person that is at the time entitled to vote in the
election of the Board of Directors of such Person.
"Weighted Average Life to Maturity" means, when applied to
any Indebtedness at any date, the number of years obtained by dividing
(i) the sum of the products obtained by multiplying (a) the amount of
each then remaining installment, sinking fund, serial maturity or
other required payments of principal, including payment at final
maturity, in respect thereof, by (b) the number of years (calculated
to the nearest one-twelfth) that will elapse between such date and the
making of such payment, by (ii) the then outstanding principal amount
of such Indebtedness.
"Wholly Owned Restricted Subsidiary" of any Person means a
Restricted Subsidiary of such Person all of the outstanding Capital
Stock or other ownership interests of which (other than directors'
qualifying shares) shall at the time be owned by such Person or by one
or more Wholly Owned Restricted Subsidiaries of such Person and one or
more Wholly Owned Restricted Subsidiaries of such Person.
B. CLASS B PREFERRED STOCK
Shares of Class B Preferred Stock may be issued from time to time in
one or more series, as may from time to time be determined by the Board of
Directors, each of said series to be distinctly designated. All shares of any
one series of Class B Preferred Stock shall be alike in every particular,
except that there may be different dates from which dividends, if any, thereon
shall be cumulative, if made cumulative. The voting rights, if any, and the
preferences and relative, participating, optional and other special rights of
each such series, and the qualifications, limitations or restrictions thereof,
if any, may differ from those of any and all other series at any time
outstanding; and, subject to the provisions of Paragraph A of this Article
FOURTH and subparagraph 2 of Paragraph E of this Article FOURTH, the Board of
Directors of the Corporation is hereby expressly granted authority to fix by
resolution or resolutions adopted prior to the issuance of any shares of a
particular series of Class B Preferred Stock, the voting rights, if any, and
the designations, preferences and relative, participating, optional and other
special rights, and the qualifications, limitations and restrictions of such
series,
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including, but without limiting the generality of the foregoing,
the following:
(a) The distinctive designation of, and the number of shares
of Class B Preferred Stock which shall constitute such series, which
number may be increased (except where otherwise provided by the Board
of Directors) or decreased (but not below the number of shares thereof
then outstanding) from time to time by like action of the Board of
Directors;
(b) The rate and times at which, and the terms and conditions
on which, dividends, if any, on Class B Preferred Stock of such series
shall be paid, the extent of the preference or relation, if any, of
such dividends to the dividends payable on any other class or classes
or series of the same or other classes of stock and whether such
dividends shall be cumulative or non-cumulative;
(c) The right, if any, of the holders of Class B Preferred
Stock of such series to convert the same into, or exchange the same
for, shares of any other class or classes or of any series of the same
or any other class or classes of stock of the Corporation and the
terms and conditions of such conversion or exchange;
(d) Whether or not Class B Preferred Stock of such series
shall be subject to redemption, and the redemption price or prices and
the time or times at which, and the terms and conditions on which,
Class B Preferred Stock of such series may be redeemed;
(e) The rights, if any, of the holders of Class B Preferred
Stock of such series upon the voluntary or involuntary liquidation,
merger, consolidation, distribution or sale of assets, dissolution or
winding-up of the Corporation;
(f) The terms of the sinking fund or redemption or purchase
account, if any, to be provided for the Class B Preferred Stock of such
series; and
(g) The voting powers, if any, of the holders of such series
of Class B Preferred Stock which may, without limiting the generality
of the foregoing, include the right, voting as a series by itself or
together with other series of Class B Preferred Stock or all series of
Class B Preferred Stock as a class, to vote on such matters or under
such circumstances and on such conditions as the Board of Directors
may determine.
C. CLASS B SERIES 1 PREFERRED STOCK
Pursuant to the authority granted to the Board of Directors in
Paragraphs B and C of this Article FOURTH, fifteen thousand (15,000) of the
authorized shares of Class B Preferred Stock are
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hereby designated as Class B Series 1 Preferred Stock. The powers, preferences
and rights, and the qualifications, limitations and restrictions, of the Class
B Series 1 Preferred Stock are as follows:
1. The holder of shares of Class B Series 1 Preferred Stock
shall not be entitled to receive any dividends whatsoever.
2. The Class B Series 1 Preferred Stock shall, with respect to
distributions upon the liquidation, winding up or dissolution of the
Corporation, rank junior to the Preferred Stock and senior to all classes of
Common Stock of the Corporation and, except as provided in the following
proviso, to each other class or series of capital stock issued by the
Corporation now or hereafter created (collectively, together with the Common
Stock, "Series 1 Junior Stock"); provided, however, that the Board of Directors
may authorize a class or series of preferred stock on a parity in powers,
preferences and rights to the Class B Series 1 Preferred Stock (collectively,
"Series 1 Parity Stock") or senior in powers, preferences and rights to the
Class B Series 1 Preferred Stock (collectively, "Series 1 Senior Stock") if
approved by the holders of a majority of the shares of Class B Series 1
Preferred Stock; provided, however, that no such class or series of Series 1
Senior Stock shall be senior in powers, preferences and rights to the Preferred
Stock except as provided in subparagraph 1 of Paragraph A of this Article
FOURTH.
3. In the event of any liquidation, dissolution or winding up of the
Corporation, whether voluntary or involuntary, no payment or distribution of
assets shall be made to or set apart for the holders of Series 1 Junior Stock
unless the holders of shares of Class B Series 1 Preferred Stock shall have
received, out of assets legally available therefor, one thousand dollars
($1,000) per share of Class B Series 1 Preferred Stock (the "Liquidation
Value"). If upon any such distribution of assets in liquidation or dissolution
or upon the winding up of the affairs of the Corporation the amount which would
be distributed to the holder of the outstanding shares of Class B Series 1
Preferred Stock would be less than this amount, then such lesser amount shall
be distributed pro rata to the holders of then outstanding shares of Class B
Series 1 Preferred Stock and to the holders of then outstanding shares of
Series 1 Parity Stock, and no distribution shall be made to the holders of
Series 1 Junior Stock. None of the consolidation or the merger of the
Corporation, or the sale, lease or transfer by the Corporation of all or any
part of its assets, shall be deemed to be a liquidation, dissolution or winding
up of the Corporation for purposes of this subparagraph 3.
4. (a) The Corporation shall redeem all, but not less than all, of the
Class B Series 1 Preferred Stock on March 13, 2010, out of funds
legally available for such purpose, at a redemption price per share,
in cash, equal to the aggregate Liquidation Value. Notice of such
redemption shall be given by first class mail, postage prepaid, mailed
not less than 30
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days nor more than 60 days prior to the redemption date, to each
holder of record of the shares to be redeemed at such holder's address
as the same appears on the stock register of the Corporation. Each
such redemption notice shall state: (i) the redemption date; (ii) the
number of shares of Class B Series 1 Preferred Stock to be redeemed;
and (iii) the place or places where certificates for such shares are
to be surrendered for payment of the redemption price. On or after the
date so specified, each holder of then outstanding shares of Class B
Series 1 Preferred Stock so to be redeemed shall surrender the
certificate or certificates evidencing the Class B Series 1 Preferred
Stock held by such holder to the Corporation at its principal office
(or such other office or agency of the Corporation as the Corporation
may designate in such notice), in exchange for payment to its order or
that of its nominee, as such holder shall request, in an aggregate
amount equal to the aggregate redemption amount of the shares of Class
B Series 1 Preferred Stock so redeemed. All shares of Preferred Stock
which are redeemed pursuant to this subparagraph 4 shall be cancelled
and shall not be reissued.
(b) No dividend or other distribution (payable other than in
shares of Series 1 Junior Stock) shall be paid to the holders of
Series 1 Junior Stock, and no shares of Series 1 Junior Stock shall be
purchased, redeemed or otherwise acquired by the Corporation or any of
its subsidiaries (except by conversion into or in exchange for Series
1 Junior Stock), nor shall any monies be paid or made available for a
purchase, redemption or sinking fund for the purchase or redemption of
any Series 1 Junior Stock unless the Corporation shall not be in
default on any of its obligations to purchase or redeem the Class B
Series 1 Preferred Stock pursuant to this subparagraph 4.
5. (a) The shares of Class B Series 1 Preferred Stock may, at the
option of the holder, at any time and from time to time, be converted
into shares of fully paid and non-assessable shares of Class A Common
Stock or Class B Common Stock, at the conversion ratio of one (1)
share of Class B Series 1 Preferred Stock for 88.99633 shares of Class
A Common Stock or Class B Common Stock, subject to adjustment for any
subdivision or combination of, or stock dividend on, the Class A
Common Stock or Class B Common Stock. The fifteen thousand (15,000)
shares of Class B Series 1 Preferred Stock authorized shall,
initially, be convertible into one million three hundred thirty four
thousand nine hundred and forty five (1,334,945) shares of Class A
Common Stock or Class B Common Stock.
(b) Upon receipt by the Corporation from the record holder of
the shares of Class B Series 1 Preferred Stock of a written request to
convert its shares of Class B Series 1 Preferred Stock, the shares of
Class B Series 1 Preferred Stock shall be converted into shares of
Class A Common Stock
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or Class B Common Stock, as specified in such written request, at the
conversion ratio specified in subparagraph 5(a) above. The conversion
of shares hereunder shall be effective, subject to the terms of this
subparagraph 5, as of the close of business on the date of the receipt
by the Corporation of such request to convert, and the holder entitled
to receive the shares issuable upon such conversion shall be treated
for all purposes as the record holder of such shares on such date.
(c) The conversion of shares of Class B Series 1 Preferred
Stock shall be exercised by the surrender by the holder of the
certificates representing the shares being converted accompanied by a
written notice of conversion signed by such holder or its duly
authorized agent, at the principal office of the Corporation (or such
other office or agency of the Corporation as the Corporation may
designate by notice in writing to the holders of Class B Series 1
Preferred Stock) at any time during its usual business hours, and
stating the name or names in which such holder wishes the certificates
for Class A Common Stock or Class B Common Stock to be received upon
conversion to be issued and the address to which such certificates
shall be delivered. In case such notice shall specify a name or names
other than that of the holder, such notice shall be accompanied by
payment of any and all transfer taxes payable upon the issuance of the
Class A Common Stock or Class B Common Stock upon conversion and all
instruments of transfer appropriately completed to permit such
issuance. Subject to the foregoing, the issuance of certificates for
shares of Class A Common Stock or Class B Common Stock upon conversion
of shares of Class B Series 1 Preferred Stock shall be made without
charge to the holder of such converted shares for any costs incurred
by the Corporation in connection with such conversion and related
issuance of shares. As soon as practicable after such surrender of
such certificates, the Corporation shall issue and deliver at such
address as is specified by such holder the certificates for the number
of shares of Class A Common Stock or Class B Common Stock to which
such holder shall be entitled as aforesaid.
(d) The Corporation shall at all times reserve and keep
available, out of its authorized and unissued shares, solely for the
purpose of issue upon the conversion of shares of Class B Series 1
Preferred Stock as herein provided, such number of shares of Class A
Common Stock and Class B Common Stock as shall then be issuable upon
the conversion of the shares of Class B Series 1 Preferred Stock. All
shares of Class A Common Stock and Class B Common Stock issuable upon
any conversion described herein shall, when issued, be duly and
validly issued and fully paid and non-assessable. The Corporation will
take such action as may be necessary to assure that all such shares of
Class A Common Stock and Class B Common Stock may be so issued without
violation of any applicable requirements of any national stock
exchange upon
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which the shares of Common Stock of the Corporation may be
listed.
6. The holder of shares of Class B Series 1 Preferred Stock shall not
be entitled to any voting rights whatsoever, except as provided in subparagraph
2 of this Paragraph C and except to the extent otherwise required by applicable
law.
7. In case at any time or from time to time the Corporation shall take
any action in respect of the Common Stock, then unless such action will not
have a materially adverse effect upon the conversion rights of the holders of
Class B Series 1 Preferred Stock, the conversion rights set forth in
subparagraph 5 of this Paragraph C shall, in the good faith judgment of the
Board of Directors of the Corporation, be adjusted in such manner as shall be
equitable in the circumstances.
8. In the event that the Corporation shall propose (a) to pay any
stock dividend to the holders of its Common Stock or to make any other
distribution to the holders of its Common Stock, or (b) to offer to the holders
of its Common Stock rights, warrants or options to subscribe for or to purchase
any additional shares of Common Stock or shares of stock of any class or any
other securities, rights or options, or (c) to effect any reclassification of
its Common Stock (other than a reclassification involving only the subdivision
or combination of outstanding shares of Common Stock), or (d) to effect any
consolidation, merger or sale, transfer or other disposition of all or
substantially all of the assets of the Corporation, or (e) to effect the
liquidation, dissolution or winding-up of the Corporation, or (f) to effect any
transaction that would constitute or effect a Change of Control, then, in each
such case, the Corporation shall give to the holders of the Class B Series 1
Preferred Stock a notice of such proposed action, which shall specify the
record date for the purposes of such stock dividend, distribution or offer of
rights, warrants or options, or the date on which such reclassification,
consolidation, merger, sale, transfer, disposition, liquidation, dissolution,
winding-up or Change of Control is to take place and the date of participation
therein by the holders of Common Stock, if any such date is to be fixed. Such
notice shall be so given at least 20 days prior to (i) the record date for the
purposes of any action covered by clause (a) or (b) above or (ii) the earlier
of the date of the taking of such proposed action or the date of participation
therein by the holders of Common Stock, for the purposes of any action covered
by clause (c), (d), (e) or (f) above.
D. COMMON STOCK
The Common Stock shall be divided into fourteen million (14,000,000)
shares of Class A Common Stock, two million (2,000,000) shares of Class B
Common Stock and two million (2,000,000) shares of Class C Common Stock. The
powers, preferences and rights, and the qualifications, limitations and
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restrictions, of the Class A Common Stock, Class B Common Stock and Class C
Common Stock are as follows:
1. Except to the extent expressly set forth in subparagraph 4 or
subparagraph 5 of this Paragraph D, none of the Class A Common Stock, the Class
B Common Stock or the Class C Common Stock has any preference over, or with
respect to, any other such class of Common Stock, and each share of Class A
Common Stock, Class B Common Stock and Class C Common Stock is vested with all
of the same dividend and liquidation rights.
2. After the requirements with respect to preferential dividends on
the Preferred Stock or the Class B Preferred Stock (fixed in accordance with
the provisions of Paragraphs A and B of this Article FOURTH), if any, shall
have been met and after the Corporation shall have complied with all the
requirements, if any, with respect to the setting aside of sums as sinking
funds or repurchase, redemption or purchase accounts (fixed in accordance with
the provisions of Paragraphs A and B of this Article FOURTH), and subject
further to any other conditions which may be fixed in accordance with the
provisions of Paragraphs A and B of this Article FOURTH, then and not otherwise
the holders of Common Stock shall be entitled to receive such dividends as may
be declared from time to time by the Board of Directors out of funds legally
available therefor. When and as dividends are declared thereon, whether payable
in cash, property or securities of the Corporation, holders of Class A Common
Stock, Class B Common Stock and Class C Common Stock will be entitled to share
in such dividends ratably according to the number of shares of Class A Common
Stock, Class B Common Stock and Class C Common Stock held by them. If dividends
are declared which are payable in shares of Class A Common Stock, Class B
Common Stock or Class C Common Stock, such dividends will be declared payable
at the same rate on each class of Common Stock, and the dividends payable in
shares of Class A Common Stock will be payable to the holders of Class A Common
Stock, the dividends payable in shares of Class B Common Stock will be payable
to the holders of Class B Common Stock and the dividends payable in shares of
Class C Common Stock will be payable to the holders of Class C Common Stock. If
a holder of Class B or Class C Common Stock, as the case may be, shall convert
any of its respective shares of Class B or Class C Common Stock into shares of
Class A Common Stock pursuant to subparagraph 5 of this Paragraph D at a time
which falls after the record date, but before the payment date, of any dividend
declared by the Corporation, the holder shall be entitled to the receipt of
such declared dividend as though such conversion had not taken place.
3. After distribution in full of the preferential amount (fixed in
accordance with the provisions of Paragraphs A, B and C of this Article
FOURTH), if any, to be distributed to the holders of Preferred Stock and to the
holders of any series of Class B Preferred Stock in the event of voluntary or
involuntary liquidation, distribution or sale of assets, dissolution or
winding-up of the Corporation, the holders of Class A Common Stock,
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Class B Common Stock and Class C Common Stock shall be entitled to share,
ratably according to the number of shares of Class A Common Stock, Class B
Common Stock and/or Class C Common Stock, respectively, held by them, in all
the remaining assets of the Corporation, tangible and intangible, of whatever
kind available for distribution to stockholders.
4. Except as may otherwise be required by law, each holder of Class A
Common Stock shall have one vote in respect of each share of Class A Common
Stock held by it on all matters voted upon by the stockholders, including the
election of directors. Except as may otherwise be required by law, each holder
of Class B Common Stock shall have one-tenth (.1) of a vote in respect of each
share of Class B Common Stock held by it on all matters voted upon by the
stockholders, including the election of directors, and shall vote together with
the Class A Common Stock as a single class; provided, however, that the
approval of the holders of a majority of the outstanding shares of Class B
Common Stock, voting as a separate class, shall be required for the amendment
or modification of any provisions of the Certificate of Incorporation of the
Corporation in any manner that would adversely affect the powers, preferences
and rights of the Class B Common Stock. The holders of Class C Common Stock
shall not be entitled to any vote whatsoever, except to the extent otherwise
required by applicable law.
5. (a) Any share of Class B Common Stock may, at any time, be
converted into one fully paid and non-assessable share of Class A Common Stock
(x) at the option of any holder other than a Non-Converting Holder (as defined
below) or (y) at the option of any Non-Converting Holder concurrently with a
sale or other transfer of such shares of Class B Common Stock to any person,
firm or corporation other than a Non-Converting Holder, subject to the
conditions hereinafter set forth. For the purpose of this subparagraph 5, the
term "Non-Converting Holder" shall mean The Equitable Life Assurance Society of
the United States and any of its affiliates, or any other person, firm or
corporation that elects to be treated as a Non-Converting Holder by written
notice delivered to the Corporation on or before the date of acquisition of
shares of Class B Common Stock by such person, firm or corporation, which
notice refers to this sentence and states that such person, firm or corporation
is irrevocably electing to be treated as a Non-Converting Holder. Such written
notice shall be filed with the minutes of the proceedings of the Board of
Directors of the Corporation.
(b) Any share of Class C Common Stock may, following either (i) an
underwritten initial public offering of shares of Common Stock of the
Corporation or (ii) a refinancing of the Senior Secured Discount Notes, be
converted into one fully paid and non-assessable share of Class A Common Stock
(x) at the option of any holder or (y) at the option of the Corporation.
(c) Upon receipt by the Corporation from a record holder of shares of
Class B or Class C Common Stock, as the case may be, of
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a written request to convert its shares of Class B or Class C Common Stock, the
shares of Class B or Class C Common Stock requested to be converted shall be
converted into shares of Class A Common Stock, on the basis of one share of
Class A Common Stock for each share of Class B or Class C Common Stock, as the
case may be. The conversion of shares hereunder shall be effective, subject to
the terms of this subparagraph 5, as of the close of business on the date of
the receipt by the Corporation of such request to convert, and the holder
entitled to receive the shares issuable upon such conversion shall be treated
for all purposes as the record holder of such shares on such date. All shares
of Class B or Class C Common Stock converted into shares of Class A Common
Stock as provided in this subparagraph 5 may be reissued by the Corporation.
(d) Upon receipt by a record holder of shares of Class C Common Stock
from the Corporation of written notice of mandatory conversion of its shares of
Class C Common Stock, the shares of Class C Common Stock to be converted shall
be converted into shares of Class A Common Stock, on the basis of one share of
Class A Common Stock for each share of Class C Common Stock. The conversion of
shares hereunder shall be effective, subject to the terms of this subparagraph
5, as of the close of business on the date of the receipt by the record holder
of Class C Common Stock of such notice from the Corporation of mandatory
conversion, and the holder entitled to receive the shares issuable upon such
mandatory conversion shall be treated for all purposes as the record holder of
such shares on such date. For purposes of this section (d) of this subparagraph
5, such notice shall be deemed to be received by the record holder of Class C
Common Stock ten (10) business days following mailing of the notice by the
Corporation. All shares of Class C Common Stock converted into shares of Class
A Common Stock as provided in this subparagraph 5 may be reissued by the
Corporation.
(e) Any conversion of shares of Class B or Class C Common Stock shall
be exercised by the surrender by the holder of the certificate or certificates
representing the shares being converted accompanied, if the conversion is at
the option of the holder, by a written notice of conversion signed by such
holder or its duly authorized agent, at the principal office of the Corporation
(or such other office or agency of the Corporation as the Corporation may
designate by notice in writing to the holder or holders of Class B or Class C
Common Stock, as the case may be) at any time during its usual business hours,
and stating the name or names in which such holder wishes the certificate or
certificates for Class A Common Stock to be received upon conversion to be
issued and the address to which such certificate or certificates shall be
delivered. In case such notice shall specify a name or names other than that of
the holder, such notice shall be accompanied by payment of any and all transfer
taxes payable upon the issuance of the Class A Common Stock upon conversion and
all instruments of transfer appropriately completed to permit such issuance.
Subject to the foregoing, the issuance of certificates for shares of Class
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A Common Stock upon conversion of shares of Class B or Class C Common Stock
shall be made without charge to the holder of such converted shares for any
costs incurred by the Corporation in connection with such conversion and
related issuance of shares. As soon as practicable after such surrender of such
certificate or certificates, the Corporation shall issue and deliver at such
address as is specified by such holder a certificate or certificates for the
number of shares of Class A Common Stock to which such holder shall be entitled
as aforesaid.
(f) The Corporation shall at all times reserve and keep available, out
of its authorized and unissued shares, solely for the purpose of issue upon the
conversion of shares of Class B Common Stock as herein provided, such number of
shares of Class A Common Stock as shall then be issuable upon the conversion of
all outstanding shares of Class B Common Stock. The Corporation shall,
following an underwritten initial public offering of the shares of Common Stock
of the Corporation, reserve and keep available, out of its authorized and
unissued shares, solely for the purpose of issue upon the conversion of shares
of Class C Common Stock as herein provided, such number of shares of Class A
Common Stock as shall then be issuable upon conversion of all outstanding
shares of Class C Common Stock. All shares of Class A Common Stock issuable
upon any conversion described herein shall, when issued, be duly and validly
issued and fully paid and non-assessable. The Corporation will take such action
as may be necessary to assure that all such shares of Class A Common Stock may
be so issued without violation of any applicable requirements of any national
stock exchange upon which the shares of Common Stock of the Corporation may be
listed.
(g) If the Corporation in any manner subdivides or combines the
outstanding shares of any class of Common Stock, the outstanding shares of the
other classes will be proportionately subdivided or combined.
E. OTHER PROVISIONS
1. Except as may be otherwise provided in an agreement between the
Corporation and one or more holders of the shares of stock or of options,
warrants or other rights to purchase share of stock or other securities of the
Corporation, no holder of any of the shares of any class or series of stock or
of options, warrants or other rights to purchase shares of any class or series
of stock or of other securities of the Corporation shall have any preemptive
right to purchase or subscribe for any unissued stock of any class or series or
any additional shares of any class or series to be issued by reason of any
increase of the authorized capital stock of the Corporation of any class or
series, or bonds, certificates of indebtedness, debentures or other securities
convertible into or exchangeable for stock of the Corporation of any class or
series, or carrying any right to purchase stock of any class or series, but any
such unissued stock, additional authorized issue of shares of any class or
series of stock or securities convertible into or exchangeable for stock, or
carrying any right to purchase stock,
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may be issued and disposed of pursuant to resolution of the Board of Directors
to such persons, firms, corporations or associations, whether one or more of
such holders or others, and upon such terms as may be deemed advisable by the
Board of Directors.
2. The relative powers, preferences and rights of each series of Class
B Preferred Stock in relation to the powers, preferences and rights of each
other series of Class B Preferred Stock shall, in each case, be as fixed from
time to time by the Board of Directors in the resolution or resolutions adopted
pursuant to authority granted in Paragraph B of this Article FOURTH and the
consent, by class or series vote or otherwise, of the holders of Preferred
Stock or the holders of such of the series of Class B Preferred Stock as are
from time to time outstanding shall not be required for the issuance by the
Board of Directors of any other series of Class B Preferred Stock; provided,
however, that the approval of the holders of a majority of the shares of the
Preferred Stock, voting as a separate class, shall be required for the matters
described in the first sentence of subparagraph 8(b) of Paragraph A of this
Article FOURTH and the approval of the holders of a majority of the shares of
Class B Series 1 Preferred Stock, voting as a separate class, shall be required
for the matters described in subparagraph 2 of Paragraph C of this Article
FOURTH; and provided, however, that the Board of Directors may expressly
provide in the resolution or resolutions as to any series of Class B Preferred
Stock adopted pursuant to Paragraph B of this Article FOURTH that the consent
of the holders of a majority (or such greater proportion as shall be therein
fixed) of the outstanding shares of such series voting thereon shall be
required for the issuance of any or all other series of Class B Preferred
Stock.
3. Subject to the provisions of subparagraph 2 of this Paragraph E,
shares of any series of Class B Preferred Stock, in an aggregate amount not
exceeding the total number of shares of Class B Preferred Stock authorized in
this Restated Certificate of Incorporation, may be issued from time to time as
the Board of Directors of the Corporation shall determine and on such terms and
for such consideration as shall be fixed by the Board of Directors, and shares
of Preferred Stock, in an aggregate amount not exceeding the total number of
shares of Preferred Stock authorized in this Restated Certificate of
Incorporation, may be issued from time to time pursuant to subparagraph 2(a) of
Paragraph A of this Article FOURTH.
4. Shares of Class A Common Stock, Class B Common Stock and Class C
Common Stock, in an aggregate amount not exceeding the respective total number
of shares of Class A Common Stock, Class B Common Stock and Class C Common
Stock, as applicable, authorized in this Restated Certificate of Incorporation,
may be issued from time to time as the Board of Directors of the Corporation
shall determine and on such terms and for such consideration as shall be fixed
by the Board of Directors.
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5. The authorized amount of shares of Class B Preferred Stock and
Common Stock may, without a class or series vote, be increased or decreased
(but not below the number of such shares then outstanding) from time to time by
the affirmative vote of the holders of a majority of the stock of the
Corporation entitled to vote thereon.
FIFTH: Except as required in the By-laws of the Corporation, no
election of directors need be by written ballot.
SIXTH: The Board of Directors shall have the power to make, alter, or
repeal By-laws of the Corporation, subject to the power of the stockholders
entitled to vote thereon to alter or repeal Bylaws made by the Board of
Directors.
SEVENTH: A. A director of the Corporation shall not be personally
liable to the Corporation or its stockholders for monetary damages for breach
of fiduciary duty as a director; provided, however, that subject to the
immediately following sentence, this Article SEVENTH shall not eliminate or
limit the liability of a director to the extent provided by applicable law (i)
for any breach of the director's duty of loyalty to the Corporation or its
stockholders, (ii) for acts or omissions not in good faith or which involve
intentional misconduct or a knowing violation of law, (iii) under Section 174
of the Delaware General Corporation Law, or (iv) for any transaction from which
the director derived any improper personal benefit. If the Delaware General
Corporation Law is amended after this Restated Certificate of Incorporation
becomes effective to authorize corporate action further eliminating or limiting
the personal liability of directors, then the liability of a director of the
Corporation shall be eliminated or limited to the fullest extent permitted by
the Delaware General Corporation Law, as so amended.
B. Any repeal or modification of the foregoing Section A by
the stockholders of the Corporation shall not adversely affect any right or
protection of a director of the Corporation with respect to any acts or
omissions of such director occurring prior to such repeal or modification.
EIGHTH: The Corporation shall, to the fullest extent permitted from
time to time under the law of the State of Delaware, indemnify, and upon
request shall advance expenses to, any and all persons whom it shall have power
to indemnify under such law to the extent that such indemnification and
advancement of expenses is permitted under such law, as such law may from time
to time be in effect; provided, however, that the foregoing shall not require
the Corporation to indemnify or advance expenses to any person in connection
with any action, suit, proceeding, claim or counterclaim initiated by or on
behalf of such person. Such indemnification
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shall not be deemed exclusive of other rights to which those indemnified may be
entitled under any by-law, agreement, vote of directors or stockholders or
otherwise, both as to action in his official capacity and as to action in
another capacity while holding such office, shall continue as to a person who
has ceased to be a director, officer, employee or agent and shall inure to the
benefit of the heirs, executors and administrators of such person. To the
extent permitted by applicable law, any person seeking indemnification under
this Article EIGHTH shall be deemed to have met the standard of conduct
required for such indemnification unless the contrary shall be established. Any
repeal or modification of the foregoing provisions of this Article EIGHTH shall
not adversely affect any right or protection of a person with respect to any
acts or omissions of such person occurring prior to such repeal or
modification.
NINTH: The books of the Corporation may (subject to any
statutory requirements) be kept outside the State of Delaware as
may be designated by the Board of Directors or in the By-laws of
the Corporation.
TENTH: The Corporation reserves the right to amend, alter, change or
repeal any provisions contained in this Restated Certificate of Incorporation,
as such may from time to time be in effect, in the manner now or hereafter
prescribed by law, and all rights and powers conferred herein are granted
subject to this reservation.
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BY-LAWS
of
SF HOLDINGS GROUP, INC.
(A Delaware Corporation)
ARTICLE I
Stockholders
Section 1. Place of Meetings. Meetings of stockholders shall
be held at such place, either within or without the State of Delaware, as shall
be designated from time to time by the Board of Directors.
Section 2. Annual Meetings. Annual meetings of stockholders
shall be held on such date of each year and at such time as shall be designated
from time to time by the Board of Directors. At each annual meeting, the
stockholders shall elect a Board of Directors by plurality vote and transact
such other business as may be properly brought before the meeting.
Section 3. Special Meetings. Special meetings of the stockholders
may be called by the Board of Directors.
Section 4. Notice of Meetings. Written notice of each meeting
of the stockholders stating the place, date and hour of the meeting shall be
given by or at the direction of the Board of Directors to each stockholder
entitled to vote at the meeting at least ten, but not more than sixty, days
prior to the meeting. Notice of any special meeting shall state in general
terms the purpose or purposes for which the meeting is called.
<PAGE>
Section 5. Quorum; Adjournments of Meetings. The
holders of a majority of the issued and outstanding shares of the
capital stock of the corporation entitled to vote at a meeting,
present in person or represented by proxy, shall constitute a
quorum for the transaction of business at such meeting; but, if
there be less than a quorum, the holders of a majority of the
stock so present or represented may adjourn the meeting to
another time or place, from time to time, until a quorum shall be
present, whereupon the meeting may be held, as adjourned, without
further notice, except as required by law, and any business may
be transacted thereat which might have been transacted at the
meeting as originally called.
Section 6. Voting. At any meeting of the stockholders, every
registered owner of shares entitled to vote may vote in person or by proxy and,
except as otherwise provided by statute, in the Certificate of Incorporation or
these By-Laws, shall have one vote for each such share standing in his name on
the books of the corporation. Except as otherwise required by statute, the
Certificate of Incorporation or these By-Laws, all matters, other than the
election of directors, brought before any meeting of the stockholders shall be
decided by a vote of a majority in interest of the stockholders of the
corporation present in person or by proxy at such meeting and voting thereon, a
quorum being present.
Section 7. Inspectors of Election. The Board of Directors, or,
if the Board shall not have made the appointment,
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the chairman presiding at any meeting of stockholders shall have power to
appoint one or more persons to act as inspectors of election at the meeting or
any adjournment thereof, but no candidate for the office of director shall be
appointed as an inspector at any meeting for the election of directors.
Section 8. Chairman of Meetings. The Chairman of the Board
or, in his absence, the President shall preside at all meetings of the
stockholders. In the absence of both the Chairman of the Board and the
President, a majority of the members of the Board of Directors present in
person at such meeting may appoint any other officer or director to act as
chairman of the meeting.
Section 9. Secretary of Meetings. The Secretary of the corporation
shall act as secretary of all meetings of the stockholders. In the absence
of the Secretary, the chairman of the meeting shall appoint any other
person to act as secretary of the meeting.
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ARTICLE II
Board of Directors
Section l. Number of Directors. The number of directors shall
be not more than fifteen and not less than three, except that whenever all
shares of the Corporation's stock are owned beneficially and of record by less
than three stockholders, the number of initial directors shall be one, which
may be changed from time to time within the limits herein set forth by action
of the stockholders or of the Board of Directors.
Section 2. Vacancies. Whenever any vacancy shall occur in the
Board of Directors by reason of death, resignation, removal, increase in the
number of directors or otherwise, it may be filled by a majority of the
directors then in office, although less than a quorum, or by a sole remaining
director, for the balance of the term, or, if the Board has not filled such
vacancy, it may be filled by the stockholders.
Section 3. First Meeting. The first meeting of each newly
elected Board of Directors, of which no notice shall be necessary, shall be
held immediately following the annual meeting of stockholders or any
adjournment thereof at the place the annual meeting of stockholders was held at
which such directors were elected, or at such other place as a majority of the
members of the newly elected Board who are then present shall determine, for
the election or appointment of officers for the
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ensuing year and the transaction of such other business as may be brought
before such meeting.
Section 4. Regular Meetings. Regular meetings of
the Board of Directors, other than the first meeting, may be held
without notice at such times and places as the Board of Directors
may from time to time determine.
Section 5. Special Meetings. Special meetings of the Board of
Directors may be called by order of the Chairman of the Board, the President or
any two directors. Notice of the time and place of each special meeting shall
be given by or at the direction of the person or persons calling the meeting by
mailing the same at least three days before the meeting or by telephoning,
telegraphing or delivering personally the same at least twenty-four hours
before the meeting to each director. Except as otherwise specified in the
notice thereof, or as required by statute, the Certificate of Incorporation or
these By-Laws, any and all business may be transacted at any special meeting.
Section 6. Place of Conference Call Meeting. Any meeting at
which one or more of the members of the Board of Directors or of a committee
designated by the Board of Directors shall participate by means of conference
telephone or similar communications equipment shall be deemed to have been held
at the place designated for such meeting, provided that at least one member is
at such place while participating in the meeting.
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Section 7. Organization. Every meeting of the Board of
Directors shall be presided over by the Chairman of the Board or, in his
absence, the President. In the absence of the Chairman of the Board and the
President, a presiding officer shall be chosen by a majority of the directors
present. The Secretary of the corporation shall act as secretary of the
meeting, but, in his absence, the presiding officer may appoint any person to
act as secretary of the meeting.
Section 8. Quorum; Vote. A majority of the directors then in
office (but in no event less than one-third of the total number of directors)
shall constitute a quorum for the transaction of business, but less than a
quorum may adjourn any meeting to another time or place from time to time until
a quorum shall be present, whereupon the meeting may be held, as adjourned,
without further notice. Except as otherwise required by statute, the
Certificate of Incorporation or these By-Laws, all matters coming before any
meeting of the Board of Directors shall be decided by the vote of a majority of
the directors present at the meeting, a quorum being present.
Section 9. Removal of Directors. Any one or more of the directors
shall be subject to removal with or without cause at any time by the
stockholders.
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ARTICLE III
Officers
Section l. General. The Board of Directors shall elect the
officers of the corporation, which shall include a President, a Secretary and a
Treasurer and such other or additional officers (including, without limitation,
a Chairman of the Board, one or more Vice-Chairmen of the Board,
Vice-Presidents, Assistant Vice-Presidents, Assistant Secretaries and Assistant
Treasurers) as the Board of Directors may designate.
Section 2. Term of Office; Removal and Vacancy. Each officer
shall hold his office until his successor is elected and qualified or until his
earlier resignation or removal. Any officer or agent shall be subject to
removal with or without cause at any time by the Board of Directors. Vacancies
in any office, whether occurring by death, resignation, removal or otherwise,
may be filled by the Board of Directors.
Section 3. Powers and Duties. Each of the officers of the
corporation shall, unless otherwise ordered by the Board of Directors, have
such powers and duties as generally pertain to his respective office as well as
such powers and duties as from time to time may be conferred upon him by the
Board of Directors. Unless otherwise ordered by the Board of Directors after
the adoption of these By-Laws, the Chairman of the Board or, when the office of
Chairman of the Board is vacant, the President shall be the chief executive
officer of the corporation.
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Section 4. Power to Vote Stock. Unless otherwise ordered by
the Board of Directors, the Chairman of the Board and the President each shall
have full power and authority on behalf of the corporation to attend and to
vote at any meeting of stockholders of any corporation in which the corporation
may hold stock, and may exercise on behalf of the corporation any and all of
the rights and powers incident to the ownership of such stock at any such
meeting and shall have power and authority to execute and deliver proxies,
waivers and consents on behalf of the corporation in connection with the
exercise by the corporation of the rights and powers incident to the ownership
of such stock. The Board of Directors, from time to time, may confer like
powers upon any other person or persons.
ARTICLE IV
Capital Stock
Section l. Certificates of Stock. Certificates for stock of
the corporation shall be in such form as the Board of Directors may from time
to time prescribe and shall be signed by the Chairman of the Board or a Vice
Chairman of the Board or the President or a Vice-President and by the Treasurer
or an Assistant Treasurer or the Secretary or an Assistant Secretary.
Section 2. Transfer of Stock. Shares of capital
stock of the corporation shall be transferable on the books of
the corporation only by the holder of record thereof, in person
or by duly authorized attorney, upon surrender and cancellation
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of certificates for a like number of shares, with an assignment or power of
transfer endorsed thereon or delivered therewith, duly executed, and with such
proof of the authenticity of the signature and of authority to transfer, and of
payment of transfer taxes, as the corporation or its agents may require.
Section 3. Ownership of Stock. The corporation shall be
entitled to treat the holder of record of any share or shares of stock as the
owner thereof in fact and shall not be bound to recognize any equitable or
other claim to or interest in such shares on the part of any other person,
whether or not it shall have express or other notice thereof, except as
otherwise expressly provided by law.
ARTICLE V
Miscellaneous
Section l. Corporate Seal. The seal of the corporation shall be
circular in form and shall contain the name of the corporation and the year
and State of incorporation.
Section 2. Fiscal Year. The Board of Directors shall have power
to fix, and from time to time to change, the fiscal year of the corporation.
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ARTICLE VI
Amendment
The Board of Directors shall have the power to make, alter or
repeal the By-Laws of the corporation subject to the power of the stockholders
to alter or repeal the By-Laws made or altered by the Board of Directors.
ARTICLE VII
Indemnification
The corporation shall indemnify any director, officer,
employee or agent of the corporation to the full extent permitted by law.
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INDENTURE, dated as of March 12, 1998, between SF Holdings
Group, Inc., a Delaware corporation (the "Company"), and The Bank of New York,
as trustee (the "Trustee").
The Company and the Trustee agree as follows for the benefit
of each other and for the equal and ratable benefit of the Holders of the 12
3/4% Series A Senior Secured Discount Notes due 2008 (the "Series A Senior
Secured Discount Notes") and the 12 3/4% Series B Senior Secured Discount Notes
due 2008 (the "Series B Senior Secured Discount Notes" and, together with the
Series A Senior Secured Discount Notes, the "Senior Secured Discount Notes"):
ARTICLE 1.
DEFINITIONS AND INCORPORATION BY REFERENCE
SECTION 1.01. DEFINITIONS.
"144A Global Note" means a global Senior Secured Discount
Note in the form of Exhibit A-1 hereto bearing the Global Note Legend and the
Private Placement Legend and deposited with or on behalf of, and registered in
the name of, the Depositary or its nominee that will be issued in a
denomination equal to the outstanding principal amount at maturity of the
Senior Secured Discount Notes sold in reliance on Rule 144A.
"Accreted Value" means, as of any date of determination prior
to March 15, 2003, with respect to any Senior Secured Discount Note, the sum of
(a) the initial offering price to investors of such Senior Secured Discount
Note and (b) the portion of the excess of the principal amount of such Senior
Secured Discount Note over such initial offering price which shall have been
accreted thereon through such date, such amount to be so accreted on a daily
basis at a rate of 12 3/4% per annum of the initial offering price of such
Senior Secured Discount Note, compounded semi-annually on each March 15 and
September 15 from the date of issuance of the Senior Secured Discount Notes
through the date of determination, computed on the basis of a 360-day year of
twelve 30-day months.
"Acquired Debt" means, with respect to any specified Person,
(i) Indebtedness of any other Person existing at the time such other Person is
merged with or into or became a Restricted Subsidiary of such specified Person,
including, without limitation, Indebtedness incurred in connection with, or in
contemplation of, such other Person merging with or into or becoming a
Restricted Subsidiary of such specified Person, and (ii) Indebtedness secured
by a Lien encumbering any asset acquired by such specified Person.
"Affiliate" of any specified Person means any other Person
directly or indirectly controlling or controlled by or under direct or indirect
common control with such specified Person. For purposes of this definition,
"control" (including, with correlative meanings, the terms "controlling,"
"controlled by" and "under common control with"), as used with respect to any
Person, shall mean the possession, directly or indirectly, of the power to
direct or cause the direction of the management or policies of such Person,
whether through the ownership of voting securities, by agreement or otherwise;
provided that beneficial ownership of 10% or more of the Voting Stock of a
Person shall be deemed to be control.
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"Agent" means any Registrar, Paying Agent or co-registrar.
"Applicable Procedures" means, with respect to any transfer
or exchange of or for beneficial interests in any Global Note, the rules and
procedures of the Depositary, Euroclear and Cedel that apply to such transfer
or exchange.
"Asset Sale" means (i) the sale, lease, conveyance or other
disposition of any assets or rights (including, without limitation, by way of a
sale and leaseback) other than sales of inventory in the ordinary course of
business consistent with past practices (provided that the sale, lease,
conveyance or other disposition of all or substantially all of the assets of
the Company and its Restricted Subsidiaries taken as a whole will be governed
by Section 4.15 hereof and/or Article 5 hereof and not by Section 4.10 hereof),
and (ii) the issue or sale by the Company or any of its Restricted Subsidiaries
of Equity Interests of any of the Company's Restricted Subsidiaries, in the
case of either clause (i) or (ii), whether in a single transaction or a series
of related transactions (a) that have a fair market value in excess of $2.5
million or (b) for net proceeds in excess of $2.5 million. Notwithstanding the
foregoing, the following items shall not be deemed to be Asset Sales: (i) a
transfer of assets by the Company to a Restricted Subsidiary or by a Restricted
Subsidiary to the Company or to another Restricted Subsidiary and (ii) a
Restricted Payment that is permitted by Section 4.07 hereof.
"Bankruptcy Law" means Title 11, U.S. Code or any similar
federal or state law for the relief of debtors.
"Board of Directors" means the Board of Directors of the
Company, or any authorized committee of the Board of Directors.
"Business Day" means any day other than a Legal Holiday.
"Capital Lease Obligation" means, at the time any
determination thereof is to be made, the amount of the liability in respect of
a capital lease that would at such time be required to be capitalized on a
balance sheet in accordance with GAAP.
"Capital Stock" means (i) in the case of a corporation,
corporate stock, (ii) in the case of an association or business entity, any and
all shares, interests, participations, rights or other equivalents (however
designated) of corporate stock, (iii) in the case of a partnership or limited
liability company, partnership or membership interests (whether general or
limited) and (iv) any other interest or participation that confers on a Person
the right to receive a share of the profits and losses of, or distributions of
assets of, the issuing Person, excluding stock appreciation rights issued in
the ordinary course of business.
"Cash Equivalents" means (i) United States dollars, (ii)
securities issued or directly and fully guaranteed or insured by the United
States government or any agency or instrumentality thereof (provided that the
full faith and credit of the United States is pledged in support thereof)
having maturities of not more than six months from the date of acquisition,
(iii) certificates of deposit and eurodollar time deposits with maturities of
six months or less from the date of acquisition, bankers' acceptances with
maturities not exceeding six months and overnight bank deposits, in each case
with any domestic commercial bank having capital and surplus in excess of $500
million and a Thompson Bank Watch Rating of "B" or better, (iv) repurchase
obligations with a term of not more than seven days for underlying securities
of the types described in clauses (ii) and (iii) above entered into with any
financial institution meeting the qualifications specified in clause (iii)
above, (v) commercial paper having the highest rating obtainable from Moody's
Investors Service, Inc. or Standard & Poor's Corporation and in each case
maturing within one year after the date of acquisition and (vi) money market
funds at least 95%
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of the assets of which constitute Cash Equivalents of the kinds described in
clauses (i) - (v) of this definition.
"Cedel" means Cedel Bank, SA.
"CEG" means Creative Expressions Group, Inc., and CEG
Holdings, LLC.
"Change of Control" means the occurrence of any of the
following: (i) the sale, lease, transfer, conveyance or other disposition
(other than by way of merger or consolidation), in one or a series of related
transactions, of all or substantially all of the assets of the Company and its
Restricted Subsidiaries taken as a whole to any "person" (as such term is used
in Section 13(d)(3) of the Exchange Act) or "group" (as defined in Sections
13(d)(3) and 14(d)(2) of the Exchange Act) other than the Principals, (ii) the
adoption of a plan relating to the liquidation or dissolution of the Company,
(iii) the consummation of any transaction (including, without limitation, any
merger or consolidation) the result of which is that any "person" or "group"
(as defined above), other than the Principals, becomes the "beneficial owner"
(as such term is defined in Rule 13d-3 and Rule 13d-5 under the Exchange Act,
directly or indirectly, of more of the voting power of the Voting Stock of the
Company than at that time is beneficially owned by the Principals or (iv) the
first day on which more than a majority of the members of the Board of
Directors of the Company are not Continuing Directors. For purposes of this
definition, any transfer of an equity interest of an entity that was formed for
the purpose of acquiring Voting Stock of the Company will be deemed to be a
transfer of such portion of such Voting Stock as corresponds to the portion of
the equity of such entity that has been so transferred.
The definition of Change of Control includes a phrase
relating to the sale, lease, transfer, conveyance or other disposition of "all
or substantially all" of the assets of the Company and its Subsidiaries taken
as a whole. Although there is a developing body of case law interpreting the
phrase "substantially all," there is no precise established definition of the
phrase under applicable law. Accordingly, the ability of a Holder of Senior
Secured Discount Notes to require the Company to repurchase such Senior Secured
Discount Notes as a result of a sale, lease, transfer, conveyance or other
disposition of less than all of the assets of the Company and its Subsidiaries
taken as a whole to another Person or group may be uncertain.
"Collateral" means all shares of Capital Stock in, and all
intercompany notes issued by, all current and future Restricted Subsidiaries of
the Company that are pledged to the Collateral Agent in accordance with this
Indenture and the Pledge Agreement.
"Collateral Agent" means any Person appointed by the Trustee
as a collateral agent hereunder.
"Collateral Documents" means the Pledge Agreement and any
other agreements, instruments, financing statements or other documents that
evidence or set forth the Lien of the Trustee in the Collateral.
"Consolidated Cash Flow" means, with respect to any Person
for any period, the Consolidated Net Income of such Person and its Restricted
Subsidiaries for such period plus (i) an amount equal to any extraordinary loss
plus any net loss realized in connection with an Asset Sale (to the extent such
losses were deducted in computing such Consolidated Net Income), plus (ii)
provision for taxes based on income or profits of such Person and its
Restricted Subsidiaries for such period, to the extent that such provision for
taxes was included in computing such Consolidated Net Income, plus (iii)
consolidated interest expense of such Person and its Restricted Subsidiaries
for such period, whether paid
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or accrued and whether or not capitalized (including, without limitation,
amortization of debt issuance costs and original issue discount, non-cash
interest payments, the interest component of any deferred payment obligations,
the interest component of all payments associated with Capital Lease
Obligations, commissions, discounts and other fees and charges incurred in
respect of letter of credit or bankers' acceptance financings, and net payments
(if any) pursuant to Hedging Obligations), to the extent that any such expense
was deducted in computing such Consolidated Net Income, plus (iv) depreciation,
amortization (including amortization of goodwill and other intangibles but
excluding amortization of prepaid cash expenses that were paid in a prior
period) and other non-cash charges (excluding any such non-cash charge to the
extent that it represents an accrual of or reserve for cash charges in any
future period or amortization of a prepaid cash expense that was paid in a
prior period) of such Person and its Restricted Subsidiaries for such period to
the extent that such depreciation, amortization and other non-cash charges were
deducted in computing such Consolidated Net Income, minus (v) non-cash items
increasing such Consolidated Net Income for such period, in each case, on a
consolidated basis and determined in accordance with GAAP. Notwithstanding the
foregoing, the provision for taxes on the income or profits of, and the
depreciation and amortization and other non-cash charges of, a Restricted
Subsidiary of the referent Person shall be added to Consolidated Net Income to
compute Consolidated Cash Flow only to the extent that a corresponding amount
would be permitted at the date of determination to be dividended to the Company
by such Restricted Subsidiary without prior governmental approval (that has not
been obtained), and without direct or indirect restriction pursuant to the
terms of its charter and all agreements, instruments, judgments, decrees,
orders, statutes, rules and governmental regulations applicable to that
Restricted Subsidiary or its stockholders.
"Consolidated Net Income" means, with respect to any Person
for any period, the aggregate of the Net Income of such Person and its
Restricted Subsidiaries for such period, on a consolidated basis, determined in
accordance with GAAP; provided that (i) the Net Income (but not loss) of any
Person that is not a Restricted Subsidiary or that is accounted for by the
equity method of accounting shall be included only to the extent of the amount
of dividends or distributions paid in cash to the referent Person or a Wholly
Owned Restricted Subsidiary thereof, (ii) the Net Income of any Restricted
Subsidiary shall be excluded to the extent that the declaration or payment of
dividends or similar distributions by that Restricted Subsidiary of that Net
Income is not at the date of determination permitted without any prior
governmental approval (that has not been obtained) or, directly or indirectly,
by operation of the terms of its charter or any agreement, instrument,
judgment, decree, order, statute, rule or governmental regulation applicable to
that Restricted Subsidiary or its stockholders, (iii) the Net Income of any
Person acquired in a pooling of interests transaction for any period prior to
the date of such acquisition shall be excluded, (iv) the cumulative effect of a
change in accounting principles shall be excluded and (v) income of any
Unrestricted Subsidiary shall be excluded whether or not distributed to the
Company or any of its Restricted Subsidiaries.
"Consolidated Net Worth" means, with respect to any Person as
of any date, the sum of (i) the consolidated equity of the common stockholders
of such Person and its consolidated Restricted Subsidiaries as of such date
plus (ii) the respective amounts reported on such Person's balance sheet as of
such date with respect to any series of preferred stock (other than
Disqualified Stock) that by its terms is not entitled to the payment of
dividends unless such dividends may be declared and paid only out of net
earnings in respect of the year of such declaration and payment, but only to
the extent of any cash received by such Person upon issuance of such preferred
stock, less (x) all write-ups (other than write-ups resulting from foreign
currency translations and write-ups of tangible assets of a going concern
business made within 12 months after the acquisition of such business)
subsequent to the date of this Indenture in the book value of any asset owned
by such Person or a consolidated Subsidiary of such Person, (y) all investments
as of such date in unconsolidated Subsidiaries and in Persons that are not
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Subsidiaries (except, in each case, Permitted Investments), and (z) all
unamortized debt discount and expense and unamortized deferred charges as of
such date, all of the foregoing determined in accordance with GAAP.
"Continuing Directors" means, as of any date of
determination, any member of the Board of Directors of the Company who (i) was
a member of such Board of Directors on the date of this Indenture or (ii) was
nominated for election or elected to such Board of Directors with the approval
of a majority of the Continuing Directors who were members of such Board at the
time of such nomination or election.
"Corporate Trust Office of the Trustee" shall be at the
address of the Trustee specified in Section 11.02 hereof or such other address
as to which the Trustee may give notice to the Company.
"Custodian" means the Trustee, as custodian with respect to
the Senior Secured Discount Notes in global form, or any successor entity
thereto.
"Default" means any event that is or with the passage of time
or the giving of notice or both would be an Event of Default.
"Definitive Note" means a certificated Senior Secured
Discount Note registered in the name of the Holder thereof and issued in
accordance with Section 2.06 hereof, in the form of Exhibit A-1 hereto except
that such Senior Secured Discount Note shall not bear the Global Note Legend
and shall not have the "Schedule of Exchanges of Interests in the Global Note"
attached thereto.
"Depositary" means, with respect to the Senior Secured
Discount Notes issuable or issued in whole or in part in global form, the
Person specified in Section 2.03 hereof as the Depositary with respect to the
Senior Secured Discount Notes, until a successor shall have been appointed and
become such pursuant to the applicable provision of this Indenture, and,
thereafter, "Depositary" shall mean or include such successor.
"Disqualified Stock" means any Capital Stock that, by its
terms (or by the terms of any security into which it is convertible, or for
which it is exchangeable, at the option of the holder thereof), or upon the
happening of any event, matures or is mandatorily redeemable, pursuant to a
sinking fund obligation or otherwise, or redeemable at the option of the Holder
thereof, in whole or in part, on or prior to the date that is 91 days after the
date on which the Senior Secured Discount Notes mature; provided, however, that
any Capital Stock that would constitute Disqualified Stock solely because the
holders thereof have the right to require the Company to repurchase such
Capital Stock upon the occurrence of a Change of Control or an Asset Sale shall
not constitute Disqualified Stock if the terms of such Capital Stock provide
that the Company may not repurchase or redeem any such Capital Stock pursuant
to such provisions unless such repurchase or redemption complies with Section
4.07 hereof.
"Eligible Institution" means (a) the Trustee, (b) an
affiliate of the Trustee or (c) a commercial banking institution that is
federally chartered, has combined capital and surplus in excess of $500
million, conducts banking operations in the State of New York and whose debt is
rated "A" (or higher) according to Standard & Poor's Ratings Group or Moody's
Investors Service, Inc.
"Equity Interests" means Capital Stock and all warrants,
options or other rights to acquire Capital Stock (but excluding any debt
security that is convertible into, or exchangeable for, Capital Stock).
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"Equity Offering" means an underwritten public offering of
common stock (other than Disqualified Stock) of the Company registered under
the Securities Act (other than a public offering registered on Form S-8 under
the Securities Act).
"Euroclear" means Morgan Guaranty Trust Company of New York,
Brussels office, as operator of the Euroclear system.
"Exchange Act" means the Securities Exchange Act of 1934, as
amended.
"Exchange Notes" means the Senior Secured Discount Notes
issued in the Exchange Offer pursuant to Section 2.06(f) hereof.
"Exchange Offer" means the offer that may be made by the
Company pursuant to the Registration Rights Agreement to exchange Series B
Senior Secured Discount Notes for Series A Senior Secured Discount Notes.
"Exchange Offer Registration Statement" has the meaning set
forth in the Registration Rights Agreement.
"Existing Indebtedness" means Indebtedness of the Company and
its Restricted Subsidiaries in existence on the date of this Indenture,
including Indebtedness represented by the Demand Note, until such amounts are
repaid.
"Fixed Charges" means, with respect to any Person for any
period, the sum, without duplication, of (i) the consolidated interest expense
of such Person and its Restricted Subsidiaries for such period, whether paid or
accrued (including, without limitation, amortization of debt issuance costs and
original issue discount, non-cash interest payments, the interest component of
any deferred payment obligations, the interest component of all payments
associated with Capital Lease Obligations, commissions, discounts and other
fees and charges incurred in respect of letter of credit or bankers' acceptance
financings, and net payments (if any) pursuant to Hedging Obligations) and (ii)
the consolidated interest of such Person and its Restricted Subsidiaries that
was capitalized during such period, and (iii) any interest expense on
Indebtedness of another Person that is Guaranteed by such Person or one of its
Restricted Subsidiaries or secured by a Lien on assets of such Person or one of
its Restricted Subsidiaries (whether or not such Guarantee or Lien is called
upon) and (iv) the product of (a) all dividend payments, whether or not in
cash, on any series of preferred stock of such Person, other than dividend
payments on Equity Interests payable solely in Equity Interests of the Company
(other than Disqualified Stock) or to the Company or a Restricted Subsidiary of
the Company, times (b) a fraction, the numerator of which is one and the
denominator of which is one minus the then current combined federal, state and
local statutory tax rate of such Person, expressed as a decimal, in each case,
on a consolidated basis and in accordance with GAAP.
"Fixed Charge Coverage Ratio" means with respect to any
Person for any period, the ratio of the Consolidated Cash Flow of such Person
for such period to the Fixed Charges of such Person for such period. In the
event that the referent Person or any of its Restricted Subsidiaries incurs,
assumes, Guarantees or redeems any Indebtedness (other than revolving credit
borrowings) or issues or redeems preferred stock subsequent to the commencement
of the period for which the Fixed Charge Coverage Ratio is being calculated but
prior to the date on which the event for which the calculation of the Fixed
Charge Coverage Ratio is made (the "Calculation Date"), then the Fixed Charge
Coverage Ratio shall be calculated giving pro forma effect to such incurrence,
assumption, Guarantee or redemption of Indebtedness, or such issuance or
redemption of preferred stock, as if the same had
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occurred at the beginning of the applicable four-quarter reference period. In
addition, for purposes of making the computation referred to above, (i)
acquisitions that have been made by the Company or any of its Restricted
Subsidiaries, including through mergers or consolidations and including any
related financing transactions, during the four-quarter reference period or
subsequent to such reference period and on or prior to the Calculation Date
shall be deemed to have occurred on the first day of the four-quarter reference
period and Consolidated Cash Flow for such reference period shall be calculated
without giving effect to clause (iii) of the proviso set forth in the
definition of Consolidated Net Income, and (ii) the Consolidated Cash Flow
attributable to discontinued operations, as determined in accordance with GAAP,
and operations or businesses disposed of prior to the Calculation Date, shall
be excluded, and (iii) the Fixed Charges attributable to discontinued
operations, as determined in accordance with GAAP, and operations or businesses
disposed of prior to the Calculation Date, shall be excluded, but only to the
extent that the obligations giving rise to such Fixed Charges will not be
obligations of the referent Person or any of its Subsidiaries following the
Calculation Date.
"Fonda" means The Fonda Group, Inc.
"Four M" means Four M Corporation.
"GAAP" means generally accepted accounting principles set
forth in the opinions and pronouncements of the Accounting Principles Board of
the American Institute of Certified Public Accountants and statements and
pronouncements of the Financial Accounting Standards Board or in such other
statements by such other entity as have been approved by a significant segment
of the accounting profession, which are in effect on the date of this
Indenture.
"Global Notes" means, individually and collectively, each of
the Restricted Global Notes and the Unrestricted Global Notes, in the form of
Exhibit A hereto issued in accordance with Section 2.01, 2.06(b)(iv),
2.06(d)(ii) or 2.06(f) hereof.
"Global Note Legend" means the legend set forth in Section
2.06(g)(ii), which is required to be placed on all Global Notes issued under
this Indenture.
"Government Securities" means direct obligations of, or
obligations guaranteed by, the United States of America for the payment of
which guarantee or obligations the full faith and credit of the United States
is pledged.
"Guarantee" means a guarantee (other than by endorsement of
negotiable instruments for collection in the ordinary course of business),
direct or indirect, in any manner (including, without limitation, by way of a
pledge of assets or through letters of credit or reimbursement agreements in
respect thereof), of all or any part of any Indebtedness.
"Hedging Obligations" means, with respect to any Person, the
obligations of such Person under (i) interest rate swap agreements, interest
rate cap agreements and interest rate collar agreements and (ii) other
agreements or arrangements designed to protect such Person against fluctuations
in interest rates.
"Holder" means a Person in whose name a Senior Secured
Discount Note is registered.
"IAI Global Note" means the global Senior Secured Discount
Note in the form of Exhibit A-1 hereto bearing the Global Note Legend and the
Private Placement Legend and deposited with or on behalf of and registered in
the name of the Depositary or its nominee that will be issued in
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a denomination equal to the outstanding principal amount at maturity of the
Senior Secured Discount Notes sold to Institutional Accredited Investors.
"Indebtedness" means, with respect to any Person, any
indebtedness of such Person, whether or not contingent, in respect of borrowed
money or evidenced by bonds, notes, debentures or similar instruments or
letters of credit (or reimbursement agreements in respect thereof) or banker's
acceptances or representing Capital Lease Obligations or the balance deferred
and unpaid of the purchase price of any property or representing any Hedging
Obligations, except any such balance that constitutes an accrued expense or
trade payable, if and to the extent any of the foregoing (other than letters of
credit and Hedging Obligations) would appear as a liability upon a balance
sheet of such Person prepared in accordance with GAAP, as well as all
Indebtedness of others secured by a Lien on any asset of such Person (whether
or not such Indebtedness is assumed by such Person) and, to the extent not
otherwise included, the Guarantee by such Person of any indebtedness of any
other Person. The amount of any Indebtedness outstanding as of any date shall
be (i) the accreted value thereof, in the case of any Indebtedness issued with
original issue discount, and (ii) the principal amount thereof, together with
any interest thereon that is more than 30 days past due, in the case of any
other Indebtedness.
"Indenture" means this Indenture, as amended, modified or
supplemented from time to time, in accordance with the terms hereof.
"Indirect Participant" means a Person who holds a beneficial
interest in a Global Note through a Participant.
"Initial Purchasers" means Bear, Stearns & Co. Inc. and SBC
Warburg Dillon Read Inc.
"Institutional Accredited Investor" means an institution that
is an "accredited investor" as defined in Rule 501(a)(1), (2), (3) or (7) under
the Securities Act, who are not also QIBs.
"Investments" means, with respect to any Person, all
investments by such Person in other Persons (including Affiliates) in the forms
of direct or indirect loans (including guarantees of Indebtedness or other
obligations), advances or capital contributions (excluding commission, travel
and similar advances to officers and employees made in the ordinary course of
business), purchases or other acquisitions for consideration of Indebtedness,
Equity Interests or other securities, together with all items that are or would
be classified as investments on a balance sheet prepared in accordance with
GAAP. If the Company or any Restricted Subsidiary of the Company sells or
otherwise disposes of any Equity Interests of any direct or indirect Subsidiary
of the Company such that, after giving effect to any such sale or disposition,
such Person is no longer a Subsidiary of the Company, the Company shall be
deemed to have made an Investment on the date of any such sale or disposition
equal to the fair market value of the Equity Interests of such Subsidiary not
sold or disposed of in an amount determined as provided in the final paragraph
of Section 4.07.
"Legal Holiday" means a Saturday, a Sunday or a day on which
banking institutions in the City of New York or at a place of payment are
authorized by law, regulation or executive order to remain closed. If a payment
date is a Legal Holiday at a place of payment, payment may be made at that
place on the next succeeding day that is not a Legal Holiday, and no interest
shall accrue for the intervening period.
"Letter of Transmittal" means the letter of transmittal to be
prepared by the Company and sent to all Holders of the Senior Secured Discount
Notes for use by such Holders in connection with the Exchange Offer.
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"Lien" means, with respect to any asset, any mortgage, lien,
pledge, charge, security interest or encumbrance of any kind in respect of such
asset, whether or not filed, recorded or otherwise perfected under applicable
law (including any conditional sale or other title retention agreement, any
lease in the nature thereof, any option or other agreement to sell or give a
security interest in and any filing of or agreement to give any financing
statement under the Uniform Commercial Code (or equivalent statutes) of any
jurisdiction).
"Liquidated Damages" means all liquidated damages then owing
pursuant to Section 5 of the Registration Rights Agreement.
"Net Income" means, with respect to any Person, the net
income (loss) of such Person, determined in accordance with GAAP and before any
reduction in respect of preferred stock dividends, excluding, however, (i) any
gain (but not loss), together with any related provision for taxes on such gain
(but not loss), realized in connection with (a) any Asset Sale (including,
without limitation, dispositions pursuant to sale and leaseback transactions)
or (b) the disposition of any securities by such Person or any of its
Restricted Subsidiaries or the extinguishment of any Indebtedness of such
Person or any of its Restricted Subsidiaries and (ii) any extraordinary or
nonrecurring gain (but not loss), together with any related provision for taxes
on such extraordinary or nonrecurring gain (but not loss).
"Net Proceeds" means the aggregate cash proceeds received by
the Company or any of its Restricted Subsidiaries in respect of any Asset Sale
(including, without limitation, any cash received upon the sale or other
disposition of any non-cash consideration received in any Asset Sale), net of
the direct costs relating to such Asset Sale (including, without limitation,
legal, accounting and investment banking fees, and sales commissions) and any
relocation expenses incurred as a result thereof, taxes paid or payable as a
result thereof (after taking into account any available tax credits or
deductions and any tax sharing arrangements), amounts required to be applied to
the repayment of Indebtedness secured by a Lien on the asset or assets that
were the subject of such Asset Sale, and any reserve for adjustment in respect
of the sale price of such asset or assets established in accordance with GAAP.
"Non-Recourse Debt" means Indebtedness (i) as to which
neither the Company nor any of its Restricted Subsidiaries (a) provides credit
support of any kind (including any undertaking, agreement or instrument that
would constitute Indebtedness), (b) is directly or indirectly liable (as a
guarantor or otherwise), or (c) constitutes the lender; and (ii) no default
with respect to which (including any rights that the holders thereof may have
to take enforcement action against an Unrestricted Subsidiary) would permit
(upon notice, lapse of time or both) any holder of any other Indebtedness
(other than the Senior Secured Discount Notes being offered hereby) of the
Company or any of its Restricted Subsidiaries to declare a default on such
other Indebtedness or cause the payment thereof to be accelerated or payable
prior to its stated maturity; and (iii) as to which the lenders have been
notified in writing that they will not have any recourse to the stock or assets
of the Company or any of its Restricted Subsidiaries.
"Non-U.S. Person" means a Person who is not a U.S. Person.
"Note Custodian" means the Trustee, as custodian with respect
to the Senior Secured Discount Notes in global form, or any successor entity
thereto.
"Obligations" means any principal, interest, penalties, fees,
indemnifications, reimbursements, damages and other liabilities payable under
the documentation governing any Indebtedness.
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"Offering" means the Offering of the Units by the Company.
"Officer" means, with respect to any Person, the Chairman of
the Board, the Chief Executive Officer, the President, the Chief Operating
Officer, the Chief Financial Officer, the Treasurer, any Assistant Treasurer,
the Controller, the Secretary or any Vice-President of such Person.
"Officers' Certificate" means a certificate signed on behalf
of the Company by two Officers of the Company, one of whom must be the
principal executive officer, the principal financial officer, the treasurer or
the principal accounting officer of the Company, that meets the requirements of
Section 11.05 hereof.
"Opinion of Counsel" means an opinion from legal counsel who
is reasonably acceptable to the Trustee, that meets the requirements of Section
11.05 hereof. The counsel may be an employee of or counsel to the Company, any
Subsidiary of the Company or the Trustee.
"Participant" means, with respect to the Depositary,
Euroclear or Cedel, a Person who has an account with the Depositary, Euroclear
or Cedel, respectively (and, with respect to The Depository Trust Company,
shall include Euroclear and Cedel).
"Participating Broker-Dealer" has the meaning set forth in
the Registration Rights Agreement.
"Permitted Business" means the business of producing and
selling food service, packaging, tissue and party goods products and such other
businesses as the Company and its Restricted Subsidiaries are engaged in on the
date of this Indenture, and reasonable expansions and extensions thereof.
"Permitted Investments" means (a) any Investment in the
Company or in a Restricted Subsidiary of the Company; (b) any Investment in
Cash Equivalents; (c) any Investment by the Company or any Restricted
Subsidiary of the Company in a Person that is evidenced by Capital Stock or
Subsidiary Intercompany Notes that are pledged to the Trustee as Collateral for
the Senior Secured Discount Notes, if as a result of such Investment (i) such
Person becomes a Restricted Subsidiary of the Company or (ii) such Person is
merged, consolidated or amalgamated with or into, or transfers or conveys
substantially all of its assets to, or is liquidated into, the Company or a
Restricted Subsidiary of the Company; (d) any Investment made as a result of
the receipt of non-cash consideration from an Asset Sale that was made pursuant
to and in compliance with Section 4.10 hereof; (e) a $2.6 million loan from
Fonda to CEG, as in effect on the date of this Indenture as such loan may be
amended or refinanced in a manner not adverse to Fonda, the Company or the
Holders of the Senior Secured Discount Notes; and (f) other Investments in an
aggregate amount not to exceed $5.0 million.
"Permitted Liens" means (i) Liens on Indebtedness of the
Company's Restricted Subsidiaries that was permitted by the terms of this
Indenture to be incurred; (ii) Liens in favor of the Company or any of its
Restricted Subsidiaries; (iii) Liens on property of a Person existing at the
time such Person is merged into or consolidated with the Company or any
Restricted Subsidiary of the Company; provided that such Liens were in
existence prior to the contemplation of such merger or consolidation and do not
extend to any assets other than those of the Person merged into or consolidated
with the Company or any Restricted Subsidiary; (iv) Liens on property existing
at the time of acquisition thereof by the Company or any Restricted Subsidiary
of the Company, provided that such Liens were in existence prior to the
contemplation of such acquisition; (v) Liens to secure the performance of
statutory obligations, surety or appeal bonds, performance bonds or other
obligations of a like nature incurred in
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the ordinary course of business; (vi) Liens to secure Indebtedness (including
Capital Lease Obligations) permitted by clause (iv) of the third paragraph of
Section 4.09 covering only the assets acquired with such Indebtedness; (vii)
Liens existing on the date of this Indenture; (viii) Liens for taxes,
assessments or governmental charges or claims that are not yet delinquent or
that are being contested in good faith by appropriate proceedings promptly
instituted and diligently concluded, provided that any reserve or other
appropriate provision as shall be required in conformity with GAAP shall have
been made therefor; (ix) Liens incurred in the ordinary course of business of
the Company or any Restricted Subsidiary of the Company with respect to
obligations that do not exceed $2.5 million at any one time outstanding and
that (a) are not incurred in connection with the borrowing of money or the
obtaining of advances or credit (other than trade credit in the ordinary course
of business) and (b) do not in the aggregate materially detract from the value
of the property or materially impair the use thereof in the operation of
business by the Company or such Restricted Subsidiary; (x) Liens in favor of
the Holders of Senior Secured Discount Notes; and (xi) renewals or refundings
of any Liens referred to in clauses (iii) through (x) above provided that any
such renewal or refunding does not extend to any assets or secure any
Indebtedness not securing or secured by the Liens being renewed or refinanced.
"Permitted Refinancing Indebtedness" means any Indebtedness
of the Company or any of its Restricted Subsidiaries issued in exchange for, or
the net proceeds of which are used to extend, refinance, renew, replace,
defease or refund other Indebtedness of the Company or any such Restricted
Subsidiary; provided that: (i) the principal amount (or accreted value, if
applicable) of such Permitted Refinancing Indebtedness does not exceed the
principal amount of (or accreted value, if applicable), plus accrued interest
on, the Indebtedness so extended, refinanced, renewed, replaced, defeased or
refunded (plus the amount of reasonable expenses incurred in connection
therewith); (ii) such Permitted Refinancing Indebtedness has a final maturity
date later than the final maturity date of, and has a Weighted Average Life to
Maturity equal to or greater than the Weighted Average Life to Maturity of, the
Indebtedness being extended, refinanced, renewed, replaced, defeased or
refunded; (iii) if the Indebtedness being extended, refinanced, renewed,
replaced, defeased or refunded is subordinated in right of payment to the
Senior Secured Discount Notes, such Permitted Refinancing Indebtedness has a
final maturity date later than the final maturity date of, and is subordinated
in right of payment to, the Senior Secured Discount Notes on terms at least as
favorable to the Holders of Senior Secured Discount Notes as those contained in
the documentation governing the Indebtedness being extended, refinanced,
renewed, replaced, defeased or refunded; and (iv) such Indebtedness is incurred
either by the Company or by the Subsidiary who is the obligor on the
Indebtedness being extended, refinanced, renewed, replaced, defeased or
refunded.
"Person" means any individual, corporation, partnership,
joint venture, association, joint-stock company, limited liability company,
trust, unincorporated organization or government or agency or political
subdivision thereof (including any subdivision or ongoing business of any such
entity or substantially all of the assets of any such entity, subdivision or
business).
"Pledge Agreement" means the Pledge Agreement, dated as of
the date of this Indenture, by and between the Company and the Trustee and
substantially in the form attached as Exhibit F hereto, as such agreement may
be amended, modified or supplemented from time to time.
"Principals" means Dennis Mehiel, his lineal descendants and
any trust, corporation, partnership, association, limited liability company or
other entity in which Dennis Mehiel and/or his lineal descendants hold at least
80% of the total, combined outstanding voting power or similar controlling
interest.
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"Private Placement Legend" means the legend set forth in
Section 2.06(g)(i) to be placed on all Senior Secured Discount Notes issued
under this Indenture except where otherwise permitted by the provisions of this
Indenture.
"QIB" means a "qualified institutional buyer" as defined in
Rule 144A.
"Registration Rights Agreement" means the Registration Rights
Agreement, dated as of the date of this Indenture, by and among the Company and
the other parties named on the signature pages thereof, as such agreement may
be amended, modified or supplemented from time to time.
"Regulation S" means Regulation S promulgated under the
Securities Act.
"Regulation S Global Note" means a Regulation S Temporary
Global Note or Regulation S Permanent Global Note, as appropriate.
"Regulation S Permanent Global Note" means a permanent
global Senior Secured Discount Note in the form of Exhibit A-1 hereto bearing
the Global Note Legend and the Private Placement Legend and deposited with or
on behalf of and registered in the name of the Depositary or its nominee,
issued in a denomination equal to the outstanding principal amount at maturity
of the Regulation S Temporary Global Note upon expiration of the Restricted
Period.
"Regulation S Temporary Global Note" means a temporary global
Senior Secured Discount Note in the form of Exhibit A-2 hereto bearing the
Private Placement Legend and deposited with or on behalf of and registered in
the name of the Depositary or its nominee, issued in a denomination equal to
the outstanding principal amount at maturity of the Senior Secured Discount
Notes initially sold in reliance on Rule 903 of Regulation S.
"Responsible Officer," when used with respect to the Trustee,
means any officer within the Corporate Trust Administration department of the
Trustee (or any successor group of the Trustee) or any other officer of the
Trustee customarily performing functions similar to those performed by any of
the above designated officers and also means, with respect to a particular
corporate trust matter, any other officer to whom such matter is referred
because of his knowledge of, and familiarity with, the particular subject.
"Restricted Investment" means an Investment other than a
Permitted Investment.
"Restricted Subsidiary" of a Person means any Subsidiary of
the referent Person that is not an Unrestricted Subsidiary.
"Restricted Definitive Note" means a Definitive Note bearing
the Private Placement Legend.
"Restricted Global Note" means a Global Note bearing the
Private Placement Legend.
"Restricted Period" means the 40-day restricted period as
defined in Regulation S.
"Rule 144" means Rule 144 promulgated under the Securities
Act.
"Rule 144A" means Rule 144A promulgated under the Securities
Act.
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"Rule 903" means Rule 903 promulgated under the Securities
Act.
"Rule 904" means Rule 904 promulgated under the Securities
Act.
"SEC" means the Securities and Exchange Commission.
"Securities Act" means the Securities Act of 1933, as amended.
"Separation Date" means the earliest to occur of (i) 90 days
from the date of this Indenture; (ii) such earlier date as the Initial
Purchasers may determine; and (iii) the occurrence of a Change of Control.
"Shelf Registration Statement" means the Shelf Registration
Statement as defined in the Registration Rights Agreement.
"Significant Subsidiary" means any Restricted Subsidiary that
would be a "significant subsidiary" as defined in Article 1, Rule 1-02 of
Regulation S-X, promulgated pursuant to the Securities Act, as such Regulation
is in effect on the date hereof.
"Subsidiary" means, with respect to any Person, (i) any
corporation, association or other business entity of which more than 50% of the
total voting power of shares of Capital Stock entitled (without regard to the
occurrence of any contingency) to vote in the election of directors, managers
or trustees thereof is at the time owned or controlled, directly or indirectly,
by such Person or one or more of the other Subsidiaries of that Person (or a
combination thereof) and (ii) any partnership (a) the sole general partner or
the managing general partner of which is such Person or a Subsidiary of such
Person or (b) the only general partners of which are such Person or of one or
more Subsidiaries of such Person (or any combination thereof); provided,
however, that Sweetheart shall be deemed to be a Subsidiary of the Company for
so long as the Company directly or indirectly owns at least 50% of Sweetheart's
aggregate outstanding common stock.
"Subsidiary Debt Instruments" means the instruments governing
the indebtedness of Sweetheart and Fonda.
"Subsidiary Intercompany Notes" means the intercompany notes,
subordinate in right of payment to the Senior Secured Discount Notes issued by
Subsidiaries of the Company in favor of the Company to evidence advances by the
Company, in each case, in the form attached as Annex B to this Indenture.
"Sweetheart" means Sweetheart Holdings Inc. and its Subsidiaries.
"TIA" means the Trust Indenture Act of 1939 (15 U.S.C.ss.ss.
77aaa-77bbbb), as in effect on the date on which this Indenture is qualified
under the TIA.
"Transfer Restricted Securities" means securities that bear
or are required to bear the legend set forth in Section 2.06 hereof.
"Trustee" means the party named as "Trustee" in the first
paragraph of this Indenture until a successor replaces it in accordance with
the applicable provisions of this Indenture and, thereafter, means the
successor serving hereunder.
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"Units" means the Units offered in the Offering consisting of
$144,000,000 in aggregate principal amount at maturity of the Senior Secured
Discount Notes and 288,000 shares of Class C Common Stock, par value $.001 per
share, of the Company.
"Unrestricted Global Note" means a permanent global Senior
Secured Discount Note in the form of Exhibit A-1 attached hereto that bears the
Global Note Legend and that has the "Schedule of Exchanges of Interests in the
Global Note" attached thereto, and that is deposited with or on behalf of and
registered in the name of the Depositary, representing a series of Senior
Secured Discount Notes that do not bear the Private Placement Legend.
"Unrestricted Definitive Note" means one or more Definitive
Notes that do not bear and are not required to bear the Private Placement
Legend.
"Unrestricted Subsidiary" means (i) any Subsidiary (other
than Fonda or Sweetheart or any successor to any of them) that is designated by
the Board of Directors as an Unrestricted Subsidiary pursuant to a Board
Resolution; but only to the extent that such Subsidiary: (a) has no
Indebtedness other than Non-Recourse Debt; (b) is not party to any agreement,
contract, arrangement or understanding with the Company or any Restricted
Subsidiary of the Company unless the terms of any such agreement, contract,
arrangement or understanding are no less favorable to the Company or such
Restricted Subsidiary than those that might be obtained at the time from
Persons who are not Affiliates of the Company; (c) is a Person with respect to
which neither the Company nor any of its Restricted Subsidiaries has any direct
or indirect obligation (x) to subscribe for additional Equity Interests or (y)
to maintain or preserve such Person's financial condition or to cause such
Person to achieve any specified levels of operating results; (d) has not
guaranteed or otherwise directly or indirectly provided credit support for any
Indebtedness of the Company or any of its Restricted Subsidiaries; and (e) has
at least one director on its board of directors that is not a director or
executive officer of the Company or any of its Restricted Subsidiaries and has
at least one executive officer that is not a director or executive officer of
the Company or any of its Restricted Subsidiaries. Any such designation by the
Board of Directors shall be evidenced to the Trustee by filing with the Trustee
a certified copy of the Board Resolution giving effect to such designation and
an Officers' Certificate certifying that such designation complied with the
foregoing conditions and was permitted by Section 4.07 hereof. If, at any time,
any Unrestricted Subsidiary would fail to meet the foregoing requirements as an
Unrestricted Subsidiary, it shall thereafter cease to be an Unrestricted
Subsidiary for purposes of this Indenture and any Indebtedness of such
Subsidiary shall be deemed to be incurred by a Restricted Subsidiary of the
Company as of such date (and, if such Indebtedness is not permitted to be
incurred as of such date under Section 4.09, the Company shall be in default of
such Section). The Board of Directors of the Company may at any time designate
any Unrestricted Subsidiary to be a Restricted Subsidiary; provided that such
designation shall be deemed to be an incurrence of Indebtedness by a Restricted
Subsidiary of the Company of any outstanding Indebtedness of such Unrestricted
Subsidiary and such designation shall only be permitted if (i) such
Indebtedness is permitted under Section 4.09, calculated on a pro forma basis
as if such designation had occurred at the beginning of the four-quarter
reference period, and (ii) no Default or Event of Default would be in existence
following such designation
"U.S. Person" means a U.S. person as defined in Rule 902(o)
under the Securities Act.
"Voting Stock" of any Person as of any date means the Capital
Stock of such Person that is at the time entitled to vote in the election of
the Board of Directors of such Person.
"Weighted Average Life to Maturity" means, when applied to
any Indebtedness at any date, the number of years obtained by dividing (i) the
sum of the products obtained by multiplying (a) the
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amount of each then remaining installment, sinking fund, serial maturity or
other required payments of principal, including payment at final maturity, in
respect thereof, by (b) the number of years (calculated to the nearest
one-twelfth) that will elapse between such date and the making of such payment,
by (ii) the then outstanding principal amount of such Indebtedness.
"Wholly Owned Restricted Subsidiary" of any Person means a
Restricted Subsidiary of such Person all of the outstanding Capital Stock or
other ownership interests of which (other than directors' qualifying shares)
shall at the time be owned by such Person or by one or more Wholly Owned
Restricted Subsidiaries of such Person and one or more Wholly Owned Restricted
Subsidiaries of such Person.
SECTION 1.02. OTHER DEFINITIONS.
Defined in
Term Section
"Affiliate Transaction"...............................4.11
"Asset Sale"..........................................4.10
"Asset Sale Offer"....................................3.09
"Authentication Order"................................2.02
"Bank"...............................................10.11
"Bankruptcy Law"......................................4.01
"Change of Control Offer".............................3.09
"Change of Control Payment"...........................4.15
"Change of Control Redemption" .......................3.07
"Covenant Defeasance".................................8.03
"Event of Default"....................................6.01
"Excess Proceeds".....................................4.10
"Excess Proceeds Offer Triggering Event"..............4.10
"incur"...............................................4.09
"Legal Defeasance" ...................................8.02
"Offer Amount"........................................3.09
"Paying Agent"........................................2.03
"Paying Agent"........................................2.03
"Offer Period"........................................3.09
"Payment Default".....................................6.01
"Paying Agent"........................................2.03
"Purchase Date".......................................3.09
"Registrar"...........................................2.03
"Repurchase Offer"....................................3.09
"Restricted Payments".................................4.07
SECTION 1.03. INCORPORATION BY REFERENCE OF TRUST INDENTURE ACT.
Whenever this Indenture refers to a provision of the TIA,
such provision is incorporated by reference in and made a part of this
Indenture.
The following TIA terms used in this Indenture have the
following meanings:
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"indenture securities" means the Senior Secured Discount
Notes;
"indenture security holder" means a Holder of a Senior
Secured Discount Note;
"indenture to be qualified" means this Indenture;
"indenture trustee" or "institutional trustee" means the
Trustee;
"obligor" on the Senior Secured Discount Notes means the
Company and any successor obligor upon the Senior Secured Discount Notes.
All other terms used in this Indenture that are defined by
the TIA, defined by TIA reference to another statute or defined by SEC rule
under the TIA have the meanings so assigned to them.
SECTION 1.04. RULES OF CONSTRUCTION.
Unless the context otherwise requires:
(1) a term has the meaning assigned to it;
(2) an accounting term not otherwise defined has the meaning
assigned to it in accordance with GAAP;
(3) "or" is not exclusive;
(4) words in the singular include the plural, and in the
plural include the singular;
(5) provisions apply to successive events and transactions;
and
(6) references to sections of or rules under the Securities
Act shall be deemed to include substitute, replacement of successor sections or
rules adopted by the SEC from time to time.
ARTICLE 2.
THE SENIOR SECURED DISCOUNT NOTES
SECTION 2.01. FORM AND DATING.
(a) General. The Senior Secured Discount Notes and the
Trustee's certificate of authentication shall be substantially in the form of
Exhibit A-1 hereto. The Senior Secured Discount Notes may have notations,
legends or endorsements required by law, stock exchange rules or usage. Each
Senior Secured Discount Note shall be dated the date of its authentication. The
Senior Secured Discount Notes shall be issued initially in denominations of
$1,000 and integral multiples thereof.
The terms and provisions contained in the Senior Secured
Discount Notes shall constitute, and are hereby expressly made, a part of this
Indenture and the Company and the Trustee, by their execution and delivery of
this Indenture, expressly agree to such terms and provisions and to be bound
thereby. However, to the extent any provision of any Senior Secured Discount
Note conflicts with the express provisions of this Indenture, the provisions of
this Indenture shall govern and be controlling.
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(b) Global Notes. Senior Secured Discount Notes issued in
global form shall be substantially in the form of Exhibits A-1 or A-2 attached
hereto (including the Global Note Legend thereon and the "Schedule of Exchanges
of Interests in the Global Note" attached thereto). Senior Secured Discount
Notes issued in definitive form shall be substantially in the form of Exhibit
A-1 attached hereto (but without the Global Note Legend thereon and without the
"Schedule of Exchanges of Interests in the Global Note" attached thereto). Each
Global Note shall represent such of the outstanding Senior Secured Discount
Notes as shall be specified therein and each shall provide that it shall
represent the aggregate principal amount of outstanding Senior Secured Discount
Notes from time to time endorsed thereon and that the aggregate principal
amount at maturity of outstanding Senior Secured Discount Notes represented
thereby may from time to time be reduced or increased, as appropriate, to
reflect exchanges and redemptions. Any endorsement of a Global Note to reflect
the amount of any increase or decrease in the aggregate principal amount of
outstanding Senior Secured Discount Notes represented thereby shall be made by
the Trustee or the Senior Secured Discount Note Custodian, at the direction of
the Trustee, in accordance with instructions given by the Holder thereof as
required by Section 2.06 hereof.
(c) Temporary Global Notes. Senior Secured Discount Notes
offered and sold in reliance on Regulation S shall be issued initially in the
form of the Regulation S Temporary Global Note, which shall be deposited on
behalf of the purchasers of the Senior Secured Discount Notes represented
thereby with the Trustee, at its New York office, as custodian for the
Depositary, and registered in the name of the Depositary or the nominee of the
Depositary for the accounts of designated agents holding on behalf of Euroclear
or Cedel, duly executed by the Company and authenticated by the Trustee as
hereinafter provided. The Restricted Period shall be terminated upon the
receipt by the Trustee of (i) a written certificate from the Depositary,
together with copies of certificates from Euroclear and Cedel certifying that
they have received certification of non-United States beneficial ownership of
100% of the aggregate principal amount of the Regulation S Temporary Global
Note (except to the extent of any beneficial owners thereof who acquired an
interest therein during the Restricted Period pursuant to another exemption
from registration under the Securities Act and who will take delivery of a
beneficial ownership interest in a 144A Global Note or an IAI Global Note
bearing a Private Placement Legend, all as contemplated by Section 2.06(a)(ii)
hereof) and (ii) an Officers' Certificate from the Company. Following the
termination of the Restricted Period, beneficial interests in the Regulation S
Temporary Global Note shall be exchanged for beneficial interests in Regulation
S Permanent Global Notes pursuant to the Applicable Procedures. Simultaneously
with the authentication of Regulation S Permanent Global Notes, the Trustee
shall cancel the Regulation S Temporary Global Note. The aggregate principal
amount of the Regulation S Temporary Global Note or the Regulation S Permanent
Global Notes may from time to time be increased or decreased by adjustments
made on the records of the Trustee and the Depositary or its nominee, as the
case may be, in connection with transfers of interest as hereinafter provided.
(d) Euroclear and Cedel Procedures Applicable. The provisions
of the "Operating Procedures of the Euroclear System" and "Terms and Conditions
Governing Use of Euroclear" and the "General Terms and Conditions of Cedel
Bank" and "Customer Handbook" of Cedel shall be applicable to transfers of
beneficial interests in the Regulation S Temporary Global Note and the
Regulation S Permanent Global Notes that are held by Participants through
Euroclear or Cedel.
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SECTION 2.02. EXECUTION AND AUTHENTICATION.
One Officer shall sign the Senior Secured Discount Notes for
the Company by manual or facsimile signature. The Company's seal shall be
reproduced on the Senior Secured Discount Notes and may be in facsimile form.
If an Officer whose signature is on a Senior Secured Discount
Note no longer holds that office at the time a Senior Secured Discount Note is
authenticated, the Senior Secured Discount Note shall nevertheless be valid.
A Senior Secured Discount Note shall not be valid until
authenticated by the manual signature of the Trustee. The signature shall be
conclusive evidence that the Senior Secured Discount Note has been
authenticated under this Indenture. The form of the Trustee's certificate of
authentication to be borne by the Senior Secured Discount Notes shall be
substantially as set forth in Exhibit A-1 attached hereto.
The Trustee shall, upon a written order of the Company signed
by an Officer (an "Authentication Order"), authenticate Senior Secured Discount
Notes for original issue up to the aggregate principal amount at maturity
stated in paragraph 4 of the Senior Secured Discount Notes. The aggregate
principal amount at maturity of Senior Secured Discount Notes outstanding at
any time may not exceed such amount except as provided in Section 2.07 hereof.
The Trustee may appoint an authenticating agent acceptable to
the Company to authenticate Senior Secured Discount Notes. An authenticating
agent may authenticate Senior Secured Discount Notes whenever the Trustee may
do so. Each reference in this Indenture to authentication by the Trustee
includes authentication by such agent. An authenticating agent has the same
rights as an Agent to deal with Holders or an Affiliate of the Company.
SECTION 2.03. REGISTRAR AND PAYING AGENT.
The Company shall maintain an office or agency where Senior
Secured Discount Notes may be presented for registration of transfer or for
exchange ("Registrar") and an office or agency where Senior Secured Discount
Notes may be presented for payment ("Paying Agent"). The Registrar shall keep a
register of the Senior Secured Discount Notes, the names and addresses of the
Holders and of their transfer and exchange. The Company may appoint one or more
co-registrars and one or more additional paying agents. The term "Registrar"
includes any co-registrar and the term "Paying Agent" includes any additional
paying agent. The Company may change any Paying Agent or Registrar without
notice to any Holder. The Company shall notify the Trustee in writing of the
name and address of any Agent not a party to this Indenture. If the Company
fails to appoint or maintain another entity as Registrar or Paying Agent, the
Trustee shall act as such and shall be entitled to appropriate compensation in
accordance with Section 7.07 hereof. The Company or any of its Subsidiaries may
act as Paying Agent or Registrar. The form of the Trustee's certificate of
authentication to be borne by the Senior Secured Discount Notes shall be
substantially as set forth in Exhibit A-1 attached hereto.
The Company initially appoints The Depository Trust Company
("DTC") to act as Depositary with respect to the Global Notes.
The Company initially appoints the Trustee to act as the
Registrar and Paying Agent and to act as Note Custodian with respect to the
Global Notes.
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SECTION 2.04. PAYING AGENT TO HOLD MONEY IN TRUST.
The Company shall require each Paying Agent other than the
Trustee to agree in writing that the Paying Agent will hold in trust for the
benefit of Holders or the Trustee all money held by the Paying Agent for the
payment of principal of, premium on, if any, interest on, or Liquidated Damages
on, if any, the Senior Secured Discount Notes, and will notify the Trustee of
any default by the Company in making any such payment. At any time during the
continuance of any such default, the Trustee may require a Paying Agent to pay
all money held by it as Paying Agent to the Trustee and account for any funds
disbursed. The Company, at any time, may require a Paying Agent to pay all
money held by it as Paying Agent to the Trustee and account for any funds
disbursed. Upon payment over to the Trustee, the Paying Agent (if other than
the Company or a Subsidiary) shall have no further liability for the money
delivered to the Trustee. If the Company or a Subsidiary acts as Paying Agent,
it shall segregate and hold in a separate trust fund for the benefit of the
Holders all money held by it as Paying Agent. Upon any bankruptcy or
reorganization proceedings relating to the Company, the Trustee shall serve as
Paying Agent for the Senior Secured Discount Notes.
SECTION 2.05. HOLDER LISTS.
The Trustee shall preserve in as current a form as is
reasonably practicable the most recent list available to it of the names and
addresses of all Holders and shall otherwise comply with TIA ss. 312(a). If the
Trustee is not the Registrar, the Company shall furnish to the Trustee at least
seven Business Days before each interest payment date and at such other times
as the Trustee may request in writing, a list in such form and as of such date
as the Trustee may reasonably require of the names and addresses of the Holders
of Senior Secured Discount Notes, including the aggregate principal amount at
maturity of Senior Secured Discount Notes held by each Holder thereof and the
Company shall otherwise comply with TIA ss. 312(a).
SECTION 2.06. TRANSFER AND EXCHANGE.
(a) Transfer and Exchange of Global Notes. A Global Note may
not be transferred as a whole except by the Depositary to a nominee of the
Depositary, by a nominee of the Depositary to the Depositary or to another
nominee of the Depositary, or any such nominee to a successor Depositary or a
nominee of such successor Depositary. All Global Notes will be exchanged by the
Company for Definitive Notes if (i) the Company delivers to the Trustee notice
from the Depositary that it is unwilling or unable to continue to act as
Depositary or that it is no longer a clearing agency registered under the
Exchange Act and, in either case, a successor Depositary is not appointed by
the Company within 120 days after the date of such notice from the Depositary
or (ii) the Company in its sole discretion determines that the Global Notes (in
whole but not in part) should be exchanged for Definitive Notes and delivers a
written notice to such effect to the Trustee; provided that in no event shall
the Regulation S Temporary Global Note be exchanged by the Company for
Definitive Notes prior to (x) the expiration of the Restricted Period and (y)
the receipt by the Registrar of any certificates required pursuant to Rule
903(c)(3)(ii)(B) under the Securities Act. Upon the occurrence of either of the
preceding events in (i) or (ii) above, Definitive Notes shall be issued in such
names as the Depositary shall instruct the Trustee. Global Notes also may be
exchanged or replaced, in whole or in part, as provided in Sections 2.07 and
2.10 hereof. Every Senior Secured Discount Note authenticated and delivered in
exchange for, or in lieu of, a Global Note or any portion thereof, pursuant to
this Section 2.06 or Section 2.07 or 2.10 hereof, shall be authenticated and
delivered in the form of, and shall be, a Global Note. A Global Note may not be
exchanged for another Senior Secured Discount Note other than as provided in
this Section 2.06(a), however, beneficial interests in a Global Note may be
transferred and exchanged as provided in Section 2.06(b),(c) or (f) hereof.
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(b) Transfer and Exchange of Beneficial Interests in the
Global Notes. The transfer and exchange of beneficial interests in the Global
Notes shall be effected through the Depositary, in accordance with the
provisions of this Indenture and the Applicable Procedures. Beneficial
interests in the Restricted Global Notes shall be subject to restrictions on
transfer comparable to those set forth herein to the extent required by the
Securities Act. Transfers of beneficial interests in the Global Notes also
shall require compliance with either subparagraph (i) or (ii) below, as
applicable, as well as one or more of the other following subparagraphs, as
applicable:
(i) Transfer of Beneficial Interests in the Same Global Note.
Beneficial interests in any Restricted Global Note may be transferred to
Persons who take delivery thereof in the form of a beneficial interest in the
same Restricted Global Note in accordance with the transfer restrictions set
forth in the Private Placement Legend; provided, however, that prior to the
expiration of the Restricted Period, transfers of beneficial interests in the
Temporary Regulation S Global Note may not be made to a U.S. Person or for the
account or benefit of a U.S. Person (other than an Initial Purchaser).
Beneficial interests in any Unrestricted Global Note may be transferred to
Persons who take delivery thereof in the form of a beneficial interest in an
Unrestricted Global Note. No written orders or instructions shall be required
to be delivered to the Registrar to effect the transfers described in this
Section 2.06(b)(i).
(ii) All Other Transfers and Exchanges of Beneficial
Interests in Global Notes. In connection with all transfers and exchanges of
beneficial interests that are not subject to Section 2.06(b)(i) above, the
transferor of such beneficial interest must deliver to the Registrar either (A)
(1) a written order from a Participant or an Indirect Participant given to the
Depositary in accordance with the Applicable Procedures directing the
Depositary to credit or cause to be credited a beneficial interest in another
Global Note in an amount equal to the beneficial interest to be transferred or
exchanged and (2) instructions given in accordance with the Applicable
Procedures containing information regarding the Participant account to be
credited with such increase or (B) (1) a written order from a Participant or an
Indirect Participant given to the Depositary in accordance with the Applicable
Procedures directing the Depositary to cause to be issued a Definitive Note in
an amount equal to the beneficial interest to be transferred or exchanged and
(2) instructions given by the Depositary to the Registrar containing
information regarding the Person in whose name such Definitive Note shall be
registered to effect the transfer or exchange referred to in (1) above;
provided that in no event shall Definitive Notes be issued upon the transfer or
exchange of beneficial interests in the Regulation S Temporary Global Note
prior to (x) the expiration of the Restricted Period and (y) the receipt by the
Registrar of any certificates required pursuant to Rule 903 under the
Securities Act. Upon consummation of an Exchange Offer by the Company in
accordance with Section 2.06(f) hereof, the requirements of this Section
2.06(b)(ii) shall be deemed to have been satisfied upon receipt by the
Registrar of the instructions contained in the Letter of Transmittal delivered
by the Holder of such beneficial interests in the Restricted Global Notes. Upon
satisfaction of all of the requirements for transfer or exchange of beneficial
interests in Global Notes contained in this Indenture and the Senior Secured
Discount Notes or otherwise applicable under the Securities Act, the Trustee
shall adjust the principal amount of the relevant Global Note(s) pursuant to
Section 2.06(h) hereof.
(iii) Transfer of Beneficial Interests to Another Restricted
Global Note. A beneficial interest in any Restricted Global Note may be
transferred to a Person who takes delivery thereof in the form of a beneficial
interest in another Restricted Global Note if the transfer complies with the
requirements of Section 2.06(b)(ii) above and the Registrar receives the
following:
(A) if the transferee will take delivery in the
form of a beneficial interest in the 144A Global Note, then the transferor must
deliver a certificate in the form of Exhibit B hereto, including the
certifications in item (1) thereof;
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(B) the transferee will take delivery in the form of a
beneficial interest in the Regulation S Temporary Global Note or the Regulation
S Global Note, then the transferor must deliver a certificate in the form of
Exhibit B hereto, including the certifications in item (2) thereof; and
(C) if the transferee will take delivery in the form of a
beneficial interest in the IAI Global Note, then the transferor must deliver a
certificate in the form of Exhibit B hereto, including the certifications,
certificates and Opinion of Counsel required by item (3) thereof, if
applicable.
(iv) Transfer and Exchange of Beneficial Interests in a Restricted
Global Note for Beneficial Interests in the Unrestricted Global Note. A
beneficial interest in any Restricted Global Note may be exchanged by any
holder thereof for a beneficial interest in an Unrestricted Global Note or
transferred to a Person who takes delivery thereof in the form of a beneficial
interest in an Unrestricted Global Note if the exchange or transfer complies
with the requirements of Section 2.06(b)(ii) above and:
(A) such exchange or transfer is effected pursuant to the
Exchange Offer in accordance with the Registration Rights Agreement and the
holder of the beneficial interest to be transferred, in the case of an
exchange, or the transferee, in the case of a transfer, certifies in the
applicable Letter of Transmittal that it is not (1) a broker-dealer, (2) a
Person participating in the distribution of the Exchange Notes or (3) a Person
who is an affiliate (as defined in Rule 144) of the Company;
(B) such transfer is effected pursuant to the Shelf
Registration Statement in accordance with the Registration Rights Agreement;
(C) such transfer is effected by a Participating
Broker-Dealer pursuant to the Exchange Offer Registration Statement in
accordance with the Registration Rights Agreement; or
(D) the Registrar receives the following:
(1) if the holder of such beneficial interest in
a Restricted Global Note proposes to exchange such beneficial interest for a
beneficial interest in an Unrestricted Global Note, a certificate from such
holder in the form of Exhibit C hereto, including the certifications in item
(1)(a) thereof; or
(2) if the holder of such beneficial interest in
a Restricted Global Note proposes to transfer such beneficial interest to a
Person who shall take delivery thereof in the form of a beneficial interest in
an Unrestricted Global Note, a certificate from such holder in the form of
Exhibit B hereto, including the certifications in item (4) thereof;
and, in each such case set forth in this subparagraph (D), if the Registrar so
requests or if the Applicable Procedures so require, an Opinion of Counsel in
form reasonably acceptable to the Registrar to the effect that such exchange or
transfer is in compliance with the Securities Act and that the restrictions on
transfer contained herein and in the Private Placement Legend are no longer
required in order to maintain compliance with the Securities Act.
If any such transfer is effected pursuant to subparagraph (B)
or (D) above at a time when an Unrestricted Global Note has not yet been
issued, the Company shall issue and, upon receipt of an Authentication Order in
accordance with Section 2.02 hereof, the Trustee shall authenticate one or more
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Unrestricted Global Notes in an aggregate principal amount equal to the
aggregate principal amount of beneficial interests transferred pursuant to
subparagraph (B) or (D) above.
Beneficial interests in an Unrestricted Global Note cannot be
exchanged for, or transferred to Persons who take delivery thereof in the form
of, a beneficial interest in a Restricted Global Note.
(c) Transfer or Exchange of Beneficial Interests for
Definitive Notes.
(i) Beneficial Interests in Restricted Global Notes to
Restricted Definitive Notes. If any holder of a beneficial interest in a
Restricted Global Note proposes to exchange such beneficial interest for a
Restricted Definitive Note or to transfer such beneficial interest to a Person
who takes delivery thereof in the form of a Restricted Definitive Note, then,
upon receipt by the Registrar of the following documentation:
(A) if the holder of such beneficial interest in a
Restricted Global Note proposes to exchange such beneficial interest for a
Restricted Definitive Note, a certificate from such holder in the form of
Exhibit C hereto, including the certifications in item (2)(a) thereof;
(B) if such beneficial interest is being transferred
to a QIB in accordance with Rule 144A under the Securities Act, a certificate
to the effect set forth in Exhibit B hereto, including the certifications in
item (1) thereof;
(C) if such beneficial interest is being transferred
to a Non-U.S. Person in an offshore transaction in accordance with Rule 903 or
Rule 904 under the Securities Act, a certificate to the effect set forth in
Exhibit B hereto, including the certifications in item (2) thereof;
(D) if such beneficial interest is being transferred
pursuant to an exemption from the registration requirements of the Securities
Act in accordance with Rule 144 under the Securities Act, a certificate to the
effect set forth in Exhibit B hereto, including the certifications in item
(3)(a) thereof;
(E) if such beneficial interest is being transferred
to an Institutional Accredited Investor in reliance on an exemption from the
registration requirements of the Securities Act other than those listed in
subparagraphs (B) through (D) above, a certificate to the effect set forth in
Exhibit B hereto, including the certifications, certificates and Opinion of
Counsel required by item (3) thereof, if applicable;
(F) if such beneficial interest is being transferred
to the Company or any of its Subsidiaries, a certificate to the effect set
forth in Exhibit B hereto, including the certifications in item (3)(b) thereof;
or
(G) if such beneficial interest is being transferred
pursuant to an effective registration statement under the Securities Act, a
certificate to the effect set forth in Exhibit B hereto, including the
certifications in item (3)(c) thereof,
the Trustee shall cause the aggregate principal amount of the
applicable Global Note to be reduced accordingly pursuant to Section 2.06(h)
hereof, and the Company shall execute and the Trustee shall authenticate and
deliver to the Person designated in the instructions a Definitive Note in the
appropriate principal amount. Any Definitive Note issued in exchange for a
beneficial interest in a
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Restricted Global Note pursuant to this Section 2.06(c) shall be registered in
such name or names and in such authorized denomination or denominations as the
holder of such beneficial interest shall instruct the Registrar through
instructions from the Depositary and the Participant or Indirect Participant.
The Trustee shall deliver such Definitive Notes to the Persons in whose names
such Definitive Notes are so registered. Any Definitive Note issued in exchange
for a beneficial interest in a Restricted Global Note pursuant to this Section
2.06(c)(i) shall bear the Private Placement Legend and shall be subject to all
restrictions on transfer contained therein.
Notwithstanding Sections 2.06(c)(i)(A) and (C) hereof, a
beneficial interest in the Regulation S Temporary Global Note may not be
exchanged for a Definitive Note or transferred to a Person who takes delivery
thereof in the form of a Definitive Note prior to (x) the expiration of the
Restricted Period and (y) the receipt by the Registrar of any certificates
required pursuant to Rule 903(c)(3)(ii)(B) under the Securities Act, except in
the case of a transfer pursuant to an exemption from the registration
requirements of the Securities Act other than Rule 903 or Rule 904.
(ii) Beneficial Interests in Restricted Global Notes to
Unrestricted Definitive Notes. A holder of a beneficial interest in a
Restricted Global Note may exchange such beneficial interest for an
Unrestricted Definitive Note or may transfer such beneficial interest to a
Person who takes delivery thereof in the form of an Unrestricted Definitive
Note only if:
(A) such exchange or transfer is effected
pursuant to the Exchange Offer in accordance with the Registration Rights
Agreement and the holder of such beneficial interest, in the case of an
exchange, or the transferee, in the case of a transfer, certifies in the
applicable Letter of Transmittal that it is not (1) a broker-dealer, (2) a
Person participating in the distribution of the Exchange Notes or (3) a Person
who is an affiliate (as defined in Rule 144) of the Company;
(B) such transfer is effected pursuant to the Shelf
Registration Statement in accordance with the Registration Rights Agreement;
(C) such transfer is effected by a Participating
Broker-Dealer pursuant to the Exchange Offer Registration Statement in
accordance with the Registration Rights Agreement; or
(D) the Registrar receives the following:
(1) if the holder of such beneficial
interest in a Restricted Global Note proposes to exchange such beneficial
interest for a Definitive Note that does not bear the Private Placement Legend,
a certificate from such holder in the form of Exhibit C hereto, including the
certifications in item (1)(b) thereof; or
(2) if the holder of such beneficial
interest in a Restricted Global Note proposes to transfer such beneficial
interest to a Person who shall take delivery thereof in the form of a
Definitive Note that does not bear the Private Placement Legend, a certificate
from such holder in the form of Exhibit B hereto, including the certifications
in item (4) thereof;
and, in each such case set forth in this subparagraph (D), if
the Registrar so requests or if the Applicable Procedures so
require, an Opinion of Counsel in form reasonably acceptable
to the Registrar to the effect that such exchange or transfer
is in compliance with the Securities Act and that the
restrictions on transfer contained herein and in the Private
Placement Legend are no longer required in order to maintain
compliance with the Securities Act.
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(iii) Beneficial Interests in Unrestricted Global Notes to
Unrestricted Definitive Notes. If any Holder of a beneficial interest in an
Unrestricted Global Note proposes to exchange such beneficial interest for a
Definitive Note or to transfer such beneficial interest to a Person who takes
delivery thereof in the form of a Definitive Note, then, upon satisfaction of
the conditions set forth in Section 2.06(b)(ii) hereof, the Trustee shall cause
the aggregate principal amount of the applicable Global Note to be reduced
accordingly pursuant to Section 2.06(h) hereof, and the Company shall execute
and the Trustee shall authenticate and deliver to the Person designated in the
instructions a Definitive Note in the appropriate principal amount. Any
Definitive Note issued in exchange for a beneficial interest pursuant to this
Section 2.06(c)(iii) shall be registered in such name or names and in such
authorized denomination or denominations as the holder of such beneficial
interest shall instruct the Registrar through instructions from the Depositary
and the Participant or Indirect Participant. The Trustee shall deliver such
Definitive Notes to the Persons in whose names such Definitive Notes are so
registered. Any Definitive Note issued in exchange for a beneficial interest
pursuant to this Section 2.06(c)(iii) shall not bear the Private Placement
Legend.
(d) Transfer and Exchange of Definitive Notes for Beneficial
Interests.
(i) Restricted Definitive Notes to Beneficial Interests in
Restricted Global Notes. If any Holder of a Restricted Definitive Note proposes
to exchange such Restricted Definitive Note for a beneficial interest in a
Restricted Global Note or to transfer such Restricted Definitive Notes to a
Person who takes delivery thereof in the form of a beneficial interest in a
Restricted Global Note, then, upon receipt by the Registrar of the following
documentation:
(A) if the Holder of such Restricted
Definitive Note proposes to exchange such Senior Secured Discount Note for a
beneficial interest in a Restricted Global Note, a certificate from such Holder
in the form of Exhibit C hereto, including the certifications in item (2)(b)
thereof;
(B) if such Restricted Definitive Note is being
transferred to a QIB in accordance with Rule 144A under the Securities Act, a
certificate to the effect set forth in Exhibit B hereto, including the
certifications in item (1) thereof;
(C) if such Restricted Definitive Note is
being transferred to a Non-U.S. Person in an offshore transaction in accordance
with Rule 903 or Rule 904 under the Securities Act, a certificate to the effect
set forth in Exhibit B hereto, including the certifications in item (2)
thereof;
(D) if such Restricted Definitive Note is being
transferred pursuant to an exemption from the registration requirements of the
Securities Act in accordance with Rule 144 under the Securities Act, a
certificate to the effect set forth in Exhibit B hereto, including the
certifications in item (3)(a) thereof;
(E) if such Restricted Definitive Note is being
transferred to an Institutional Accredited Investor in reliance on an exemption
from the registration requirements of the Securities Act other than those
listed in subparagraphs (B) through (D) above, a certificate to the effect set
forth in Exhibit B hereto, including the certifications, certificates and
Opinion of Counsel required by item (3) thereof, if applicable;
(F) if such Restricted Definitive Note is being
transferred to the Company or any of its Subsidiaries, a certificate to the
effect set forth in Exhibit B hereto, including the certifications in item
(3)(b) thereof; or
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(G) if such Restricted Definitive Note is being
transferred pursuant to an effective registration statement under the
Securities Act, a certificate to the effect set forth in Exhibit B hereto,
including the certifications in item (3)(c) thereof,
the Trustee shall cancel the Restricted Definitive Note,
increase or cause to be increased the aggregate principal amount of, in the
case of clause (A) above, the appropriate Restricted Global Note, in the case
of clause (B) above, the 144A Global Note, in the case of clause (c) above, the
Regulation S Global Note, and in all other cases, the IAI Global Note.
(ii) Restricted Definitive Notes to Beneficial Interests in
Unrestricted Global Notes. A Holder of a Restricted Definitive Note may
exchange such Restricted Definitive Note for a beneficial interest in an
Unrestricted Global Note or transfer such Restricted Definitive Note to a
Person who takes delivery thereof in the form of a beneficial interest in an
Unrestricted Global Note only if:
(A) such exchange or transfer is effected
pursuant to the Exchange Offer in accordance with the Registration Rights
Agreement and the Holder, in the case of an exchange, or the transferee, in the
case of a transfer, certifies in the applicable Letter of Transmittal that it
is not (1) a broker-dealer, (2) a Person participating in the distribution of
the Exchange Notes or (3) a Person who is an affiliate (as defined in Rule 144)
of the Company;
(B) such transfer is effected pursuant to the Shelf
Registration Statement in accordance with the Registration Rights Agreement;
(C) such transfer is effected by a Participating
Broker-Dealer pursuant to the Exchange Offer Registration Statement in
accordance with the Registration Rights Agreement; or
(D) the Registrar receives the following:
(1) if the Holder of such Definitive
Notes proposes to exchange such Senior Secured Discount Notes for a beneficial
interest in the Unrestricted Global Note, a certificate from such Holder in the
form of Exhibit C hereto, including the certifications in item (1)(c) thereof;
or
(2) if the Holder of such Definitive
Notes proposes to transfer such Senior Secured Discount Notes to a Person who
shall take delivery thereof in the form of a beneficial interest in the
Unrestricted Global Note, a certificate from such Holder in the form of Exhibit
B hereto, including the certifications in item (4) thereof;
and, in each such case set forth in this subparagraph (D), if
the Registrar so requests or if the Applicable Procedures so require, an
Opinion of Counsel in form reasonably acceptable to the Registrar to the effect
that such exchange or transfer is in compliance with the Securities Act and
that the restrictions on transfer contained herein and in the Private Placement
Legend are no longer required in order to maintain compliance with the
Securities Act.
Upon satisfaction of the conditions of any of the
subparagraphs in this Section 2.06(d)(ii), the Trustee shall cancel the
Definitive Notes and increase or cause to be increased the aggregate principal
amount of the Unrestricted Global Note.
(iii) Unrestricted Definitive Notes to Beneficial Interests
in Unrestricted Global Notes. A Holder of an Unrestricted Definitive Note may
exchange such Unrestricted Definitive Note for a beneficial interest in an
Unrestricted Global Note or transfer such Definitive Notes to a Person who
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takes delivery thereof in the form of a beneficial interest in an Unrestricted
Global Note at any time. Upon receipt of a request for such an exchange or
transfer, the Trustee shall cancel the applicable Unrestricted Definitive Note
and increase or cause to be increased the aggregate principal amount of one of
the Unrestricted Global Notes.
If any such exchange or transfer from a Definitive Note to a
beneficial interest is effected pursuant to subparagraphs (ii)(B), (ii)(D) or
(iii) above at a time when an Unrestricted Global Note has not yet been issued,
the Company shall issue and, upon receipt of an Authentication Order in
accordance with Section 2.02 hereof, the Trustee shall authenticate one or more
Unrestricted Global Notes in an aggregate principal amount equal to the
principal amount of Definitive Notes so transferred.
(e) Transfer and Exchange of Definitive Notes for Definitive
Notes.
Upon request by a Holder of Definitive Notes and such
Holder's compliance with the provisions of this Section 2.06(e), the Registrar
shall register the transfer or exchange of Definitive Notes. Prior to such
registration of transfer or exchange, the requesting Holder shall present or
surrender to the Registrar the Definitive Notes duly endorsed or accompanied by
a written instruction of transfer in form satisfactory to the Registrar duly
executed by such Holder or by his attorney, duly authorized in writing. In
addition, the requesting Holder shall provide any additional certifications,
documents and information, as applicable, required pursuant to the following
provisions of this Section 2.06(e).
(i) Restricted Definitive Notes to Restricted Definitive
Notes. Any Restricted Definitive Note may be transferred to and registered in
the name of Persons who take delivery thereof in the form of a Restricted
Definitive Note if the Registrar receives the following:
(A) if the transfer will be made pursuant to
Rule 144A under the Securities Act, then the transferor must deliver a
certificate in the form of Exhibit B hereto, including the certifications in
item (1) thereof;
(B) if the transfer will be made pursuant to Rule
903 or Rule 904, then the transferor must deliver a certificate in the form of
Exhibit B hereto, including the certifications in item (2) thereof; and
(C) if the transfer will be made pursuant to any
other exemption from the registration requirements of the Securities Act, then
the transferor must deliver a certificate in the form of Exhibit B hereto,
including the certifications, certificates and Opinion of Counsel required by
item (3) thereof, if applicable.
(ii) Restricted Definitive Notes to Unrestricted Definitive
Notes. Any Restricted Definitive Note may be exchanged by the Holder thereof
for an Unrestricted Definitive Note or transferred to a Person or Persons who
take delivery thereof in the form of an Unrestricted Definitive Note if:
(A) such exchange or transfer is effected
pursuant to the Exchange Offer in accordance with the Registration Rights
Agreement and the Holder, in the case of an exchange, or the transferee, in the
case of a transfer, certifies in the applicable Letter of Transmittal that it
is not (1) a broker-dealer, (2) a Person participating in the distribution of
the Exchange Notes or (3) a Person who is an affiliate (as defined in Rule 144)
of the Company;
(B) any such transfer is effected pursuant to the
Shelf Registration Statement in accordance with the Registration Rights
Agreement;
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(C) any such transfer is effected by a Participating
Broker-Dealer pursuant to the Exchange Offer Registration Statement in
accordance with the Registration Rights Agreement; or
(D) the Registrar receives the following:
(1) if the Holder of such Restricted
Definitive Notes proposes to exchange such Notes for an Unrestricted Definitive
Note, a certificate from such Holder in the form of Exhibit C hereto, including
the certifications in item (1)(d) thereof; or
(2) if the Holder of such Restricted
Definitive Notes proposes to transfer such Definitive Notes to a Person who
shall take delivery thereof in the form of an Unrestricted Definitive Note, a
certificate from such Holder in the form of Exhibit B hereto, including the
certifications in item (4) thereof;
and, in each such case set forth in this subparagraph (D), if
the Registrar so requests, an Opinion of Counsel in form reasonably acceptable
to the Company to the effect that such exchange or transfer is in compliance
with the Securities Act and that the restrictions on transfer contained herein
and in the Private Placement Legend are no longer required in order to maintain
compliance with the Securities Act.
(iii) Unrestricted Definitive Notes to Unrestricted
Definitive Notes. A Holder of Unrestricted Definitive Notes may transfer such
Unrestricted Definitive Notes to a Person who takes delivery thereof in the
form of an Unrestricted Definitive Note. Upon receipt of a request to register
such a transfer, the Registrar shall register the Unrestricted Definitive Notes
pursuant to the instructions from the Holder thereof.
(f) Exchange Offer. Upon the occurrence of the Exchange Offer
in accordance with the Registration Rights Agreement, the Company shall issue
and, upon receipt of an Authentication Order in accordance with Section 2.02,
the Trustee shall authenticate (i) one or more Unrestricted Global Notes in an
aggregate principal amount equal to the principal amount of the beneficial
interests in the Restricted Global Notes tendered for acceptance by Persons
that certify in the applicable Letters of Transmittal that (x) they are not
broker-dealers, (y) they are not participating in a distribution of the
Exchange Notes and (z) they are not affiliates (as defined in Rule 144) of the
Company, and accepted for exchange in the Exchange Offer and (ii) Definitive
Notes in an aggregate principal amount equal to the principal amount of the
Restricted Definitive Notes accepted for exchange in the Exchange Offer.
Concurrently with the issuance of such Notes, the Trustee shall cause the
aggregate principal amount of the applicable Restricted Global Notes to be
reduced accordingly, and the Company shall execute and the Trustee shall
authenticate and deliver to the Persons designated by the Holders of Definitive
Notes so accepted Definitive Notes in the appropriate principal amount.
(g) Legends. The following legends shall appear on the face
of all Global Notes and Definitive Notes issued under this Indenture unless
specifically stated otherwise in the applicable provisions of this Indenture.
(i) Private Placement Legend.
(A) Except as permitted by subparagraph (B)
below, each Global Note and each Definitive Note (and all Senior Secured
Discount Notes issued in exchange therefor or substitution thereof) shall bear
the legend in substantially the following:
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"THIS SECURITY (OR ITS PREDECESSOR) HAS NOT BEEN REGISTERED UNDER THE
UNITED STATES SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES
ACT") AND, ACCORDINGLY, MAY NOT BE OFFERED, SOLD, PLEDGED OR OTHERWISE
TRANSFERRED WITHIN THE UNITED STATES OR TO, OR FOR THE ACCOUNT OR
BENEFIT OF, U.S. PERSONS, EXCEPT AS SET FORTH IN THE NEXT SENTENCE. BY
ITS ACQUISITION HEREOF OR OF A BENEFICIAL INTEREST HEREIN, THE HOLDER
REPRESENTS THAT (A) IT IS A "QUALIFIED INSTITUTIONAL BUYER" (AS
DEFINED IN RULE 144A UNDER THE SECURITIES ACT) (A "QIB"), (B) IT HAS
ACQUIRED THIS SECURITY IN AN OFFSHORE TRANSACTION IN COMPLIANCE WITH
REGULATION S UNDER THE SECURITIES ACT OR (C) IT IS AN INSTITUTIONAL
"ACCREDITED INVESTOR" (AS DEFINED IN RULE 501(A)(1), (2), (3) OR (7)
OF REGULATION D UNDER THE SECURITIES ACT) (AN "IAI"), AGREES THAT IT
WILL NOT RESELL OR OTHERWISE TRANSFER THIS SECURITY EXCEPT (A) TO THE
COMPANY OR ANY OF ITS SUBSIDIARIES (B) TO A PERSON WHOM THE SELLER
REASONABLY BELIEVES IS A QIB PURCHASING FOR ITS OWN ACCOUNT OR FOR THE
ACCOUNT OF A QIB IN A TRANSACTION MEETING THE REQUIREMENTS OF RULE
144A, (C) IN AN OFFSHORE TRANSACTION MEETING THE REQUIREMENTS OF RULE
903 OR 904 OF THE SECURITIES ACT, (D) IN A TRANSACTION MEETING THE
REQUIREMENTS OF RULE 144 UNDER THE SECURITIES ACT, (E) TO AN IAI THAT,
PRIOR TO SUCH TRANSFER, FURNISHES TO THE TRUSTEE A SIGNED LETTER
CONTAINING CERTAIN REPRESENTATIONS AND AGREEMENTS RELATING TO THE
TRANSFER OF THIS SECURITY (THE FORM OF WHICH LETTER CAN BE OBTAINED
FROM THE TRUSTEE) AND, IF SUCH TRANSFER IS IN RESPECT OF AN ACCRETED
VALUE OF SECURITIES LESS THAN $250,000, AN OPINION OF COUNSEL
ACCEPTABLE TO THE COMPANY THAT SUCH TRANSFER IS IN COMPLIANCE WITH THE
SECURITIES ACT OR (F) IN ACCORDANCE WITH ANOTHER EXEMPTION FROM THE
REGISTRATION REQUIREMENTS OF THE SECURITIES ACT (AND BASED UPON AN
OPINION OF COUNSEL ACCEPTABLE TO THE COMPANY) OR (G)PURSUANT TO AN
EFFECTIVE REGISTRATION STATEMENT AND, IN EACH CASE, IN ACCORDANCE WITH
THE APPLICABLE SECURITIES LAWS OF ANY STATE OF THE UNITED STATES OR
ANY OTHER APPLICABLE JURISDICTION; AND AGREES THAT IT WILL DELIVER TO
EACH PERSON TO WHOM THIS SECURITY OR AN INTEREST HEREIN IS TRANSFERRED
A NOTICE SUBSTANTIALLY TO THE EFFECT OF THIS LEGEND. AS USED HEREIN,
THE TERMS "OFFSHORE TRANSACTION" AND "UNITED STATES" HAVE THE MEANINGS
GIVEN TO THEM BY RULE 902 OF REGULATION S UNDER THE SECURITIES ACT.
THE INDENTURE CONTAINS A PROVISION REQUIRING THE TRUSTEE TO REFUSE TO
REGISTER ANY TRANSFER OF THIS SECURITY IN VIOLATION OF THE FOREGOING."
(B) Notwithstanding the foregoing, any Global Note
or Definitive Note issued pursuant to subparagraphs (b)(iv), (c)(ii), (c)(iii),
(d)(ii), (d)(iii), (e)(ii), (e)(iii) or (f) to this Section 2.06 (and all
Senior Secured Discount Notes issued in exchange therefor or substitution
thereof) shall not bear the Private Placement Legend.
(ii) Global Note Legend. Each Global Note shall bear a legend
in substantially the following form:
"THIS GLOBAL NOTE IS HELD BY THE DEPOSITARY (AS DEFINED IN THE
INDENTURE GOVERNING THIS SECURITY) OR ITS NOMINEE IN CUSTODY FOR THE
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BENEFIT OF THE BENEFICIAL OWNERS HEREOF, AND IS NOT TRANSFERABLE TO
ANY PERSON UNDER ANY CIRCUMSTANCES EXCEPT THAT (I) THE TRUSTEE MAY
MAKE SUCH NOTATIONS HEREON AS MAY BE REQUIRED PURSUANT TO SECTION 2.07
OF THE INDENTURE, (II) THIS GLOBAL NOTE MAY BE EXCHANGED IN WHOLE BUT
NOT IN PART PURSUANT TO SECTION 2.06(a) OF THE INDENTURE, (III) THIS
GLOBAL NOTE MAY BE DELIVERED TO THE TRUSTEE FOR CANCELLATION PURSUANT
TO SECTION 2.11 OF THE INDENTURE AND (IV) THIS GLOBAL NOTE MAY BE
TRANSFERRED TO A SUCCESSOR DEPOSITARY WITH THE PRIOR WRITTEN CONSENT
OF THE COMPANY."
(iii) Regulation S Temporary Global Note Legend. The
Regulation S Temporary Global Note shall bear a legend in substantially the
following form:
"THE RIGHTS ATTACHING TO THIS REGULATION S TEMPORARY GLOBAL NOTE, AND
THE CONDITIONS AND PROCEDURES GOVERNING ITS EXCHANGE FOR CERTIFICATED
NOTES, ARE AS SPECIFIED IN THE INDENTURE (AS DEFINED HEREIN). NEITHER
THE HOLDER NOR THE BENEFICIAL OWNERS OF THIS REGULATION S TEMPORARY
GLOBAL NOTE SHALL BE ENTITLED TO RECEIVE PAYMENT OF INTEREST HEREON."
(iv) Unit Legend. Each Senior Secured Discount Note issued
prior to the Separation Date shall bear the following legend (the "Unit
Legend") on the face thereof:
"THE SECURITIES EVIDENCED BY THIS CERTIFICATE ARE INITIALLY ISSUED AS
PART OF AN ISSUANCE OF UNITS, EACH OF WHICH CONSIST OF $1,000
PRINCIPAL AMOUNT AT MATURITY OF SENIOR SECURED DISCOUNT NOTES AND TWO
(2) SHARES (THE "SHARES") OF CLASS C COMMON STOCK, PAR VALUE $.001 PER
SHARE, OF THE COMPANY. PRIOR TO THE CLOSE OF BUSINESS UPON THE
EARLIEST TO OCCUR OF (I) 90 DAYS FROM THE DATE OF THE INDENTURE; (II)
SUCH EARLIER DATE AS THE INITIAL PURCHASES MAY DETERMINE; AND (III)
THE OCCURRENCE OF A CHANGE OF CONTROL. THE SECURITIES EVIDENCED BY
THIS CERTIFICATE MAY NOT BE TRANSFERRED OR EXCHANGED SEPARATELY FROM,
BUT MAY BE TRANSFERRED OR EXCHANGED ONLY TOGETHER WITH, THE SHARES."
(v) Original Issue Discount Legend. Each Senior Secured
Discount Note shall bear a legend in substantially the following form:
"FOR THE PURPOSES OF SECTIONS 1272, 1273 AND 1275 OF THE INTERNAL
REVENUE CODE OF 1986, AS AMENDED, THIS SECURITY IS BEING ISSUED WITH
ORIGINAL ISSUE DISCOUNT; FOR EACH $1,000 AGGREGATE PRINCIPAL AMOUNT AT
MATURITY OF THIS SECURITY, THE ISSUE PRICE IS $538.46, THE AMOUNT OF
ORIGINAL ISSUE DISCOUNT IS $461.54, THE ISSUE DATE IS MARCH 15, 1998
AND THE YIELD TO MATURITY IS 12 3/4% PER ANNUM."
(h) Cancellation and/or Adjustment of Global Notes.
At such time as all beneficial interests in a particular
Global Note have been exchanged for Definitive Notes or a particular Global
Note has been redeemed, repurchased or canceled in whole and not in part, each
such Global Note shall be returned to or retained and canceled by the Trustee
in accordance with Section 2.11 hereof. At any time prior to such cancellation,
if any beneficial interest in a Global Note is exchanged for or transferred
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to a Person who will take delivery thereof in the form of a beneficial interest
in another Global Note or for Definitive Notes, the principal amount of Senior
Secured Discount Notes represented by such Global Note shall be reduced
accordingly and an endorsement shall be made on such Global Note by the Trustee
or by the Depositary at the direction of the Trustee to reflect such reduction;
and if the beneficial interest is being exchanged for or transferred to a
Person who will take delivery thereof in the form of a beneficial interest in
another Global Note, such other Global Note shall be increased accordingly and
an endorsement shall be made on such Global Note by the Trustee or by the
Depositary at the direction of the Trustee to reflect such increase.
(i) General Provisions Relating to Transfers and Exchanges.
(i) To permit registrations of transfers and exchanges, the
Company shall execute and the Trustee shall authenticate Global Notes and
Definitive Notes upon the Company's order or at the Registrar's request.
(ii) No service charge shall be made to a holder of a
beneficial interest in a Global Note or to a Holder of a Definitive Note for
any registration of transfer or exchange, but the Company may require payment
of a sum sufficient to cover any transfer tax or similar governmental charge
payable in connection therewith (other than any such transfer taxes or similar
governmental charge payable upon exchange or transfer pursuant to Sections
2.10, 3.06, 3.09, 4.10, 4.15 and 9.05 hereof).
(iii) The Registrar shall not be required to register the
transfer of or exchange any Senior Secured Discount Note selected for
redemption in whole or in part, except the unredeemed portion of any Senior
Secured Discount Note being redeemed in part.
(iv) All Global Notes and Definitive Notes issued upon any
registration of transfer or exchange of Global Notes or Definitive Notes shall
be the valid obligations of the Company, evidencing the same debt, and entitled
to the same benefits under this Indenture, as the Global Notes or Definitive
Notes surrendered upon such registration of transfer or exchange.
(v) The Company shall not be required (A) to issue, to
register the transfer of or to exchange any Senior Secured Discount Notes
during a period beginning at the opening of business 15 days before the day of
any selection of Senior Secured Discount Notes for redemption under Section
3.02 hereof and ending at the close of business on the day of selection, (B) to
register the transfer of or to exchange any Senior Secured Discount Note so
selected for redemption in whole or in part, except the unredeemed portion of
any Senior Secured Discount Note being redeemed in part or (C) to register the
transfer of or to exchange a Senior Secured Discount Note between a record date
and the next succeeding Interest Payment Date.
(vi) Prior to due presentment for the registration of a
transfer of any Senior Secured Discount Note, the Trustee, any Agent and the
Company may deem and treat the Person in whose name any Senior Secured Discount
Note is registered as the absolute owner of such Senior Secured Discount Note
for the purpose of receiving payment of principal of and interest on such
Senior Secured Discount Notes and for all other purposes, and none of the
Trustee, any Agent or the Company shall be affected by notice to the contrary.
(vii) The Trustee shall authenticate Global Notes and
Definitive Notes in accordance with the provisions of Section 2.02 hereof.
(viii) All certifications, certificates and Opinions of
Counsel required to be submitted
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to the Registrar pursuant to this Section 2.06 to effect a registration of
transfer or exchange may be submitted by facsimile.
SECTION 2.07. REPLACEMENT SENIOR SECURED DISCOUNT NOTES.
If any mutilated Senior Secured Discount Note is surrendered
to the Trustee or the Company and the Trustee receives evidence to its
satisfaction of the destruction, loss or theft of any Senior Secured Discount
Note, the Company shall issue and the Trustee, upon receipt of an
Authentication Order, shall authenticate a replacement Senior Secured Discount
Note if the Trustee's requirements are met. If required by the Trustee or the
Company, an indemnity bond must be supplied by the Holder that is sufficient in
the judgment of the Trustee and the Company to protect the Company, the
Trustee, any Agent and any authenticating agent from any loss that any of them
may suffer if a Senior Secured Discount Note is replaced. The Company may
charge for its expenses in replacing a Senior Secured Discount Note.
Every replacement Senior Secured Discount Note is an
additional obligation of the Company and shall be entitled to all of the
benefits of this Indenture equally and proportionately with all other Senior
Secured Discount Notes duly issued hereunder.
SECTION 2.08. OUTSTANDING SENIOR SECURED DISCOUNT NOTES.
The Senior Secured Discount Notes outstanding at any time are
all the Senior Secured Discount Notes authenticated by the Trustee except for
those canceled by it, those delivered to it for cancellation, those reductions
in the interest in a Global Note effected by the Trustee in accordance with the
provisions hereof, and those described in this Section as not outstanding.
Except as set forth in Section 2.09 hereof, a Senior Secured Discount Note does
not cease to be outstanding because the Company or an Affiliate of the Company
holds the Senior Secured Discount Note.
If a Senior Secured Discount Note is replaced pursuant to
Section 2.07 hereof, it ceases to be outstanding unless the Trustee receives
proof satisfactory to it that the replaced Senior Secured Discount Note is held
by a bona fide purchaser.
If the principal amount of any Senior Secured Discount Note
is considered paid under Section 4.01 hereof, it ceases to be outstanding and
interest on it ceases to accrue.
If the Paying Agent (other than the Company, a Subsidiary or
an Affiliate of any thereof) holds, on a redemption date or maturity date,
money sufficient to pay Senior Secured Discount Notes payable on that date,
then on and after that date such Senior Secured Discount Notes shall be deemed
to be no longer outstanding and shall cease to accrue interest.
Upon a "legal defeasance" pursuant to Article 8 hereof, the
Senior Secured Discount Notes shall be deemed to be outstanding to the extent
provided in the applicable section of Article 8 hereof.
SECTION 2.09. TREASURY SENIOR SECURED DISCOUNT NOTES.
In determining whether the Holders of the required principal
amount of Senior Secured Discount Notes have concurred in any direction, waiver
or consent, Senior Secured Discount Notes owned by the Company, or by any
Affiliate of the Company, shall be considered as though not outstanding, except
that for the purposes of determining whether the Trustee shall be protected in
relying
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on any such direction, waiver or consent, only Senior Secured Discount Notes
that the Trustee knows are so owned shall be so disregarded.
SECTION 2.10. TEMPORARY SENIOR SECURED DISCOUNT NOTES.
Until definitive Senior Secured Discount Notes are ready for
delivery, the Company may prepare and the Trustee, upon receipt of an
Authentication Order, shall authenticate temporary Senior Secured Discount
Notes. Temporary Senior Secured Discount Notes shall be substantially in the
form of definitive Notes but may have variations that the Company considers
appropriate for temporary Senior Secured Discount Notes and as shall be
reasonably acceptable to the Trustee. Without unreasonable delay, the Company
shall prepare and the Trustee shall authenticate definitive Senior Secured
Discount Notes in exchange for temporary Senior Secured Discount Notes.
Holders of temporary Senior Secured Discount Notes shall be
entitled to all of the benefits of this Indenture.
SECTION 2.11. CANCELLATION.
The Company at any time may deliver Senior Secured Discount
Notes to the Trustee for cancellation. The Registrar and Paying Agent shall
forward to the Trustee any Senior Secured Discount Notes surrendered to them
for registration of transfer, exchange or payment. The Trustee and no one else
shall cancel all Senior Secured Discount Notes surrendered for registration of
transfer, exchange, payment, replacement or cancellation and shall, upon
written request, return such canceled Senior Secured Discount Notes to the
Company. The Company may not issue new Senior Secured Discount Notes to replace
Senior Secured Discount Notes that it has paid or that have been delivered to
the Trustee for cancellation.
SECTION 2.12. DEFAULTED INTEREST.
If the Company defaults in a payment of interest on the
Senior Secured Discount Notes, it shall pay the defaulted interest specified in
Section 4.01 hereof in any lawful manner plus, to the extent lawful, interest
payable on the defaulted interest, to the Persons who are Holders on a
subsequent special record date, in each case at the rate provided in the Senior
Secured Discount Notes and in Section 4.01 hereof. The Company shall notify the
Trustee in writing of the amount of defaulted interest proposed to be paid on
each Senior Secured Discount Note and the date of the proposed payment. The
Company shall fix or cause to be fixed each such special record date and
payment date, provided that no such special record date shall be less than 10
days prior to the related payment date for such defaulted interest. At least 15
days before the special record date, the Company (or, upon the written request
of the Company, the Trustee in the name and at the expense of the Company)
shall mail or cause to be mailed to Holders a notice that states the special
record date, the related payment date and the amount of such interest to be
paid.
ARTICLE 3.
REDEMPTION AND PREPAYMENT
SECTION 3.01. NOTICES TO TRUSTEE.
If the Company elects to redeem Senior Secured Discount Notes
pursuant to the optional redemption provisions of Section 3.07 hereof, it shall
furnish to the Trustee, at least 45 days but not more than 60 days before a
redemption date, an Officers' Certificate setting forth (i) the clause of this
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Indenture pursuant to which the redemption shall occur, (ii) the redemption
date, (iii) the principal amount of Senior Secured Discount Notes to be
redeemed and (iv) the redemption price.
If the Company is required to make an offer to repurchase
Senior Secured Discount Notes pursuant to the provisions of Section 3.09, 4.10
or 4.15 hereof, it shall furnish to the Trustee at least 45 days but not more
than 60 days before a repurchase date, an Officers' Certificate setting forth
(i) the Section of this Indenture pursuant to which the repurchase shall occur,
(ii) the repurchase date, (iii) the maximum principal amount of Senior Secured
Discount Notes to be repurchased, (iv) the repurchase price and (v) further
setting forth a statement to the effect that (a) an Excess Proceeds Offer
Triggering Event has occurred and the conditions set forth in Section 4.10 have
been satisfied or (b) a Change of Control has occurred and the conditions set
forth in Section 4.15 have been satisfied.
SECTION 3.02. SELECTION OF SENIOR SECURED DISCOUNT NOTES TO BE REDEEMED.
If less than all of the Senior Secured Discount Notes are to
be redeemed at any time, selection of Senior Secured Discount Notes for
redemption will be made by the Trustee in compliance with the requirements of
the principal national securities exchange, if any, on which the Senior Secured
Discount Notes are listed, or, if the Senior Secured Discount Notes are not so
listed, on a pro rata basis, by lot or by such method as the Trustee shall deem
fair and appropriate; provided that no Senior Secured Discount Notes of $1,000
or less shall be redeemed in part. Notices of redemption shall be mailed by
first class mail at least 30 but not more than 60 days before the redemption
date to each Holder of Senior Secured Discount Notes to be redeemed at its
registered address. If any Senior Secured Discount Note is to be redeemed in
part only, the notice of redemption that relates to such Senior Secured
Discount Note shall state the portion of the principal amount thereof to be
redeemed. A new Senior Secured Discount Note in principal amount equal to the
unredeemed portion thereof will be issued in the name of the Holder thereof
upon cancellation of the original Senior Secured Discount Note. On and after
the redemption date, interest ceases to accrue on Senior Secured Discount Notes
or portions of them called for redemption.
SECTION 3.03. NOTICE OF REDEMPTION.
At least 30 days but not more than 60 days before a
redemption date, the Company shall mail or cause to be mailed, by first class
mail, a notice of redemption to each Holder whose Senior Secured Discount Notes
are to be redeemed at its registered address.
The notice shall identify the Senior Secured Discount Notes
to be redeemed and shall state:
(a) the redemption date;
(b) the redemption price;
(c) if any Senior Secured Discount Note is being redeemed in
part, the portion of the principal amount of such Senior Secured Discount Note
to be redeemed and that, after the redemption date upon surrender of such
Senior Secured Discount Note, a new Senior Secured Discount Note or Senior
Secured Discount Notes in aggregate principal amount at maturity equal to the
unredeemed portion shall be issued upon cancellation of the original Senior
Secured Discount Note;
(d) the name and address of the Paying Agent;
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(e) that Senior Secured Discount Notes called for redemption
must be surrendered to the Paying Agent to collect the redemption price;
(f) that, unless the Company defaults in making such
redemption payment, interest on Senior Secured Discount Notes or portions
thereof called for redemption ceases to accrue on and after the redemption
date;
(g) the paragraph of the Senior Secured Discount Notes and/or
Section of this Indenture pursuant to which the Senior Secured Discount Notes
called for redemption are being redeemed; and
(h) that no representation is made as to the correctness or
accuracy of the CUSIP number, if any, listed in such notice or printed on the
Senior Secured Discount Notes.
At the Company's request, the Trustee shall give the notice
of redemption in the Company's name and at its expense; provided, however, that
the Company shall have delivered to the Trustee, at least 10 days prior to the
redemption date, an Officers' Certificate requesting that the Trustee give such
notice and that the text of such notice shall be prepared or approved by the
Company.
SECTION 3.04. EFFECT OF NOTICE OF REDEMPTION.
Once notice of redemption is mailed in accordance with
Section 3.03 hereof, Senior Secured Discount Notes or portions thereof called
for redemption become irrevocably due and payable on the redemption date at the
redemption price. A notice of redemption may not be conditional.
SECTION 3.05. DEPOSIT OF REDEMPTION PRICE.
By 10:00 am on the redemption date, the Company shall deposit
with the Trustee or with the Paying Agent money, in same-day funds, sufficient
to pay the redemption price of, premiums, if any, accrued interest on, and
Liquidated Damages, if any, on all Senior Secured Discount Notes to be redeemed
on that date. The Trustee or the Paying Agent shall promptly return to the
Company any money deposited with the Trustee or the Paying Agent by the Company
in excess of the amounts necessary to pay the redemption price of, premiums, if
any, accrued interest on, and Liquidated Damages, if any, on all Senior Secured
Discount Notes to be redeemed.
If the Company complies with the provisions of the preceding
paragraph, on and after the redemption date, whether or not such Senior Secured
Discount Notes are presented for payment, interest shall cease to accrue on the
Senior Secured Discount Notes or the portions of Senior Secured Discount Notes
called for redemption. If a Senior Secured Discount Note is redeemed on or
after an interest record date but on or prior to the related interest payment
date, then any accrued and unpaid interest shall be paid to the Person in whose
name such Senior Secured Discount Note was registered at the close of business
on such record date. If any Senior Secured Discount Note called for redemption
shall not be so paid upon surrender for redemption because of the failure of
the Company to comply with the preceding paragraph, interest shall be paid on
the unpaid principal, from the redemption date until such principal is paid,
and to the extent lawful on any interest not paid on such unpaid principal, in
each case at the rate provided in the Senior Secured Discount Notes and in
Section 4.01 hereof.
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SECTION 3.06. SENIOR SECURED DISCOUNT NOTES REDEEMED IN PART.
Upon surrender of a Senior Secured Discount Note that is
redeemed in part, the Company shall issue and, upon the Company's written
request, the Trustee shall authenticate for the Holder at the expense of the
Company a new Senior Secured Discount Note equal in principal amount to the
unredeemed portion of the Senior Secured Discount Note surrendered.
SECTION 3.07. OPTIONAL REDEMPTION.
(a) Except as set forth in clause (b) of this Section 3.07,
the Senior Secured Discount Notes shall not be redeemable at the Company's
option prior to March 15, 2003. Thereafter, the Senior Secured Discount Notes
shall be subject to redemption at any time at the option of the Company, in
whole or in part, upon not less than 30 nor more than 60 days' notice, at the
redemption prices (expressed as percentages of principal amount) set forth
below plus accrued and unpaid interest and Liquidated Damages thereon, if any,
to the applicable redemption date, if redeemed during the twelve-month period
beginning on March 15 of the years indicated below:
Year Percentage
---- ----------
2003........................... 106.375%
2004........................... 104.250%
2005........................... 102.125%
2006 and thereafter............ 100.000%
(b) Notwithstanding the foregoing, at any time prior to March
15, 2001, the Company may, at its option, redeem up to one-third of the
aggregate principal amount at maturity of Senior Secured Discount Notes
originally offered in the Offering at a redemption price equal to 112.75% of
the Accreted Value thereof, plus Liquidated Damages thereon, if any, with the
net cash proceeds of an Equity Offering; provided that at least two-thirds of
the original aggregate principal amount at maturity of the Senior Secured
Discount Notes remains outstanding immediately after the occurrence of such
redemption (excluding Senior Secured Discount Notes held by the Company and its
Subsidiaries); and provided, further, that any such redemption shall occur
within 60 days of the date of the closing of such Equity Offering.
Any redemption pursuant to this Section 3.07 shall be made
pursuant to the provisions of Section 3.01 through 3.06 hereof.
SECTION 3.08. MANDATORY REDEMPTION.
Except as set forth under Sections 4.10 and 4.15 hereof, the
Company shall not be required to make mandatory redemption or sinking fund
payments with respect to the Senior Secured Discount Notes.
SECTION 3.09. REPURCHASE OFFERS.
In the event that the Company shall be required to commence
an offer to all Holders to repurchase Senior Secured Discount Notes (a
"Repurchase Offer") pursuant to Section 4.10 hereof (an "Excess Proceeds
Offer"), or pursuant to Section 4.15 hereof (a "Change of Control Offer") the
Company shall follow the procedures specified below.
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A Repurchase Offer shall commence no later than ten Business
Days after a Change of Control (unless the Company is not required to make such
offer pursuant to Section 4.15(c) hereof) or an Excess Proceeds Offer
Triggering Event, as the case may be, and remain open for a period of 20
Business Days following its commencement and no longer, except to the extent
that a longer period is required by applicable law (the "Offer Period"). No
later than five Business Days after the termination of the Offer Period (the
"Purchase Date"), the Company shall purchase the principal amount at maturity
of Senior Secured Discount Notes required to be purchased pursuant to Section
4.10 hereof, in the case of an Excess Proceeds Offer, or 4.15 hereof, in the
case of a Change of Control Offer (the "Offer Amount") or, if less than the
Offer Amount has been tendered, all Senior Secured Discount Notes tendered in
response to the Repurchase Offer. Payment for any Senior Secured Discount Notes
so purchased shall be made in the same manner as interest payments are made.
If the Purchase Date is on or after an interest record date
and on or before the related interest payment date, any accrued and unpaid
interest shall be paid to the Person in whose name a Senior Secured Discount
Note is registered at the close of business on such record date, and no
additional interest shall be payable to Holders who tender Senior Secured
Discount Notes pursuant to the Repurchase Offer.
Upon the commencement of a Repurchase Offer, the Company
shall send, by first class mail, a notice to the Trustee and each of the
Holders, with a copy to the Trustee. The notice shall contain all instructions
and materials necessary to enable such Holders to tender Senior Secured
Discount Notes pursuant to such Repurchase Offer. The Repurchase Offer shall be
made to all Holders. The notice, which shall govern the terms of the Repurchase
Offer, shall describe the transaction or transactions that constitute the
Change of Control or Excess Proceeds Offer Triggering Event, as the case may be
and shall state:
(a) that the Repurchase Offer is being made pursuant to this
Section 3.09 and Section 4.10 or 4.15 hereof, as the case may be, and the
length of time the Repurchase Offer shall remain open;
(b) the Offer Amount, the purchase price and the Purchase
Date;
(c) that any Senior Secured Discount Note not tendered or
accepted for payment shall continue to accrete or accrue interest;
(d) that, unless the Company defaults in making such payment,
any Senior Secured Discount Note accepted for payment pursuant to the
Repurchase Offer shall cease to accrete or accrue interest after the Purchase
Date;
(e) that Holders electing to have a Senior Secured Discount
Note purchased pursuant to a Repurchase Offer may elect to have all or any
portion of such Senior Secured Discount Note purchased;
(f) that Holders electing to have a Senior Secured Discount
Note purchased pursuant to any Repurchase Offer shall be required to surrender
the Senior Secured Discount Note, with the form entitled "Option of Holder to
Elect Purchase" on the reverse of the Senior Secured Discount Note, or such
other customary documents of surrender and transfer as the Company may
reasonably request, duly completed, or transfer by book-entry transfer, to the
Company, the Depositary, or the Paying Agent at the address specified in the
notice at least three days before the Purchase Date;
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(g) that Holders shall be entitled to withdraw their election
if the Company, the Depositary or the Paying Agent, as the case may be,
receives, not later than the expiration of the Offer Period, a telegram, telex,
facsimile transmission or letter setting forth the name of the Holder, the
principal amount of the Senior Secured Discount Note the Holder delivered for
purchase and a statement that such Holder is withdrawing his election to have
such Senior Secured Discount Note purchased;
(h) that, if the aggregate principal amount at maturity or
Accreted Value (as applicable) of Senior Secured Discount Notes surrendered by
Holders exceeds the Offer Amount, the Company shall select the Senior Secured
Discount Notes to be purchased on a pro rata basis (with such adjustments as
may be deemed appropriate by the Company so that only Senior Secured Discount
Notes in denominations of $1,000, or integral multiples thereof, shall be
purchased); and
(i) that Holders whose Senior Secured Discount Notes were
purchased only in part shall be issued new Senior Secured Discount Notes equal
in principal amount to the unpurchased portion of the Senior Secured Discount
Notes surrendered (or transferred by book-entry transfer).
On (or at the Company's election, before) the Purchase Date,
the Company shall, to the extent lawful, accept for payment, on a pro rata
basis to the extent necessary, the Offer Amount of Senior Secured Discount
Notes or portions thereof tendered pursuant to the Repurchase Offer and not
theretofore withdrawn, or if less than the Offer Amount has been tendered, all
Senior Secured Discount Notes tendered, and shall deliver to the Trustee an
Officers' Certificate stating that such Senior Secured Discount Notes or
portions thereof were accepted for payment by the Company in accordance with
the terms of this Section 3.09. The Company, the Depositary or the Paying
Agent, as the case may be, shall promptly (but in any case not later than five
days after the Purchase Date) mail or deliver to each tendering Holder an
amount equal to the purchase price of the Senior Secured Discount Notes
tendered by such Holder and accepted by the Company for purchase, and the
Company shall promptly issue a new Senior Secured Discount Note, and the
Trustee, upon written request from the Company shall authenticate and mail or
deliver such new Senior Secured Discount Note to such Holder, in a principal
amount equal to any unpurchased portion of the Senior Secured Discount Note
surrendered. Any Senior Secured Discount Note not so accepted shall be promptly
mailed or delivered by the Company to the Holder thereof. All Senior Secured
Discount Notes or portions thereof purchased pursuant to the Repurchase Offer
will be canceled by the Trustee. The Company shall publicly announce the
results of the Repurchase Offer on or as soon as practicable after the Purchase
Date, but in no case more than five Business Days after the Purchase Date.
Other than as specifically provided in this Section 3.09, any
purchase pursuant to this Section 3.09 shall be made pursuant to the provisions
of Sections 3.01 through 3.06 hereof.
ARTICLE 4.
COVENANTS
SECTION 4.01. PAYMENT OF SENIOR SECURED DISCOUNT NOTES.
The Company shall pay or cause to be paid the principal of,
interest and premium, if any, on the Senior Secured Discount Notes on the dates
and in the manner provided in the Senior Secured Discount Notes. Principal,
premium, if any, and interest shall be considered paid on the applicable date
due if the Paying Agent, if other than the Company or a Subsidiary thereof,
holds as of 10:00 a.m. Eastern Time on the due date money deposited by the
Company in immediately available funds and designated for and sufficient to pay
all principal, premium, if any, and interest then due. The Company
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shall pay all Liquidated Damages, if any, in the same manner on the dates and
in the amounts set forth in the Registration Rights Agreement.
The Company shall pay interest (including post-petition
interest in any proceeding under any Bankruptcy Law) on overdue principal at
the rate equal to 2% per annum in excess of the then applicable interest rate
on the Senior Secured Discount Notes to the extent lawful; it shall pay
interest (including post-petition interest in any proceeding under any
Bankruptcy Law) on overdue installments of interest and Liquidated Damages or
any other premiums, if any, at the same rate to the extent lawful.
SECTION 4.02. MAINTENANCE OF OFFICE OR AGENCY.
The Company shall maintain an office or agency (which may be
an office of the Trustee or an affiliate of the Trustee, Registrar or
co-registrar) where Senior Secured Discount Notes may be surrendered for
registration of transfer or for exchange and where notices and demands to or
upon the Company in respect of the Senior Secured Discount Notes and this
Indenture may be served. The Company shall give prompt written notice to the
Trustee of the location, and any change in the location, of such office or
agency. If at any time the Company shall fail to maintain any such required
office or agency or shall fail to furnish the Trustee with the address thereof,
such presentations, surrenders, notices and demands may be made or served at
the Corporate Trust Office of the Trustee.
The Company may also from time to time designate one or more
other offices or agencies where the Senior Secured Discount Notes may be
presented or surrendered for any or all such purposes and may from time to time
rescind such designations; provided, however, that no such designation or
rescission shall in any manner relieve the Company of its obligation to
maintain an office or agency for such purposes. The Company shall give prompt
written notice to the Trustee of any such designation or rescission and of any
change in the location of any such other office or agency.
The Company hereby designates the Corporate Trust Office of
the Trustee as one such office or agency of the Company in accordance with
Section 2.03.
SECTION 4.03. REPORTS.
(a) Whether or not required by the rules and regulations of
the Commission, so long as any Senior Secured Discount Notes are outstanding,
the Company shall furnish to the Holders of Senior Secured Discount Notes (i)
all quarterly and annual financial information that would be required to be
contained in a filing with the Commission on Forms 10-Q and 10-K if the Company
were required to file such Forms, including a "Management's Discussion and
Analysis of Financial Condition and Results of Operations" that describes the
financial condition and results of operations of the Company and its
consolidated Subsidiaries (showing in reasonable detail, either on the face of
the financial statements or in the footnotes thereto and in "Management's
Discussion and Analysis of Financial Condition and Results of Operations," the
financial condition and results of operations of the Company and its Restricted
Subsidiaries separate from the financial condition and results of operations of
the Unrestricted Subsidiaries of the Company ) and, with respect to the annual
information only, a report thereon by the Company's certified independent
accountants and (ii) all current reports that would be required to be filed
with the Commission on Form 8-K if the Company were required to file such
reports, in each case within the time periods
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specified in the Commission's rules and regulations. In addition, following the
consummation of the exchange offer contemplated by the Registration Rights
Agreement, whether or not required by the rules and regulations of the
Commission, the Company shall file a copy of all such information and reports
with the Commission for public availability within the time periods specified
in the Commission's rules and regulations (unless the Commission will not
accept such a filing) and make such information available to securities
analysts and prospective investors upon request.
(b) For so long as any Senior Secured Discount Notes remain
outstanding, the Company shall furnish to the Holders and to securities
analysts and prospective investors, upon their request, the information
required to be delivered pursuant to Rule 144A(d)(4) under the Securities Act.
SECTION 4.04. COMPLIANCE CERTIFICATE.
(a) The Company shall deliver to the Trustee, within 90 days
after the end of each fiscal year, an Officers' Certificate stating that a
review of the activities of the Company and its Subsidiaries during the
preceding fiscal year has been made under the supervision of the signing
Officers with a view to determining whether the Company has kept, observed,
performed and fulfilled its obligations under this Indenture and the Collateral
Documents, and further stating, as to each such Officer signing such
certificate, whether to the best of his or her knowledge the Company has kept,
observed, performed and fulfilled each and every covenant contained in this
Indenture and the Collateral Documents and whether any Default or Event of
Default shall have occurred under this Indenture or the Collateral Documents
(and, if a Default or Event of Default shall have occurred, describing all such
Defaults or Events of Default of which he or she may have knowledge and what
action the Company is taking or proposes to take with respect thereto) and that
to the best of his or her knowledge no event has occurred and remains in
existence by reason of which payments on account of the principal of, premiums,
if any, interest, or Liquidated Damages, if any, on the Senior Secured Discount
Notes is prohibited or if such event has occurred, a description of the event
and what action the Company is taking or proposes to take with respect thereto.
(b) So long as not contrary to the then current
recommendations of the American Institute of Certified Public Accountants, the
year-end financial statements delivered pursuant to Section 4.03(a) above shall
be accompanied by a written statement of the Company's independent public
accountants (who shall be a firm of established national reputation) that in
making the examination necessary for certification of such financial
statements, nothing has come to their attention that would lead them to believe
that the Company has violated any provisions of Article Four or Article Five
hereof or, if any such violation has occurred, specifying the nature and period
of existence thereof, it being understood that such accountants shall not be
liable directly or indirectly to any Person for any failure to obtain knowledge
of any such violation.
(c) The Company shall, so long as any of the Senior Secured
Discount Notes are outstanding, deliver to the Trustee, forthwith upon any
Officer becoming aware of any Default or Event of Default, an Officers'
Certificate specifying such Default or Event of Default and what action the
Company is taking or proposes to take with respect thereto.
SECTION 4.05. TAXES.
The Company shall pay, and shall cause each of its
Subsidiaries to pay, prior to delinquency, all material taxes, assessments, and
governmental levies except such as are contested in good faith and by
appropriate proceedings.
SECTION 4.06. STAY, EXTENSION AND USURY LAWS.
The Company covenants (to the extent that it may lawfully do
so) that it shall not at any time insist upon, plead, or in any manner
whatsoever claim or take the benefit or advantage of, any stay,
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extension or usury law wherever enacted, now or at any time hereafter in force,
that may affect the covenants or the performance of this Indenture; and the
Company (to the extent that it may lawfully do so) hereby expressly waives all
benefit or advantage of any such law, and covenants that it shall not, by
resort to any such law, hinder, delay or impede the execution of any power
herein granted to the Trustee, but shall suffer and permit the execution of
every such power as though no such law has been enacted.
SECTION 4.07. RESTRICTED PAYMENTS.
The Company shall not, and shall not permit any of its
Restricted Subsidiaries to, directly or indirectly: (i) declare or pay any
dividend or make any other payment or distribution on account of the Company's
or any of its Restricted Subsidiaries' Equity Interests (including, without
limitation, any payment in connection with any merger or consolidation
involving the Company or any of its Restricted Subsidiaries) or to the direct
or indirect holders of the Company's or any of its Restricted Subsidiaries'
Equity Interests in their capacity as such (other than dividends or
distributions payable in Equity Interests (other than Disqualified Stock) of
the Company or to the Company or any Restricted Subsidiary of the Company);
(ii) purchase, redeem or otherwise acquire or retire for value (including,
without limitation, in connection with any merger or consolidation involving
the Company) any Equity Interests of the Company or any direct or indirect
parent of the Company or other Affiliate of the Company (other than any such
Equity Interests owned by the Company or any Restricted Subsidiary of the
Company); (iii) make any principal payment on or with respect to, or purchase,
redeem, defease or otherwise acquire or retire for value any Indebtedness that
is subordinated to the Senior Secured Discount Notes, except a payment of
principal at Stated Maturity; or (iv) make any Restricted Investment (all such
payments and other actions set forth in clauses (i) through (iv) above being
collectively referred to as "Restricted Payments"), unless, at the time of and
after giving effect to such Restricted Payment:
(a) no Default or Event of Default shall have
occurred and be continuing or would occur as a consequence thereof;
and
(b) the Company would, at the time of such
Restricted Payment and after giving pro forma effect thereto as if
such Restricted Payment had been made at the beginning of the
applicable four-quarter period, have been permitted to incur at least
$1.00 of additional Indebtedness pursuant to the Fixed Charge Coverage
Ratio test set forth in the first paragraph of Section 4.09 hereof;
and
(c) such Restricted Payment, together with the
aggregate amount of all other Restricted Payments made by the Company
and its Restricted Subsidiaries after the date of this Indenture
(excluding Restricted Payments permitted by clauses (ii), (iii) and
(iv) of the next succeeding paragraph), is less than the sum, without
duplication, of (i) 50% of the Consolidated Net Income of the Company
for the period (taken as one accounting period) from the beginning of
the first fiscal quarter commencing after the date of this Indenture
to the end of the Company's most recently ended fiscal quarter for
which internal financial statements are available at the time of such
Restricted Payment (or, if such Consolidated Net Income for such
period is a deficit, less 100% of such deficit), plus (ii) 100% of the
aggregate net cash proceeds received by the Company since the date of
this Indenture as a contribution to its common equity capital or from
the issue or sale of Equity Interests of the Company (other than
Disqualified Stock) or from the issue or sale of Disqualified Stock or
debt securities of the Company that have been converted into such
Equity Interests (other than Equity Interests (or Disqualified Stock
or convertible debt securities) sold to a Restricted Subsidiary of the
Company), plus (iii) to the extent that any Restricted Investment that
was made after the date of this Indenture is sold for cash or
otherwise
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liquidated or repaid for cash, 100% of the net cash proceeds thereof
(less the cost of disposition, if any), but only to the extent not
included in subclause (i) of this clause (c).
The foregoing provisions shall not prohibit (i) the payments
and applications of the proceeds to be received by the Company from the
issuance of the Units as described under the caption "Use of Proceeds" of the
Offering Memorandum (ii) the payment of any dividend within 60 days after the
date of declaration thereof, if at said date of declaration such payment would
have complied with the provisions of this Indenture; (iii) the redemption,
repurchase, retirement, defeasance or other acquisition of any Equity Interests
of the Company in exchange for, or out of the net cash proceeds of the
substantially concurrent sale (other than to a Restricted Subsidiary of the
Company) of, other Equity Interests of the Company (other than any Disqualified
Stock); provided that the amount of any such net cash proceeds that are
utilized for any such redemption, repurchase, retirement, defeasance or other
acquisition shall be excluded from clause (c) of the preceding paragraph; (iv)
the defeasance, redemption, repurchase or other acquisition of subordinated
Indebtedness with the net cash proceeds from an incurrence of Permitted
Refinancing Indebtedness or the substantially concurrent sale (other than to a
Restricted Subsidiary of the Company) of Equity Interests of the Company (other
than Disqualified Stock); provided that the amount of any such net cash
proceeds that are utilized for any such defeasance, redemption or repurchase
shall be excluded from clause (c) of the preceding paragraph; (v) the payment
of any dividend by a Restricted Subsidiary of the Company to the holders of its
Equity Interests on a pro rata basis; and (vi) so long as no Default or Event
of Default shall have occurred and be continuing immediately after such
transaction, the repurchase, redemption or other acquisition or retirement for
value of any Equity Interests of the Company or any Restricted Subsidiary of
the Company held by any member of the Company's (or any of its Restricted
Subsidiaries') management; provided that the aggregate price paid for all such
repurchased, redeemed, acquired or retired Equity Interests shall not exceed
$1.0 million in any twelve-month period plus the aggregate cash proceeds
received by the Company (or any of its Restricted Subsidiaries) during any such
twelve-month period from any issuance of Equity Interests by the Company (or
any of its Restricted Subsidiaries) to members of management of the Company (or
any of its Restricted Subsidiaries) (provided that such proceeds are excluded
from clause (c) of the preceding paragraph; and provided, further, that such
repurchase, redemption or other acquisition or retirement may not include any
Equity Interests owned, directly or indirectly, but the Principals.
The Board of Directors may designate any Restricted
Subsidiary to be an Unrestricted Subsidiary if such designation would not cause
a Default. For purposes of making such determination, all outstanding
Investments by the Company and its Restricted Subsidiaries (except to the
extent repaid in cash) in the Subsidiary so designated shall be deemed to be
Restricted Payments at the time of such designation and shall reduce the amount
available for Restricted Payments under the first paragraph of this Section.
All such outstanding Investments shall be deemed to constitute Investments in
an amount equal to the greatest of (i) the net book value of such Investments
at the time of such designation, (ii) the fair market value of such Investments
at the time of such designation and (iii) the original fair market value of
such Investments at the time they were made. Such designation shall only be
permitted if such Restricted Payment would be permitted at such time and if
such Restricted Subsidiary otherwise meets the definition of an Unrestricted
Subsidiary.
The amount of all Restricted Payments (other than cash) shall
be the fair market value on the date of the Restricted Payment of the asset(s)
or securities proposed to be transferred or issued by the Company or such
Restricted Subsidiary, as the case may be, pursuant to the Restricted Payment.
The fair market value of any non-cash Restricted Payment shall be determined by
the Board of Directors whose resolution with respect thereto shall be delivered
to the Trustee, such determination to be based upon an
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opinion or appraisal issued by an accounting, appraisal or investment banking
firm of national standing if such fair market value exceeds $1.0 million. Not
later than the date of making any Restricted Payment, the Company shall deliver
to the Trustee an Officers' Certificate stating that such Restricted Payment is
permitted and setting forth the basis upon which the calculations required by
this Section 4.07 were computed, together with a copy of any fairness opinion
or appraisal required by this Indenture.
SECTION 4.08. DIVIDEND AND OTHER PAYMENT RESTRICTIONS AFFECTING SUBSIDIARIES.
The Company shall not, and shall not permit any of its
Restricted Subsidiaries to, directly or indirectly, create or otherwise cause
or suffer to exist or become effective any encumbrance or restriction on the
ability of any Restricted Subsidiary to (i)(a) pay dividends or make any other
distributions to the Company or any of its Restricted Subsidiaries (1) on its
Capital Stock or (2) with respect to any other interest or participation in, or
measured by, its profits, or (b) pay any indebtedness owed to the Company or
any of its Restricted Subsidiaries, (ii) make loans or advances to the Company
or any of its Restricted Subsidiaries or (iii) transfer any of its properties
or assets to the Company or any of its Restricted Subsidiaries. However, the
foregoing restrictions shall not apply to encumbrances or restrictions existing
under or by reason of (a) Existing Indebtedness as in effect on the date of
this Indenture and any amendments, modifications, restatements, renewals,
increases, supplements, refundings, replacements or refinancings thereof,
provided that such amendments, modifications, restatements, renewals,
increases, supplements, refundings, replacement or refinancings are no more
restrictive, with respect to such dividend and other payment restrictions than
those as in effect on the date of this Indenture, (b) this Indenture and the
Senior Secured Discount Notes, (c) applicable law, (d) any instrument governing
Indebtedness or Capital Stock of a Person acquired by the Company or any of its
Restricted Subsidiaries as in effect at the time of such acquisition (except to
the extent such Indebtedness was incurred in connection with or in
contemplation of such acquisition), which encumbrance or restriction is not
applicable to any Person, or the properties or assets of any Person, other than
the Person, or the property or assets of the Person, so acquired, provided
that, in the case of Indebtedness, such Indebtedness was permitted by the terms
of this Indenture to be incurred, (e) customary non-assignment provisions in
leases entered into in the ordinary course of business and consistent with past
practices, (f) purchase money obligations for property acquired in the ordinary
course of business that impose restrictions of the nature described in clause
(iii) above on the property so acquired, (g) restrictions relating to a
Restricted Subsidiary formed for the sole purpose of engaging in accounts
receivable financing, (h) any agreement for the sale of a Restricted Subsidiary
that restricts distributions by that Restricted Subsidiary pending its sale,
(i) Permitted Refinancing Indebtedness, provided that the restrictions
contained in the agreements governing such Permitted Refinancing Indebtedness
are no more restrictive, taken as a whole, than those contained in the
agreements governing the Indebtedness being refinanced and (j) secured
Indebtedness otherwise permitted to be incurred pursuant to the provisions of
Section 4.12 that limits the right of the debtor to dispose of the assets
securing such Indebtedness.
SECTION 4.09. INCURRENCE OF INDEBTEDNESS AND ISSUANCE OF PREFERRED STOCK.
The Company shall not, and shall not permit any of its
Restricted Subsidiaries to, directly or indirectly, create, incur, issue,
assume, guarantee or otherwise become directly or indirectly liable,
contingently or otherwise, with respect to (collectively, "incur") any
Indebtedness (including Acquired Debt) and the Company shall not permit any of
its Restricted Subsidiaries to issue any shares of preferred stock; provided,
however, that so long as no Default or Event of Default has occurred or is
continuing, the Company and its Restricted Subsidiaries may incur Indebtedness
(including Acquired Debt) if the Fixed Charge Coverage Ratio for the Company's
most recently ended four full fiscal quarters for which internal financial
statements are available immediately preceding the date on which such
additional Indebtedness is incurred would have been at least 1.75 to 1, if such
additional Indebtedness is
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incurred prior to March 15, 2000, or at least 2.0 to 1, if such additional
Indebtedness is incurred on or after March 15, 2000, in each case, determined
on a pro forma basis (including a pro forma application of the net proceeds
therefrom), as if the additional Indebtedness had been incurred at the
beginning of such four-quarter period.
The Company shall not incur any Indebtedness that is
contractually subordinated in right of payment to any other Indebtedness of the
Company unless such Indebtedness is also contractually subordinated in right of
payment to the Senior Secured Discount Notes on substantially identical terms;
provided, however, that no Indebtedness of the Company shall be deemed to be
contractually subordinated in right of payment to any other Indebtedness of the
Company solely by virtue of being unsecured.
The provisions of the first paragraph of this covenant shall
not apply to the incurrence of any of the following items of Indebtedness
(collectively, "Permitted Debt"):
(i) the incurrence by the Company and its Restricted
Subsidiaries of Indebtedness from a bank or other financial institution in an
aggregate principal amount not to exceed $200.0 million at any one time
outstanding, less any Net Proceeds of Asset Sales applied to permanently reduce
any such Indebtedness pursuant to Section 4.10 hereof;
(ii) the incurrence by the Company and its Restricted
Subsidiaries of the Existing Indebtedness, other than pursuant to the Fonda
Credit Facility or the Sweetheart Credit Facilities;
(iii) the incurrence by the Company of Indebtedness
represented by the Senior Secured Discount Notes and this Indenture;
(iv) the incurrence by the Company or any of its Restricted
Subsidiaries of Indebtedness represented by Capital Lease Obligations, mortgage
financings or purchase money obligations, in each case incurred for the purpose
of financing all or any part of the purchase price or cost of construction or
improvement of property, plant or equipment used in the business of the Company
or such Restricted Subsidiary, in an aggregate principal amount not to exceed
$5.0 million at any time outstanding;
(v) the incurrence by the Company or any of its Restricted
Subsidiaries of Indebtedness in connection with the acquisition of assets or a
new Restricted Subsidiary; provided that such Indebtedness was incurred by the
prior owner of such assets or such Restricted Subsidiary prior to such
acquisition by the Company or one of its Restricted Subsidiaries and was not
incurred in connection with, or in contemplation of, such acquisition by the
Company or one of its Restricted Subsidiaries; and provided further that the
principal amount (or accreted value, as applicable) of such Indebtedness,
together with any other outstanding Indebtedness incurred pursuant to this
clause (v) and any Permitted Refinancing Indebtedness incurred to refund,
refinance or replace any Indebtedness incurred pursuant to this clause (v),
does not exceed $5.0 million;
(vi) the incurrence by the Company or any of its Restricted
Subsidiaries of Permitted Refinancing Indebtedness in exchange for, or the net
proceeds of which are used to refund, refinance or replace Indebtedness (other
than intercompany Indebtedness) that was permitted by this Indenture to be
incurred under the first paragraph hereof or clauses (ii), (iii), (iv) or (v)
of this paragraph;
(vii) the incurrence by the Company or any of its Restricted
Subsidiaries of intercompany Indebtedness between or among the Company and any
of its Restricted Subsidiaries;
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provided, however, that (a) any subsequent issuance or transfer of Equity
Interests that results in any such Indebtedness being held by a Person other
than the Company or a Restricted Subsidiary thereof and (b) any sale or other
transfer of any such Indebtedness to a Person that is not either the Company or
a Restricted Subsidiary thereof shall be deemed, in each case, to constitute an
incurrence of such Indebtedness by the Company or such Restricted Subsidiary,
as the case may be, that was not permitted by this clause (vii);
(viii) the incurrence by the Company or any of its Restricted
Subsidiaries of Hedging Obligations that are incurred for the purpose of fixing
or hedging interest rate risk with respect to any floating rate Indebtedness
that is permitted by the terms of this Indenture to be outstanding; and
(ix) the incurrence by the Company or any of its Restricted
Subsidiaries of additional Indebtedness in an aggregate principal amount (or
accreted value, as applicable) not to exceed $25.0 million at any one time
outstanding.
For purposes of determining compliance with this covenant, in
the event that an item of Indebtedness meets the criteria of more than one of
the categories of Permitted Debt described in clauses (i) through (ix) above or
is entitled to be incurred pursuant to the first paragraph of this covenant,
the Company shall, in its sole discretion, classify such item of Indebtedness
in any manner that complies with this covenant. Accrual of interest, accretion
or amortization of original issue discount, and the payment of interest on any
Indebtedness in the form of additional Indebtedness with the same terms shall
not be deemed to be an incurrence of Indebtedness for purposes of this Section;
provided, in each such case, that the amount thereof is included in Fixed
Charges of the Company as accrued.
SECTION 4.10. ASSET SALES AND EVENTS OF LOSS.
The Company shall not, and shall not permit any of its
Restricted Subsidiaries to, consummate an Asset Sale unless (i) the Company (or
the Restricted Subsidiary, as the case may be) receives consideration at the
time of such Asset Sale at least equal to the fair market value (evidenced by a
resolution of the Board of Directors set forth in an Officers' Certificate
delivered to the Trustee) of the assets or Equity Interests issued or sold or
otherwise disposed of and (ii) at least 75% of the consideration therefor
received by the Company or such Restricted Subsidiary is in the form of cash;
provided that the amount of (x) any liabilities (as shown on the Company's or
such Restricted Subsidiary's most recent balance sheet), of the Company or any
Restricted Subsidiary (other than contingent liabilities and liabilities that
are by their terms subordinated to the Senior Secured Discount Notes) that are
assumed by the transferee of any such assets pursuant to a customary novation
agreement that releases the Company or such Restricted Subsidiary from further
liability and (y) any securities, notes or other obligations received by the
Company or any such Restricted Subsidiary from such transferee that are
contemporaneously (subject to ordinary settlement periods) converted by the
Company or such Restricted Subsidiary into cash (to the extent of the cash
received), shall be deemed to be cash for purposes of this provision.
Within 365 days after the Company's or any Restricted
Subsidiary's receipt of any Net Proceeds from an Asset Sale, the Company or
such Restricted Subsidiary may apply such Net Proceeds (a) to permanently repay
Indebtedness of a Restricted Subsidiary of the Company (and, in the case of
revolving borrowings, to correspondingly reduce commitments with respect
thereto), or (b) to the acquisition of a majority of the assets of, or a
majority of the Voting Stock of, another Permitted Business, the making of a
capital expenditure or the acquisition of other long-term assets that are used
or useful in a Permitted Business. Pending the final application of any such
Net Proceeds, the Company may temporarily reduce revolving credit borrowings or
otherwise invest such Net Proceeds in any
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manner that is not prohibited by this Indenture. Any Net Proceeds from Asset
Sales that are not applied or invested as provided in the first sentence of
this paragraph shall be deemed to constitute "Excess Proceeds." When the
aggregate amount of Excess Proceeds exceeds $10.0 million (an "Excess Proceeds
Offer Triggering Event"), the Company shall be required to make an offer to all
Holders of Senior Secured Discount Notes (an "Asset Sale Offer") to purchase
the maximum principal amount of Senior Secured Discount Notes that may be
purchased out of the Excess Proceeds, at an offer price in cash in an amount
equal to 100% of the aggregate principal amount thereof, plus accrued and
unpaid interest and Liquidated Damages thereon, if any, to the date of purchase
(or, in the case of purchases of Senior Secured Discount Notes prior to March
15, 2003, at a purchase price equal to 100% of the Accreted Value thereof, plus
Liquidated Damages thereon, if any), in accordance with the procedures set
forth in this Indenture; provided however, that such offer will not be required
if the application of such Excess Proceeds to repurchase Senior Secured
Discount Notes would cause an Event of Default under the Subsidiary Debt
Instruments. If the aggregate purchase price of Senior Secured Discount Notes
tendered into such Asset Sale Offer by Holders thereof is less than the amount
of Excess Proceeds, the Company may use such Excess Proceeds for general
corporate purposes (subject to the restrictions of this Indenture). If the
aggregate purchase price of Senior Secured Discount Notes tendered into such
Asset Sale Offer by Holders thereof exceeds the amount of Excess Proceeds, the
Trustee shall select the Senior Secured Discount Notes to be purchased on a pro
rata basis. Upon completion of such Asset Sale Offer, the amount of Excess
Proceeds shall be reset at zero.
SECTION 4.11. TRANSACTIONS WITH AFFILIATES.
The Company shall not, and shall not permit any of its
Restricted Subsidiaries to, make any payment to, or sell, lease, transfer or
otherwise dispose of any of its properties or assets to, or purchase any
property or assets from, or enter into or make or amend any transaction,
contract, agreement, understanding, loan, advance or guarantee with, or for the
benefit of, any Affiliate (each of the foregoing, an "Affiliate Transaction"),
unless (i) such Affiliate Transaction is on terms that are no less favorable to
the Company or the relevant Restricted Subsidiary than those that would have
been obtained in a comparable transaction by the Company or such Restricted
Subsidiary with an unrelated Person and (ii) the Company delivers to the
Trustee (a) with respect to any Affiliate Transaction or series of related
Affiliate Transactions involving aggregate consideration in excess of $1.0
million, a resolution of the Board of Directors set forth in an Officers'
Certificate certifying that such Affiliate Transaction complies with clause (i)
above and that such Affiliate Transaction has been approved by a majority of
the disinterested members of the Board of Directors and (b) with respect to any
Affiliate Transaction or series of related Affiliate Transactions involving
aggregate consideration in excess of $5.0 million, an opinion as to the
fairness to the Holders of such Affiliate Transaction from a financial point of
view issued by an accounting, appraisal or investment banking firm of national
standing with total assets in excess of $1.0 billion, except with respect to
transactions in the ordinary course of business and consistent with past
practice between the Company or any of its Restricted Subsidiaries and Four M,
CEG or any of their respective subsidiaries; provided that the following shall
not be deemed to be Affiliate Transactions: (1) the Indenture of Lease dated as
of January 1, 1995, between Dennis Mehiel and Fonda relating to the
Jacksonville Facility except for any purchases of property by Fonda that may
arise thereunder; (2) any employment agreement entered into by the Company or
any of its Restricted Subsidiaries in the ordinary course of business and
consistent with the past practice of the Company or such Restricted Subsidiary
in an amount not to exceed $1.0 million per annum; (3) transactions between or
among the Company and its Restricted Subsidiaries; (4) Restricted Payments and
Permitted Investments that are permitted by Section 4.07 hereof; and (5)
transactions entered into in connection with the Transactions.
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SECTION 4.12. LIENS.
The Company shall not, and shall not permit any of its
Restricted Subsidiaries to, directly or indirectly, create, incur, assume or
suffer to exist any Lien on any asset now owned or hereafter acquired, or any
income or profits therefrom or assign or convey any right to receive income
therefrom, except Permitted Liens.
SECTION 4.13. LINE OF BUSINESS.
The Company shall not, and shall not permit any Subsidiary
to, engage in any business other than Permitted Businesses, except to such
extent as would not be material to the Company and its Restricted Subsidiaries
taken as a whole.
SECTION 4.14. CORPORATE EXISTENCE.
Subject to Article 5 hereof, the Company shall do or cause to
be done all things necessary to preserve and keep in full force and effect (i)
its corporate existence, and the corporate, partnership or other existence of
each of its Restricted Subsidiaries, in accordance with the respective
organizational documents (as the same may be amended from time to time) of the
Company or any such Restricted Subsidiary and (ii) the rights (charter and
statutory), licenses and franchises of the Company and its Restricted
Subsidiaries; provided, however, that the Company shall not be required to
preserve any such right, license or franchise, or the corporate, partnership or
other existence of any of its Restricted Subsidiaries, if the Board of
Directors shall determine that the preservation thereof is no longer desirable
in the conduct of the business of the Company and its Restricted Subsidiaries,
taken as a whole, and that the loss thereof is not adverse in any material
respect to the Holders of the Senior Secured Discount Notes.
SECTION 4.15. OFFER TO REPURCHASE UPON CHANGE OF CONTROL.
(a) Upon the occurrence of a Change of Control, the Company
shall be required to make an offer to each Holder of Senior Secured Discount
Notes to repurchase all or any part (equal to $1,000 or an integral multiple
thereof) of such Holder's Senior Secured Discount Notes pursuant to the offer
described below (the "Change of Control Offer") at an offer price in cash equal
to 101% of the aggregate principal amount thereof, plus accrued and unpaid
interest and Liquidated Damages thereon, if any, to the date of purchase (or,
in the case of repurchases of Senior Secured Discount Notes prior to March 15,
2003, at a purchase price equal to 101% of the Accreted Value thereof, plus
Liquidated Damages thereon, if any, as of the date of repurchase) (the "Change
of Control Payment"). Within ten days following any Change of Control, the
Company shall mail a notice to each Holder describing the transaction or
transactions that constitute the Change of Control and offering to repurchase
Senior Secured Discount Notes on the date specified in such notice, which date
shall be no earlier than 30 days and no later than 60 days from the date such
notice is mailed (the "Change of Control Payment Date"), pursuant to the
procedures required by this Indenture and described in such notice. The Company
shall comply with the requirements of Rule 14e-1 under the Exchange Act and any
other securities laws and regulations thereunder to the extent such laws and
regulations are applicable in connection with the repurchase of the Senior
Secured Discount Notes as a result of a Change of Control.
(b) On the Change of Control Payment Date, the Company shall,
to the extent lawful, (1) accept for payment all Senior Secured Discount Notes
or portions thereof properly tendered pursuant to the Change of Control Offer,
(2) deposit with the Paying Agent an amount equal to the Change of Control
Payment in respect of all Senior Secured Discount Notes or portions thereof so
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tendered and (3) deliver or cause to be delivered to the Trustee the Senior
Secured Discount Notes so accepted together with an Officers' Certificate
stating the aggregate principal amount at maturity of Senior Secured Discount
Notes or portions thereof being purchased by the Company. The Paying Agent
shall promptly mail to each Holder of Senior Secured Discount Notes so tendered
the Change of Control Payment for such Senior Secured Discount Notes, and the
Trustee shall promptly authenticate and mail (or cause to be transferred by
book entry) to each Holder a new Senior Secured Discount Note equal in
principal amount at maturity to any unpurchased portion of the Senior Secured
Discount Notes surrendered, if any; provided that each such new Senior Secured
Discount Note shall be in a principal amount at maturity of $1,000 or an
integral multiple thereof. The Company shall publicly announce the results of
the Change of Control Offer on or as soon as practicable after the Change of
Control Payment Date.
(c) Notwithstanding the foregoing, the Company shall not be
required to make a Change of Control Offer upon a Change of Control if a third
party makes the Change of Control Offer in the manner, at the times and
otherwise in compliance with the requirements set forth in this Indenture
applicable to a Change of Control Offer made by the Company and purchases all
Senior Secured Discount Notes validly tendered and not withdrawn under such
Change of Control Offer.
SECTION 4.16. LIMITATIONS ON ISSUANCES AND SALES OF CAPITAL STOCK IN WHOLLY
OWNED RESTRICTED SUBSIDIARIES.
The Company (i) shall not, and shall not permit any Wholly
Owned Restricted Subsidiary of the Company to, transfer, convey, sell, lease or
otherwise dispose of any Capital Stock in any Wholly Owned Restricted
Subsidiary of the Company to any Person (other than the Company or a Wholly
Owned Restricted Subsidiary of the Company), unless (a) such transfer,
conveyance, sale, lease or other disposition is of all the Capital Stock in
such Wholly Owned Restricted Subsidiary and (b) the cash Net Proceeds from such
transfer, conveyance, sale, lease or other disposition are applied in
accordance with Section 4.10 hereof, and (ii) shall not permit any Wholly Owned
Restricted Subsidiary of the Company to issue any of its Equity Interests
(other than, if necessary, shares of its Capital Stock constituting directors'
qualifying shares) to any Person other than to the Company or a Wholly Owned
Restricted Subsidiary of the Company.
SECTION 4.17. LIMITATION ON ISSUANCES OF GUARANTEES OF INDEBTEDNESS.
The Company shall not permit any Restricted Subsidiary,
directly or indirectly, to Guarantee or pledge any assets to secure the payment
of any other Indebtedness of the Company , other than any such Indebtedness
incurred pursuant to clauses (i) and (ii) of the definition of Permitted Debt,
unless such Restricted Subsidiary simultaneously executes and delivers a
supplemental indenture to this Indenture providing for the Guarantee of the
payment of the Senior Secured Discount Notes by such Restricted Subsidiary,
which Guarantee shall be senior to or pari passu with such Restricted
Subsidiary's Guarantee of or pledge to secure such other Indebtedness.
Notwithstanding the foregoing, any such Guarantee by a Restricted Subsidiary of
the Senior Secured Discount Notes shall provide by its terms that it shall be
automatically and unconditionally released and discharged upon any sale,
exchange or transfer, to any Person not an Affiliate of the Company, of all of
the Company's stock in, or all or substantially all the assets of, such
Restricted Subsidiary, which sale, exchange or transfer is made in compliance
with the applicable provisions of this Indenture.
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SECTION 4.18. PAYMENTS FOR CONSENT.
Neither the Company nor any of its Restricted Subsidiaries
shall, directly or indirectly, pay or cause to be paid any consideration,
whether by way of interest, fee or otherwise, to any Holder of any Senior
Secured Discount Notes for or as an inducement to any consent, waiver or
amendment of any of the terms or provisions of this Indenture or the Senior
Secured Discount Notes unless such consideration is offered to be paid or is
paid to all Holders of the Senior Secured Discount Notes that consent, waive or
agree to amend in the time frame set forth in the solicitation documents
relating to such consent, waiver or agreement.
ARTICLE 5.
SUCCESSORS
SECTION 5.01. MERGER, CONSOLIDATION, OR SALE OF ASSETS.
The Company may not consolidate or merge with or into
(whether or not the Company is the surviving entity), or sell, assign,
transfer, lease, convey or otherwise dispose of all or substantially all of its
properties or assets in one or more related transactions, to another
corporation, Person or entity unless (i) the Company is the surviving
corporation or the entity or the Person formed by or surviving any such
consolidation or merger (if other than the Company) or to which such sale,
assignment, transfer, lease, conveyance or other disposition shall have been
made is a corporation organized or existing under the laws of the United
States, any state thereof or the District of Columbia; (ii) the entity or
Person formed by or surviving any such consolidation or merger (if other than
the Company) or the entity or Person to which such sale, assignment, transfer,
lease, conveyance or other disposition shall have been made assumes all the
obligations of the Company under the Registration Rights Agreement, the Senior
Secured Discount Notes, the Pledge Agreement and this Indenture pursuant to
supplemental agreements in a form reasonably satisfactory to the Trustee; (iii)
immediately after such transaction no Default or Event of Default exists; and
(iv) except in the case of a merger of the Company with or into a Wholly Owned
Restricted Subsidiary of the Company, the Company or the entity or Person
formed by or surviving any such consolidation or merger (if other than the
Company), or to which such sale, assignment, transfer, lease, conveyance or
other disposition shall have been made (A) shall have Consolidated Net Worth
immediately after the transaction equal to or greater than the Consolidated Net
Worth of the Company immediately preceding the transaction and (B) shall, at
the time of such transaction and after giving pro forma effect thereto as if
such transaction had occurred at the beginning of the applicable four-quarter
period, be permitted to incur at least $1.00 of additional Indebtedness
pursuant to the Fixed Charge Coverage Ratio test set forth in the first
paragraph of Section 4.09.
SECTION 5.02. SUCCESSOR CORPORATION SUBSTITUTED.
Upon any consolidation or merger, or any sale, assignment,
transfer, lease, conveyance or other disposition of all or substantially all of
the assets of the Company in accordance with Section 5.01 hereof, the successor
corporation formed by such consolidation or into or with which the Company is
merged or to which such sale, assignment, transfer, lease, conveyance or other
disposition is made shall succeed to, and be substituted for (so that from and
after the date of such consolidation, merger, sale, lease, conveyance or other
disposition, the provisions of this Indenture referring to the "Company" shall
refer instead to the successor corporation and not to the Company), and may
exercise every right and power of the Company under this Indenture with the
same effect as if such successor Person had been named as the Company herein;
provided, however, that the predecessor Company shall not be relieved from the
obligation to pay the principal of and interest on the Senior Secured Discount
Notes
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except in the case of a sale of all of the Company's assets that meets the
requirements of Section 5.01 hereof.
ARTICLE 6.
DEFAULTS AND REMEDIES
SECTION 6.01. EVENTS OF DEFAULT.
Each of the following constitutes an "Event of Default":
(a) default for 30 days in the payment when due of interest
on the Senior Secured Discount Notes;
(b) default in payment when due of the principal of or
premium, or Liquidated Damages, if any, on the Senior Secured Discount Notes;
(c) failure by the Company or any of its Subsidiaries to
comply with the provisions described under Sections 4.07, 4.09, 4.10, 4.15 and
5.01 hereof;
(d) failure by the Company or any of its Subsidiaries for 30
days after notice to comply with any of its other agreements in this Indenture,
the Senior Secured Discount Notes or the Pledge Agreement;
(e) default under any mortgage, indenture or instrument under
which there may be issued or by which there may be secured or evidenced any
Indebtedness for money borrowed by the Company or any of its Restricted
Subsidiaries (or the payment of which is guaranteed by the Company or any of
its Restricted Subsidiaries) whether such Indebtedness or guarantee now exists,
or is created after the date of this Indenture, which default (a) is caused by
a failure to pay principal of or premium, if any, or interest on such
Indebtedness prior to the expiration of the grace period provided in such
Indebtedness on the date of such default (a "Payment Default") or (b) results
in the acceleration of such Indebtedness prior to its express maturity and, in
each case, the principal amount of any such Indebtedness, together with the
principal amount of any other such Indebtedness under which there has been a
Payment Default or the maturity of which has been so accelerated, aggregates
$5.0 million or more;
(f) failure by the Company or any of its Restricted
Subsidiaries to pay final judgments aggregating in excess of $5.0 million and
either (a) any creditor commences enforcement proceedings upon any such
judgments or (b) such judgments are not paid, discharged or stayed for a period
of 45 days;
(g) breach by the Company of any material representation or
warranty set forth in the Pledge Agreement, or default by the Company in the
performance of any material covenant set forth in the Pledge Agreement, or
repudiation by the Company of its material obligations under the Pledge
Agreement or the unenforceability of the Pledge Agreement against the Company
for any reason;
(h) the Company or any of its Significant Subsidiaries or any
group of Subsidiaries that, taken as a whole, would constitute a Significant
Subsidiary pursuant to or within the meaning of Bankruptcy Law:
(i) commences a voluntary case,
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(ii) consents to the entry of an order for relief
against it in an involuntary case,
(iii) consents to the appointment of a custodian
of it or for all or substantially all of its property,
(iv) makes a general assignment for the benefit of
its creditors, or
(v) generally is not paying its debts as they become
due; or
(i) a court of competent jurisdiction enters an order or
decree under any Bankruptcy Law that:
(i) is for relief against the Company or any of its
Significant Subsidiaries or any group of Subsidiaries that, taken as a whole,
would constitute a Significant Subsidiary in an involuntary case,
(ii) appoints a custodian of the Company or any of
its Significant Subsidiaries or any group of Subsidiaries that, taken as a
whole, would constitute a Significant Subsidiary or for all or substantially
all of the property of the Company or any of its Significant Subsidiaries or
any group of Subsidiaries that, taken as a whole, would constitute a
Significant Subsidiary, or
(iii) orders the liquidation of the Company or any
of its Significant Subsidiaries or any group of Subsidiaries that, taken as a
whole, would constitute a Significant Subsidiary,
and the order or decree remains unstayed and in effect for
60 consecutive days.
SECTION 6.02. ACCELERATION.
If any Event of Default occurs and is continuing, the Trustee
or the Holders of at least 25% in principal amount at maturity of the then
outstanding Senior Secured Discount Notes may declare all the Senior Secured
Discount Notes to be due and payable immediately. Notwithstanding the
foregoing, in the case of an Event of Default arising from certain events of
bankruptcy or insolvency, with respect to the Company, any Significant
Subsidiary or any group of Subsidiaries that, taken together, would constitute
a Significant Subsidiary, all outstanding Senior Secured Discount Notes will
become due and payable without further action or notice. Upon any acceleration
of maturity of the Senior Secured Discount Notes, all principal of and accrued
interest on and Liquidated Damages, if any (if on or after March 15, 2003) or
Accreted Value and Liquidated Damages, if any (if prior to March 15, 2003), of
the Senior Secured Discount Notes shall be due and payable immediately. Holders
of the Senior Secured Discount Notes may not enforce this Indenture or the
Senior Secured Discount Notes except as provided in this Indenture. Subject to
certain limitations, Holders of a majority in principal amount at maturity of
the then outstanding Senior Secured Discount Notes may direct the Trustee in
its exercise of any trust or power. The Trustee may withhold from Holders of
the Senior Secured Discount Notes notice of any continuing Default or Event of
Default (except a Default or Event of Default relating to the payment of
principal or interest) if it determines that withholding notice is in their
interest.
In the case of any Event of Default occurring by reason of
any willful action (or inaction) taken (or not taken) by or on behalf of the
Company with the intention of avoiding payment of
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the premium that the Company would have had to pay if the Company then had
elected to redeem the Senior Secured Discount Notes pursuant to the optional
redemption provisions of this Indenture, an equivalent premium shall also
become and be immediately due and payable to the extent permitted by law upon
the acceleration of the Senior Secured Discount Notes. If an Event of Default
occurs prior to March 15, 2003 by reason of any willful action (or inaction)
taken (or not taken) by or on behalf of the Company with the intention of
avoiding the prohibition on redemption of the Senior Secured Discount Notes
prior to March 15, 2003, then the premium specified herein shall also become
immediately due and payable to the extent permitted by law upon the
acceleration of the Senior Secured Discount Notes.
Year Percentage
---- ----------
1998.......................... 117.000%
1999.......................... 114.875%
2000.......................... 112.750%
2001.......................... 110.625%
2002.......................... 108.500%
SECTION 6.03. OTHER REMEDIES.
If an Event of Default occurs and is continuing, the Trustee
may pursue any available remedy to collect the payment of principal of,
interest on, premiums, or Liquidated Damages, if any, on the Senior Secured
Discount Notes or to enforce the performance of any provision of the Senior
Secured Discount Notes, this Indenture or any Collateral Document.
The Trustee may maintain a proceeding even if it does not
possess any of the Senior Secured Discount Notes or does not produce any of
them in the proceeding. A delay or omission by the Trustee or any Holder of a
Senior Secured Discount Note in exercising any right or remedy accruing upon an
Event of Default shall not impair the right or remedy or constitute a waiver of
or acquiescence in the Event of Default. All remedies are cumulative to the
extent permitted by law.
SECTION 6.04. WAIVER OF PAST DEFAULTS.
Holders of a majority in aggregate principal amount at
maturity of the Senior Secured Discount Notes then outstanding by notice to the
Trustee (and without notice to any other Holders) may on behalf of the Holders
of all of the Senior Secured Discount Notes waive an existing Default or Event
of Default and its consequences hereunder, except a continuing Default or Event
of Default in the payment of the principal of, premiums, if any, or interest
on, the Senior Secured Discount Notes (including in connection with an offer to
purchase) (provided, however, that the Holders of a majority in aggregate
principal amount of the then outstanding Senior Secured Discount Notes may
rescind an acceleration and its consequences, including any related payment
default that resulted from such acceleration). Upon any such waiver, such
Default shall cease to exist, and any Event of Default arising therefrom shall
be deemed to have been cured for every purpose of this Indenture; but no such
waiver shall extend to any subsequent or other Default or impair any right
consequent thereon.
SECTION 6.05. CONTROL BY MAJORITY.
Holders of a majority in principal amount at maturity of the
then outstanding Senior Secured Discount Notes shall have the right to direct
the time, method and place of conducting any proceeding for exercising any
remedy available to the Trustee or exercising any trust or power conferred on
it, subject to certain exceptions. However, the Trustee may refuse to follow
any direction that
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conflicts with law or this Indenture that the Trustee determines may be unduly
prejudicial to the rights of other Holders of Senior Secured Discount Notes or
that may involve the Trustee in personal liability.
SECTION 6.06. LIMITATION ON SUITS.
A Holder of a Senior Secured Discount Note may pursue a
remedy with respect to this Indenture or the Senior Secured Discount Notes only
if:
(a) the Holder of a Senior Secured Discount Note gives to the
Trustee written notice of a continuing Event of Default;
(b) the Holders of at least 25% in aggregate principal amount
at maturity of the then outstanding Senior Secured Discount Notes make a
written request to the Trustee to pursue the remedy;
(c) such Holder of a Senior Secured Discount Note or Holders
of Senior Secured Discount Notes offer and, if requested, provide to the
Trustee indemnity satisfactory to the Trustee against any loss, liability or
expense;
(d) the Trustee does not comply with the request within 60
days after receipt of the request and the offer and, if requested, the
provision of indemnity; and
(e) during such 60-day period the Holders of a majority in
aggregate principal amount at maturity of the then outstanding Senior Secured
Discount Notes do not give the Trustee a direction inconsistent with the
request.
A Holder of a Senior Secured Discount Note may not use this
Indenture to prejudice the rights of another Holder of a Senior Secured
Discount Note or to obtain a preference or priority over another Holder of a
Senior Secured Discount Note.
SECTION 6.07. RIGHTS OF HOLDERS OF SENIOR SECURED DISCOUNT NOTES TO RECEIVE
PAYMENT.
Notwithstanding any other provision of this Indenture, but
subject to the provisions of Sections 6.04 and 6.06, the right of any Holder of
a Senior Secured Discount Note to receive payment of principal, premium, if
any, interest or Liquidated Damages, if any, on the Senior Secured Discount
Note, on or after the respective due dates expressed in the Senior Secured
Discount Note (including in connection with an offer to purchase), or to bring
suit for the enforcement of any such payment on or after such respective dates,
shall not be impaired or affected without the consent of such Holder.
SECTION 6.08. COLLECTION SUIT BY TRUSTEE.
If an Event of Default specified in Section 6.01(a) or (b)
occurs and is continuing, the Trustee is authorized to recover judgment in its
own name and as trustee of an express trust against the Company for the whole
amount of principal of, premiums, if any, interest or Liquidated Damages, if
any, remaining unpaid on the Senior Secured Discount Notes and interest on
overdue principal and, to the extent lawful, interest and such further amount
as shall be sufficient to cover the costs and expenses of collection, including
the reasonable compensation, expenses, disbursements and advances of the
Trustee, its agents and counsel.
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SECTION 6.09. TRUSTEE MAY FILE PROOFS OF CLAIM.
The Trustee is authorized (a) to file proofs of claim for the
whole amount of the principal of, premium, if any, interest and Liquidated
Damages, if any, on the Senior Secured Discount Notes and to file such proof of
claim and other papers or documents as may be necessary or advisable in order
to have the claims of the Trustee (including any claim for the reasonable
compensation, expenses, disbursements and advances of the Trustee, its agents
and counsel) and the Holders of the Senior Secured Discount Notes allowed in
such judicial proceedings and (b) to collect, receive and distribute any money
or other property payable or deliverable on any such claims and any custodian
in any such judicial proceeding is hereby authorized by each Holder to make
such payments to the Trustee, and in the event that the Trustee shall consent
to the making of such payments directly to the Holders, to pay to the Trustee
any amount due to it for the reasonable compensation, expenses, disbursements
and advances of the Trustee, its agents and counsel, and any other amounts due
the Trustee under Section 7.07 hereof. To the extent that the payment of any
such compensation, expenses, disbursements and advances of the Trustee, its
agents and counsel, and any other amounts due the Trustee under Section 7.07
hereof out of the estate in any such proceeding, shall be denied for any
reason, payment of the same shall be secured by a Lien on, and shall be paid
out of, any and all distributions, dividends, money, securities and other
properties that the Holders may be entitled to receive in such proceeding
whether in liquidation or under any plan of reorganization or arrangement or
otherwise, prior to any payment to such Holder. Nothing herein contained shall
be deemed to authorize the Trustee to authorize or consent to or accept or
adopt on behalf of any Holder any plan of reorganization, arrangement,
adjustment or composition affecting the Senior Secured Discount Notes or the
rights of any Holder, or to authorize the Trustee to vote in respect of the
claim of any Holder in any such proceeding.
SECTION 6.10. PRIORITIES.
If the Trustee collects any money pursuant to this Section
6.10, it shall pay out the money in the following order:
First: to the Trustee, its agents and attorneys for amounts
due under Section 7.07 hereof, including payment of all compensation, expense
and liabilities incurred, and all advances made, by the Trustee and the costs
and expenses of collection;
Second: to Holders of Senior Secured Discount Notes for
amounts due and unpaid on the Senior Secured Discount Notes for principal,
premium, if any, interest and Liquidated Damages, if any, ratably, without
preference or priority of any kind, according to the amounts due and payable on
the Senior Secured Discount Notes for principal, premium, if any, interest and
Liquidated Damages, if any, respectively; and
Third: to the Company or to such party as a court of
competent jurisdiction shall direct.
The Trustee may fix a record date and payment date for any
payment to Holders of Senior Secured Discount Notes pursuant to this Section
6.10.
SECTION 6.11. UNDERTAKING FOR COSTS.
In any suit for the enforcement of any right or remedy under
this Indenture or in any suit against the Trustee for any action taken or
omitted by it as a Trustee, a court in its discretion may require the filing by
any party litigant in
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the suit of an undertaking to pay the costs of the suit, and the court in its
discretion may assess reasonable costs, including reasonable attorneys' fees,
against any party litigant in the suit, having due regard to the merits and
good faith of the claims or defenses made by the party litigant. This Section
does not apply to a suit by the Trustee, a suit by a Holder of a Senior Secured
Discount Note pursuant to Section 6.07 hereof, or a suit by Holders of more
than 10% in principal amount of the then outstanding Senior Secured Discount
Notes.
ARTICLE 7.
TRUSTEE
SECTION 7.01. DUTIES OF TRUSTEE.
(a) If an Event of Default has occurred and is continuing,
the Trustee shall exercise such of the rights and powers vested in it by this
Indenture and the Collateral Documents, and use the same degree of care and
skill in its exercise, as a prudent person would exercise or use under the
circumstances in the conduct of such person's own affairs.
(b) Except during the continuance of an Event of Default:
(i) the duties of the Trustee shall be determined solely by
the express provisions of this Indenture and the Collateral Documents and the
Trustee need perform only those duties that are specifically set forth in this
Indenture and the Collateral Documents and no others, and no implied covenants
or obligations shall be read into this Indenture against the Trustee; and
(ii) in the absence of bad faith on its part, the Trustee may
conclusively rely, as to the truth of the statements and the correctness of the
opinions expressed therein, upon certificates or opinions furnished to the
Trustee and conforming to the requirements of this Indenture and the Collateral
Documents. However, the Trustee shall examine the certificates and opinions to
determine whether or not they conform to the requirements of this Indenture and
the Collateral Documents.
(c) The Trustee may not be relieved from liabilities for its
own negligent action, its own negligent failure to act, or its own willful
misconduct, except that:
(i) this paragraph does not limit the effect of paragraph (b)
of this Section;
(ii) the Trustee shall not be liable for any error of
judgment made in good faith by a Responsible Officer, unless it is proved that
the Trustee was negligent in ascertaining the pertinent facts; and
(iii) the Trustee shall not be liable with respect to any
action it takes or omits to take in good faith in accordance with a direction
received by it pursuant to Section 6.05 hereof.
(d) Whether or not therein expressly so provided, every
provision of this Indenture or any Collateral Document that in any way relates
to the Trustee is subject to paragraphs (a), (b) and (c) of this Section 7.01.
(e) No provision of this Indenture or in any of the
Collateral Documents shall require the Trustee to expend or risk its own funds
or incur any financial liability. The Trustee shall be under no obligation to
exercise any of its rights and powers under this Indenture or the Collateral
Documents at the request of any Holders, unless such Holder shall have offered
to the Trustee security and indemnity satisfactory to it against any loss,
liability or expense. The Trustee is not obligated to
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foreclose on the Collateral, even if indemnity is offered, if this right may
subject the Trustee to personal environmental liability.
(f) The Trustee shall not be liable for interest on any money
received by it except as the Trustee may agree in writing with the Company.
Money held in trust by the Trustee need not be segregated from other funds
except to the extent required by law.
SECTION 7.02. RIGHTS OF TRUSTEE.
(a) Subject to Section 7.01(b)(ii), the Trustee may
conclusively rely upon any document believed by it to be genuine and to have
been signed or presented by the proper Person. The Trustee need not investigate
any fact or matter stated in the document.
(b) Before the Trustee acts or refrains from acting, it may
require an Officers' Certificate or an Opinion of Counsel or both. The Trustee
shall not be liable for any action it takes or omits to take in good faith in
reliance on such Officers' Certificate or Opinion of Counsel. The Trustee may
consult with counsel of its selection and the advice of such counsel or any
Opinion of Counsel shall be full and complete authorization and protection from
liability in respect of any action taken, suffered or omitted by it hereunder
in good faith and in reliance thereon.
(c) The Trustee may act through its attorneys and agents and
shall not be responsible for the misconduct or negligence of any agent
appointed with due care.
(d) The Trustee shall not be liable for any action it takes
or omits to take in good faith that it believes to be authorized or within the
rights or powers conferred upon it by this Indenture or the Collateral
Documents.
(e) Unless otherwise specifically provided in this Indenture
or any Collateral Document, any demand, request, direction or notice from the
Company shall be sufficient if signed by an Officer of the Company.
(f) The Trustee shall be under no obligation to exercise any
of the rights or powers vested in it by this Indenture or any Collateral
Document at the request or direction of any of the Holders unless such Holders
shall have offered to the Trustee reasonable security or indemnity against the
costs, expenses and liabilities that might be incurred by it in compliance with
such request or direction. The Trustee is not obligated to foreclose on the
Collateral, even if indemnity is offered, if this right may subject the Trustee
to personal environmental liability.
SECTION 7.03. INDIVIDUAL RIGHTS OF TRUSTEE.
The Trustee in its individual or any other capacity may
become the owner or pledgee of Senior Secured Discount Notes and may otherwise
deal with the Company or any Affiliate of the Company with the same rights it
would have if it were not Trustee. However, in the event that the Trustee
acquires any conflicting interest it must eliminate such conflict within 90
days, apply to the SEC for permission to continue as trustee or resign. Any
Agent may do the same with like rights and duties. The Trustee is also subject
to Sections 7.10 and 7.11 hereof.
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SECTION 7.04. TRUSTEE'S DISCLAIMER.
The Trustee shall not be responsible for and makes no
representation as to the validity or adequacy of this Indenture, the Senior
Secured Discount Notes or the Collateral Documents, it shall not be accountable
for the Company's use of the proceeds from the Senior Secured Discount Notes or
the use or application of any money paid to the Company or upon the Company's
direction under any provision of this Indenture or any Collateral Document, it
shall not be responsible for the use or application of any money received by
any Paying Agent other than the Trustee, and it shall not be responsible for
any statement or recital herein or any statement in the Senior Secured Discount
Notes or any registration statement for the Senior Secured Discount Notes
(other than statements in any Form T-1 filed with the SEC under the TIA) or in
this Indenture or in the Collateral Documents other than its certificate of
authentication.
SECTION 7.05. NOTICE OF DEFAULTS.
If a Default or Event of Default occurs and is continuing and
if it is known to the Trustee, the Trustee shall mail to Holders of Senior
Secured Discount Notes a notice of the Default or Event of Default within 90
days after it occurs. Except in the case of a Default or Event of Default in
payment of principal of, premium, if any, interest or Liquidated Damages, if
any, on any Senior Secured Discount Note, the Trustee may withhold the notice
if and so long as a committee of its Responsible Officers in good faith
determines that withholding the notice is in the interests of the Holders of
the Senior Secured Discount Notes.
SECTION 7.06. REPORTS BY TRUSTEE TO HOLDERS OF THE SENIOR SECURED DISCOUNT
NOTES.
Within 60 days after each July 31 beginning with the July 31
following the date of this Indenture, and for so long as Senior Secured
Discount Notes remain outstanding, the Trustee shall mail to the Holders of the
Senior Secured Discount Notes a brief report dated as of such reporting date
that complies with TIA ss. 313(a) (but if no event described in TIA ss. 313(a)
has occurred within the twelve months preceding the reporting date, no report
need be transmitted). The Trustee also shall comply with TIA ss. 313(b). The
Trustee shall also transmit by mail all reports as required by TIA ss. 313(c).
A copy of each report at the time of its mailing to the
Holders of Senior Secured Discount Notes shall be mailed to the Company and
filed with the SEC, if accepted, and each stock exchange on which the Senior
Secured Discount Notes are listed in accordance with TIA ss. 313(d). The
Company shall promptly notify the Trustee when the Senior Secured Discount
Notes are listed on any stock exchange.
SECTION 7.07. COMPENSATION AND INDEMNITY.
The Company shall pay to the Trustee from time to time such
compensation for its acceptance of this Indenture and the Collateral Documents
and services in accordance with any provision of this Indenture or any
Collateral Document as the parties shall agree from time to time. The Trustee's
compensation shall not be limited by any law on compensation of a trustee of an
express trust. The Company shall reimburse the Trustee promptly upon request
for all reasonable disbursements, advances and expenses incurred or made by it
in addition to the compensation for its services in accordance with any
provision of this Indenture or any Collateral Document. Such expenses shall
include the reasonable compensation, disbursements and expenses of the
Trustee's agents and counsel.
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The Company shall indemnify the Trustee against any and all
losses, liabilities or expenses incurred by it arising out of or in connection
with the acceptance or administration of its duties under this Indenture and
under the Collateral Documents, including the costs and expenses of enforcing
this Indenture and the Collateral Documents against the Company (including this
Section 7.07) and defending itself against any claim (whether asserted by the
Company or any Holder or any other person) or liability in connection with the
exercise or performance of any of its powers or duties hereunder, except to the
extent any such loss, liability or expense may be attributable to its
negligence or bad faith. The Trustee shall notify the Company promptly of any
claim for which it may seek indemnity. Failure by the Trustee to so notify the
Company shall not relieve the Company of its obligations hereunder. The Company
shall defend the claim and the Trustee shall cooperate in the defense. The
Trustee may have separate counsel and the Company shall pay the reasonable fees
and expenses of such counsel. The Company need not pay for any settlement made
without its consent, which consent shall not be unreasonably withheld.
The obligations of the Company under this Section 7.07 shall
survive the satisfaction and discharge of this Indenture.
To secure the Company's payment obligations in this Section,
the Trustee shall have a Lien prior to the Senior Secured Discount Notes on all
money or property held or collected by the Trustee, except that held in trust
to pay principal and interest on particular Senior Secured Discount Notes. Such
Lien shall survive the satisfaction and discharge of this Indenture.
When the Trustee incurs expenses or renders services after an
Event of Default specified in Section 6.01(i) or (j) hereof occurs, the
expenses and the compensation for the services (including the fees and expenses
of its agents and counsel) are intended to constitute expenses of
administration under any Bankruptcy Law.
The Trustee shall comply with the provisions of TIA ss.
313(b)(2) to the extent applicable.
SECTION 7.08. REPLACEMENT OF TRUSTEE.
A resignation or removal of the Trustee and appointment of a
successor Trustee shall become effective only upon the successor Trustee's
acceptance of appointment as provided in this Section 7.08.
The Trustee may resign in writing at any time and be
discharged from the trust hereby created by so notifying the Company at least
45 days prior to the date of the proposed resignation. The Holders of Senior
Secured Discount Notes of a majority in principal amount of the then
outstanding Senior Secured Discount Notes may remove the Trustee by so
notifying the Trustee and the Company in writing. The Company may remove the
Trustee if:
(a) the Trustee fails to comply with Section 7.10 hereof;
(b) the Trustee is adjudged a bankrupt or an insolvent or an
order for relief is entered with respect to the Trustee under any Bankruptcy
Law;
(c) a custodian, receiver or public officer takes charge of
the Trustee or its property; or
(d) the Trustee otherwise becomes incapable of acting.
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If the Trustee resigns or is removed or if a vacancy exists
in the office of Trustee for any reason, the Company shall promptly appoint a
successor Trustee. Within one year after the successor Trustee takes office,
the Holders of a majority in principal amount of the then outstanding Senior
Secured Discount Notes may appoint a successor Trustee to replace the successor
Trustee appointed by the Company.
If a successor Trustee does not take office within 60 days
after the retiring Trustee resigns or is removed, the retiring Trustee, the
Company, or the Holders of Senior Secured Discount Notes of at least 10% in
principal amount of the then outstanding Senior Secured Discount Notes may
petition any court of competent jurisdiction for the appointment of a successor
Trustee.
If the Trustee, after written request by any Holder of a
Senior Secured Discount Note who has been a Holder of a Senior Secured Discount
Note for at least six months, fails to comply with Section 7.10, such Holder of
a Senior Secured Discount Note may petition any court of competent jurisdiction
for the removal of the Trustee and the appointment of a successor Trustee.
A successor Trustee shall deliver a written acceptance of its
appointment to the retiring Trustee and to the Company. Thereupon, the
resignation or removal of the retiring Trustee shall become effective, and the
successor Trustee shall have all the rights, powers and duties of the Trustee
under this Indenture and the Collateral Documents. The successor Trustee shall
mail a notice of its succession to Holders of the Senior Secured Discount
Notes. The retiring Trustee shall promptly transfer all property held by it as
Trustee to the successor Trustee; provided that all sums owing to the Trustee
hereunder have been paid and subject to the Lien provided for in Section 7.07
hereof. Notwithstanding replacement of the Trustee pursuant to this Section
7.08, the Company's obligations under Section 7.07 hereof shall continue for
the benefit of the retiring Trustee.
SECTION 7.09. SUCCESSOR TRUSTEE BY MERGER, ETC.
If the Trustee consolidates, merges or converts into, or
transfers all or substantially all of its corporate trust business to, another
corporation, the successor corporation without any further act shall be the
successor Trustee.
SECTION 7.10. ELIGIBILITY; DISQUALIFICATION.
There shall at all times be a Trustee hereunder that is a
corporation organized and doing business under the laws of the United States of
America or of any state thereof that is authorized under such laws to exercise
corporate trustee power, that is subject to supervision or examination by
federal or state authorities and that has a combined capital and surplus of at
least $500.0 million as set forth in its most recent published annual report of
condition.
This Indenture shall always have a Trustee who satisfies the
requirements of TIA ss. 310(a)(1), (2) and (5). The Trustee shall comply with
TIA ss. 310(b).
SECTION 7.11. PREFERENTIAL COLLECTION OF CLAIMS AGAINST THE COMPANY.
The Trustee shall comply with TIA ss. 311(a), excluding any
creditor relationship listed in TIA ss. 311(b). A Trustee who has resigned or
been removed shall be subject to TIA ss. 311(a) to the extent indicated
therein.
ARTICLE 8.
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LEGAL DEFEASANCE AND COVENANT DEFEASANCE
SECTION 8.01. OPTION TO EFFECT LEGAL DEFEASANCE OR COVENANT DEFEASANCE.
The Company may, at the option of its Board of Directors
evidenced by a resolution set forth in an Officers' Certificate, at any time,
elect to have either Section 8.02 or 8.03 hereof be applied to all outstanding
Senior Secured Discount Notes upon compliance with the conditions set forth
below in this Article Eight.
SECTION 8.02. LEGAL DEFEASANCE AND DISCHARGE.
Upon the Company's exercise under Section 8.01 hereof of the
option applicable to this Section 8.02, the Company shall, subject to the
satisfaction of the conditions set forth in Section 8.04 hereof, be deemed to
have been discharged from its obligations with respect to all outstanding
Senior Secured Discount Notes, and any Collateral Documents to which it is a
party, on the date the conditions set forth below are satisfied (hereinafter,
"Legal Defeasance"). For this purpose, Legal Defeasance means that the Company
shall be deemed to have paid and discharged the entire indebtedness represented
by the outstanding Senior Secured Discount Notes, which shall thereafter be
deemed to be "outstanding" only for the purposes of Section 8.05 hereof and the
other Sections of this Indenture referred to in (a) and (b) below, and to have
satisfied all its other obligations under such Senior Secured Discount Notes
and this Indenture (and the Trustee, on demand of and at the expense of the
Company, shall execute proper instruments acknowledging the same), except for
the following provisions which shall survive until otherwise terminated or
discharged hereunder: (a) the rights of Holders of outstanding Senior Secured
Discount Notes to receive payments in respect of the principal amount at
maturity or Accreted Value (as applicable) of, and premium, if any, interest
and Liquidated Damages, if any, on such Senior Secured Discount Notes when such
payments are due from the trust described in Section 8.04 hereof, as more fully
set forth in such Section, (b) the Company's obligations with respect to the
Senior Secured Discount Notes concerning issuing temporary Senior Secured
Discount Notes, registration of Senior Secured Discount Notes, mutilated,
destroyed, lost or stolen Senior Secured Discount Notes and the maintenance of
an office or agency for payment and money for security payments held in trust,
(c) the rights, powers, trusts, duties and immunities of the Trustee, and the
Company's obligations in connection therewith and (d) this Article Eight.
Subject to compliance with this Article Eight, the Company may exercise its
option under this Section 8.02 notwithstanding the prior exercise of its option
under Section 8.03 hereof.
SECTION 8.03. COVENANT DEFEASANCE.
Upon the Company's exercise under Section 8.01 hereof of the
option applicable to this Section 8.03, the Company shall, subject to the
satisfaction of the conditions set forth in Section 8.04 hereof, be released
from its obligations under the covenants contained in Sections 4.07, 4.08,
4.09, 4.10, 4.11, 4.12, 4.13, 4.15, 4.16, 4.17, 5.01 and 5.02 hereof with
respect to the outstanding Senior Secured Discount Notes on and after the date
the conditions set forth below are satisfied (hereinafter, "Covenant
Defeasance"), and the Senior Secured Discount Notes shall thereafter be deemed
not "outstanding" for the purposes of any direction, waiver, consent or
declaration or act of Holders (and the consequences of any thereof) in
connection with such covenants, but shall continue to be deemed "outstanding"
for all other purposes hereunder (it being understood that such Senior Secured
Discount Notes shall not be deemed outstanding for accounting purposes). For
this purpose, Covenant Defeasance means that, with respect to the outstanding
Senior Secured Discount Notes, the Company may omit to comply with and shall
have no liability in respect of any term, condition or limitation set forth in
any such covenant, whether directly or indirectly, by reason of any reference
elsewhere herein to any such covenant or by
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reason of any reference in any such covenant to any other provision herein or
in any other document and such omission to comply shall not constitute a
Default or an Event of Default under Section 6.01 hereof, but, except as
specified above, the remainder of this Indenture and such Senior Secured
Discount Notes shall be unaffected thereby. In addition, upon the Company's
exercise under Section 8.01 hereof of the option applicable to this Section
8.03 hereof, subject to the satisfaction of the conditions set forth in Section
8.04 hereof and Sections 6.01(c) through 6.01(h) shall not constitute Events of
Default.
SECTION 8.04. CONDITIONS TO LEGAL OR COVENANT DEFEASANCE.
The following shall be the conditions to the application of
either Section 8.02 or 8.03 hereof to the outstanding Senior Secured Discount
Notes:
In order to exercise either Legal Defeasance or Covenant
Defeasance:
(i) the Company must irrevocably deposit with the Trustee, in
trust, for the benefit of the Holders of the Senior Secured Discount Notes,
cash in U.S. dollars, non-callable Government Securities, or a combination
thereof, in such amounts as will be sufficient, in the opinion of a nationally
recognized firm of independent public accountants, to pay the principal amount
at maturity of or Accreted Value (as applicable), premium, if any, interest and
Liquidated Damages, if any, on the outstanding Senior Secured Discount Notes on
the stated maturity or on the applicable redemption date, as the case may be,
and the Company must specify whether the Senior Secured Discount Notes are
being defeased to maturity or to a particular redemption date;
(ii) in the case of Legal Defeasance, the Company shall have
delivered to the Trustee an opinion of counsel in the United States reasonably
acceptable to the Trustee confirming that (A) the Company has received from, or
there has been published by, the Internal Revenue Service a ruling or (B) since
the date of this Indenture, there has been a change in the applicable federal
income tax law, in either case to the effect that, and based thereon such
opinion of counsel shall confirm that, the Holders of the outstanding Senior
Secured Discount Notes will not recognize income, gain or loss for federal
income tax purposes as a result of such Legal Defeasance and will be subject to
federal income tax on the same amounts, in the same manner and at the same
times as would have been the case if such Legal Defeasance had not occurred;
(iii) in the case of Covenant Defeasance, the Company shall
have delivered to the Trustee an opinion of counsel in the United States
reasonably acceptable to the Trustee confirming that the Holders of the
outstanding Senior Secured Discount Notes will not recognize income, gain or
loss for federal income tax purposes as a result of such Covenant Defeasance
and will be subject to federal income tax on the same amounts, in the same
manner and at the same times as would have been the case if such Covenant
Defeasance had not occurred;
(iv) no Default or Event of Default shall have occurred and
be continuing on the date of such deposit (other than a Default or Event of
Default resulting from the borrowing of funds to be applied to such deposit) or
insofar as Events of Default from bankruptcy or insolvency events are
concerned, at any time in the period ending on the 91st day after the date of
deposit;
(v) such Legal Defeasance or Covenant Defeasance will not
result in a breach or violation of, or constitute a default under any material
agreement or instrument (other than this Indenture) to which the Company or any
of its Subsidiaries is a party or by which the Company or any of its
Subsidiaries is bound;
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(vi) the Company must have delivered to the Trustee an
opinion of counsel to the effect that after the 91st day following the deposit,
the trust funds will not be subject to the effect of any applicable bankruptcy,
insolvency, reorganization or similar laws affecting creditors' rights
generally;
(vii) the Company must deliver to the Trustee an Officers'
Certificate stating that the deposit was not made by the Company with the
intent of preferring the Holders of Senior Secured Discount Notes over the
other creditors of the Company with the intent of defeating, hindering,
delaying or defrauding creditors of the Company or others; and
(viii) the Company must deliver to the Trustee an Officers'
Certificate and an opinion of counsel, each stating that all conditions
precedent provided for relating to the Legal Defeasance or the Covenant
Defeasance have been complied with.
SECTION 8.05. DEPOSITED MONEY AND GOVERNMENT SECURITIES TO BE HELD IN
TRUST; OTHER MISCELLANEOUS PROVISIONS.
Subject to Section 8.06 hereof, all money and non-callable
Government Securities (including the proceeds thereof) deposited with the
Trustee (or other qualifying trustee, collectively for purposes of this Section
8.05, the "Trustee") pursuant to Section 8.04 hereof in respect of the
outstanding Senior Secured Discount Notes shall be held in trust and applied by
the Trustee, in accordance with the provisions of such Senior Secured Discount
Notes and this Indenture, to the payment, either directly or through any Paying
Agent (including the Company acting as Paying Agent) as the Trustee may
determine, to the Holders of such Senior Secured Discount Notes of all sums due
and to become due thereon in respect of principal, premium, if any, interest
and Liquidated Damages, if any, but such money need not be segregated from
other funds except to the extent required by law.
The Company shall pay and indemnify the Trustee against any
tax, fee or other charge imposed on or assessed against the cash or
non-callable Government Securities deposited pursuant to Section 8.04 hereof or
the principal and interest received in respect thereof other than any such tax,
fee or other charge which by law is for the account of the Holders of the
outstanding Senior Secured Discount Notes.
Anything in this Article Eight to the contrary
notwithstanding, the Trustee shall deliver or pay to the Company from time to
time upon the request of the Company any money or non-callable Government
Securities held by it as provided in Section 8.04 hereof which, in the opinion
of a nationally recognized firm of independent public accountants expressed in
a written certification thereof delivered to the Trustee (which may be the
opinion delivered under Section 8.04(a) hereof), are in excess of the amount
thereof that would then be required to be deposited to effect an equivalent
Legal Defeasance or Covenant Defeasance.
SECTION 8.06. REPAYMENT TO COMPANY.
Any money deposited with the Trustee or any Paying Agent, or
then held by the Company, in trust for the payment of the principal of,
premiums, if any, interest on, and Liquidated Damages on, if any, any Senior
Secured Discount Note and remaining unclaimed for two years after such
principal, premiums, if any, interest, and Liquidated Damages, if any, has
become due and payable shall be paid to the Company on its request or (if then
held by the Company) shall be discharged from such trust; and the Holder of
such Senior Secured Discount Note shall thereafter, as a secured creditor, look
only to the Company for payment thereof, and all liability of the Trustee or
such Paying Agent with respect to such trust money, and all liability of the
Company as trustee thereof, shall thereupon cease;
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provided, however, that the Trustee or such Paying Agent, before being required
to make any such repayment, may at the expense of the Company cause to be
published once, in the New York Times and The Wall Street Journal (national
edition), notice that such money remains unclaimed and that, after a date
specified therein, which shall not be less than 30 days from the date of such
notification or publication, any unclaimed balance of such money then remaining
will be repaid to the Company.
SECTION 8.07. REINSTATEMENT.
If the Trustee or Paying Agent is unable to apply any United
States dollars or non-callable Government Securities in accordance with Section
8.02 or 8.03 hereof, as the case may be, by reason of any order or judgment of
any court or governmental authority enjoining, restraining or otherwise
prohibiting such application, then the Company's obligations under this
Indenture and the Senior Secured Discount Notes shall be revived and reinstated
as though no deposit had occurred pursuant to Section 8.02 or 8.03 hereof until
such time as the Trustee or Paying Agent is permitted to apply all such money
in accordance with Section 8.02 or 8.03 hereof, as the case may be; provided,
however, that, if the Company makes any payment of principal of, premium, if
any, or interest on any Senior Secured Discount Note following the
reinstatement of its obligations, the Company shall be subrogated to the rights
of the Holders of such Senior Secured Discount Notes to receive such payment
from the money held by the Trustee or Paying Agent.
SECTION 8.08. SENIOR SECURED DISCOUNT NOTE COLLATERAL.
Upon the Company's exercise under Section 8.01 hereof of the
option applicable to either Section 8.02 or 8.03 hereof, the Collateral, except
the funds in the trust funds described in Section 8.04 hereof, shall be
released pursuant to Section 10.03 hereof.
ARTICLE 9.
AMENDMENT, SUPPLEMENT AND WAIVER
SECTION 9.01. WITHOUT CONSENT OF HOLDERS OF SENIOR SECURED DISCOUNT NOTES.
Notwithstanding Section 9.02 hereof, the Company and the
Trustee may amend or supplement this Indenture, the Senior Secured Discount
Notes or the Collateral Documents without the consent of any Holder of a Senior
Secured Discount Note:
(a) to cure any ambiguity, defect or inconsistency,
(b) to provide for uncertificated Senior Secured Discount
Notes in addition to or in place of certificated Senior Secured Discount Notes,
(c) to provide for the assumption of the Company's
obligations to Holders of Senior Secured Discount Notes in the case of a merger
or consolidation or sale of all or substantially all of the Company's assets,
(d) to make any change that would provide any additional
rights or benefits to the Holders of Senior Secured Discount Notes or that does
not adversely affect the legal rights under this Indenture of any such Holder,
or
(e) to comply with requirements of the Commission in order to
effect or maintain the qualification of this Indenture under the Trust
Indenture Act.
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Upon the request of the Company accompanied by a resolution
of its Board of Directors authorizing the execution of any such amended or
supplemental Indenture, and upon receipt by the Trustee of the documents
described in Section 9.06 hereof, the Trustee shall join with the Company in
the execution of any amended or supplemental Indenture authorized or permitted
by the terms of this Indenture and to make any further appropriate agreements
and stipulations that may be therein contained, but the Trustee shall not be
obligated to enter into such amended or supplemental Indenture that affects its
own rights, duties or immunities under this Indenture or otherwise.
SECTION 9.02. WITH CONSENT OF HOLDERS OF SENIOR SECURED DISCOUNT NOTES.
Except as provided below in this Section 9.02, the Company
and the Trustee may amend or supplement this Indenture and the Collateral
Documents and the Senior Secured Discount Notes may be amended or supplemented
with the consent of the Holders of at least a majority in principal amount at
maturity of the Senior Secured Discount Notes then outstanding (including,
without limitation, consents obtained in connection with a purchase of, or
tender offer or exchange offer for the Senior Secured Discount Notes), and,
subject to Sections 6.04 and 6.07 hereof, any existing Default or Event of
Default (other than a Default or Event of Default in the payment of the
principal of, premiums on, if any, interest on, or Liquidated Damages on, if
any, the Senior Secured Discount Notes, except a payment default resulting from
an acceleration that has been rescinded) or compliance with any provision of
this Indenture, the Senior Secured Discount Notes or the Collateral Documents
may be waived with the consent of the Holders of a majority in principal amount
at maturity of the then outstanding Senior Secured Discount Notes (including,
without limitation, consents obtained in connection with a purchase of, or
tender offer or exchange offer for the Senior Secured Discount Notes).
Upon the request of the Company accompanied by a resolution
of its Board of Directors authorizing the execution of any such amended or
supplemental Indenture, and upon the filing with the Trustee of evidence
satisfactory to the Trustee of the consent of the Holders of Senior Secured
Discount Notes as aforesaid, and upon receipt by the Trustee of the documents
described in Section 9.06 hereof, the Trustee shall join with the Company in
the execution of such amended or supplemental Indenture unless such amended or
supplemental Indenture affects the Trustee's own rights, duties or immunities
under this Indenture or otherwise, in which case the Trustee may in its
discretion, but shall not be obligated to, enter into such amended or
supplemental Indenture.
It shall not be necessary for the consent of the Holders of
Senior Secured Discount Notes under this Section 9.02 to approve the particular
form of any proposed amendment or waiver, but it shall be sufficient if such
consent approves the substance thereof.
After an amendment, supplement or waiver under this Section
9.02 becomes effective, the Company shall mail to the Holders of Senior Secured
Discount Notes affected thereby a notice briefly describing the amendment,
supplement or waiver. Any failure of the Company to mail such notice, or any
defect therein, shall not, however, in any way impair or affect the validity of
any such amended or supplemental Indenture or waiver. Subject to Sections 6.04
and 6.07 hereof, the Holders of a majority in aggregate principal amount at
maturity of the Senior Secured Discount Notes then outstanding may waive
compliance in a particular instance by the Company with any provision of this
Indenture or the Senior Secured Discount Notes. However, without the consent of
each Holder affected, an amendment or waiver may not (with respect to any
Senior Secured Discount Notes held by a non-consenting Holder):
(i) reduce the principal amount of Senior Secured Discount
Notes whose Holders must consent to an amendment, supplement or waiver,
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(ii) reduce the principal amount at maturity of, change the
fixed maturity of, alter the provisions with respect to the redemption of the
Senior Secured Discount Notes (other than provisions relating to Sections 4.10
and 4.15 hereof) or amend or modify the calculation of Accreted Value so as to
reduce the amount of the Accreted Value of the Senior Secured Discount Notes,
(iii) reduce the rate of or change the time for payment of
interest on any Senior Secured Discount Note,
(iv) waive a Default or Event of Default in the payment of
principal of or premium, if any, or interest on the Senior Secured Discount
Notes (except a rescission of acceleration of the Senior Secured Discount Notes
by the Holders of at least a majority in aggregate principal amount at maturity
of the Senior Secured Discount Notes and a waiver of the payment default that
resulted from such acceleration),
(v) make any Senior Secured Discount Note payable in money
other than that stated in the Senior Secured Discount Notes,
(vi) make any change in the provisions of this Indenture
relating to waivers of past Defaults or the rights of Holders of Senior Secured
Discount Notes to receive payments of principal of or premium, if any, or
interest on the Senior Secured Discount Notes,
(vii) waive a redemption or repurchase payment with respect
to any Senior Secured Discount Note (other than a payment required by Sections
4.10 and 4.15 hereof),
(viii) make any change in the foregoing amendment and waiver
provisions or
(ix) modify any provision of this Indenture with respect to
the priority of the Senior Secured Discount Notes in right of payment.
Notwithstanding the foregoing, any amendment or waiver to Section 4.15 hereof
will require the consent of the Holders of at least two-thirds in aggregate
principal amount at maturity of the Senior Secured Discount Notes then
outstanding if such amendment would adversely affect the rights of Holders of
the Senior Secured Discount Notes.
SECTION 9.03. COMPLIANCE WITH TRUST INDENTURE ACT.
Every amendment or supplement to this Indenture or the Senior
Secured Discount Notes shall be set forth in an amended or supplemental
Indenture that complies with the TIA as then in effect. SECTION 9.04.
REVOCATION AND EFFECT OF CONSENTS.
Until an amendment, supplement or waiver becomes effective, a
consent to it by a Holder of a Senior Secured Discount Note is a continuing
consent by the Holder of a Senior Secured Discount Note and every subsequent
Holder of a Senior Secured Discount Note or portion of a Senior Secured
Discount Note that evidences the same debt as the consenting Holder's Senior
Secured Discount Note, even if notation of the consent is not made on any
Senior Secured Discount Note. However, any such Holder of a Senior Secured
Discount Note or subsequent Holder of a Senior Secured Discount Note may revoke
the consent as to its Senior Secured Discount Note if the Trustee receives
written notice of revocation before the date the waiver, supplement or
amendment becomes effective. An amendment, supplement or waiver becomes
effective in accordance with its terms and thereafter binds every Holder.
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SECTION 9.05. NOTATION ON OR EXCHANGE OF SENIOR SECURED DISCOUNT NOTES.
The Trustee may place an appropriate notation about an
amendment, supplement or waiver on any Senior Secured Discount Note thereafter
authenticated. The Company in exchange for all Senior Secured Discount Notes
may issue and the Trustee shall authenticate new Senior Secured Discount Notes
that reflect the amendment, supplement or waiver.
Failure to make the appropriate notation or issue a new
Senior Secured Discount Note shall not affect the validity and effect of such
amendment, supplement or waiver.
SECTION 9.06. TRUSTEE TO SIGN AMENDMENTS, ETC.
The Trustee shall sign any amended or supplemental Indenture
authorized pursuant to this Article Nine if the amendment or supplement does
not adversely affect the rights, duties, liabilities or immunities of the
Trustee. The Company may not sign an amendment or supplemental Indenture until
the Board of Directors approves it. In executing any amended or supplemental
indenture, the Trustee shall be entitled to receive and (subject to Section
7.01) shall be fully protected in relying upon, an Officer's Certificate and an
Opinion of Counsel stating that the execution of such amended or supplemental
indenture is authorized or permitted by this Indenture.
ARTICLE 10.
COLLATERAL AND SECURITY
SECTION 10.01. COLLATERAL DOCUMENTS.
The due and punctual payment of the principal of, premiums
on, if any, interest on, or Liquidated Damages on, if any, the Senior Secured
Discount Notes when and as the same shall be due and payable, whether on an
interest payment date, at maturity, by acceleration, repurchase, redemption or
otherwise, and interest on the overdue principal of, premiums on, if any,
interest on and Liquidated Damages on, if any (to the extent permitted by law),
on the Senior Secured Discount Notes and performance of all other obligations
of the Company to the Holders of Senior Secured Discount Notes or the Trustee
under this Indenture and the Senior Secured Discount Notes, according to the
terms hereunder or thereunder, shall be secured as provided in the Collateral
Documents which the Company has entered into simultaneously with the execution
of this Indenture and any Collateral Documents to be entered into subsequent to
the date of this Indenture pursuant to the terms hereof. Each Holder of Senior
Secured Discount Notes, by its acceptance thereof, consents and agrees to the
terms of each Collateral Document (including, without limitation, the
provisions providing for foreclosure and release of Collateral) as the same may
be in effect or may be amended from time to time in accordance with its terms
and authorizes and directs the Trustee, as agent for the ratable benefit of the
Holders to enter into the Collateral Documents and to perform its obligations
and exercise its rights thereunder in accordance therewith. The Company shall
do or cause to be done all such acts and things as may be reasonably necessary
or proper, or as may be required by the provisions of the Collateral Documents,
to assure and confirm to the Trustee the security interest in the Collateral
contemplated hereby, by the Collateral Documents or any part thereof, as from
time to time constituted, so as to render the same available for the security
and benefit of this Indenture and of the Senior Secured Discount Notes secured
hereby, according to the intent and purposes herein expressed. The Company
shall take, or shall cause its Subsidiaries to take, upon request of the
Trustee, any and all actions reasonably required to cause the Collateral
Documents to create and maintain, as security for the Obligations of the
Company under this Indenture, the Senior Secured Discount Notes and the
Collateral Documents and the Obligations of the Subsidiaries under the
Collateral Documents, a valid and enforceable perfected first priority Lien in
and
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on all the Collateral, in favor of the Collateral Agent for the benefit of the
Holders of Senior Secured Discount Notes, superior to and prior to the rights
of all third Persons and subject to no other Liens than Permitted Liens
permitted by the applicable Collateral Document.
SECTION 10.02. RECORDING AND OPINIONS.
(a) The Company shall furnish to the Trustee simultaneously
with the execution and delivery of this Indenture an Opinion of Counsel either
(i) stating that in the opinion of such counsel all action has been taken with
respect to the recording, registering and filing of this Indenture, financing
statements or other instruments necessary to make effective the Lien intended
to be created by this Indenture and the Collateral Documents, and reciting with
respect to the security interests in the Collateral, the details of such
action, or (ii) stating that, in the opinion of such counsel, no such action is
necessary to make such Lien effective.
(b) The Company shall furnish to the Trustee on June 1 in
each year beginning with June 1, 1998, an Opinion of Counsel, dated as of such
date, either (i) (A) stating that, in the opinion of such counsel, action has
been taken with respect to the recording, registering, filing, re-recording,
re-registering and refiling of all supplemental indentures, financing
statements, continuation statements or other instruments of further assurance
as is necessary to maintain the Lien of this Indenture and the Collateral
Documents and reciting with respect to the security interests in the Collateral
the details of such action or referring to prior Opinions of Counsel in which
such details are given, (B) stating that, based on relevant laws as in effect
on the date of such Opinion of Counsel, all financing statements and
continuation statements have been executed and filed that are necessary as of
such date and during the succeeding 12 months fully to preserve and protect, to
the extent such protection and preservation are possible by filing, the rights
of the Holders of Senior Secured Discount Notes and the Trustee hereunder and
under the Collateral Documents with respect to the security interests in the
Collateral, or (ii) stating that, in the opinion of such counsel, no such
action is necessary to maintain such Lien and assignment.
(c) The Company shall otherwise comply with the provisions of
TIA ss. 314(b).
SECTION 10.03. RELEASE OF COLLATERAL.
(a) Subject to subsections (b), (c) and (d) of this Section
10.03, Collateral may be released from the Lien and security interest created
by the Collateral Documents at any time or from time to time in accordance with
the provisions of the Collateral Documents or as provided hereby. In addition,
upon the request of the Company pursuant to an Officers' Certificate certifying
that all conditions precedent hereunder have been met and stating whether or
not such release is in connection with an Asset Sale, the Collateral Agent
shall, at the sole cost and expense of the Company, release (i) Collateral that
is sold, conveyed or disposed of in compliance with the provisions of this
Indenture; provided, that if such sale, conveyance or disposition constitutes
an Asset Sale, the Company shall comply with Sections 4.10 and 10.11 hereof.
Upon receipt of such Officers' Certificate, the Collateral Agent shall execute,
deliver or acknowledge any necessary or proper instruments of termination,
satisfaction or release to evidence the release of any Collateral permitted to
be released pursuant to this Indenture or the Collateral Documents.
(b) No Collateral shall be released from the Lien and
security interest created by the Collateral Documents pursuant to the
provisions of the Collateral Documents unless there shall have been delivered
to the Collateral Agent the certificate required by this Section 10.03.
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(c) At any time when a Payment Default or a Bankruptcy
Default (as such terms are defined in the Pledge Agreement) or an Event of
Default shall have occurred and be continuing, no release of Collateral
pursuant to the provisions of the Collateral Documents shall be effective as
against the Holders of Senior Secured Discount Notes.
(d) The release of any Collateral from the terms of this
Indenture and the Collateral Documents shall not be deemed to impair the
security under this Indenture in contravention of the provisions hereof if and
to the extent the Collateral is released pursuant to the terms hereof. To the
extent applicable, the Company shall cause TIA ss. 313(b), relating to reports,
and TIA ss. 314(d), relating to the release of property or securities from the
Lien and security interest of the Collateral Documents or this Indenture and
relating to the substitution therefor of any property or securities to be
subjected to the Lien and security interest of the Collateral Documents or this
Indenture, to be complied with. Any certificate or opinion required by TIA ss.
314(d) may be made by an Officer of the Company except in cases where TIA ss.
314(d) requires that such certificate or opinion be made by an independent
Person, which Person shall be an independent engineer, appraiser or other
expert selected or approved by the Trustee and the Collateral Agent in the
exercise of reasonable care.
SECTION 10.04. CERTIFICATES OF THE COMPANY.
The Company shall furnish to the Trustee, prior to each
proposed release of Collateral pursuant to the Collateral Documents, (i) all
documents required by TIA ss.314(d) and (ii) an Opinion of Counsel, which may
be rendered by internal counsel to the Company, to the effect that such
accompanying documents constitute all documents required by TIA ss.314(d). The
Trustee may, to the extent permitted by Sections 7.01 and 7.02 hereof, accept
as conclusive evidence of compliance with the foregoing provisions the
appropriate statements contained in such documents and such Opinion of Counsel.
SECTION 10.05. CERTIFICATES OF THE TRUSTEE.
In the event that the Company wishes to release Collateral in
accordance with the Collateral Documents or Section 4.10 hereof and has
delivered the certificates and documents required by the Collateral Documents
and Sections 10.03 and 10.04 hereof, the Trustee shall determine whether it has
received all documentation required by TIA ss. 314(d) in connection with such
release and, based on such determination and the Opinion of Counsel delivered
pursuant to Section 10.04(ii), shall deliver a certificate to the Collateral
Agent setting forth such determination.
SECTION 10.06. AUTHORIZATION OF ACTIONS TO BE TAKEN BY THE TRUSTEE UNDER THE
COLLATERAL DOCUMENTS.
Subject to the provisions of Section 7.01 and 7.02 hereof,
the Trustee may, in its sole discretion and without the consent of the Holders
of Senior Secured Discount Notes, take all actions it deems necessary or
appropriate in order to (a) enforce any of the terms of the Collateral
Documents, and (b) collect and receive any and all amounts payable in respect
of the Obligations of the Company under this Indenture, the Senior Secured
Discount Notes and the Collateral Documents. The Trustee shall have power to
institute and maintain such suits and proceedings as it may deem expedient to
prevent any impairment of the Collateral by any acts that may be unlawful or in
violation of the Collateral Documents or this Indenture, and such suits and
proceedings as the Trustee may deem expedient to preserve or protect its
interests and the interests of the Holders of Senior Secured Discount Notes in
the Collateral (including power to institute and maintain suits or proceedings
to restrain the enforcement of or compliance with any legislative or other
governmental enactment, rule or order that may be
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unconstitutional or otherwise invalid if the enforcement of, or compliance
with, such enactment, rule or order would impair the security interest
hereunder or be prejudicial to the interests of the Holders of Senior Secured
Discount Notes or of the Trustee). The Trustee is not obligated to foreclose on
the Collateral, even if indemnity is offered, if this right may subject the
Trustee to personal environmental liability.
SECTION 10.07. AUTHORIZATION OF RECEIPT OF FUNDS BY THE TRUSTEE UNDER THE
COLLATERAL DOCUMENTS.
Upon an Event of Default and so long as such Event of Default
continues, the Trustee may exercise in respect of the Collateral, in addition
to the other rights and remedies provided for herein, in the Collateral
Documents or otherwise available to it, all of the rights and remedies provided
for by the applicable Uniform Commercial Code or other applicable law, and the
Trustee may also upon obtaining possession of the Collateral as set forth
herein, without notice to the Company, except as specified below, sell, assign
or otherwise liquidate, or direct the Company to sell, assign or otherwise
liquidate, any or all of the Collateral or any part thereof in one or more
parcels at public or private sale, at any exchange, broker's board or at any of
the Trustee's offices or elsewhere, for cash, on credit or for future delivery,
and upon such other terms as the Trustee may deem commercially reasonable. The
Company acknowledges and agrees that any such private sale may result in prices
and other terms less favorable to the seller than if such sale were a public
sale. The Company agrees that, to the extent notice of sale shall be required
by law, at least 10 days' notice to the Company of the time and place of any
public sale or the time after which any private sale is to be made shall
constitute reasonable notification. The Trustee shall not be obligated to make
any sale regardless of notice of sale having being given. The Trustee may
adjourn any public or private sale from time to time by announcement at the
time and placed fixed therefor, and such sale may, without further notice, be
made at the time and place to which it was so adjourned.
Any cash proceeds received by the Trustee in respect of any
sale of, collection from, or other realization upon all or any part of the
Collateral shall be deposited in a separate bank account of the Trustee created
for such purpose and applied (unless otherwise provided for in the Collateral
Documents and after payment of any and all amounts payable to the Trustee
pursuant to this Indenture), as the Trustee shall determine or as the Holders
shall direct pursuant to Section 6.05 hereof, (i) against the Obligations of
the Company under this Indenture, the Senior Secured Discount Notes and the
Collateral Documents for the ratable benefit for the Holders, (ii) to maintain
or otherwise protect the Collateral or (iii) to take such other action to
protect the other rights of the Holders or to take any other appropriate action
or remedy for the benefit of the Holders. Any surplus of such cash or cash
proceeds held by the Trustee and remaining after payment in full of all the
Obligations of the Company under this Indenture, the Senior Secured Discount
Notes or the Collateral Documents shall be paid over to the Company or to
whomsoever may be lawfully entitled to receive such surplus or as a court of
competent jurisdiction may direct.
SECTION 10.08. TERMINATION OF SECURITY INTEREST.
Upon the payment in full of all Obligations of the Company
under this Indenture, the Senior Secured Discount Notes and the Collateral
Documents, or upon Legal Defeasance, the Trustee shall, at the request of the
Company, deliver a certificate to the Collateral Agent stating that such
Obligations have been paid in full, and instruct the Collateral Agent to
release the Liens pursuant to this Indenture and the Collateral Documents.
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SECTION 10.09. COOPERATION OF TRUSTEE.
In the event the Company pledges or grants a security
interest in additional Collateral, the Trustee shall cooperate with the Company
in reasonably and promptly agreeing to the form of, and executing as required,
any instruments or documents necessary to make effective the security interest
in the Collateral to be so substituted or pledged. To the extent practicable,
the terms of any security agreement or other instrument or document
necessitated by any such substitution or pledge shall be comparable to the
provisions of the existing Collateral Documents. Subject to, and in accordance
with the requirements of this Article 10 and the terms of the Collateral
Documents, in the event that the Company engages in any transaction pursuant to
Section 10.03, the Trustee shall cooperate with the Company in order to
facilitate such transaction in accordance with any reasonable time schedule
proposed by the Company, including by delivering and releasing the Collateral
in a prompt and reasonable manner.
ARTICLE 11.
MISCELLANEOUS
SECTION 11.01. TRUST INDENTURE ACT CONTROLS.
If any provision of this Indenture limits, qualifies or
conflicts with the duties imposed by TIA ss. 318(c), the imposed duties shall
control.
SECTION 11.02. NOTICES.
Any notice or communication by the Company or the Trustee to
the others is duly given if in writing and delivered in person or mailed by
first class mail (registered or certified, return receipt requested), telex,
telecopier or overnight air courier guaranteeing next day delivery, to the
others' address:
If to the Company:
SF Holdings Group, Inc.
115 Stevens Avenue
Valhalla, New York 10595
Telecopier No.: (914) 747-2774
Attention: Harvey Friedman
With a copy to:
Kramer, Levin, Naftalis & Frankel
919 Third Avenue
New York, NY 10022
Telecopier No.: (212) 715-8000
Attention: Mike Nelson
If to the Trustee:
The Bank of New York
101 Barclay Street, 21 West
New York, NY 10286
Telecopier No.: (212) 815-5915
Attention: Corporate Trust Administrator
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The Company or the Trustee, by notice to the others may
designate additional or different addresses for subsequent notices or
communications.
All notices and communications (other than those sent to
Holders) shall be deemed to have been duly given: at the time delivered by
hand, if personally delivered; five Business Days after being deposited in the
mail, postage prepaid, if mailed; when answered back, if telecopied; and the
next Business Day after timely delivery to the courier, if sent by overnight
air courier guaranteeing next day delivery.
Any notice or communication to a Holder shall be mailed by
first class mail to its address shown on the register kept by the Registrar.
Any notice or communication shall also be so mailed to any Person described in
TIA ss. 313(c), to the extent required by the TIA. Failure to mail a notice or
communication to a Holder or any defect in it shall not affect its sufficiency
with respect to other Holders.
If a notice or communication is mailed in the manner provided
above within the time prescribed, it is duly given, whether or not the
addressee receives it.
If the Company mails a notice or communication to Holders, it
shall mail a copy to the Trustee and each Agent at the same time.
SECTION 11.03. COMMUNICATION BY HOLDERS OF SENIOR SECURED DISCOUNT
NOTES WITH OTHER HOLDERS OF SENIOR SECURED DISCOUNT NOTES.
Holders may communicate pursuant to TIA ss. 312(b) with other
Holders with respect to their rights under this Indenture or the Senior Secured
Discount Notes. The Company, the Trustee, the Registrar and anyone else shall
have the protection of TIA ss. 312(c).
SECTION 11.04. CERTIFICATE AND OPINION AS TO CONDITIONS PRECEDENT.
Upon any request or application by the Company to the Trustee
to take any action under this Indenture, the Company shall furnish to the
Trustee:
(a) an Officers' Certificate in form and substance reasonably
satisfactory to the Trustee (which shall include the statements set forth in
Section 11.05 hereof) stating that, in the opinion of the signers, all
conditions precedent and covenants, if any, provided for in this Indenture
relating to the proposed action have been satisfied; and
(b) an Opinion of Counsel in form and substance reasonably
satisfactory to the Trustee (which shall include the statements set forth in
Section 11.05 hereof) stating that, in the opinion of such counsel, all such
conditions precedent and covenants have been satisfied.
SECTION 11.05. STATEMENTS REQUIRED IN CERTIFICATE OR OPINION.
Each certificate or opinion with respect to compliance with a
condition or covenant provided for in this Indenture (other than a certificate
provided pursuant to TIA ss. 314(a)(4)) shall comply with the provisions of TIA
ss. 314(e) and shall include:
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(a) a statement that the Person making such certificate or
opinion has read such covenant or condition;
(b) a brief statement as to the nature and scope of the
examination or investigation upon which the statements or opinions contained in
such certificate or opinion are based;
(c) a statement that, in the opinion of such Person, he or
she has made such examination or investigation as is necessary to enable him to
express an informed opinion as to whether or not such covenant or condition has
been satisfied; and
(d) a statement as to whether or not, in the opinion of such
Person, such condition or covenant has been satisfied.
SECTION 11.06. RULES BY TRUSTEE AND AGENTS.
The Trustee may make reasonable rules for action by or at a
meeting of Holders. The Registrar or Paying Agent may make reasonable rules and
set reasonable requirements for its functions.
SECTION 11.07. NO PERSONAL LIABILITY OF DIRECTORS, OFFICERS, EMPLOYEES AND
STOCKHOLDERS.
No director, officer, employee, incorporator or stockholder
of the Company, as such, shall have any liability for any obligations of the
Company under the Senior Secured Discount Notes, this Indenture or the Pledge
Agreement or for any claim based on, in respect of, or by reason of, such
obligations or their creation. Each Holder of Senior Secured Discount Notes by
accepting a Senior Secured Discount Note waives and releases all such
liability. The waiver and release are part of the consideration for issuance of
the Senior Secured Discount Notes. Such waiver may not be effective to waive
liabilities under the federal securities laws and it is the view of the
Commission that such a waiver is against public policy
SECTION 11.08. GOVERNING LAW.
THE INTERNAL LAW OF THE STATE OF NEW YORK SHALL GOVERN AND BE
USED TO CONSTRUE THIS INDENTURE, THE SENIOR SECURED DISCOUNT NOTES AND THE
COLLATERAL DOCUMENTS.
SECTION 11.09. NO ADVERSE INTERPRETATION OF OTHER AGREEMENTS.
This Indenture may not be used to interpret any other
indenture, loan or debt agreement of the Company or its Subsidiaries or of any
other Person. Any such indenture, loan or debt agreement may not be used to
interpret this Indenture.
SECTION 11.10. SUCCESSORS.
All agreements of the Company in this Indenture and the
Senior Secured Discount Notes shall bind their respective successors. All
agreements of the Trustee in this Indenture shall bind its successors.
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SECTION 11.11. SEVERABILITY.
In case any provision in this Indenture or in the Senior
Secured Discount Notes shall be invalid, illegal or unenforceable, the
validity, legality and enforceability of the remaining provisions shall not in
any way be affected or impaired thereby.
SECTION 11.12. COUNTERPART ORIGINALS.
The parties may sign any number of copies of this Indenture.
Each signed copy shall be an original, but all of them together represent the
same agreement.
SECTION 11.13. TABLE OF CONTENTS, HEADINGS, ETC.
The Table of Contents, Cross-Reference Table and Headings of
the Articles and Sections of this Indenture have been inserted for convenience
of reference only, are not to be considered a part of this Indenture and shall
in no way modify or restrict any of the terms or provisions hereof.
[Signatures on following page]
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SIGNATURES
Dated as of March 12, 1998
SF HOLDINGS GROUP, INC.
BY: /s/ Hans Heinsen
-------------------------------
Name: Hans Heinsen
Title: Chief Financial Officer
Attest:
/s/ Harvey L. Friedman
- -------------------------
Name: Harvey L. Friedman
Title: Secretary
THE BANK OF NEW YORK
BY: /s/ Mary Jane Morrisey
-----------------------------
Name: Mary Jane Morrisey
Title: Vice President
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EXHIBIT A-1
(Face of Note)
FOR THE PURPOSES OF SECTIONS 1272, 1273 AND 1275 OF THE INTERNAL REVENUE CODE
OF 1986, AS AMENDED, THIS SECURITY IS BEING ISSUED WITH ORIGINAL ISSUE
DISCOUNT; FOR EACH $1,000 AGGREGATE PRINCIPAL AMOUNT AT MATURITY OF THIS
SECURITY, THE ISSUE PRICE IS $538.46, THE AMOUNT OF ORIGINAL ISSUE DISCOUNT IS
$461.54, THE ISSUE DATE IS MARCH 12, 1998 AND THE YIELD TO MATURITY IS 12 3/4%
PER ANNUM.
12 3/4% Series A Senior Secured Discount Notes due 2008
CUSIP No. 784141AB9
No. 1 $
------------------
SF HOLDINGS GROUP, INC.
promises to pay to
---------------------------------------
or registered assigns,
the principal sum of
-------------------------------
Dollars on March 15, 2008.
Interest Payment Dates: March 15, and September 15
Record Dates: March 1, and September 1
DATED: , 1998
------------
SF HOLDINGS GROUP, INC.
BY:
----------------------
Name:
Title:
(SEAL)
This is one of the Global
Notes referred to in the
within-mentioned Indenture:
The Bank of New York,
as Trustee
By:
-------------------------
Dated:
-----------------------
A-1
<PAGE>
(Back of Note)
12 3/4% Senior Secured Discount Notes due 2008
THIS SECURITY (OR ITS PREDECESSOR) HAS NOT BEEN REGISTERED UNDER THE UNITED
STATES SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT") AND,
ACCORDINGLY, MAY NOT BE OFFERED, SOLD, PLEDGED OR OTHERWISE TRANSFERRED WITHIN
THE UNITED STATES OR TO, OR FOR THE ACCOUNT OR BENEFIT OF, U.S. PERSONS, EXCEPT
AS SET FORTH IN THE NEXT SENTENCE. BY ITS ACQUISITION HEREOF OR OF A BENEFICIAL
INTEREST HEREIN, THE HOLDER REPRESENTS THAT (A) IT IS A "QUALIFIED
INSTITUTIONAL BUYER" (AS DEFINED IN RULE 144A UNDER THE SECURITIES ACT) (A
"QIB"), (B) IT HAS ACQUIRED THIS SECURITY IN AN OFFSHORE TRANSACTION IN
COMPLIANCE WITH REGULATION S UNDER THE SECURITIES ACT OR (C) IT IS AN
INSTITUTIONAL "ACCREDITED INVESTOR" (AS DEFINED IN RULE 501(A)(1), (2), (3) OR
(7) OF REGULATION D UNDER THE SECURITIES ACT) (AN "IAI"), AGREES THAT IT WILL
NOT RESELL OR OTHERWISE TRANSFER THIS SECURITY EXCEPT (A) TO THE COMPANY OR ANY
OF ITS SUBSIDIARIES (B) TO A PERSON WHOM THE SELLER REASONABLY BELIEVES IS A
QIB PURCHASING FOR ITS OWN ACCOUNT OR FOR THE ACCOUNT OF A QIB IN A TRANSACTION
MEETING THE REQUIREMENTS OF RULE 144A, (C) IN AN OFFSHORE TRANSACTION MEETING
THE REQUIREMENTS OF RULE 903 OR 904 OF THE SECURITIES ACT, (D) IN A TRANSACTION
MEETING THE REQUIREMENTS OF RULE 144 UNDER THE SECURITIES ACT, (E) TO AN IAI
THAT, PRIOR TO SUCH TRANSFER, FURNISHES TO THE TRUSTEE A SIGNED LETTER
CONTAINING CERTAIN REPRESENTATIONS AND AGREEMENTS RELATING TO THE TRANSFER OF
THIS SECURITY (THE FORM OF WHICH LETTER CAN BE OBTAINED FROM THE TRUSTEE) AND,
IF SUCH TRANSFER IS IN RESPECT OF AN ACCRETED VALUE OF SECURITIES LESS THAN
$250,000, AN OPINION OF COUNSEL ACCEPTABLE TO THE COMPANY THAT SUCH TRANSFER IS
IN COMPLIANCE WITH THE SECURITIES ACT OR (F) IN ACCORDANCE WITH ANOTHER
EXEMPTION FROM THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT (AND BASED
UPON AN OPINION OF COUNSEL ACCEPTABLE TO THE COMPANY) OR (G)PURSUANT TO AN
EFFECTIVE REGISTRATION STATEMENT AND, IN EACH CASE, IN ACCORDANCE WITH THE
APPLICABLE SECURITIES LAWS OF ANY STATE OF THE UNITED STATES OR ANY OTHER
APPLICABLE JURISDICTION; AND AGREES THAT IT WILL DELIVER TO EACH PERSON TO WHOM
THIS SECURITY OR AN INTEREST HEREIN IS TRANSFERRED A NOTICE SUBSTANTIALLY TO
THE EFFECT OF THIS LEGEND. AS USED HEREIN, THE TERMS "OFFSHORE TRANSACTION" AND
"UNITED STATES" HAVE THE MEANINGS GIVEN TO THEM BY RULE 902 OF REGULATION S
UNDER THE SECURITIES ACT. THE INDENTURE CONTAINS A PROVISION REQUIRING THE
TRUSTEE TO REFUSE TO REGISTER ANY TRANSFER OF THIS SECURITY IN VIOLATION OF THE
FOREGOING.
THIS GLOBAL NOTE IS HELD BY THE DEPOSITARY (AS DEFINED IN THE INDENTURE
GOVERNING THIS SECURITY) OR ITS NOMINEE IN CUSTODY FOR THE BENEFIT OF THE
BENEFICIAL OWNERS HEREOF, AND IS NOT TRANSFERABLE TO ANY PERSON UNDER ANY
CIRCUMSTANCES EXCEPT THAT (I) THE TRUSTEE MAY MAKE SUCH NOTATIONS HEREON AS MAY
BE REQUIRED PURSUANT TO SECTION 2.07 OF THE INDENTURE, (II) THIS GLOBAL NOTE
MAY BE EXCHANGED IN WHOLE BUT NOT IN PART PURSUANT TO SECTION 2.06(a) OF THE
INDENTURE, (III) THIS GLOBAL NOTE MAY BE DELIVERED TO THE TRUSTEE FOR
CANCELLATION PURSUANT TO SECTION 2.11 OF THE INDENTURE AND
A-2
<PAGE>
(IV) THIS GLOBAL NOTE MAY BE TRANSFERRED TO A SUCCESSOR DEPOSITARY WITH THE
PRIOR WRITTEN CONSENT OF THE COMPANY.
THE SECURITIES EVIDENCED BY THIS CERTIFICATE ARE INITIALLY ISSUED AS PART OF AN
ISSUANCE OF UNITS, EACH OF WHICH CONSIST OF $1,000 IN AGGREGATE PRINCIPAL
AMOUNT AT MATURITY OF SENIOR SECURED DISCOUNT NOTES AND 2 SHARES (THE "SHARES")
OF CLASS C COMMON STOCK, PAR VALUE $.001 PER SHARE, OF THE COMPANY. PRIOR TO
THE CLOSE OF BUSINESS UPON THE EARLIEST TO OCCUR OF (I) 90 DAYS FROM THE DATE
OF THE INDENTURE; (II) SUCH EARLIER DATE AS THE INITIAL PURCHASERS MAY
DETERMINE; AND (III) THE OCCURRENCE OF A CHANGE OF CONTROL. THE SECURITIES
EVIDENCED BY THIS CERTIFICATE MAY NOT BE TRANSFERRED OR EXCHANGED SEPARATELY
FROM, BUT MAY BE TRANSFERRED OR EXCHANGED ONLY TOGETHER WITH, THE SHARES.
Capitalized terms used herein shall have the meanings
assigned to them in the Indenture referred to below unless otherwise indicated.
1. INTEREST. SF Holdings Group, Inc., a Delaware corporation
(the "Company"), promises to pay interest on the principal amount of this
Senior Secured Discount Note at 12 3/4% per annum in the manner specified below
and shall pay the Liquidated Damages, if any, payable pursuant to Section 5 of
the Registration Rights Agreement referred to below. Interest will not accrue
prior to March 15, 2003. Thereafter, the Company will pay interest and
Liquidated Damages, if any, semi-annually on March 15 and September 15 each
year, or if any such day is not a Business Day, on the next succeeding Business
Day (each an "Interest Payment Date"). Interest on the Senior Secured Discount
Notes will accrue from the most recent date to which interest has been paid or,
if no interest has been paid, from March 15, 2003. The Company shall pay
interest (including post-petition interest in any proceeding under any
Bankruptcy Law) on overdue principal and premium, if any, from time to time on
demand at a rate that is 1% per annum in excess of the rate then in effect; it
shall pay interest (including post-petition interest in any proceeding under
any Bankruptcy Law) on overdue installments of interest and Liquidated Damages
(without regard to any applicable grace periods) from time to time on demand at
the same rate to the extent lawful. Interest will be computed on the basis of a
360-day year of twelve 30-day months.
2. METHOD OF PAYMENT. The Company will pay interest on the
Senior Secured Discount Notes (except defaulted interest) and Liquidated
Damages, if any, to the Persons who are registered Holders of Senior Secured
Discount Notes at the close of business on the March 1 or September 1 next
preceding the Interest Payment Date, even if such Senior Secured Discount Notes
are canceled after such record date and on or before such Interest Payment
Date, except as provided in Section 2.12 of the Indenture with respect to
defaulted interest. The Senior Secured Discount Notes will be payable as to
principal, premium, if any, and Liquidated Damages, if any, and interest at the
office or agency of the Company maintained for such purpose within or without
the City and State of New York, or, at the option of the Company, payment of
interest and Liquidated Damages, if any, may be made by check mailed to the
Holders at their addresses set forth in the register of Holders, and provided
that payment by wire transfer of immediately available funds will be required
with respect to principal of and interest, premium, if any, and Liquidated
Damages, if any, on, all Global Notes and all other Senior Secured Discount
Notes the Holders of which shall have provided wire transfer instructions to
the Company or the Paying Agent. Such payment shall be in such coin or currency
of the United States of America as at the time of payment is legal tender for
payment of public and private debts.
A-3
<PAGE>
3. PAYING AGENT AND REGISTRAR. Initially, The Bank of New
York, the Trustee under the Indenture, will act as Paying Agent and Registrar.
The Company may change any Paying Agent or Registrar without notice to any
Holder. The Company or any of its Subsidiaries may act in any such capacity.
4. INDENTURE AND PLEDGE AGREEMENT. The Company issued the
Senior Secured Discount Notes under an Indenture dated as of March 12, 1998
("Indenture") between the Company and the Trustee. The terms of the Senior
Secured Discount Notes include those stated in the Indenture and those made
part of the Indenture by reference to the Trust Indenture Act of 1939, as
amended (15 U.S. Code ss.ss. 77aaa-77bbbb). The Senior Secured Discount Notes
are subject to all such terms, and Holders are referred to the Indenture and
such Act for a statement of such terms. To the extent any provision of this
Senior Secured Discount Note conflicts with the express provisions of the
Indenture, the provisions of the Indenture shall govern and be controlling. The
Senior Secured Discount Note are a secured obligations of the Company limited
to $77.5 million in aggregate principal amount, at maturity. The Senior Secured
Discount Notes are secured by a pledge of all of the Capital Stock owned by the
Company of, and all intercompany notes issued in favor of the Company by, all
of the current and future Restricted Subsidiaries of the Company pursuant to
the Pledge Agreement referred to in the Indenture.
5. OPTIONAL REDEMPTION.
(a) Except as set forth in subparagraph (b) of this Paragraph
5, the Senior Secured Discount Notes shall not be redeemable at the Company's
option prior to March 15, 2003. Thereafter, the Senior Secured Discount Notes
shall be subject to redemption at any time at the option of the Company, in
whole or in part, upon not less than 30 nor more than 60 days' notice, at the
redemption prices (expressed as percentages of principal amount) set forth
below plus accrued and unpaid interest and Liquidated Damages, if any, to the
applicable redemption date, if redeemed during the twelve-month period
beginning on March 15 of the years indicated below:
Year Percentage
---- ----------
2003............................ 106.375%
2004............................ 104.250%
2005............................ 102.125%
2006 and thereafter............. 100.000 %
(b) Notwithstanding the provisions of subparagraph (a) of
this Paragraph 5, at any time prior to March 15, 2001, the Company may, at its
option, redeem up to one-third of the aggregate principal amount at maturity of
Senior Secured Discount Notes originally offered in the Offering at a
redemption price equal to 112.75% of the Accreted Value thereof, plus
Liquidated Damages thereon, if any, with the net cash proceeds of an Equity
Offering; provided that at least two-thirds of the original aggregate principal
amount at maturity of the Senior Secured Discount Notes remains outstanding
immediately after the occurrence of such redemption (excluding Senior Secured
Discount Notes held by the Company and its Subsidiaries); and provided, further
that any such redemption shall occur within 60 days of the date of the closing
of such Equity Offering.
A-4
<PAGE>
6. MANDATORY REDEMPTION.
Except as set forth in paragraph 7 below, the Company shall
not be required to make mandatory redemption or sinking fund payments with
respect to the Senior Secured Discount Notes.
7. REPURCHASE AT OPTION OF HOLDER.
(a) Upon the occurrence of a Change of Control, the Company
shall be required to make an offer to each Holder of Senior Secured Discount
Notes to repurchase all or any part (equal to $1,000 or an integral multiple
thereof) of such Holder's Senior Secured Discount Notes pursuant to an offer
(the "Change of Control Offer") at an offer price in cash equal to 101% of the
aggregate principal amount thereof plus accrued and unpaid interest and
Liquidated Damages thereon, if any, to the date of purchase (or, in the case of
repurchases of Senior Secured Discount Notes prior to March 15, 2003, at a
purchase price equal to 101% of the Accreted Value thereof, plus Liquidated
Damages thereon, if any, as of the date of repurchase) (in either case, the
"Change of Control Payment"). Within 10 days following any Change of Control,
the Company shall mail a notice to each Holder setting forth the procedures
governing the Change of Control Offer as required by the Indenture.
(b) When the aggregate amount of Excess Proceeds exceeds $10
million, the Company shall commence an offer to all Holders of Senior Secured
Discount Notes (an "Asset Sale Offer") pursuant to Section 3.09 of the
Indenture to purchase the maximum principal amount of Senior Secured Discount
Notes that may be purchased out of the Excess Proceeds, at an offer price in
cash in an amount equal to 100% of the aggregate principal amount thereof, plus
accrued and unpaid interest and Liquidated Damages thereon, if any, to the date
of purchase (or, in the case of purchases of Senior Secured Discount Notes
prior to March 15, 2003, at a purchase price equal to 100% of the Accreted
Value thereof, plus Liquidated Damages thereon, if any), in accordance with the
procedures set forth in the Indenture; provided, however, that such offer shall
not be required if the application of such Excess Proceeds to repurchase Senior
Secured Discount Notes would cause an Event of Default under the Subsidiary
Debt Instruments. If the aggregate purchase price of Senior Secured Discount
Notes tendered into such Asset Sale Offer by Holders thereof is less than the
Excess Proceeds, the Company may use such Excess Proceeds for general corporate
purposes (subject to restrictions of the Indenture). If the aggregate purchase
price of Senior Secured Discount Notes tendered into such Asset Sale Offer by
Holders thereof exceeds the amount of Excess Proceeds, the Trustee shall select
the Senior Secured Discount Notes to be purchased on a pro rata basis. Upon
completion of such Asset Sale Offer, the amount of Excess Proceeds shall be
reset at zero. Holders of Senior Secured Discount Notes that are the subject of
an offer to purchase will receive an Asset Sale Offer from the Company prior to
any related purchase date and may elect to have such Senior Secured Discount
Notes purchased by completing the form entitled "Option of Holder to Elect
Purchase" on the reverse of the Senior Secured Discount Notes.
8. NOTICE OF REDEMPTION. Notice of redemption will be mailed
at least 30 days but not more than 60 days before the redemption date to each
Holder whose Senior Secured Discount Notes are to be redeemed at its registered
address. Senior Secured Discount Notes in denominations larger than $1,000 may
be redeemed in part but only in whole multiples of $1,000, unless all of the
Senior Secured Discount Senior Secured Discount Notes held by a Holder are to
be redeemed. On and after the redemption date interest ceases to accrue on
Senior Secured Discount Notes or portions thereof called for redemption.
9. DENOMINATIONS, TRANSFER, EXCHANGE. The Senior Secured
Discount Notes are in registered form without coupons in denominations of
$1,000 and integral multiples of $1,000. The
A-5
<PAGE>
transfer of Senior Secured Discount Notes may be registered and Senior Secured
Discount Notes may be exchanged as provided in the Indenture. The Registrar and
the Trustee may require a Holder, among other things, to furnish appropriate
endorsements and transfer documents and the Company may require a Holder to pay
any taxes and fees required by law or permitted by the Indenture. The Company
need not exchange or register the transfer of any Senior Secured Discount Note
or portion of a Senior Secured Discount Note selected for redemption, except
for the unredeemed portion of any Senior Secured Discount Note being redeemed
in part. Also, the Company need not exchange or register the transfer of any
Senior Secured Discount Notes for a period of 15 days before a selection of
Senior Secured Discount Notes to be redeemed or during the period between a
record date and the corresponding Interest Payment Date.
10. PERSONS DEEMED OWNERS. The registered Holder of a Senior
Secured Discount Note may be treated as its owner for all purposes.
11. AMENDMENT, SUPPLEMENT AND WAIVER. Subject to certain
exceptions, the Indenture or the Senior Secured Discount Notes may be amended
or supplemented with the consent of the Holders of at least a majority in
principal amount at maturity of the Senior Secured Discount Notes then
outstanding (including, without limitation, consents obtained in connection
with a purchase of, or tender offer or exchange offer for, Senior Secured
Discount Notes), and subject to Sections 6.04 and 6.07 of the Indenture any
existing Default or Event of Default (other than a Default or Event of Default
in the payment of the principal of, premiums on, if any, interest on or
Liquidated Damages on, if any, the Senior Secured Discount Notes, except a
payment default resulting from an acceleration that has been rescinded) or
compliance with any provision of the Indenture, the Senior Secured Discount
Notes or the Collateral Documents may be waived with the consent of the Holders
of a majority in principal amount at maturity of the then outstanding Senior
Secured Discount Notes voting as a single class. Without the consent of any
Holder of Senior Secured Discount Notes, the Indenture or the Senior Secured
Discount Notes may be amended or supplemented by the Company and the Trustee to
cure any ambiguity, defect or inconsistency, to provide for uncertificated
Senior Secured Discount Notes in addition to or in place of certificated Senior
Secured Discount Notes, to provide for the assumption of the Company's
obligations to Holders of the Senior Secured Discount Notes in the case of a
merger or consolidation or sale of all or substantially all of the Company's
assets, to make any change that would provide any additional rights or benefits
to the Holders of the Senior Secured Discount Notes or that does not adversely
affect the legal rights under the Indenture of any such Holder or to comply
with the requirements of the Commission in order to effect or maintain the
qualification of the Indenture under the Trust Indenture Act.
12. DEFAULTS AND REMEDIES. Events of Default include: (i)
default for 30 days in the payment when due of interest on the Senior Secured
Discount Notes; (ii) default in payment when due of the principal of or
premium, or Liquidated Damages, if any, on the Senior Secured Discount Notes
when the same becomes due and payable at maturity, upon redemption (including
in connection with an offer to purchase) or otherwise; (iii) failure by the
Company or any of its Subsidiaries to comply with Sections 4.07, 4.09, 4.10,
4.15 and 5.01 of the Indenture; (iv) failure by the Company or any of its
Subsidiaries for 30 days after notice to comply with any of its other
agreements in the Indenture, the Senior Secured Discount Notes or the Pledge
Agreement; (v) default under certain other agreements relating to Indebtedness
of the Company which default results in the acceleration of such Indebtedness
prior to its express maturity; (vi) certain final judgments for the payment of
money that remain undischarged for a period of 45 days; and (vii) certain
events of bankruptcy or insolvency with respect to the Company or any of its
Significant Subsidiaries. If any Event of Default occurs and is continuing, the
Trustee or the Holders of at least 25% in principal amount at maturity of the
then outstanding Senior Secured Discount Notes may declare all the Senior
Secured Discount Notes to be due and payable
A-6
<PAGE>
immediately. Notwithstanding the foregoing, in the case of an Event of Default
arising from certain events of bankruptcy or insolvency, with respect to the
Company, any Significant Subsidiary or any group of Subsidiaries that, taken
together, would constitute a Significant Subsidiary, all outstanding Senior
Secured Discount Notes will become due and payable without further action or
notice. Upon any acceleration of maturity of the Senior Secured Discount Notes,
all principal of and accrued interest on and Liquidated Damages, if any (if on
or after March 15, 2003) or Accreted Value and Liquidated Damages, if any (if
prior to March 15, 2003), of the Senior Secured Discount Notes shall be due and
payable immediately. Holders may not enforce the Indenture or the Senior
Secured Discount Notes except as provided in the Indenture. Subject to certain
limitations, Holders of a majority in principal amount at maturity of the then
outstanding Senior Secured Discount Notes may direct the Trustee in its
exercise of any trust or power. The Trustee may withhold from Holders of the
Senior Secured Discount Notes notice of any continuing Default or Event of
Default (except a Default or Event of Default relating to the payment of
principal or interest) if it determines that withholding notice is in their
interest. The Holders of a majority in aggregate principal amount at maturity
of the Senior Secured Discount Notes then outstanding by notice to the Trustee
(and without notice to any other Holder) may on behalf of the Holders of all of
the Senior Secured Discount Notes waive an existing Default or Event of Default
and its consequences under the Indenture except a continuing Default or Event
of Default in the payment of the principal of, premiums, if any, or interest
on, the Senior Secured Discount Notes (including in connection with an offer to
purchase) (provided, however, that Holders of a majority in aggregate principal
amount of the then outstanding Senior Secured Discount Notes may rescind an
acceleration and its consequences, including any related payment default that
resulted from such acceleration). The Company is required to deliver to the
Trustee annually a statement regarding compliance with the Indenture, and the
Company is required upon becoming aware of any Default or Event of Default, to
deliver to the Trustee a statement specifying such Default or Event of Default.
13. TRUSTEE DEALINGS WITH COMPANY. The Trustee, in its
individual or any other capacity, may make loans to, accept deposits from, and
perform services for the Company or its Affiliates, and may otherwise deal with
the Company or its Affiliates, as if it were not the Trustee.
14. NO RECOURSE AGAINST OTHERS. No director, officer,
employee, incorporator or stockholder, of the Company, as such, shall have any
liability for any obligations of the Company under the Senior Secured Discount
Notes, the Indenture or the Pledge Agreement or for any claim based on, in
respect of, or by reason of, such obligations or their creation. Each Holder of
Senior Secured Discount Notes by accepting a Senior Secured Discount Note
waives and releases all such liability. The waiver and release are part of the
consideration for the issuance of the Senior Secured Discount Notes. Such
waiver may not be effective to waive liabilities under the federal securities
laws and it is the view of the Commission that such waiver is against public
policy.
15. AUTHENTICATION. This Senior Secured Discount Note shall
not be valid until authenticated by the manual signature of the Trustee or an
authenticating agent.
16. ABBREVIATIONS. Customary abbreviations may be used in the
name of a Holder or an assignee, such as: TEN COM (= tenants in common), TEN
ENT (= tenants by the entireties), JT TEN (= joint tenants with right of
survivorship and not as tenants in common), CUST (= Custodian), and U/G/M/A (=
Uniform Gifts to Minors Act).
17. ADDITIONAL RIGHTS OF HOLDERS OF RESTRICTED GLOBAL
NOTES AND RESTRICTED DEFINITIVE NOTES. In addition to the rights provided to
Holders of Senior Secured Discount Notes under the Indenture, Holders of
Restricted Global Notes and Restricted Definitive Notes shall have
A-7
<PAGE>
all the rights set forth in the A/B Exchange Registration Rights Agreement
dated as of March 12, 1998, between the Company and the parties named on the
signature pages thereof (the "Registration Rights Agreement").
18.......CUSIP NUMBERS. Pursuant to a recommendation
promulgated by the Committee on Uniform Security Identification Procedures, the
Company has caused CUSIP numbers to be printed on the Senior Secured Discount
Notes and the Trustee may use CUSIP numbers in notices of redemption as a
convenience to Holders. No representation is made as to the accuracy of such
numbers either as printed on the Senior Secured Discount Notes or as contained
in any notice of redemption and reliance may be placed only on the other
identification numbers placed thereon.
A-8
<PAGE>
The Company will furnish to any Holder upon written request
and without charge a copy of the Indenture, the Pledge Agreement and/or the
Registration Rights Agreement. Requests may be made to:
SF Holdings Group, Inc.
115 Stevens Avenue
Valhalla, New York 10595
Attention: General Counsel
A-9
<PAGE>
ASSIGNMENT FORM
To assign this Senior Secured Discount Note, fill in the form below: (I) or
(we) assign and transfer this Senior Secured Discount Note to
- -------------------------------------------------------------------------------
(Insert assignee's soc. sec. or tax I.D. no.)
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
(Print or type assignee's name, address and zip code)
and irrevocably appoint
--------------------------------------------------------
to transfer this Senior Secured Discount Note on the books of the Company. The
agent may substitute another to act for him.
- -------------------------------------------------------------------------------
Date:
--------------------------
Your Signature:
--------------------------
(Sign exactly as your name appears on
the face of this Senior Secured
Discount Note)
SIGNATURE GUARANTEE.
Signatures must be guaranteed by an "eligible guarantor institution" meeting
the requirements of the Registrar, which requirements include membership or
participation in the Security Transfer Agent Medallion Program ("STAMP") or
such other "signature guarantee program" as may be determined by the Registrar
in addition to, or in substitution for, STAMP, all in accordance with the
Securities Exchange Act of 1934, as amended.
A-10
<PAGE>
OPTION OF HOLDER TO ELECT PURCHASE
If you want to elect to have this Senior Secured Discount
Note purchased by the Company pursuant to Section 4.10 or 4.15 of the
Indenture, check the box below:
[ ] Section 4.10 [ ] Section 4.15
If you want to elect to have only part of the Senior Secured
Discount Note purchased by the Company pursuant to Section 4.10 or Section 4.15
of the Indenture, state the amount you elect to have purchased:
$
-----------
Date: Your Signature:
------------- ------------------------------------
(Sign exactly as your name appears
on the Senior Secured Discount Note)
Tax Identification No:
---------------------------
SIGNATURE GUARANTEE.
Signatures must be guaranteed by an "eligible guarantor institution" meeting
the requirements of the Registrar, which requirements include membership or
participation in the Security Transfer Agent Medallion Program ("STAMP") or
such other "signature guarantee program" as may be determined by the Registrar
in addition to, or in substitution for, STAMP, all in accordance with the
Securities Exchange Act of 1934, as amended.
A-11
<PAGE>
SCHEDULE OF EXCHANGES OF INTERESTS IN THE GLOBAL NOTE
The following exchanges of a part of this Global Note for an
interest in another Global Note or for a Definitive Note, or exchanges of a
part of another Global Note or Definitive Note for an interest in this Global
Note, have been made:
<TABLE>
<CAPTION>
Principal Amount
Amount of decrease in Amount of increase in at maturity of Signature of
Principal Amount Principal Amount this Global Note authorized officer
at maturity of at maturity of following such of Trustee or
Date of Exchange this Global Note this Global Note decrease (or increase) Note Custodian
- ---------------- ---------------- ---------------- ---------------------- --------------
<S> <C> <C> <C> <C>
</TABLE>
A-12
<PAGE>
EXHIBIT A-2
(Face of Regulation S Temporary Global Note)
FOR THE PURPOSES OF SECTIONS 1272, 1273 AND 1275 OF THE INTERNAL REVENUE CODE
OF 1986, AS AMENDED, THIS SECURITY IS BEING ISSUED WITH ORIGINAL ISSUE
DISCOUNT; FOR EACH $1,000 AGGREGATE PRINCIPAL AMOUNT AT MATURITY OF THIS
SECURITY, THE ISSUE PRICE IS $538.46, THE AMOUNT OF ORIGINAL ISSUE DISCOUNT IS
$461.54, THE ISSUE DATE IS MARCH 12, 1998 AND THE YIELD TO MATURITY IS 12 3/4%
PER ANNUM.
12 3/4% Senior Secured Discount Notes due 2008
CUSIP NO. U81817AB1
CINS NO. USU81817AA38
No. 1 $
-----------------------
SF HOLDINGS GROUP, INC.
promises to pay to
-------------------------------------------
or registered assigns,
the principal sum of
----------------------------------------------
Dollars on March 15, 2008
Interest Payment Dates: March 15, and September 15
Record Dates: March 1, and September 1
DATED: , 1998
----------------------
SF HOLDINGS GROUP, INC.
BY:
----------------------------
Name:
Title:
This is one of the Global
Notes referred to in the [(SEAL)]
within-mentioned Indenture:
The Bank of New York,
as Trustee
By:
----------------------------
Dated:
----------------------------
A2-1
<PAGE>
(Back of Regulation S Temporary Global Note)
12 3/4% Senior Secured Discount Notes due 2008
THE RIGHTS ATTACHING TO THIS REGULATION S TEMPORARY GLOBAL NOTE, AND THE
CONDITIONS AND PROCEDURES GOVERNING ITS EXCHANGE FOR CERTIFICATED NOTES, ARE AS
SPECIFIED IN THE INDENTURE (AS DEFINED HEREIN). NEITHER THE HOLDER NOR THE
BENEFICIAL OWNERS OF THIS REGULATION S TEMPORARY GLOBAL NOTE SHALL BE ENTITLED
TO RECEIVE PAYMENT OF INTEREST HEREON.
UNLESS AND UNTIL IT IS EXCHANGED IN WHOLE OR IN PART FOR NOTES IN DEFINITIVE
FORM, THIS NOTE MAY NOT BE TRANSFERRED EXCEPT AS A WHOLE BY THE DEPOSITARY TO A
NOMINEE OF THE DEPOSITARY OR BY A NOMINEE OF THE DEPOSITARY TO THE DEPOSITARY
OR ANOTHER NOMINEE OF THE DEPOSITARY OR BY THE DEPOSITARY OR ANY SUCH NOMINEE
TO A SUCCESSOR DEPOSITARY OR A NOMINEE OF SUCH SUCCESSOR DEPOSITARY. UNLESS
THIS CERTIFICATE IS PRESENTED BY AN AUTHORIZED REPRESENTATIVE OF THE DEPOSITORY
TRUST COMPANY (55 WATER STREET, NEW YORK, NEW YORK) ("DTC"), TO THE COMPANY OR
ITS AGENT FOR REGISTRATION OF TRANSFER, EXCHANGE OR PAYMENT, AND ANY
CERTIFICATE ISSUED IS REGISTERED IN THE NAME OF CEDE & CO. OR SUCH OTHER NAME
AS MAY BE REQUESTED BY AN AUTHORIZED REPRESENTATIVE OF DTC (AND ANY PAYMENT IS
MADE TO CEDE & CO. OR SUCH OTHER ENTITY AS MAY BE REQUESTED BY AN AUTHORIZED
REPRESENTATIVE OF DTC), ANY TRANSFER, PLEDGE OR OTHER USE HEREOF FOR VALUE OR
OTHERWISE BY OR TO ANY PERSON IS WRONGFUL INASMUCH AS THE REGISTERED OWNER
HEREOF, CEDE & CO., HAS AN INTEREST HEREIN.
THIS GLOBAL NOTE IS HELD BY THE DEPOSITARY (AS DEFINED IN THE INDENTURE
GOVERNING THIS SECURITY) OR ITS NOMINEE IN CUSTODY FOR THE BENEFIT OF THE
BENEFICIAL OWNERS HEREOF, AND IS NOT TRANSFERABLE TO ANY PERSON UNDER ANY
CIRCUMSTANCES EXCEPT THAT (I) THE TRUSTEE MAY MAKE SUCH NOTATIONS HEREON AS MAY
BE REQUIRED PURSUANT TO SECTION 2.07 OF THE INDENTURE, (II) THIS GLOBAL NOTE
MAY BE EXCHANGED IN WHOLE BUT NOT IN PART PURSUANT TO SECTION 2.06(a) OF THE
INDENTURE, (III) THIS GLOBAL NOTE MAY BE DELIVERED TO THE TRUSTEE FOR
CANCELLATION PURSUANT TO SECTION 2.11 OF THE INDENTURE AND (IV) THIS GLOBAL
NOTE MAY BE TRANSFERRED TO A SUCCESSOR DEPOSITARY WITH THE PRIOR WRITTEN
CONSENT OF THE COMPANY.
THE SECURITIES EVIDENCED BY THIS CERTIFICATE ARE INITIALLY ISSUED AS PART OF AN
ISSUANCE OF UNITS, EACH OF WHICH CONSIST OF $1,000 IN AGGREGATE PRINCIPAL
AMOUNT AT MATURITY OF SENIOR SECURED DISCOUNT NOTES AND 2 SHARES (THE "SHARES")
OF CLASS C COMMON STOCK, PAR VALUE $.001 PER SHARE, OF THE COMPANY. PRIOR TO
THE CLOSE OF BUSINESS UPON THE EARLIEST TO OCCUR OF (I) 90 DAYS FROM THE DATE
OF THE INDENTURE; (II) SUCH EARLIER DATE AS THE INITIAL PURCHASERS MAY
DETERMINE; AND (III) THE OCCURRENCE OF A CHANGE OF CONTROL. THE SECURITIES
EVIDENCED BY THIS CERTIFICATE MAY NOT BE TRANSFERRED OR EXCHANGED SEPARATELY
FROM, BUT MAY BE TRANSFERRED OR EXCHANGED ONLY TOGETHER WITH, THE SHARES.
A2-2
<PAGE>
Capitalized terms used herein shall have the meanings
assigned to them in the Indenture referred to below unless otherwise indicated.
1. INTEREST. SF Holdings Group, Inc., a Delaware corporation
(the "Company"), promises to pay interest on the principal amount of this
Senior Secured Discount Note at 12 3/4% per annum in the manner specified below
and shall pay the Liquidated Damages, if any, payable pursuant to Section 5 of
the Registration Rights Agreement referred to below. Interest will not accrue
prior to March 15, 2003. Thereafter, the Company will pay interest and
Liquidated Damages, if any, semi-annually on March 15 and September 15 each
year, or if any such day is not a Business Day, on the next succeeding Business
Day (each an "Interest Payment Date"). Interest on the Senior Secured Discount
Notes will accrue from the most recent date to which interest has been paid or,
if no interest has been paid, from March 15, 2003. The Company shall pay
interest (including post-petition interest in any proceeding under any
Bankruptcy Law) on overdue principal and premium, if any, from time to time on
demand at a rate that is 1% per annum in excess of the rate then in effect; it
shall pay interest (including post-petition interest in any proceeding under
any Bankruptcy Law) on overdue installments of interest and Liquidated Damages,
if any, (without regard to any applicable grace periods) from time to time on
demand at the same rate to the extent lawful. Interest will be computed on the
basis of a 360-day year of twelve 30-day months.
Until this Regulation S Temporary Global Note is exchanged
for one or more Regulation S Permanent Global Notes, the Holder hereof shall
not be entitled to receive payments of interest hereon; until so exchanged in
full, this Regulation S Temporary Global Note shall in all other respects be
entitled to the same benefits as other Senior Subordinated Notes under the
Indenture.
2. METHOD OF PAYMENT. The Company will pay interest on the
Senior Secured Discount Notes (except defaulted interest) and Liquidated
Damages, if any, to the Persons who are registered Holders of Senior Secured
Discount Notes at the close of business on the March 1 or September 1 next
preceding the Interest Payment Date, even if such Senior Secured Discount Notes
are canceled after such record date and on or before such Interest Payment
Date, except as provided in Section 2.12 of the Indenture with respect to
defaulted interest. The Senior Secured Discount Notes will be payable as to
principal, premium, if any, and Liquidated Damages, if any, and interest at the
office or agency of the Company maintained for such purpose within or without
the City and State of New York, or, at the option of the Company, payment of
interest and Liquidated Damages, if any, may be made by check mailed to the
Holders at their addresses set forth in the register of Holders, and provided
that payment by wire transfer of immediately available funds will be required
with respect to principal of and interest, premium, if any, and Liquidated
Damages, if any, on, all Global Notes and all other Senior Secured Discount
Notes the Holders of which shall have provided wire transfer instructions to
the Company or the Paying Agent. Such payment shall be in such coin or currency
of the United States of America as at the time of payment is legal tender for
payment of public and private debts.
3. PAYING AGENT AND REGISTRAR. Initially, The Bank of New
York, the Trustee under the Indenture, will act as Paying Agent and Registrar.
The Company may change any Paying Agent or Registrar without notice to any
Holder. The Company or any of its Subsidiaries may act in any such capacity.
4. INDENTURE AND PLEDGE AGREEMENT. The Company issued the
Senior Secured Discount Notes under an Indenture dated as of March 12, 1998
("Indenture") between the Company and the Trustee. The terms of the Senior
Secured Discount Notes include those stated in the Indenture and those made
part of the Indenture by reference to the Trust Indenture Act of 1939, as
amended (15 U.S.
A2-3
<PAGE>
Code ss.ss. 77aaa-77bbbb). The Senior Secured Discount Notes are subject to all
such terms, and Holders are referred to the Indenture and such Act for a
statement of such terms. To the extent any provision of this Senior Secured
Discount Note conflicts with the express provisions of the Indenture, the
provisions of the Indenture shall govern and be controlling. The Senior Secured
Discount Notes are secured obligations of the Company limited to $77.5 million
in aggregate principal amount, at maturity. The Senior Secured Discount Notes
are secured by a pledge of all of the Capital Stock owned by the Company of,
and all intercompany notes issued in favor of the Company by, all of the
current and future Restricted Subsidiaries of the Company pursuant to the
Pledge Agreement referred to in the Indenture.
5. OPTIONAL REDEMPTION.
(a) Except as set forth in subparagraph (b) of this Paragraph
5, the Senior Secured Discount Notes shall not be redeemable at the Company's
option prior to March 15, 2003. Thereafter, the Senior Secured Discount Notes
shall be subject to redemption at any time at the option of the Company, in
whole or in part, upon not less than 30 nor more than 60 days' notice, at the
redemption prices (expressed as percentages of principal amount) set forth
below plus accrued and unpaid interest and Liquidated Damages, if any, to the
applicable redemption date, if redeemed during the twelve-month period
beginning on March 15 of the years indicated below:
Year Percentage
---- ----------
2003.............................. 106.375%
2004.............................. 104.250%
2005.............................. 102.125%
2006 and thereafter............... 100.000 %
(b) Notwithstanding the provisions of subparagraph (a) of
this Paragraph 5, at any time prior to March 15, 2001, the Company may, at its
option, redeem up to one-third of the aggregate principal amount at maturity of
Senior Secured Discount Notes originally offered in the Offering at a
redemption price equal to 112.75% of the Accreted Value thereof, plus
Liquidated Damages thereon, if any, with the net cash proceeds of an Equity
Offering; provided that at least two-thirds of the original aggregate principal
amount at maturity of the Senior Secured Discount Notes remains outstanding
immediately after the occurrence of such redemption (excluding Senior Secured
Discount Notes held by the Company and its Subsidiaries); and provided, further
that any such redemption shall occur within 60 days of the date of the closing
of such Equity Offering.
6. MANDATORY REDEMPTION.
Except as set forth in paragraph 7 below, the Company shall
not be required to make mandatory redemption or sinking fund payments with
respect to the Senior Secured Discount Notes.
7. REPURCHASE AT OPTION OF HOLDER.
(a) Upon the occurrence of a Change of Control, the Company
shall be required to make an offer to each Holder of Senior Secured Discount
Notes to repurchase all or any part (equal to $1,000 or an integral multiple
thereof) of such Holder's Senior Secured Discount Notes pursuant to an offer
(the "Change of Control Offer") at an offer price in cash equal to 101% of the
aggregate principal
A2-4
<PAGE>
amount thereof plus accrued and unpaid interest and Liquidated Damages thereon,
if any, to the date of purchase (or, in the case of repurchases of Senior
Secured Discount Notes prior to March 15, 2003, at a purchase price equal to
101% of the Accreted Value thereof, plus Liquidated Damages thereon, if any, as
of the date of repurchase) (in either case, the "Change of Control Payment").
Within 10 days following any Change of Control, the Company shall mail a notice
to each Holder setting forth the procedures governing the Change of Control
Offer as required by the Indenture.
(b) When the aggregate amount of Excess Proceeds exceeds $10
million, the Company shall commence an offer to all Holders of Senior Secured
Discount Notes (an "Asset Sale Offer") pursuant to Section 3.09 of the
Indenture to purchase the maximum principal amount of Senior Secured Discount
Notes that may be purchased out of the Excess Proceeds, at an offer price in
cash in an amount equal to 100% of the aggregate principal amount thereof, plus
accrued and unpaid interest and Liquidated Damages thereon, if any, to the date
of purchase (or, in the case of purchases of Senior Secured Discount Notes
prior to March 15, 2003, at a purchase price equal to 100% of the Accreted
Value thereof, plus Liquidated Damages thereon, if any), in accordance with the
procedures set forth in the Indenture; provided, however, that such offer shall
not be required if the application of such Excess Proceeds to repurchase Senior
Secured Discount Notes would cause an Event of Default under the Subsidiary
Debt Instruments. If the aggregate purchase price of Senior Secured Discount
Notes tendered into such Asset Sale Offer by Holders thereof is less than the
Excess Proceeds, the Company may use such Excess Proceeds for general corporate
purposes (subject to restrictions of the Indenture). If the aggregate purchase
price of Senior Secured Discount Notes tendered into such Asset Sale Offer by
Holders thereof exceeds the amount of Excess Proceeds, the Trustee shall select
the Senior Secured Discount Notes to be purchased on a pro rata basis. Upon
completion of such Asset Sale Offer, the amount of Excess Proceeds shall be
reset at zero. Holders of Senior Secured Discount Notes that are the subject of
an offer to purchase will receive an Asset Sale Offer from the Company prior to
any related purchase date and may elect to have such Senior Secured Discount
Notes purchased by completing the form entitled "Option of Holder to Elect
Purchase" on the reverse of the Senior Secured Discount Notes.
8. NOTICE OF REDEMPTION. Notice of redemption will be mailed
at least 30 days but not more than 60 days before the redemption date to each
Holder whose Senior Secured Discount Notes are to be redeemed at its registered
address. Senior Secured Discount Notes in denominations larger than $1,000 may
be redeemed in part but only in whole multiples of $1,000, unless all of the
Senior Secured Discount Senior Secured Discount Notes held by a Holder are to
be redeemed. On and after the redemption date interest ceases to accrue on
Senior Secured Discount Notes or portions thereof called for redemption.
9. DENOMINATIONS, TRANSFER, EXCHANGE. The Senior Secured
Discount Notes are in registered form without coupons in denominations of
$1,000 and integral multiples of $1,000. The transfer of Senior Secured
Discount Notes may be registered and Senior Secured Discount Notes may be
exchanged as provided in the Indenture. The Registrar and the Trustee may
require a Holder, among other things, to furnish appropriate endorsements and
transfer documents and the Company may require a Holder to pay any taxes and
fees required by law or permitted by the Indenture. The Company need not
exchange or register the transfer of any Senior Secured Discount Note or
portion of a Senior Secured Discount Note selected for redemption, except for
the unredeemed portion of any Senior Secured Discount Note being redeemed in
part. Also, the Company need not exchange or register the transfer of any
Senior Secured Discount Notes for a period of 15 days before a selection of
Senior Secured Discount Notes to be redeemed or during the period between a
record date and the corresponding Interest Payment Date.
A2-5
<PAGE>
This Regulation S Temporary Global Note is exchangeable in
whole or in part for one or more Global Notes only (i) on or after the
termination of the 40-day restricted period (as defined in Regulation S) and
(ii) upon presentation of certificates (accompanied by an Opinion of Counsel,
if applicable) required by Article 2 of the Indenture. Upon exchange of this
Regulation S Temporary Global Note for one or more Global Notes, the Trustee
shall cancel this Regulation S Temporary Global Note.
10. PERSONS DEEMED OWNERS. The registered Holder of a Senior
Secured Discount Note may be treated as its owner for all purposes.
11. AMENDMENT, SUPPLEMENT AND WAIVER. Subject to certain
exceptions, the Indenture or the Senior Secured Discount Notes may be amended
or supplemented with the consent of the Holders of at least a majority in
principal amount at maturity of the Senior Secured Discount Notes then
outstanding (including, without limitation, consents obtained in connection
with a purchase of, or tender offer or exchange offer for, Senior Secured
Discount Notes), and subject to Sections 6.04 and 6.07 of the Indenture any
existing Default or Event of Default (other than a Default or Event of Default
in the payment of the principal of, premiums on, if any, interest on or
Liquidated Damages on, if any, the Senior Secured Discount Notes, except a
payment default resulting from an acceleration that has been rescinded) or
compliance with any provision of the Indenture, the Senior Secured Discount
Notes or the Collateral Documents may be waived with the consent of the Holders
of a majority in principal amount at maturity of the then outstanding Senior
Secured Discount Notes voting as a single class. Without the consent of any
Holder of Senior Secured Discount Notes, the Indenture or the Senior Secured
Discount Notes may be amended or supplemented by the Company and the Trustee to
cure any ambiguity, defect or inconsistency, to provide for uncertificated
Senior Secured Discount Notes in addition to or in place of certificated Senior
Secured Discount Notes, to provide for the assumption of the Company's
obligations to Holders of the Senior Secured Discount Notes in the case of a
merger or consolidation or sale of all or substantially all of the Company's
assets, to make any change that would provide any additional rights or benefits
to the Holders of the Senior Secured Discount Notes or that does not adversely
affect the legal rights under the Indenture of any such Holder or to comply
with the requirements of the Commission in order to effect or maintain the
qualification of the Indenture under the Trust Indenture Act.
12. DEFAULTS AND REMEDIES. Events of Default include: (i)
default for 30 days in the payment when due of interest on the Senior Secured
Discount Notes; (ii) default in payment when due of the principal of or
premium, or Liquidated Damages, if any, on the Senior Secured Discount Notes
when the same becomes due and payable at maturity, upon redemption (including
in connection with an offer to purchase) or otherwise; (iii) failure by the
Company or any of its Subsidiaries to comply with Sections 4.07, 4.09, 4.10,
4.15 and 5.01 of the Indenture; (iv) failure by the Company or any of its
Subsidiaries for 30 days after notice to comply with any of its other
agreements in the Indenture, the Senior Secured Discount Notes or the Pledge
Agreement; (v) default under certain other agreements relating to Indebtedness
of the Company which default results in the acceleration of such Indebtedness
prior to its express maturity; (vi) certain final judgments for the payment of
money that remain undischarged for a period of 45 days; and (vii) certain
events of bankruptcy or insolvency with respect to the Company or any of its
Significant Subsidiaries. If any Event of Default occurs and is continuing, the
Trustee or the Holders of at least 25% in principal amount at maturity of the
then outstanding Senior Secured Discount Notes may declare all the Senior
Secured Discount Notes to be due and payable immediately. Notwithstanding the
foregoing, in the case of an Event of Default arising from certain events of
bankruptcy or insolvency, with respect to the Company, any Significant
Subsidiary or any group of Subsidiaries that, taken together, would constitute
a Significant Subsidiary, all outstanding Senior Secured Discount Notes will
become due and payable without further action or notice. Upon any
A2-6
<PAGE>
acceleration of maturity of the Senior Secured Discount Notes, all principal of
and accrued interest on and Liquidated Damages, if any (if on or after March
15, 2003) or Accreted Value and Liquidated Damages, if any (if prior to March
15, 2003), of the Senior Secured Discount Notes shall be due and payable
immediately. Holders may not enforce the Indenture or the Senior Secured
Discount Notes except as provided in the Indenture. Subject to certain
limitations, Holders of a majority in principal amount at maturity of the then
outstanding Senior Secured Discount Notes may direct the Trustee in its
exercise of any trust or power. The Trustee may withhold from Holders of the
Senior Secured Discount Notes notice of any continuing Default or Event of
Default (except a Default or Event of Default relating to the payment of
principal or interest) if it determines that withholding notice is in their
interest. The Holders of a majority in aggregate principal amount at maturity
of the Senior Secured Discount Notes then outstanding by notice to the Trustee
(and without notice to any other Holder) may on behalf of the Holders of all of
the Senior Secured Discount Notes waive an existing Default or Event of Default
and its consequences under the Indenture except a continuing Default or Event
of Default in the payment of the principal of, premiums, if any, or interest
on, the Senior Secured Discount Notes (including in connection with an offer to
purchase) (provided, however, that Holders of a majority in aggregate principal
amount of the then outstanding Senior Secured Discount Notes may rescind an
acceleration and its consequences, including any related payment default that
resulted from such acceleration). The Company is required to deliver to the
Trustee annually a statement regarding compliance with the Indenture, and the
Company is required upon becoming aware of any Default or Event of Default, to
deliver to the Trustee a statement specifying such Default or Event of Default.
13. TRUSTEE DEALINGS WITH COMPANY. The Trustee, in its
individual or any other capacity, may make loans to, accept deposits from, and
perform services for the Company or its Affiliates, and may otherwise deal with
the Company or its Affiliates, as if it were not the Trustee.
14. NO RECOURSE AGAINST OTHERS. No director, officer,
employee, incorporator or stockholder, of the Company, as such, shall have any
liability for any obligations of the Company under the Senior Secured Discount
Notes, the Indenture or the Pledge Agreement or for any claim based on, in
respect of, or by reason of, such obligations or their creation. Each Holder of
Senior Secured Discount Notes by accepting a Senior Secured Discount Note
waives and releases all such liability. The waiver and release are part of the
consideration for the issuance of the Senior Secured Discount Notes. Such
waiver may not be effective to waive liabilities under the federal securities
laws and it is the view of the Commission that such waiver is against public
policy.
15. AUTHENTICATION. This Senior Secured Discount Note shall
not be valid until authenticated by the manual signature of the Trustee or an
authenticating agent.
16. ABBREVIATIONS. Customary abbreviations may be used in the
name of a Holder or an assignee, such as: TEN COM (= tenants in common), TEN
ENT (= tenants by the entireties), JT TEN (= joint tenants with right of
survivorship and not as tenants in common), CUST (= Custodian), and U/G/M/A (=
Uniform Gifts to Minors Act).
17. ADDITIONAL RIGHTS OF HOLDERS OF RESTRICTED GLOBAL NOTES
AND RESTRICTED DEFINITIVE NOTES. In addition to the rights provided to Holders
of Senior Secured Discount Notes under the Indenture, Holders of Restricted
Global Notes and Restricted Definitive Notes shall have all the rights set
forth in the A/B Exchange Registration Rights Agreement dated as of March 12,
1998, between the Company and the parties named on the signature pages thereof
(the "Registration Rights Agreement").
A2-7
<PAGE>
18. CUSIP NUMBERS. Pursuant to a recommendation promulgated
by the Committee on Uniform Security Identification Procedures, the Company has
caused CUSIP numbers to be printed on the Senior Secured Discount Notes and the
Trustee may use CUSIP numbers in notices of redemption as a convenience to
Holders. No representation is made as to the accuracy of such numbers either as
printed on the Senior Secured Discount Notes or as contained in any notice of
redemption and reliance may be placed only on the other identification numbers
placed thereon.
A2-8
<PAGE>
The Company will furnish to any Holder upon written request
and without charge a copy of the Indenture, the Pledge Agreement and/or the
Registration Rights Agreement. Requests may be made to:
SF Holdings Group, Inc.
115 Stevens Avenue
Valhalla, New York 10595
Attention: General Counsel
A2-9
<PAGE>
ASSIGNMENT FORM
To assign this Senior Secured Discount Note, fill in the form below: (I) or
(we) assign and transfer this Senior Secured Discount Note to
- -------------------------------------------------------------------------------
(Insert assignee's soc. sec. or tax I.D. no.)
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
(Print or type assignee's name, address and zip code)
and irrevocably appoint
------------------------------------------------------
to transfer this Senior Secured Discount Note on the books of the Company. The
agent may substitute another to act for him.
- -------------------------------------------------------------------------------
Date:
--------------------
Your Signature:
----------------------------------
(Sign exactly as your name appears
on the Senior Secured Discount Note)
SIGNATURE GUARANTEE.
Signatures must be guaranteed by an "eligible guarantor institution" meeting
the requirements of the Registrar, which requirements include membership or
participation in the Security Transfer Agent Medallion Program ("STAMP") or
such other "signature guarantee program" as may be determined by the Registrar
in addition to, or in substitution for, STAMP, all in accordance with the
Securities Exchange Act of 1934, as amended.
A2-10
<PAGE>
OPTION OF HOLDER TO ELECT PURCHASE
If you want to elect to have this Senior Secured Discount
Note purchased by the Company pursuant to Section 4.10 or 4.15 of the
Indenture, check the appropriate box below:
[ ] Section 4.10 [ ] Section 4.15
If you want to elect to have only part of the Senior Secured
Discount Note purchased by the Company pursuant to Section 4.10 or Section 4.15
of the Indenture, state the amount you elect to have purchased:
$
-----------
- -------------------------------------------------------------------------------
Date: Your Signature:
------------------ ------------------------------------
(Sign exactly as your name appears
on the Senior Secured Discount Note)
Tax Identification No.:
-----------------------------
SIGNATURE GUARANTEE.
Signatures must be guaranteed by an "eligible guarantor institution" meeting
the requirements of the Registrar, which requirements include membership or
participation in the Security Transfer Agent Medallion Program ("STAMP") or
such other "signature guarantee program" as may be determined by the Registrar
in addition to, or in substitution for, STAMP, all in accordance with the
Securities Exchange Act of 1934, as amended.
A2-11
<PAGE>
SCHEDULE OF EXCHANGES OF REGULATION S TEMPORARY GLOBAL NOTE
The following exchanges of a part of this Regulation S
Temporary Global Note for an interest in another Global Note, or of other
Restricted Global Notes for an interest in this Regulation S Temporary Global
Note, have been made:
<TABLE>
<CAPTION>
Amount of Principal Amount
decrease in Amount of increase in at maturity of this Signature of
Principal Amount Principal Amount Global Note authorized officer
at maturity of at maturity of following such of Trustee or Note
Date of Exchange this Global Note this Global Note decrease (or increase) Custodian
- ---------------- ---------------- ---------------- ---------------------- ---------
<S> <C> <C> <C> <C>
</TABLE>
A2-12
<PAGE>
EXHIBIT B
FORM OF CERTIFICATE OF TRANSFER
SF Holdings Group, Inc.
115 Stevens Avenue
Valhalla, New York 10595
The Bank of New York
101 Barclay Street, 21 West
New York, New York 10286
Re: Senior Secured Discount Notes due 2008
Reference is hereby made to the Indenture, dated as of March
12, 1998 (the "Indenture"), between SF Holdings Group, Inc., as issuer (the
"Company"), and The Bank of New York, as trustee. Capitalized terms used but
not defined herein shall have the meanings given to them in the Indenture.
, (the "Transferor") owns and proposes to
transfer the Senior Secured Discount Note[s] or interest in such Senior Secured
Discount Note[s] specified in Annex A hereto, in the principal amount of
$ in such Senior Secured Discount Note[s] or interests (the
"Transfer"), to (the "Transferee"), as further specified in Annex A
hereto. In connection with the Transfer, the Transferor hereby certifies that:
[CHECK ALL THAT APPLY]
1. [ ] CHECK IF TRANSFEREE WILL TAKE DELIVERY OF A BENEFICIAL INTEREST IN THE
144A GLOBAL NOTE OR A DEFINITIVE NOTE PURSUANT TO RULE 144A. The Transfer is
being effected pursuant to and in accordance with Rule 144A under the United
States Securities Act of 1933, as amended (the "Securities Act"), and,
accordingly, the Transferor hereby further certifies that the beneficial
interest or Definitive Note is being transferred to a Person that the
Transferor reasonably believed and believes is purchasing the beneficial
interest or Definitive Note for its own account, or for one or more accounts
with respect to which such Person exercises sole investment discretion, and
such Person and each such account is a "qualified institutional buyer" within
the meaning of Rule 144A in a transaction meeting the requirements of Rule 144A
and such Transfer is in compliance with any applicable blue sky securities laws
of any state of the United States. Upon consummation of the proposed Transfer
in accordance with the terms of the Indenture, the transferred beneficial
interest or Definitive Note will be subject to the restrictions on transfer
enumerated in the Private Placement Legend printed on the 144A Global Note
and/or the Definitive Note and in the Indenture and under the Securities Act.
2. [ ] CHECK IF TRANSFEREE WILL TAKE DELIVERY OF A BENEFICIAL INTEREST IN THE
TEMPORARY REGULATION S GLOBAL NOTE, THE REGULATION S GLOBAL NOTE OR A
DEFINITIVE NOTE PURSUANT TO REGULATION S. The Transfer is being effected
pursuant to and in accordance with Rule 903 or Rule 904 under the Securities
Act and, accordingly, the Transferor hereby further certifies that (i) the
Transfer is not being made to a person in the United States and (x) at the time
the buy order was originated, the Transferee was outside the United States or
such Transferor and any Person acting on its behalf reasonably believed and
believes that the Transferee was outside the United States or (y) the
transaction was executed in, on or through the facilities of a designated
offshore securities market and neither such Transferor nor any Person acting on
its behalf knows that the transaction was prearranged with a buyer in the
United States, (ii) no directed selling efforts have been made in contravention
of the requirements of
B-1
<PAGE>
Rule 903(b) or Rule 904(b) of Regulation S under the Securities Act, (iii) the
transaction is not part of a plan or scheme to evade the registration
requirements of the Securities Act and (iv) if the proposed transfer is being
made prior to the expiration of the Restricted Period, the transfer is not
being made to a U.S. Person or for the account or benefit of a U.S. Person
(other than an Initial Purchaser). Upon consummation of the proposed transfer
in accordance with the terms of the Indenture, the transferred beneficial
interest or Definitive Note will be subject to the restrictions on Transfer
enumerated in the Private Placement Legend printed on the Regulation S Global
Note, the Temporary Regulation S Global Note and/or the Definitive Note and in
the Indenture and under the Securities Act.
3. [ ] CHECK AND COMPLETE IF TRANSFEREE WILL TAKE DELIVERY OF A BENEFICIAL
INTEREST IN THE IAI GLOBAL NOTE OR A DEFINITIVE NOTE PURSUANT TO ANY PROVISION
OF THE SECURITIES ACT OTHER THAN RULE 144A OR REGULATION S. The Transfer is
being effected in compliance with the transfer restrictions applicable to
beneficial interests in Restricted Global Notes and Restricted Definitive Notes
and pursuant to and in accordance with the Securities Act and any applicable
blue sky securities laws of any state of the United States, and accordingly the
Transferor hereby further certifies that (check one):
(a) [ ] such Transfer is being effected pursuant to and in
accordance with Rule 144 under the Securities Act;
or
(b) [ ] such Transfer is being effected to the Company or a
subsidiary thereof;
or
(c) [ ] such Transfer is being effected pursuant to an
effective registration statement under the Securities Act and in compliance
with the prospectus delivery requirements of the Securities Act;
or
(d) [ ] such Transfer is being effected to an Institutional
Accredited Investor and pursuant to an exemption from the registration
requirements of the Securities Act other than Rule 144A, Rule 144 or Rule 904,
and the Transferor hereby further certifies that it has not engaged in any
general solicitation within the meaning of Regulation D under the Securities
Act and the Transfer complies with the transfer restrictions applicable to
beneficial interests in a Restricted Global Note or Restricted Definitive Notes
and the requirements of the exemption claimed, which certification is supported
by (1) a certificate executed by the Transferee in the form of Exhibit D to the
Indenture and (2) if such Transfer is in respect of a principal amount of
Senior Secured Discount Notes at the time of transfer of less than $250,000, an
Opinion of Counsel provided by the Transferor or the Transferee (a copy of
which the Transferor has attached to this certification), to the effect that
such Transfer is in compliance with the Securities Act. Upon consummation of
the proposed transfer in accordance with the terms of the Indenture, the
transferred beneficial interest or Definitive Note will be subject to the
restrictions on transfer enumerated in the Private Placement Legend printed on
the IAI Global Note and/or the Definitive Notes and in the Indenture and under
the Securities Act.
4. [ ] Check if Transferee will take delivery of a beneficial interest in an
Unrestricted Global Note or of an Unrestricted Definitive Note.
B-2
<PAGE>
(a) [ ] CHECK IF TRANSFER IS PURSUANT TO RULE 144. (i) The
Transfer is being effected pursuant to and in accordance with Rule 144 under
the Securities Act and in compliance with the transfer restrictions contained
in the Indenture and any applicable blue sky securities laws of any state of
the United States and (ii) the restrictions on transfer contained in the
Indenture and the Private Placement Legend are not required in order to
maintain compliance with the Securities Act. Upon consummation of the proposed
Transfer in accordance with the terms of the Indenture, the transferred
beneficial interest or Definitive Note will no longer be subject to the
restrictions on transfer enumerated in the Private Placement Legend printed on
the Restricted Global Notes, on Restricted Definitive Notes and in the
Indenture.
(b) [ ] CHECK IF TRANSFER IS PURSUANT TO REGULATION S. (i)
The Transfer is being effected pursuant to and in accordance with Rule 903 or
Rule 904 under the Securities Act and in compliance with the transfer
restrictions contained in the Indenture and any applicable blue sky securities
laws of any state of the United States and (ii) the restrictions on transfer
contained in the Indenture and the Private Placement Legend are not required in
order to maintain compliance with the Securities Act. Upon consummation of the
proposed Transfer in accordance with the terms of the Indenture, the
transferred beneficial interest or Definitive Note will no longer be subject to
the restrictions on transfer enumerated in the Private Placement Legend printed
on the Restricted Global Notes, on Restricted Definitive Notes and in the
Indenture.
(c) [ ] CHECK IF TRANSFER IS PURSUANT TO OTHER EXEMPTION. (i)
The Transfer is being effected pursuant to and in compliance with an exemption
from the registration requirements of the Securities Act other than Rule 144,
Rule 903 or Rule 904 and in compliance with the transfer restrictions contained
in the Indenture and any applicable blue sky securities laws of any State of
the United States and (ii) the restrictions on transfer contained in the
Indenture and the Private Placement Legend are not required in order to
maintain compliance with the Securities Act. Upon consummation of the proposed
Transfer in accordance with the terms of the Indenture, the transferred
beneficial interest or Definitive Note will not be subject to the restrictions
on transfer enumerated in the Private Placement Legend printed on the
Restricted Global Notes or Restricted Definitive Notes and in the Indenture.
This certificate and the statements contained herein are made
for your benefit and the benefit of the Company.
--------------------------------------
[Insert Name of Transferor]
By:
-----------------------------------
Name:
Title:
Dated: ,
------------- --------
B-3
<PAGE>
ANNEX A TO CERTIFICATE OF TRANSFER
1. The Transferor owns and proposes to transfer the following:
[CHECK ONE OF (a) OR (b)]
(a) [ ] a beneficial interest in the:
(i) [ ] 144A Global Note (CUSIP ), or
(ii) [ ] Regulation S Global Note (CUSIP ), or
(iii) [ ] IAI Global Note (CUSIP ); or
(b) [ ] a Restricted Definitive Note.
2. After the Transfer the Transferee will hold:
[CHECK ONE]
(a) a beneficial interest in the:
(i) [ ] 144A Global Note (CUSIP ), or
(ii) [ ] Regulation S Global Note (CUSIP ), or
(iii) [ ] IAI Global Note (CUSIP ); or
(iv) [ ] Unrestricted Global Note (CUSIP ); or
(b) [ ] a Restricted Definitive Note; or
(c) [ ] an Unrestricted Definitive Note,
in accordance with the terms of the Indenture.
B-4
<PAGE>
EXHIBIT C
FORM OF CERTIFICATE OF EXCHANGE
SF Holdings Group, Inc.
115 Stevens Avenue
Valhalla, New York 10595
The Bank of New York
101 Barclay Street, 21 West
New York, New York 10286
Re: Senior Secured Discount Notes due 2008
(CUSIP )
Reference is hereby made to the Indenture, dated as of March
12, 1998 (the "Indenture"), between SF Holdings Group, Inc., as issuer (the
"Company"), and The Bank of New York, as trustee. Capitalized terms used but
not defined herein shall have the meanings given to them in the Indenture.
, (the "Owner") owns and proposes to exchange the
Senior Secured Discount Note[s] or interest in such Senior Secured Discount
Note[s] specified herein, in the principal amount of $ in such
Senior Secured Discount Note[s] or interests (the "Exchange"). In connection
with the Exchange, the Owner hereby certifies that:
1. EXCHANGE OF RESTRICTED DEFINITIVE NOTES OR BENEFICIAL INTERESTS IN A
RESTRICTED GLOBAL NOTE FOR UNRESTRICTED DEFINITIVE NOTES OR BENEFICIAL
INTERESTS IN AN UNRESTRICTED GLOBAL NOTE
(a) [ ] CHECK IF EXCHANGE IS FROM BENEFICIAL INTEREST IN A
RESTRICTED GLOBAL NOTE TO BENEFICIAL INTEREST IN AN UNRESTRICTED GLOBAL NOTE.
In connection with the Exchange of the Owner's beneficial interest in a
Restricted Global Note for a beneficial interest in an Unrestricted Global Note
in an equal principal amount, the Owner hereby certifies (i) the beneficial
interest is being acquired for the Owner's own account without transfer, (ii)
such Exchange has been effected in compliance with the transfer restrictions
applicable to the Global Notes and pursuant to and in accordance with the
United States Securities Act of 1933, as amended (the "Securities Act"), (iii)
the restrictions on transfer contained in the Indenture and the Private
Placement Legend are not required in order to maintain compliance with the
Securities Act and (iv) the beneficial interest in an Unrestricted Global Note
is being acquired in compliance with any applicable blue sky securities laws of
any state of the United States.
(b) [ ] CHECK IF EXCHANGE IS FROM BENEFICIAL INTEREST IN A
RESTRICTED GLOBAL NOTE TO UNRESTRICTED DEFINITIVE NOTE. In connection with the
Exchange of the Owner's beneficial interest in a Restricted Global Note for an
Unrestricted Definitive Note, the Owner hereby certifies (i) the Definitive
Note is being acquired for the Owner's own account without transfer, (ii) such
Exchange has been effected in compliance with the transfer restrictions
applicable to the Restricted Global Notes and pursuant to and in accordance
with the Securities Act, (iii) the restrictions on transfer contained in the
Indenture and the Private Placement Legend are not required in order to
maintain compliance with the Securities Act and (iv) the Definitive Note is
being acquired in compliance with any applicable blue sky securities laws of
any state of the United States.
C-1
<PAGE>
(c) [ ] CHECK IF EXCHANGE IS FROM RESTRICTED DEFINITIVE NOTE
TO BENEFICIAL INTEREST IN AN UNRESTRICTED GLOBAL NOTE. In connection with the
Owner's Exchange of a Restricted Definitive Note for a beneficial interest in
an Unrestricted Global Note, the Owner hereby certifies (i) the beneficial
interest is being acquired for the Owner's own account without transfer, (ii)
such Exchange has been effected in compliance with the transfer restrictions
applicable to Restricted Definitive Notes and pursuant to and in accordance
with the Securities Act, (iii) the restrictions on transfer contained in the
Indenture and the Private Placement Legend are not required in order to
maintain compliance with the Securities Act and (iv) the beneficial interest is
being acquired in compliance with any applicable blue sky securities laws of
any state of the United States.
(d) [ ] CHECK IF EXCHANGE IS FROM RESTRICTED DEFINITIVE NOTE
TO UNRESTRICTED DEFINITIVE NOTE. In connection with the Owner's Exchange of a
Restricted Definitive Note for an Unrestricted Definitive Note, the Owner
hereby certifies (i) the Unrestricted Definitive Note is being acquired for the
Owner's own account without transfer, (ii) such Exchange has been effected in
compliance with the transfer restrictions applicable to Restricted Definitive
Notes and pursuant to and in accordance with the Securities Act, (iii) the
restrictions on transfer contained in the Indenture and the Private Placement
Legend are not required in order to maintain compliance with the Securities Act
and (iv) the Unrestricted Definitive Note is being acquired in compliance with
any applicable blue sky securities laws of any state of the United States.
2. EXCHANGE OF RESTRICTED DEFINITIVE NOTES OR BENEFICIAL INTERESTS IN
RESTRICTED GLOBAL NOTES FOR RESTRICTED DEFINITIVE NOTES OR BENEFICIAL INTERESTS
IN RESTRICTED GLOBAL NOTES
(a) [ ] CHECK IF EXCHANGE IS FROM BENEFICIAL INTEREST IN A
RESTRICTED GLOBAL NOTE TO RESTRICTED DEFINITIVE NOTE. In connection with the
Exchange of the Owner's beneficial interest in a Restricted Global Note for a
Restricted Definitive Note with an equal principal amount, the Owner hereby
certifies that the Restricted Definitive Note is being acquired for the Owner's
own account without transfer. Upon consummation of the proposed Exchange in
accordance with the terms of the Indenture, the Restricted Definitive Note
issued will continue to be subject to the restrictions on transfer enumerated
in the Private Placement Legend printed on the Restricted Definitive Note and
in the Indenture and the Securities Act.
(b) [ ] CHECK IF EXCHANGE IS FROM RESTRICTED DEFINITIVE NOTE
TO BENEFICIAL INTEREST IN A RESTRICTED GLOBAL NOTE. In connection with the
Exchange of the Owner's Restricted Definitive Note for a beneficial interest in
the [CHECK ONE] 144A Global Note, Regulation S Global Note, IAI Global Note
with an equal principal amount, the Owner hereby certifies (i) the beneficial
interest is being acquired for the Owner's own account without transfer and
(ii) such Exchange has been effected in compliance with the transfer
restrictions applicable to the Restricted Global Notes and pursuant to and in
accordance with the Securities Act, and in compliance with any applicable blue
sky securities laws of any state of the United States. Upon consummation of the
proposed Exchange in accordance with the terms of the Indenture, the beneficial
interest issued will be subject to the restrictions on transfer enumerated in
the Private Placement Legend printed on the relevant Restricted Global Note and
in the Indenture and the Securities Act.
C-2
<PAGE>
This certificate and the statements contained herein are made
for your benefit and the benefit of the Company.
-----------------------------------
[Insert Name of Owner]
By:
--------------------------------
Name:
Title:
Dated: ,
-------------- --------
C-3
<PAGE>
EXHIBIT D
FORM OF CERTIFICATE FROM
ACQUIRING INSTITUTIONAL ACCREDITED INVESTOR
SF Holdings Group, Inc.
115 Stevens Avenue
Valhalla, New York 10595
The Bank of New York
101 Barclay Street, 21 West
New York, New York 10286
Re: Senior Secured Discount Notes due 2008
Reference is hereby made to the Indenture, dated as of March
12, 1998 (the "Indenture"), between SF Holdings Group, Inc., as issuer (the
"Company"), and The Bank of New York, as trustee. Capitalized terms used but
not defined herein shall have the meanings given to them in the Indenture.
In connection with our proposed purchase of $ aggregate
principal amount of:
(a) [ ] a beneficial interest in a Global Note, or
(b) [ ] a Definitive Note,
we confirm that:
1. We understand that any subsequent transfer of the Senior
Secured Discount Notes or any interest therein is subject to certain
restrictions and conditions set forth in the Indenture and the undersigned
agrees to be bound by, and not to resell, pledge or otherwise transfer the
Senior Secured Discount Notes or any interest therein except in compliance
with, such restrictions and conditions and the United States Securities Act of
1933, as amended (the "Securities Act").
2. We understand that the offer and sale of the Senior
Secured Discount Notes have not been registered under the Securities Act, and
that the Senior Secured Discount Notes and any interest therein may not be
offered or sold except as permitted in the following sentence. We agree, on our
own behalf and on behalf of any accounts for which we are acting as hereinafter
stated, that if we should sell the Senior Secured Discount Notes or any
interest therein, we will do so only (A) to the Company or any subsidiary
thereof, (B) in accordance with Rule 144A under the Securities Act to a
"qualified institutional buyer" (as defined therein), (c) to an institutional
"accredited investor" (as defined below) that, prior to such transfer,
furnishes (or has furnished on its behalf by a U.S. broker-dealer) to you and
to the Company a signed letter substantially in the form of this letter and, if
such transfer is in respect of a principal amount of Senior Secured Discount
Notes, at the time of transfer of less than $250,000, an Opinion of Counsel in
form reasonably acceptable to the Company to the effect that such transfer is
in compliance with the Securities Act, (D) outside the United States in
accordance with Rule 904 of Regulation S under the Securities Act, (E) pursuant
to the provisions of Rule 144(k) under the Securities Act or (F) pursuant to an
effective registration statement under the Securities Act,
D-1
<PAGE>
and we further agree to provide to any person purchasing the Definitive Note or
beneficial interest in a Global Note from us in a transaction meeting the
requirements of clauses (A) through (E) of this paragraph a notice advising
such purchaser that resales thereof are restricted as stated herein.
3. We understand that, on any proposed resale of the Senior
Secured Discount Notes or beneficial interest therein, we will be required to
furnish to you and the Company such certifications, legal opinions and other
information as you and the Company may reasonably require to confirm that the
proposed sale complies with the foregoing restrictions. We further understand
that the Senior Secured Discount Notes purchased by us will bear a legend to
the foregoing effect. We further understand that any subsequent transfer by us
of the Senior Secured Discount Notes or beneficial interest therein acquired by
us must be effected through one of the Placement Agents.
4. We are an institutional "accredited investor" (as defined
in Rule 501(a)(1), (2), (3) or (7) of Regulation D under the Securities Act)
and have such knowledge and experience in financial and business matters as to
be capable of evaluating the merits and risks of our investment in the Senior
Secured Discount Notes, and we and any accounts for which we are acting are
each able to bear the economic risk of our or its investment.
5. We are acquiring the Senior Secured Discount Notes or
beneficial interest therein purchased by us for our own account or for one or
more accounts (each of which is an institutional "accredited investor") as to
each of which we exercise sole investment discretion.
You and the Company are entitled to rely upon this letter and
are irrevocably authorized to produce this letter or a copy hereof to any
interested party in any administrative or legal proceedings or official inquiry
with respect to the matters covered hereby.
------------------------------------------
[Insert Name of Accredited Investor]
By:
------------------------------------------
Name:
Title:
Dated: ,
------------- ----
D-2
<PAGE>
EXHIBIT E
FORM OF PLEDGE AGREEMENT
E-1
<PAGE>
EXHIBIT F
FORM OF SUBSIDIARY INTERCOMPANY NOTE
F-1
<PAGE>
SF HOLDINGS GROUP, INC.
SERIES A AND SERIES B
12 3/4% SENIOR SECURED DISCOUNT NOTES DUE 2008
INDENTURE
------------------------
Dated as of March 12, 1998
------------------------
The Bank of New York
Trustee
<PAGE>
CROSS-REFERENCE TABLE*
Trust Indenture Act Section Indenture Section
310 (a)(1).................................................. 7.10
(a)(2).................................................. 7.10
(a)(3).................................................. N.A.
(a)(4).................................................. N.A.
(a)(5).................................................. 7.10
(b)..................................................... 7.10
(c)..................................................... N.A.
311 (a)..................................................... 7.11
(b)..................................................... 7.11
(c)..................................................... N.A.
312 (a)..................................................... 2.05
(b)..................................................... 11.03
(c)..................................................... 11.03
313 (a)..................................................... 7.06
(b)(1).................................................. N.A.
(b)(2).................................................. 7.07
(c)..................................................... 7.06;11.02
(d)..................................................... 7.06
314 (a)..................................................... 4.03;11.02
(b)..................................................... N.A.
(c)(1).................................................. 11.04
(c)(2).................................................. 11.04
(c)(3).................................................. N.A.
(d)..................................................... N.A.
(e)..................................................... 11.05
(f)..................................................... N.A.
315 (a)..................................................... 7.01
(b)..................................................... 7.05,11.02
(c)..................................................... 7.01
(d)..................................................... 7.01
(e)..................................................... 6.11
316 (a)(last sentence)...................................... 2.09
(a)(1)(A)............................................... 6.05
(a)(1)(B)............................................... 6.04
(a)(2).................................................. N.A.
(b)..................................................... 6.07
(c)..................................................... 2.12
317 (a)(1).................................................. 6.08
(a)(2).................................................. 6.09
(b)..................................................... 2.04
318 (a)..................................................... 11.01
(b)..................................................... N.A.
(c)..................................................... 11.01
N.A. means not applicable.
*This Cross-Reference Table is not part of this Indenture.
<PAGE>
TABLE OF CONTENTS
ARTICLE 1. DEFINITIONS AND INCORPORATION BY REFERENCE.......................1
SECTION 1.01. DEFINITIONS...................................................1
SECTION 1.02. OTHER DEFINITIONS............................................15
SECTION 1.03. INCORPORATION BY REFERENCE OF TRUST INDENTURE ACT............16
SECTION 1.04. RULES OF CONSTRUCTION........................................16
ARTICLE 2. THE SENIOR SECURED DISCOUNT NOTES...............................16
SECTION 2.01. FORM AND DATING..............................................16
SECTION 2.02. EXECUTION AND AUTHENTICATION.................................18
SECTION 2.03. REGISTRAR AND PAYING AGENT...................................18
SECTION 2.04. PAYING AGENT TO HOLD MONEY IN TRUST..........................19
SECTION 2.05. HOLDER LISTS.................................................19
SECTION 2.06. TRANSFER AND EXCHANGE........................................19
SECTION 2.07. REPLACEMENT SENIOR SECURED DISCOUNT NOTES....................31
SECTION 2.08. OUTSTANDING SENIOR SECURED DISCOUNT NOTES...................31
SECTION 2.09. TREASURY SENIOR SECURED DISCOUNT NOTES......................31
SECTION 2.10. TEMPORARY SENIOR SECURED DISCOUNT NOTES......................32
SECTION 2.11. CANCELLATION.................................................32
SECTION 2.12. DEFAULTED INTEREST...........................................32
ARTICLE 3. REDEMPTION AND PREPAYMENT.......................................32
SECTION 3.01. NOTICES TO TRUSTEE...........................................32
SECTION 3.02. SELECTION OF SENIOR SECURED DISCOUNT NOTES TO BE REDEEMED....33
SECTION 3.03. NOTICE OF REDEMPTION.........................................33
SECTION 3.04. EFFECT OF NOTICE OF REDEMPTION...............................34
SECTION 3.05. DEPOSIT OF REDEMPTION PRICE..................................34
SECTION 3.06. SENIOR SECURED DISCOUNT NOTES REDEEMED IN PART...............35
SECTION 3.07. OPTIONAL REDEMPTION..........................................35
SECTION 3.08. MANDATORY REDEMPTION.........................................35
SECTION 3.09. REPURCHASE OFFERS............................................35
ARTICLE 4. COVENANTS.......................................................37
SECTION 4.01. PAYMENT OF SENIOR SECURED DISCOUNT NOTES.....................37
SECTION 4.02. MAINTENANCE OF OFFICE OR AGENCY..............................38
SECTION 4.03. REPORTS......................................................38
SECTION 4.04. COMPLIANCE CERTIFICATE.......................................39
SECTION 4.05. TAXES........................................................39
SECTION 4.06. STAY, EXTENSION AND USURY LAWS...............................39
SECTION 4.07. RESTRICTED PAYMENTS..........................................40
SECTION 4.08. DIVIDEND AND OTHER PAYMENT RESTRICTIONS AFFECTING
SUBSIDIARIES...............................................42
SECTION 4.09. INCURRENCE OF INDEBTEDNESS AND ISSUANCE OF PREFERRED STOCK...42
SECTION 4.10. ASSET SALES AND EVENTS OF LOSS...............................44
SECTION 4.11. TRANSACTIONS WITH AFFILIATES.................................45
SECTION 4.12. LIENS........................................................46
SECTION 4.13. LINE OF BUSINESS.............................................46
SECTION 4.14. CORPORATE EXISTENCE..........................................46
SECTION 4.15. OFFER TO REPURCHASE UPON CHANGE OF CONTROL...................46
SECTION 4.16. LIMITATIONS ON ISSUANCES AND SALES OF CAPITAL STOCK IN
WHOLLY OWNED RESTRICTED SUBSIDIARIES.......................47
SECTION 4.17. LIMITATION ON ISSUANCES OF GUARANTEES OF INDEBTEDNESS........47
SECTION 4.18. PAYMENTS FOR CONSENT.........................................48
i
<PAGE>
ARTICLE 5. SUCCESSORS......................................................48
SECTION 5.01. MERGER, CONSOLIDATION, OR SALE OF ASSETS.....................48
SECTION 5.02. SUCCESSOR CORPORATION SUBSTITUTED............................48
ARTICLE 6. DEFAULTS AND REMEDIES...........................................49
SECTION 6.01. EVENTS OF DEFAULT............................................49
SECTION 6.02. ACCELERATION.................................................50
SECTION 6.03. OTHER REMEDIES...............................................51
SECTION 6.04. WAIVER OF PAST DEFAULTS......................................51
SECTION 6.05. CONTROL BY MAJORITY..........................................51
SECTION 6.06. LIMITATION ON SUITS..........................................52
SECTION 6.07. RIGHTS OF HOLDERS OF SENIOR SECURED DISCOUNT NOTES
TO RECEIVE PAYMENT.........................................52
SECTION 6.08. COLLECTION SUIT BY TRUSTEE...................................52
SECTION 6.09. TRUSTEE MAY FILE PROOFS OF CLAIM.............................53
SECTION 6.10. PRIORITIES...................................................53
SECTION 6.11. UNDERTAKING FOR COSTS........................................53
ARTICLE 7. TRUSTEE.........................................................54
SECTION 7.01. DUTIES OF TRUSTEE............................................54
SECTION 7.02. RIGHTS OF TRUSTEE............................................55
SECTION 7.03. INDIVIDUAL RIGHTS OF TRUSTEE.................................55
SECTION 7.04. TRUSTEE'S DISCLAIMER.........................................56
SECTION 7.05. NOTICE OF DEFAULTS...........................................56
SECTION 7.06. REPORTS BY TRUSTEE TO HOLDERS OF THE SENIOR SECURED
DISCOUNT NOTES.............................................56
SECTION 7.07. COMPENSATION AND INDEMNITY...................................56
SECTION 7.08. REPLACEMENT OF TRUSTEE.......................................57
SECTION 7.09. SUCCESSOR TRUSTEE BY MERGER, ETC.............................58
SECTION 7.10. ELIGIBILITY; DISQUALIFICATION................................58
SECTION 7.11. PREFERENTIAL COLLECTION OF CLAIMS AGAINST THE COMPANY........58
ARTICLE 8..................................................................58
LEGAL DEFEASANCE AND COVENANT DEFEASANCE...................................59
SECTION 8.01. OPTION TO EFFECT LEGAL DEFEASANCE OR COVENANT DEFEASANCE.....59
SECTION 8.02. LEGAL DEFEASANCE AND DISCHARGE...............................59
SECTION 8.03. COVENANT DEFEASANCE..........................................59
SECTION 8.04. CONDITIONS TO LEGAL OR COVENANT DEFEASANCE...................60
SECTION 8.05. DEPOSITED MONEY AND GOVERNMENT SECURITIES TO BE
HELD IN TRUST; OTHER MISCELLANEOUS PROVISIONS..............61
SECTION 8.06. REPAYMENT TO COMPANY.........................................61
SECTION 8.07. REINSTATEMENT................................................62
SECTION 8.08. SENIOR SECURED DISCOUNT NOTE COLLATERAL.....................62
ARTICLE 9. AMENDMENT, SUPPLEMENT AND WAIVER................................62
SECTION 9.01. WITHOUT CONSENT OF HOLDERS OF SENIOR SECURED DISCOUNT NOTES..62
SECTION 9.02. WITH CONSENT OF HOLDERS OF SENIOR SECURED DISCOUNT NOTES.....63
SECTION 9.03. COMPLIANCE WITH TRUST INDENTURE ACT..........................64
SECTION 9.04. REVOCATION AND EFFECT OF CONSENTS............................64
SECTION 9.05. NOTATION ON OR EXCHANGE OF SENIOR SECURED DISCOUNT NOTES.....65
SECTION 9.06. TRUSTEE TO SIGN AMENDMENTS, ETC..............................65
ARTICLE 10. COLLATERAL AND SECURITY........................................65
SECTION 10.01. COLLATERAL DOCUMENTS........................................65
SECTION 10.02. RECORDING AND OPINIONS......................................66
ii
<PAGE>
SECTION 10.03. RELEASE OF COLLATERAL.......................................66
SECTION 10.04. CERTIFICATES OF THE COMPANY.................................67
SECTION 10.05. CERTIFICATES OF THE TRUSTEE.................................67
SECTION 10.06. AUTHORIZATION OF ACTIONS TO BE TAKEN BY THE TRUSTEE UNDER
THE COLLATERAL DOCUMENTS..................................67
SECTION 10.07. AUTHORIZATION OF RECEIPT OF FUNDS BY THE TRUSTEE
UNDER THE COLLATERAL DOCUMENTS............................68
SECTION 10.08. TERMINATION OF SECURITY INTEREST............................68
SECTION 10.09. COOPERATION OF TRUSTEE......................................69
ARTICLE 11. MISCELLANEOUS..................................................69
SECTION 11.01. TRUST INDENTURE ACT CONTROLS................................69
SECTION 11.02. NOTICES.....................................................69
SECTION 11.03. COMMUNICATION BY HOLDERS OF SENIOR SECURED DISCOUNT NOTES
WITH OTHER HOLDERS OF SENIOR SECURED DISCOUNT NOTES.......70
SECTION 11.04. CERTIFICATE AND OPINION AS TO CONDITIONS PRECEDENT..........70
SECTION 11.05. STATEMENTS REQUIRED IN CERTIFICATE OR OPINION...............70
SECTION 11.06. RULES BY TRUSTEE AND AGENTS.................................71
SECTION 11.07. NO PERSONAL LIABILITY OF DIRECTORS, OFFICERS, EMPLOYEES
AND STOCKHOLDERS...........................................71
SECTION 11.08. GOVERNING LAW...............................................71
SECTION 11.09. NO ADVERSE INTERPRETATION OF OTHER AGREEMENTS...............71
SECTION 11.10. SUCCESSORS..................................................71
SECTION 11.11. SEVERABILITY................................................72
SECTION 11.12. COUNTERPART ORIGINALS.......................................72
SECTION 11.13. TABLE OF CONTENTS, HEADINGS, ETC............................72
iii
<PAGE>
[EXECUTION COPY]
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
SF HOLDINGS GROUP, INC.
$144,000,000
144,000 UNITS CONSISTING OF
12 3/4% SENIOR SECURED DISCOUNT NOTES DUE 2008 AND
288,000 SHARES OF CLASS C COMMON STOCK
REGISTRATION RIGHTS AGREEMENT
March 12, 1998
BEAR, STEARNS & CO. INC.
SBC WARBURG DILLION READ INC.
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
<PAGE>
This Registration Rights Agreement (this "Agreement") is made and
entered into as of March 12, 1998, by and between SF Holdings Group, Inc., a
Delaware corporation (the "Company") and Bear, Stearns & Co., Inc. and SBC
Warburg Dillion Read Inc. (each, an "Initial Purchaser" and together, the
"Initial Purchasers"), who has agreed to purchase the Company's Units (the
"Units"), each consisting of $1,000 in aggregate principal amount at maturity
of 12 3/4% Series A Senior Secured Discount Notes due 2008 (the "Series A
Senior Secured Discount Notes") and 2 Shares of Class C Common Stock, par value
$.001 per share, of the Company pursuant to the Purchase Agreement (as defined
below).
This Agreement is made pursuant to the Purchase Agreement, dated
March 5, 1998 (the "Purchase Agreement"), between the Company and the Initial
Purchasers. In order to induce the Initial Purchasers to purchase the Units,
the Company has agreed to provide the registration rights set forth in this
Agreement. The execution and delivery of this Agreement is a condition to the
obligations of the Initial Purchasers set forth in Section 2 of the Purchase
Agreement.
The parties hereby agree as follows:
SECTION 1. DEFINITIONS
As used in this Agreement, the following capitalized terms shall
have the following meanings:
Act: The Securities Act of 1933, as amended.
Affiliate: As defined in Rule 144 under the Act.
Broker-Dealer: Any broker or dealer registered under the Exchange
Act.
Business Day: Any day except a Saturday, Sunday or other day in the
City of New York, or in the city of the corporate trust office of the Trustee,
on which banks are authorized to close.
Certificated Securities: Definitive Notes, as defined in the
Indenture.
Closing Date: The date of this Agreement.
Commission: The Securities and Exchange Commission.
Consummate: An Exchange Offer shall be deemed "Consummated" for
purposes of this Agreement upon the occurrence of (i) the filing and
effectiveness under the Act of the Exchange Offer Registration Statement
relating to the Series B Senior Secured Discount Notes to be issued in the
Exchange Offer,, (ii) the maintenance of such Exchange Offer Registration
Statement continuously effective and the keeping of the Exchange Offer open for
a period not less than the minimum period required pursuant to Section 3(b)
hereof, and (iii) the delivery by the Company to the Resgistrar under the
Indenture of Series B Senior Secured Discount Notes in the same aggregate
principal amount at maturity as the aggregate principal amount of Series A
Senior Secured Discount Notes that were tendered by Holders thereof pursuant to
the Exchange Offer.
Damages Payment Date: With respect to the Series A Senior Secured
Discount Notes, each Interest Payment Date.
1
<PAGE>
Effectiveness Deadline: As defined in Section 3(a) hereof.
Exchange Act: The Securities Exchange Act of 1934, as amended.
Exchange Offer: The registration by the Company under the Act of the
Series B Senior Secured Discount Notes pursuant to a Registration Statement
pursuant to which the Company shall offer the Holders of all outstanding
Transfer Restricted Securities the opportunity to exchange all such outstanding
Transfer Restricted Securities held by such Holders for Series B Senior Secured
Discount Notes in an aggregate principal amount at maturity equal to the
aggregate principal amount at maturity of the Transfer Restricted Securities
tendered in such exchange offer by such Holders.
Exchange Offer Registration Statement: The Registration Statement
relating to the Exchange Offer, including the related Prospectus.
Exempt Resales: The transactions in which the Initial Purchasers
propose to sell the Units to certain "qualified institutional buyers," as such
term is defined in Rule 144A under the Act, and to certain persons permitted to
purchase the Units in offshore transactions in reliance upon Regulation S under
the Act ("Regulation S Purchasers").
Filing Deadline: As defined in Section 3(a) hereof.
Holders: As defined in Section 2(b) hereof.
Indemnified Holder: As defined in Section 8(a) hereof.
Indenture: The Indenture, dated as of March 12, 1998, between the
Company and The Bank of New York, as trustee (the "Trustee"), pursuant to which
the Senior Secured Discount Notes are to be issued, as such Indenture is
amended or supplemented from time to time in accordance with the terms thereof.
Initial Purchasers: As defined in the preamble hereto.
Interest Payment Date: As defined in the Indenture and the Senior
Secured Discount Notes.
NASD: National Association of Securities Dealers, Inc.
Offering Memorandum: As defined in the Purchase Agreement.
Person: An individual, partnership, corporation, trust or
unincorporated organization, or a government or agency or political subdivision
thereof.
Prospectus: The prospectus included in a Registration Statement at
the time such Registration Statement is declared effective, as amended or
supplemented by any prospectus supplement and by all other amendments thereto,
including post-effective amendments, and all material incorporated by reference
into such Prospectus.
2
<PAGE>
Record Holder: With respect to any Damages Payment Date relating to
Senior Secured Discount Notes, each Person who is a Holder of Senior Secured
Discount Notes on the record date with respect to the Interest Payment Date on
which such Damages Payment Date shall occur.
Registrar: An office or agency maintained by the Company where
Senior Secured Discount Notes may be presented for registration of transfer or
for exchange.
Registration Default: As defined in Section 5 hereof.
Registration Statement: Any registration statement of the Company
relating to (a) an offering of Series B Senior Secured Discount Notes pursuant
to an Exchange Offer or (b) the registration for resale of Transfer Restricted
Securities pursuant to the Shelf Registration Statement in each case, (i) that
is filed pursuant to the provisions of this Agreement and (ii) including the
Prospectus included therein, all amendments and supplements thereto (including
post-effective amendments) and all exhibits and material incorporated by
reference therein.
Regulation S: Regulation S promulgated under the Act.
Rule 144: Rule 144 promulgated under the Act.
Senior Secured Discount Notes: The Series A Senior Secured Discount
Notes and the Series B Senior Secured Discount Notes.
Series A Senior Secured Discount Notes: As defined in the preamble
hereto.
Series B Senior Secured Discount Notes: The Company's 12 3/4%
Series B Senior Secured Discount Notes due 2008 to be issued pursuant to the
Indenture in the Exchange Offer.
Shelf Effectiveness Deadline: As defined in Section 4(a) hereof.
Shelf Filing Deadline: As defined in Section 4(a) hereof.
Shelf Registration Statement: As defined in Section 4 hereof.
TIA: The Trust Indenture Act of 1939 (15 U.S.C. Section
77aaa-77bbbb) as in effect on the date of the Indenture.
Transfer Restricted Securities: Each Senior Secured Discount Note,
until the earliest to occur of (a) the date on which such Senior Secured
Discount Note is exchanged in the Exchange Offer and entitled to be resold to
the public by the Holder thereof without complying with the prospectus delivery
requirements of the Act, (b) the date on which such Senior Secured Discount
Note has been effectively registered under the Act and disposed of in
accordance with a Shelf Registration Statement, (c) the date on which such
Senior Secured Discount Note is disposed of by a Broker-Dealer pursuant to the
"Plan of Distribution" contemplated by the Exchange Offer Registration
Statement (including delivery of the Prospectus contained therein) or (d) the
date on which such Senior Secured Discount Note is distributed to the public
pursuant to Rule 144 under the Act.
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Underwritten Registration or Underwritten Offering: A registration
in which securities of the Company are sold to an underwriter for reoffering to
the public.
SECTION 2. SECURITIES SUBJECT TO THIS AGREEMENT
(a) Transfer Restricted Securities. The securities entitled to the
benefits of this Agreement are the Transfer Restricted Securities.
(b) Holders of Transfer Restricted Securities. A Person is deemed to
be a holder of Transfer Restricted Securities (each, a "Holder") whenever such
Person owns Transfer Restricted Securities.
SECTION 3. REGISTERED EXCHANGE OFFER
(a) Unless the Exchange Offer shall not be permissible under
applicable law or Commission policy (after the procedures set forth in Section
6(a) below have been complied with), the Company shall (i) cause to be filed
with the Commission as soon as practicable after the Closing Date, but in no
event later than 45 days after the Closing Date (such 45th day being the
"Filing Deadline"), an Exchange Offer Registration Statement under the Act
relating to the Series B Senior Secured Discount Notes and the Exchange Offer,
(ii) use its best efforts to cause such Exchange Offer Registration Statement
to become effective at the earliest possible time, but in no event later than
120 days after the Closing Date (such 120th day being the "Effectiveness
Deadline"), (iii) in connection with the foregoing, (A) file all pre--
effective amendments to such Exchange Offer Registration Statement as may be
necessary in order to cause such Registration Statement to become effective,
(B) file if applicable, a post-effective amendment to such Exchange Offer
Registration Statement pursuant to Rule 430A under the Act and (C) cause all
necessary filings, if any, in connection with the registration and
qualification of the Series B Senior Secured Discount Notes to be made under
the Blue Sky laws of such jurisdictions as are necessary to permit Consummation
of the Exchange Offer, except as would subject it to service of process in
suits or taxation, in each case, other than as to matters and transactions
relating to the Offering Memorandum, the Exchange Offer, any Registration
Statement or Exempt Resales, in any jurisdiction where it is not now so subject
and (iv) upon the effectiveness of such Exchange Offer Registration Statement,
commence and Consummate the Exchange Offer. The Exchange Offer shall be on the
appropriate form permitting registration of the Series B Senior Secured
Discount Notes, to be offered in exchange for the Series A Senior Secured
Discount Notes that are Transfer Restricted Securities and to permit resales of
Series B Senior Secured Discount Notes by Broker-Dealers that tendered into the
Exchange Offer for Series A Senior Secured Discount Notes that such
Broker-Dealer acquired for its own account as a result of market-making
activities or other trading activities (other than Series A Notes acquired
directly from the Company or any of its Affiliates) as contemplated by Section
3(c) below.
(b) The Company shall cause the Exchange Offer Registration
Statement to be effective continuously and shall keep the Exchange Offer open
for a period of not less than the minimum period required under applicable
federal and state securities laws to Consummate the Exchange Offer; provided,
however, that in no event shall such period be less than 20 Business Days. The
Company shall cause the Exchange Offer to comply with all applicable federal
and state securities laws. Without the consent of the Initial Purchasers, no
securities other than the Senior Secured Discount Notes shall be included in
the Exchange Offer Registration Statement. The Company shall use its best
efforts to cause the Exchange
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Offer to be Consummated on the earliest practicable date after the Exchange
Offer Registration Statement has become effective, but in no event later than
30 Business Days thereafter.
(c) The Company shall include a "Plan of Distribution" section in
the Prospectus contained in the Exchange Offer Registration Statement and
indicate therein that any Broker-Dealer who holds Series A Senior Secured
Discount Notes that are Transfer Restricted Securities and that were acquired
for its own account as a result of market-making activities or other trading
activities (other than Transfer Restricted Securities acquired directly from
the Company or an Affiliate of the Company), may exchange such Transfer
Restricted Securities pursuant to the Exchange Offer; however, such
Broker-Dealer may be deemed to be an "underwriter" within the meaning of the
Act and must, therefore, deliver a prospectus meeting the requirements of the
Act in connection with the initial sale of any Series B Senior Secured Discount
Notes received by such Broker-Dealer in the Exchange Offer, which prospectus
delivery requirement may be satisfied by the delivery by such Broker-Dealer of
the Prospectus contained in the Exchange Offer Registration Statement. Such
"Plan of Distribution" section shall also contain all other information with
respect to such sales by such Broker-Dealers that the Commission may require in
order to permit such sales pursuant thereto, but such "Plan of Distribution"
shall not name any such Broker- Dealer or disclose the amount of Transfer
Restricted Securities held by any such Broker-Dealer except to the extent
required by the Commission as a result of a change in policy, rules or
regulations after the date of this Agreement.
The Company shall use its best efforts to keep the Exchange Offer
Registration Statement continuously effective, supplemented and amended as
required by the provisions of Section 6(c) below to the extent necessary to
ensure that it is available for sales of Series B Senior Secured Discount Notes
acquired by Broker-Dealers for their own accounts as a result of market-making
activities or other trading activities, and to ensure that it conforms with the
requirements of this Agreement, the Act and the policies, rules and regulations
of the Commission as announced from time to time, for a period of 270 days from
the date on which the Exchange Offer Registration Statement is declared
effective.
The Company shall provide sufficient copies of the latest version of
such Prospectus to Broker- Dealers promptly upon request at any time during
such 270 day period in order to facilitate such sales.
SECTION 4. SHELF REGISTRATION
(a) Shelf Registration. If (i) the Company is not required to file
an Exchange Offer Registration Statement or to Consummate the Exchange Offer
because the Exchange Offer is not permitted by applicable law or Commission
policy (after the procedures set forth in Section 6(a) below have been complied
with) or (ii) if any Holder of Transfer Restricted Securities shall notify the
Company within 20 Business Days of the Consummation of the Exchange Offer (A)
that such Holder is prohibited by applicable law or Commission policy from
participating in the Exchange Offer, or (B) that such Holder may not resell the
Series B Senior Secured Discount Notes acquired by it in the Exchange Offer to
the public without delivering a prospectus and that the Prospectus contained in
the Exchange Offer Registration Statement is not appropriate or available for
such resales by such Holder, or (C) that such Holder is a Broker-Dealer and
holds Series A Senior Secured Discount Notes acquired directly from the Company
or one of its Affiliates, then the Company shall:
(x) cause to be filed a shelf registration statement pursuant
to Rule 415 under the Act, which may be an amendment to the Exchange
Offer Registration Statement (in either event, the
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<PAGE>
"Shelf Registration Statement") on or prior to the earliest to occur
of (1) the 60th day after the date on which the Company determines
that it is not required to file the Exchange Offer Registration
Statement, (2) the 60th day after the date on which the Company
receives notice from a Holder of Transfer Restricted Securities as
contemplated by clause (ii) above, and (3) the 120th day after the
Closing Date (such earliest date being the "Shelf Filing Deadline"),
which Shelf Registration Statement shall provide for resales of all
Transfer Restricted Securities the Holders of which shall have
provided the information required pursuant to Section 4(b) hereof;
and
(y) use their best efforts to cause such Shelf Registration
Statement to be declared effective by the Commission on or before
the 90th day after the Shelf Filing Deadline (such 90th day the
"Shelf Effectiveness Deadline").
The Company shall use its best efforts to keep such Shelf Registration
Statement continuously effective, supplemented and amended as required by the
provisions of Sections 6(b) and (c) hereof to the extent necessary to ensure
that it is available for resales of Transfer Restricted Securities by the
Holders thereof entitled to the benefit of this Section 4(a), and to ensure
that it conforms with the requirements of this Agreement, the Act and the
policies, rules and regulations of the Commission as announced from time to
time, for a period of two years following the Closing Date (as extended
pursuant to Section 6(c)(i) following the date on which such Shelf Registration
Statement first becomes effective under the Act, or such shorter period as will
terminate when all Transfer Restricted Securities covered by such Registration
Statement have been sold pursuant thereto).
(b) Provision by Holders of Certain Information in Connection with
the Shelf Registration Statement. No Holder of Transfer Restricted Securities
may include any of its Transfer Restricted Securities in any Shelf Registration
Statement pursuant to this Agreement unless and until such Holder furnishes to
the Company in writing, within 20 Business Days after receipt of a request
therefor, such information as the Company may reasonably request for use in
connection with any Shelf Registration Statement or Prospectus or preliminary
Prospectus included therein. No Holder of Transfer Restricted Securities shall
be entitled to Liquidated Damages pursuant to Section 5 hereof unless and until
such Holder shall have used its best efforts to provide all such reasonably
requested information. Each Holder as to which any Shelf Registration Statement
is being effected agrees to furnish promptly to the Company all information
required to be disclosed in order to make the information previously furnished
to the Company by such Holder not materially misleading.
SECTION 5. LIQUIDATED DAMAGES
If (i) any of the Registration Statements required by this Agreement
are not filed with the Commission on or prior to the Filing Deadline or Shelf
Filing Deadline, as the case may be, (ii) any of such Registration Statements
has not been declared effective by the Commission on or prior to the Effective
Deadline or Shelf Effective Deadline, as the case may be, (iii) the Exchange
Offer has not been Consummated within 30 Business Days after the Effective
Deadline with respect to the Exchange Offer Registration Statement or (iv) any
Registration Statement required by this Agreement is filed and declared
effective but shall thereafter cease to be effective or fail to be usable for
its intended purpose without being succeeded immediately by a post-effective
amendment to such Registration Statement that cures such failure and that is
itself immediately declared effective (each such event referred to in clauses
(i) through (iv), a "Registration Default"), the Company agrees to pay
liquidated damages to each Holder of Transfer
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<PAGE>
Restricted Securities with respect to the first 90-day period, or any portion
thereof, immediately following the occurrence of such Registration Default, in
an amount equal to 50 basis points per annum of the Accreted Value of the
Series A Senior Secured Discount Notes held by such Holder The amount of the
liquidated damages will increase by an additional 50 basis points per annum of
the Accreted Value of the Series A Senior Secured Discount Notes held by such
Holder for each subsequent 90-day period, or any portion thereof, until all
Registration Defaults have been cured, up to a maximum amount of two hundred
basis points per annum of the Accreted Value of the Series A Senior Secured
Discount Notes. All accrued liquidated damages shall be paid to the Global Note
Holders by the Company by wire transfer of immediately available funds or by
federal funds check and to Holders of Certificated Securities by wire transfer
to the accounts specified by them or by mailing checks to their registered
addresses if no such accounts have been specified, in each case, on each
Damages Payment Date, as provided in the Indenture. As of the date of the cure
of all Registration Defaults relating to any particular Transfer Restricted
Securities, the accrual of liquidated damages with respect to such Transfer
Restricted Securities will cease.
All obligations of the Company set forth in the preceding paragraph
that are outstanding with respect to any Transfer Restricted Security at the
time such security ceases to be a Transfer Restricted Security shall survive
until such time as all such obligations with respect to such Transfer
Restricted Security shall have been satisfied in full.
SECTION 6. REGISTRATION PROCEDURES
(a) Exchange Offer Registration Statement. In connection with the
Exchange Offer, the Company shall comply with all of the provisions of Section
6(c) below, shall use its best efforts to effect such exchange to permit the
sale of Transfer Restricted Securities being sold in accordance with the
intended method or methods of distribution thereof, and shall comply with all
of the following provisions:
(i) If in the reasonable opinion of counsel to the Company
there is a question as to whether the Exchange Offer is permitted by
applicable law, the Company hereby agrees, to the extent reasonably
practicable, to seek a no-action letter or other favorable decision
from the Commission allowing the Company to Consummate an Exchange
Offer for such Transfer Restricted Securities. The Company hereby
agrees to pursue the issuance of such a decision to the Commission
staff level but shall not be required to take commercially
unreasonable action to effect a change of Commission policy. The
Company hereby agrees, however, to (A) participate in telephonic
conferences with the Commission, (B) deliver to the Commission staff
an analysis prepared by counsel to the Company setting forth the
legal bases, if any, upon which such counsel has concluded that such
an Exchange Offer should be permitted and (C) diligently pursue a
resolution (which need not be favorable) by the Commission staff of
such submission.
(ii) As a condition to its participation in the Exchange Offer
pursuant to the terms of this Agreement, each Holder of Transfer
Restricted Securities shall furnish, upon the request of the
Company, prior to the Consummation thereof, a written representation
to the Company (which may be contained in the letter of transmittal
contemplated by the Exchange Offer Registration Statement) to the
effect that (A) it is not an Affiliate of the Company, (B) it is not
engaged in, and does not intend to engage in, and has no arrangement
or understanding with any person to participate in, a distribution
of the Series B Senior Secured Discount Notes to be issued in the
Exchange Offer, (C) it is acquiring the Series B Senior Secured
Discount Notes in its ordinary course of business and (D) it is not
acting on behalf of any person who could not make the
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<PAGE>
foregoing representations. In addition, all such Holders of Transfer
Restricted Securities shall otherwise cooperate in the Company's
preparations for the Exchange Offer. Each Holder hereby acknowledges
and agrees that any Broker-Dealer and any such Holder using the
Exchange Offer to participate in a distribution of the securities to
be acquired in the Exchange Offer (1) could not under Commission
policy as in effect on the date of this Agreement rely on the
position of the Commission enunciated in Morgan Stanley and Co., Inc.
(available June 5, 1991) and Exxon Capital Holdings Corporation
(available May 13, 1988), as interpreted in the Commission's letter
to Shearman & Sterling dated July 2, 1993, and similar no-action
letters (including, if applicable, any no-action letter obtained
pursuant to clause (i) above), and (2) must comply with the
registration and prospectus delivery requirements of the Act in
connection with a secondary resale transaction and that such a
secondary resale transaction should be covered by an effective
registration statement containing the selling security holder
information required by Item 507 or 508, as applicable, of Regulation
S-K if the resales are of Series B Senior Secured Discount Notes
obtained by such Holder in exchange for Series A Senior Secured
Discount Notes acquired by such Holder directly from the Company.
(iii) Prior to effectiveness of the Exchange Offer Registration
Statement, the Company shall provide a supplemental letter to the
Commission (A) stating that the Company is registering the Exchange
Offer in reliance on the position of the Commission enunciated in
Exxon Capital Holdings Corporation (available May 13, 1988), Morgan
Stanley and Co., Inc. (available June 5, 1991) and, if applicable,
any no-action letter obtained pursuant to clause (i) above and (B)
including a representation that the Company has not entered into any
arrangement or understanding with any Person to distribute the
Series B Senior Secured Discount Notes to be received in the
Exchange Offer and that, to the best of the Company's information
and belief, each Holder participating in the Exchange Offer is
acquiring the Series B Senior Secured Discount Notes in its ordinary
course of business and has no arrangement or understanding with any
Person to participate in the distribution of the Series B Senior
Secured Discount Notes received in the Exchange Offer and (C) any
other undertaking or representation required by the Commission as
set forth in any no-action letter obtained pursuant to clause (i)
above, if applicable.
(b) Shelf Registration Statement. In connection with the Shelf
Registration Statement, the Company shall comply with all the provisions of
Section 6(c) below and shall use its best efforts to effect such registration
to permit the sale of the Transfer Restricted Securities being sold in
accordance with the intended method or methods of distribution thereof (as
indicated in the information furnished to the Company pursuant to Section 4(b)
hereof), and pursuant thereto the Company will prepare and file with the
Commission a Registration Statement relating to the registration on any
appropriate form under the Act, which form shall be available for the sale of
the Transfer Restricted Securities in accordance with the intended method or
methods of distribution thereof within the time periods and otherwise in
accordance with the provisions hereof.
(c) General Provisions. In connection with any Registration
Statement and any related Prospectus required by this Agreement to permit the
sale or resale of Transfer Restricted Securities (including, without
limitation, any Registration Statement and the related Prospectus required to
permit sales of Transfer Restricted Securities by Broker-Dealers), the Company
shall:
(i) use their best efforts to keep such Registration Statement
continuously effective and provide all requisite financial
statements (including, if required by the Act or any regulation
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<PAGE>
thereunder, financial statements of any Restricted Subsidiary) for
the period specified in Section 3 or 4 of this Agreement, as
applicable; upon the occurrence of any event that would cause any
such Registration Statement or the Prospectus contained therein (A)
to contain a material misstatement or omission or (B) not to be
effective and usable for resale of Transfer Restricted Securities
during the period required by this Agreement, the Company shall file
promptly an appropriate amendment to such Registration Statement, in
the case of clause (A), correcting any such misstatement or
omission, and, in the case of either clause (A) or (B), use their
best efforts to cause such amendment to be declared effective and
such Registration Statement and the related Prospectus to become
usable for their intended purpose(s) as soon as practicable
thereafter;
(ii) prepare and file with the Commission such amendments and
post-effective amendments to the applicable Registration Statement
as may be necessary to keep such Registration Statement effective
for the applicable period set forth in Section 3 or 4 hereof, as
applicable, or such shorter period as will terminate when all
Transfer Restricted Securities covered by such Registration
Statement have been sold; cause the Prospectus to be supplemented by
any required Prospectus supplement, and as so supplemented to be
filed pursuant to Rule 424 under the Act, and to comply fully with
the applicable provisions of Rules 424 and 430A under the Act in a
timely manner; and comply with the provisions of the Act with
respect to the disposition of all securities covered by such
Registration Statement during the applicable period in accordance
with the intended method or methods of distribution by the sellers
thereof set forth in such Registration Statement or supplement to
the Prospectus;
(iii) advise the underwriter(s), if any, and selling Holders
promptly and, if requested by such Persons, to confirm such advice
in writing, (A) when the Prospectus or any Prospectus supplement or
post-effective amendment has been filed, and, with respect to any
applicable Registration Statement or any post-effective amendment
thereto, when the same has become effective, (B) of any request by
the Commission for amendments to the Registration Statement or
amendments or supplements to the Prospectus or for additional
information relating thereto, (C) of the issuance by the Commission
of any stop order suspending the effectiveness of the Registration
Statement under the Act or of the suspension by any state securities
commission of the qualification of the Transfer Restricted
Securities for offering or sale in any jurisdiction, or the
initiation of any proceeding for any of the preceding purposes, (D)
of the existence of any fact or the happening of any event that
makes any statement of a material fact made in the Registration
Statement, the Prospectus, any amendment or supplement thereto, or
any document incorporated by reference therein untrue, or that
requires the making of any additions to or changes in the
Registration Statement or the Prospectus in order to make the
statements therein not misleading. If at any time the Commission
shall issue any stop order suspending the effectiveness of the
Registration Statement, or any state securities commission or other
regulatory authority shall issue an order suspending the
qualification or exemption from qualification of the Transfer
Restricted Securities under state securities or Blue Sky laws, the
Company shall use its best efforts to obtain the withdrawal or
lifting of such order at the earliest possible time;
(iv) furnish to each of the selling Holders named in any
Registration Statement or Prospectus and each of the underwriter(s)
in connection with such sale, if any, before filing with the
Commission, copies of any Registration Statement or any Prospectus
included therein or any amendments or supplements to any such
Registration Statement or Prospectus (including all documents
incorporated by reference after the initial filing of such
Registration Statement),
<PAGE>
which documents will be subject to the review of such Holders and
underwriter(s), if any, for a period of at least five Business Days,
and the Company will not file any such Registration Statement or
Prospectus or any amendment or supplement to any such Registration
Statement or Prospectus (including all such documents incorporated by
reference) to which a selling Holder of Transfer Restricted
Securities covered by such Registration Statement or the
underwriter(s) in connection with such sale, if any, shall reasonably
object within five Business Days after the receipt thereof. A selling
Holder or underwriter, if any, shall be deemed to have reasonably
objected to such filing if such Registration Statement, amendment,
Prospectus or supplement, as applicable, as proposed to be filed,
contains a material misstatement or omission or fails to materially
comply with the applicable requirements of the Act;
(v) promptly prior to the filing of any document that is to be
incorporated by reference into a Registration Statement or
Prospectus, provide copies of such document to the selling Holders
covered by such Registration Statement and to the underwriter(s) in
connection with such sale, if any, make the Company's
representatives available for discussion of such document and other
customary due diligence matters on reasonable prior notice, and
include such information in such document prior to the filing
thereof as such selling Holders or underwriter(s), if any,
reasonably may request within five Business Days of the receipt of
the proposed filing;
(vi) make available at reasonable times for inspection by the
selling Holders, any underwriter participating in any disposition
pursuant to such Registration Statement, and any attorney or
accountant retained by such selling Holders or any of the
underwriter(s), all financial and other records, pertinent corporate
documents and properties of the Company and cause the Company's
officers, directors and employees to supply all information
reasonably requested by any such Holder, underwriter, attorney or
accountant in connection with such Registration Statement subsequent
to the filing thereof and prior to its effectiveness;
(vii) if requested by any selling Holders covered by such
Registration Statement or the underwriter(s) in connection with such
sale, if any, promptly incorporate in any Registration Statement or
Prospectus, pursuant to a supplement or post-effective amendment if
necessary, such information as such selling Holders and
underwriter(s), if any, may reasonably request to have included
therein, including, without limitation, information relating to the
"Plan of Distribution" of the Transfer Restricted Securities,
information with respect to the principal amount of Transfer
Restricted Securities being sold to such underwriter(s), the
purchase price being paid therefor and any other terms of the
offering of the Transfer Restricted Securities to be sold in such
offering; and make all required filings of such Prospectus
supplement or post-effective amendment as soon as practicable after
the Company is notified of the matters to be incorporated in such
Prospectus supplement or post-effective amendment;
(viii) cause the Transfer Restricted Securities covered by the
Registration Statement to be rated with the appropriate rating
agencies, if so requested by the Holders of a majority in aggregate
principal amount at maturity of Senior Secured Discount Notes
covered thereby or the underwriter(s), if any;
(ix) furnish to each selling Holder covered by such
Registration Statement and each of the underwriter(s) in connection
with such sale, if any, without charge, at least one copy of the
Registration Statement, as first filed with the Commission, and of
each amendment thereto,
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including all documents incorporated by reference therein and all
exhibits (including exhibits incorporated therein by reference);
(x) deliver to each selling Holder and to each of the
underwriter(s), if any, without charge, as many copies of the
Prospectus (including each preliminary prospectus) and any amendment
or supplement thereto as such Persons reasonably may request; the
Company hereby consents to the use of the Prospectus and any
amendment or supplement thereto by each of the selling Holders and
each of the underwriter(s), if any, in connection with the offering
and the sale of the Transfer Restricted Securities covered by the
Prospectus or any amendment or supplement thereto, provided that the
Company has not advised such persons otherwise pursuant to Section
6(c)(iii);
(xi) enter into such agreements (including an underwriting
agreement), and make such representations and warranties, and take
all such other actions in connection therewith in order to expedite
or facilitate the disposition of the Transfer Restricted Securities
pursuant to any Registration Statement contemplated by this
Agreement, all to such extent as may be requested by any Initial
Purchasers or by any Holder of Transfer Restricted Securities or
underwriter in connection with any sale or resale pursuant to any
Registration Statement contemplated by this Agreement; and whether
or not an underwriting agreement is entered into and whether or not
the registration is an Underwritten Registration, the Company shall:
(A) furnish to the Initial Purchasers, each selling
Holder and each underwriter, if any, in such substance and
scope as they may request and as are customarily made by
issuers to underwriters in primary underwritten offerings, upon
the date of the Consummation of the Exchange Offer and, if
applicable, the effectiveness of the Shelf Registration
Statement:
(1) a certificate, dated the date of the
Consummation of the Exchange Offer or the date of the
effectiveness of the Shelf Registration Statement, as the
case may be, signed by (y) the President or any Vice
President and (z) a principal financial or accounting
officer of the Company, confirming, as of the date
thereof, the matters set forth in paragraphs (a), (b),
(c) and (d) of Section 8 of the Purchase Agreement and
such other matters as such parties may reasonably
request;
(2) an opinion, dated the date of Consummation of
the Exchange Offer or the date of effectiveness of the
Shelf Registration Statement, as the case may be, of
counsel for the Company, covering the matters set forth
in paragraph (f) of Section 8 of the Purchase Agreement
and such other matters as such parties may reasonably
request, in any event including a statement to the effect
that such counsel has participated in conferences with
officers and other representatives of the Company,
representatives of the independent public accountants for
the Company, and have considered the matters required to
be stated therein and the statements contained therein,
although such counsel has not independently verified the
accuracy, completeness or fairness of such statements;
and that such counsel advises that, on the basis of the
foregoing (relying as to materiality to a large extent
upon facts provided to such counsel by officers and other
representatives of the Company and the and without
independent check or verification), no facts came to such
counsel's attention that caused such counsel to believe
that the applicable Registration Statement, at the time
such Registration Statement or any post-effective
amendment thereto became
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effective, and, in the case of the Exchange Offer
Registration Statement, as of the date of Consummation,
contained an untrue statement of a material fact or omitted
to state a material fact required to be stated therein or
necessary to make the statements therein not misleading, or
that the Prospectus contained in such Registration
Statement as of its date and, in the case of the opinion
dated the date of Consummation of the Exchange Offer, as of
the date of Consummation, contained an untrue statement of
a material fact or omitted to state a material fact
necessary in order to make the statements therein, in light
of the circumstances under which they were made, not
misleading. Without limiting the foregoing, such counsel
may state further that such counsel assumes no
responsibility for, and has not independently verified, the
accuracy, completeness or fairness of the financial
statements, notes and schedules and other financial data
included in any Registration Statement contemplated by this
Agreement or the related Prospectus; and
(3) provided that the requesting Holders,
underwriters, if any, or other such financial intermediary
furnish the undertaking required in SAS 72, if required, a
customary comfort letter, dated as of the date of
Consummation of the Exchange Offer or the date of
effectiveness of the Shelf Registration Statement, as the
case may be, from the Company's independent accountants, in
the customary form and covering matters of the type
customarily covered in comfort letters by underwriters in
connection with primary underwritten offerings, and
affirming the matters set forth in the comfort letters
delivered pursuant to Section 8(i) and 8(j) of the Purchase
Agreement, without exception;
(B) set forth in full or incorporate by reference in the
underwriting agreement, if any, the indemnification provisions
and procedures of Section 8 hereof with respect to all parties
to be indemnified pursuant to said Section; and
(C) deliver such other documents and certificates as may
be reasonably requested by such parties to evidence compliance
with clause (A) above and with any customary conditions
contained in the underwriting agreement or other agreement
entered into by the Company pursuant to this clause (xi), if
any.
If at any time the representations and warranties of the
Company contemplated in clause (A)(1) above cease to be true and
correct, the Company shall so advise the Initial Purchasers and the
underwriter(s), if any, and each selling Holder promptly and, if
requested by such Persons, shall confirm such advice in writing;
(xii) prior to any public offering of Transfer Restricted
Securities, cooperate with the selling Holders, the underwriter(s),
if any, and their respective counsel in connection with the
registration and qualification of the Transfer Restricted Securities
under the securities or Blue Sky laws of such jurisdictions as the
selling Holders or underwriter(s), if any, may request and do any and
all other acts or things necessary or advisable to enable the
disposition in such jurisdictions of the Transfer Restricted
Securities covered by the applicable Registration Statement;
provided, however, that the Company shall not be required to register
or qualify as a foreign corporation where it is not now so qualified
or to take any action that would subject it to the service of process
in suits or to taxation, other than as to matters and transactions
relating to the Registration Statement, in any jurisdiction where it
is not now so subject;
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(xiii) upon the request of any Holder of Series A Senior
Secured Discount Notes covered by the Shelf Registration Statement
contemplated by this Agreement, issue Series B Senior Secured
Discount Notes having an aggregate Accreted Value equal to the
aggregate Accreted Value of Series A Senior Secured Discount Notes
surrendered to the Company by such Holder in exchange therefor or
being sold by such Holder; such Series B Senior Secured Discount
Notes to be registered in the name of such Holder or in the name of
the purchaser(s) of such Senior Secured Discount Notes, as the case
may be; in return, the Series A Senior Secured Discount Notes held
by such Holder shall be surrendered to the Company for cancellation;
(xiv) in connection with any sale of Transfer Restricted
Securities that will result in such securities no longer being
Transfer Restricted Securities, cooperate with the selling Holders
and the underwriter(s), if any, to facilitate the timely preparation
and delivery of certificates representing Transfer Restricted
Securities to be sold and not bearing any restrictive legends; and
enable such Transfer Restricted Securities to be in such
denominations and registered in such names as the Holders or the
underwriter(s), if any, may request at least two Business Days prior
to any sale of Transfer Restricted Securities made by such
underwriter(s);
(xv) use its best efforts to cause the Transfer Restricted
Securities covered by the Registration Statement to be registered
with or approved by such other governmental agencies or authorities
as may be necessary to enable the seller or sellers thereof or the
underwriter(s), if any, to consummate the disposition of such
Transfer Restricted Securities;
(xvi) if any fact or event contemplated by clause 6(c)(iii)(D)
hereof shall exist or have occurred, prepare a supplement or
post-effective amendment to the Registration Statement or related
Prospectus or any document incorporated therein by reference or file
any other required document so that, as thereafter delivered to the
purchasers of Transfer Restricted Securities, the Prospectus will
not contain an untrue statement of a material fact or omit to state
any material fact necessary to make the statements therein in the
light of the circumstances under which they were made, not
misleading;
(xvii) provide a CUSIP number for all Transfer Restricted
Securities not later than the effective date of the Registration
Statement and provide the Trustee under the Indenture with printed
certificates for the Transfer Restricted Securities which are in a
form eligible for deposit with the Depository Trust Company;
(xviii) cooperate and assist in any filings required to be made
with the NASD and in the performance of any due diligence
investigation by any underwriter (including any "qualified
independent underwriter") that is required to be retained in
accordance with the rules and regulations of the NASD, and use its
reasonable best efforts to cause such Registration Statement to
become effective and approved by such governmental agencies or
authorities as may be necessary to enable the Holders selling
Transfer Restricted Securities to consummate the disposition of such
Transfer Restricted Securities;
(xix) otherwise use its best efforts to comply with all
applicable rules and regulations of the Commission, and make
generally available to its security holders, as soon as practicable,
a consolidated earnings statement meeting the requirements of Rule
158 (which need not be audited) for the twelve-month period (A)
commencing at the end of any fiscal quarter in which
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Transfer Restricted Securities are sold to underwriters in a firm or
best efforts Underwritten Offering or (B) if not sold to underwriters
in such an offering, beginning with the first month of the Company's
first fiscal quarter commencing after the effective date of the
Registration Statement;
(xx) make appropriate officers of the Company available to the
selling Holders for meeting with prospective purchasers of the
Transfer Restricted Securities and prepare and present to potential
investors customary "road show" material in a manner consistent with
other new issuances of other securities similar to the Transfer
Restricted Securities;
(xxi) cause the Indenture to be qualified under the TIA not
later than the effective date of the first Registration Statement
required by this Agreement, and, in connection therewith, cooperate
with the Trustee and the Holders of Senior Secured Discount Notes to
effect such changes to the Indenture as may be required for such
Indenture to be so qualified in accordance with the terms of the
TIA; and execute and use its best efforts to cause the Trustee to
execute, all documents that may be required to effect such changes
and all other forms and documents required to be filed with the
Commission to enable such Indenture to be so qualified in a timely
manner;
(xxii) use its best efforts to cause all Transfer Restricted
Securities covered by the Registration Statement to be listed on
each securities exchange on which similar securities issued by the
Company are then listed if requested by the Holders of a majority in
aggregate principal amount of Series A Senior Secured Discount Notes
or the managing underwriter(s), if any; and
(xxiii) provide promptly to each Holder upon request each
document filed with the Commission pursuant to the requirements of
Section 13 and Section 15 of the Exchange Act.
Each Holder agrees by acquisition of a Transfer Restricted Security
that, upon receipt of the notice referred to in Section 6(c)(i) or any notice
from the Company of the existence of any fact of the kind described in Section
6(c)(iii)(D) hereof, (in each case, a "Suspension Notice") such Holder will
forthwith discontinue disposition of Transfer Restricted Securities pursuant to
the applicable Registration Statement until (i) such Holder's receipt of the
copies of the supplemented or amended Prospectus contemplated by Section
6(c)(xvi) hereof, or (ii) such Holder is advised in writing by the Company that
the use of the Prospectus may be resumed, and has received copies of any
additional or supplemental filings that are incorporated by reference in the
Prospectus (in each case, the "Recommencement Date"). If so directed by the
Company, each Holder receiving a Suspension Notice will deliver to the Company
(at the Company's expense) all copies, other than permanent file copies then in
such Holder's possession, of the Prospectus covering such Transfer Restricted
Securities that was current at the time of receipt of such notice. In the event
the Company shall give any such notice, the time period regarding the
effectiveness of such Registration Statement set forth in Section 3 or 4
hereof, as applicable, shall be extended by the number of days equal to the
number of days in the period from and including the date of the Suspension
Notice to and including the Recommencement Date.
SECTION 7. REGISTRATION EXPENSES
(a) All expenses incident to the Company's performance of or
compliance with this Agreement will be borne by the Company, regardless of
whether a Registration Statement becomes effective,
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including without limitation: (i) all registration and filing fees and expenses
(including filings made by any Initial Purchasers or Holder with the NASD (and,
if applicable, the fees and expenses of any "qualified independent underwriter"
and its counsel that may be required by the rules and regulations of the
NASD)); (ii) all fees and expenses of compliance with federal securities and
state Blue Sky or securities laws; (iii) all expenses of printing (including
printing certificates for the Series B Senior Secured Discount Notes to be
issued in the Exchange Offer and printing of Prospectuses), messenger and
delivery services and telephone; (iv) all fees and disbursements of counsel for
the Company and, subject to Section 7(b) below, the Holders of Transfer
Restricted Securities; (v) all application and filing fees in connection with
listing Senior Secured Discount Notes on a national securities exchange or
automated quotation system pursuant to the requirements hereof; and (vi) all
fees and disbursements of independent certified public accountants of the
Company (including the expenses of any special audit and comfort letters
required by or incident to such performance).
The Company will, in any event, bear their internal expenses
(including, without limitation, all salaries and expenses of its officers and
employees performing legal or accounting duties), the expenses of any annual
audit and the fees and expenses of any Person, including special experts,
retained by the Company.
(b) In connection with any Registration Statement required by this
Agreement (including, without limitation, the Exchange Offer Registration
Statement and the Shelf Registration Statement), the Company will reimburse the
Initial Purchasers and the Holders of Transfer Restricted Securities being
tendered in the Exchange Offer and/or resold pursuant to the "Plan of
Distribution" contained in the Exchange Offer Registration Statement or
registered pursuant to the Shelf Registration Statement, as applicable, for the
reasonable fees and disbursements of not more than one counsel, who shall be
Latham & Watkins or such other counsel as may be chosen by the Holders of a
majority in principal amount of the Transfer Restricted Securities for whose
benefit such Registration Statement is being prepared.
SECTION 8. INDEMNIFICATION
(a) The Company agrees to indemnify and hold harmless (i) each
Holder, (ii) each person, if any, who controls any Holder within the meaning of
Section 15 of the Act or Section 20(a) of the Exchange Act and (iii) the
respective officers, directors, partners, employees, representatives and agents
of any Holder or any controlling person (any person referred to in clause (i),
(ii) or (iii) may hereinafter be referred to as an "Indemnified Holder") to the
fullest extent lawful, from and against any and all losses, liabilities,
claims, damages and expenses whatsoever (including but not limited to
attorneys' fees and any and all expenses whatsoever incurred in investigating,
preparing or defending against any investigation or litigation, commenced or
threatened, or any claim whatsoever, and any and all amounts paid in settlement
of any claim or litigation), joint or several, to which they or any of them may
become subject under the Act, the Exchange Act or otherwise, insofar as such
losses, liabilities, claims, damages or expenses (or actions in respect
thereof) arise out of or are based upon any untrue statement or alleged untrue
statement of a material fact contained in the Registration Statement,
preliminary prospectus filed as part of the Registration Statement, Shelf
Registration Statement or in any supplement thereto or amendment thereof, or
arise out of or are based upon the omission or alleged omission to state
therein a material fact required to be stated therein or necessary to make the
statements therein, in the light of the circumstances under which they were
made, not misleading; provided, however, that the Company will not be liable in
any such case to the extent, but only to the extent, that any such loss,
liability, claim, damage or expense (i) arises out of or is based upon any such
untrue statement or alleged untrue statement
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or omission or alleged omission made therein in reliance upon and in conformity
with written information furnished to the Company by or on behalf of the
Initial Purchasers or Holders expressly for use therein or (ii) if a subsequent
purchaser asserts that its losses, liabilities, claims, damages and expenses
was caused by any untrue statement or omission, or any alleged untrue statement
or omission, made in a preliminary prospectus, if a copy of the Registration
Statement in which such untrue statement or omission or alleged untrue
statement or omission was corrected had not been sent or given to such
subsequent purchaser by the Holder provided that the Company had delivered to
the Holder such Registration Statement in requisite quantity and on a timely
basis to permit such delivery. This indemnity agreement will be in addition to
any liability which the Company may otherwise have, including, under this
Agreement.
(b) Each Holder, severally and not jointly, agrees to indemnify and
hold harmless (i) each of the Company (ii) each person, if any, who controls
the Company within the meaning of Section 15 of the Act or Section 20(a) of the
Exchange Act and (iii) their respective officers, directors, partners, members,
employees, representatives and agents or any controlling person to the fullest
extent lawful from and against any losses, liabilities, claims, damages and
expenses whatsoever (including but not limited to attorneys' fees and any and
all expenses whatsoever incurred in investigating, preparing or defending
against any investigation or litigation, commenced or threatened, or any claim
whatsoever and any and all amounts paid in settlement of any claim or
litigation), joint or several, to which they or any of them may become subject
under the Act, the Exchange Act or otherwise, insofar as such losses,
liabilities, claims, damages or expenses (or actions in respect thereof) arise
out of or are based upon any untrue statement or alleged untrue statement of a
material fact contained in the Registration Statement, Shelf Registration
Statement, or preliminary prospectus filed as a part thereof, or in any
amendment thereof or supplement thereto, or arise out of or are based upon the
omission or alleged omission to state therein a material fact required to be
stated therein or necessary to make the statements therein, in the light of the
circumstances under which they were made, not misleading, in each case to the
extent, but only to the extent, that any such loss, liability, claim, damage or
expense arises out of or is based upon any untrue statement or alleged untrue
statement or omission or alleged omission made therein in reliance upon and in
conformity with written information furnished to the Company by or on behalf of
that Holder expressly for use therein; provided, however, that in no case shall
any Holder be liable or responsible for any amount in excess of the dollar
amount of the proceeds received by such Holder upon the sale of the Transfer
Restricted Securities giving rise to such indemnification obligation. This
indemnity will be in addition to any liability which any Holder may otherwise
have, including under this Agreement.
(c) In case any action shall be commenced involving any Person in respect
of which indemnity may be sought pursuant to Section 8(a) or 8(b) (the
"indemnified party"), promptly after receipt by an indemnified party of notice
of the commencement of any action, such indemnified party shall, if a claim in
respect thereof is to be made against the person against whom indemnity may be
sought (the "indemnifying party"), notify such indemnifying party in writing of
the commencement thereof (but the failure to so notify an indemnifying party
shall not relieve it from any liability which it may have under this Section 8
except to the extent that it has been prejudiced in any material respect by
such failure or from any liability which it may otherwise have). In case any
such action is brought against any indemnified party, and it notifies an
indemnifying party of the commencement thereof, the indemnifying party will be
entitled to participate therein, and to the extent it may elect by written
notice delivered to the indemnified party promptly after receiving the
aforesaid notice from such indemnified party, to assume the defense thereof
with counsel reasonably satisfactory to such indemnified party. Notwithstanding
the foregoing, the indemnified party or parties shall have the right to employ
its or their own counsel in any such case, but the fees and expenses of such
counsel shall be at the expense of such indemnified party or parties unless (i)
the employment of such counsel shall have been authorized in writing by the
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indemnifying parties in connection with the defense of such action, (ii) the
indemnifying parties shall not have employed counsel to take charge of the
defense of such action within a reasonable time after notice of commencement of
the action, or (iii) such indemnified party or parties shall have reasonably
concluded that there may be defenses available to it or them which are
different from or additional to those available to one or all of the
indemnifying parties (in which case the indemnifying party or parties shall not
have the right to direct the defense of such action on behalf of the
indemnified party or parties), in any of which events such fees and expenses of
counsel shall be borne by the indemnifying parties; provided, however, that the
indemnifying party under subsection (a) or (b) above, shall only be liable for
the legal expenses of one counsel (in addition to any local counsel) for all
indemnified parties in each jurisdiction in which any claim or action is
brought. Anything in this subsection to the contrary notwithstanding, an
indemnifying party shall not be liable for any settlement of any claim or
action effected without its prior written consent; provided, however, that such
consent was not unreasonably withheld.
(d) In order to provide for contribution in circumstances in which
the indemnification provided for in this Section 8 is for any reason held to be
unavailable from the Company or is insufficient to hold harmless a party
indemnified thereunder, the Company, on the one hand, and the Holders, on the
other hand, shall contribute to the aggregate losses, claims, damages,
liabilities and expenses of the nature contemplated by such indemnification
provision (including any investigation, legal and other expenses incurred in
connection with, and any amount paid in settlement of, any action, suit or
proceeding or any claims asserted, but after deducting in the case of losses,
claims, damages, liabilities and expenses suffered by the Company, any
contribution received by the Company from persons, other than the Holders, who
may also be liable for contribution, including persons who control the Company
within the meaning of Section 15 of the Act or Section 20(a) of the Exchange
Act) to which the Company, and any Holder may be subject, in such proportion as
is appropriate to reflect the relative benefits received by the Company, on one
hand, and the Holder, on the other hand, from their sale of Transfer Restricted
Securities or, if such allocation is not permitted by applicable law or
indemnification is not available as a result of the indemnifying party not
having received notice as provided in this Section 8, in such proportion as is
appropriate to reflect the relative fault of the Company, on one hand, and the
Holder, on the other hand, in connection with the statements or omissions which
resulted in such losses, claims, damages, liabilities or expenses, as well as
any other relevant equitable considerations. The relative fault of the Company,
on one hand, and of the Holder, on the other hand, shall be determined by
reference to, among other things, whether the untrue or alleged untrue
statement of a material fact or the omission or alleged omission to state a
material fact relates to information supplied by the Company, or the Holder and
the parties' relative intent, knowledge, access to information and opportunity
to correct or prevent such statement or omission. The Company and the Holders
agree that it would not be just and equitable if contribution pursuant to this
Section 8 were determined by pro rata allocation or by any other method of
allocation which does not take into account the equitable considerations
referred to above. Notwithstanding the provisions of this Section 8, (i) in no
case shall any Holder be required to contribute any amount in excess of the
amount by which the total value of the Series A Senior Secured Discount Notes
held by such Holder exceeds the amount of any damages which such Holder has
otherwise been required to pay by reason of such untrue or alleged untrue
statement or omission or alleged omission and (ii) no person guilty of
fraudulent misrepresentation (within the meaning of Section 11(f) of the Act)
shall be entitled to contribution from any person who was not guilty of such
fraudulent misrepresentation. For purposes of this Section 8, (A) each person,
if any, who controls any Holder within the meaning of Section 15 of the Act or
Section 20(a) of the Exchange Act and (B) the respective officers, directors,
partners, employees, representatives and agents of any Holder or any
controlling person shall have the same rights to contribution as such Holder,
and each person, if any, who controls the Company within the meaning of Section
15 of the Act or Section 20(a) of the Exchange Act shall have the same rights
to contribution as the Company, subject in
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each case to clauses (i) and (ii) of this Section 8(d). Any party entitled to
contribution will, promptly after receipt of notice of commencement of any
action, suit or proceeding against such party in respect of which a claim for
contribution may be made against another party or parties under this Section 8,
notify such party or parties from whom contribution may be sought, but the
failure to so notify such party or parties shall not relieve the party or
parties from whom contribution may be sought from any obligation it or they may
have under this Section 8 or otherwise. No party shall be liable for
contribution with respect to any action or claim settled without its prior
written consent; provided, however, that such written consent was not
unreasonably withheld.
SECTION 9. RULE 144A
The Company hereby agrees with each Holder, for so long as any
Transfer Restricted Securities remain outstanding, to make available, upon
request, to any Holder or beneficial owner of Transfer Restricted Securities in
connection with any sale thereof and any prospective purchaser of such Transfer
Restricted Securities from such Holder or beneficial owner, the information
required by Rule 144A(d)(4) under the Act in order to permit resales of such
Transfer Restricted Securities pursuant to Rule 144A.
SECTION 10. PARTICIPATION IN UNDERWRITTEN REGISTRATIONS
No Holder may participate in any Underwritten Registration hereunder
unless such Holder (a) agrees to sell such Holder's Transfer Restricted
Securities on the basis provided in any underwriting arrangements approved by
the Persons entitled hereunder to approve such arrangements and (b) completes
and executes all reasonable questionnaires, powers of attorney, indemnities,
underwriting agreements, lock-up letters and other documents required under the
terms of such underwriting arrangements.
SECTION 11. SELECTION OF UNDERWRITERS
The Holders of Transfer Restricted Securities covered by the Shelf
Registration Statement who desire to do so may sell such Transfer Restricted
Securities in an Underwritten Offering. In any such Underwritten Offering, the
investment banker or investment bankers and manager or managers that will
administer the offering will be selected by the Holders of a majority in
aggregate principal amount of the Transfer Restricted Securities included in
such offering; provided, that such investment bankers and managers must be
reasonably satisfactory to the Company.
SECTION 12. MISCELLANEOUS
(a) Remedies. The Company agrees that any failure by the Company to
comply comply with its obligations under Sections 3 and 4 hereof may result in
material irreparable injury to the Initial Purchasers or the Holders for which
there is no adequate remedy at law, that it will not be possible to measure
damages for such injuries precisely and that, in the event of any such failure,
the Initial Purchasers or any Holder may obtain such relief as may be required
to specifically enforce the Company's obligations under Sections 3 and 4
hereof. The Company agrees to waive the defense in any action for specific
performance that a remedy at law would be adequate.
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(b) No Inconsistent Agreements. The Company will not on or after the
date of this Agreement, enter into any agreement with respect to its securities
that is inconsistent with the rights granted to the Holders in this Agreement
or otherwise conflicts with the provisions hereof. The Company has not
previously entered into any agreement granting any registration rights with
respect to its securities to any Person, excluding the registration rights
granted to the Sweetheart Stockholders. The rights granted to the Holders
hereunder do not in any way conflict with and are not inconsistent with the
rights granted to the holders of the Company's securities under any agreement
in effect on the date hereof.
(c) Adjustments Affecting the Senior Secured Discount Notes. The
Company will not take any action, or permit any change to occur, with respect
to the Senior Secured Discount Notes that would materially and adversely affect
the ability of the Holders to Consummate any Exchange Offer.
(d) Amendments and Waivers. The provisions of this Agreement may not
be amended, modified or supplemented, and waivers or consents to or departures
from the provisions hereof may not be given unless the Company has obtained the
written consent of Holders of a majority of the outstanding principal amount of
Transfer Restricted Securities. Notwithstanding the foregoing, a waiver or
consent to departure from the provisions hereof that relates exclusively to the
rights of Holders whose securities are being tendered pursuant to the Exchange
Offer and that does not affect directly or indirectly the rights of other
Holders whose securities are not being tendered pursuant to such Exchange Offer
may be given by the Holders of a majority of the outstanding principal amount
of Transfer Restricted Securities being tendered or registered.
(e) Notices. All notices and other communications provided for or
permitted hereunder shall be made in writing by hand-delivery, first-class mail
(registered or certified, return receipt requested), telex, telecopier, or air
courier guaranteeing overnight delivery:
(i) if to a Holder, at the address set forth on the records of
the Registrar under the Indenture, with a copy to the Registrar
under the Indenture; and
(ii) if to the Company:
SF Holdings Group, Inc.
115 Stevens Avenue
Valhalla, New York 10595
Telecopier No.: (914) 747-2774
Attention: Harvey L. Friedman, General Counsel
With a copy to:
Kramer, Levin, Naftalis & Frankel
919 Third Avenue
New York, New York 10022
Telecopier No.: (212) 751-8000
Attention: Michael S. Nelson
All such notices and communications shall be deemed to have been
duly given: at the time delivered by hand, if personally delivered; five
Business Days after being deposited in the mail, postage
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prepaid, if mailed; when answered back, if telexed; when receipt acknowledged,
if telecopied; and on the next Business Day, if timely delivered to an air
courier guaranteeing overnight delivery.
Copies of all such notices, demands or other communications shall be
concurrently delivered by the Person giving the same to the Trustee at the
address specified in the Indenture.
(f) Successors and Assigns. This Agreement shall inure to the
benefit of and be binding upon the successors and assigns of each of the
parties, including without limitation and without the need for an express
assignment, subsequent Holders of Transfer Restricted Securities; provided,
however, that this Agreement shall not inure to the benefit of or be binding
upon a successor or assign of a Holder unless and to the extent such successor
or assign acquired Transfer Restricted Securities from such Holder.
(g) Counterparts. This Agreement may be executed in any number of
counterparts and by the parties hereto in separate counterparts, each of which
when so executed shall be deemed to be an original and all of which taken
together shall constitute one and the same agreement.
(h) Headings. The headings in this Agreement are for convenience of
reference only and shall not limit or otherwise affect the meaning hereof.
(i) Governing Law. THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED
IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK, WITHOUT REGARD TO THE
CONFLICT OF LAW RULES THEREOF.
(j) Severability. In the event that any one or more of the
provisions contained herein, or the application thereof in any circumstance, is
held invalid, illegal or unenforceable, the validity, legality and
enforceability of any such provision in every other respect and of the
remaining provisions contained herein shall not be affected or impaired
thereby.
(k) Entire Agreement. This Agreement together with the other
Operative Documents (as defined in the Purchase Agreement) is intended by the
parties as a final expression of their agreement and intended to be a complete
and exclusive statement of the agreement and understanding of the parties
hereto in respect of the subject matter contained herein. There are no
restrictions, promises, warranties or undertakings, other than those set forth
or referred to herein with respect to the registration rights granted by the
Company with respect to the Transfer Restricted Securities. This Agreement
supersedes all prior agreements and understandings between the parties with
respect to such subject matter.
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IN WITNESS WHEREOF, the parties have executed this Agreement as of
the date first written above.
SF HOLDINGS GROUP, INC.
By: /s/ Hans Heinsen
-------------------------------
Name: Hans Heinsen
Title: Chief Financial Officer
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BEAR, STEARNS & CO. INC.
By: /s/ James C. Deir
------------------------------
Name: James C. Deir
Title: Managing Director
SBC WARBURG DILLON READ INC.
By: /s/ David Dickson
------------------------------
Name: David Dickson
Title: Managing Director
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This STOCKHOLDERS' RIGHTS AGREEMENT is made and entered into
as of March 12, 1998, among SF Holdings Group, Inc., a Delaware corporation
(the "Company"), and the persons listed on Schedule I attached hereto.
WHEREAS, pursuant to an Investment Agreement dated as of December 29,
1997 between American Industrial Partners Capital Fund L.P. ("AIP"), the other
stockholders (together with AIP, the "Stockholders") of Sweetheart Holdings
Inc. ("Sweetheart"), the Company, and Creative Expressions Group, Inc., the
Company is simultaneously herewith acquiring (the "Acquisition") 48% of the
Class A Common Stock and 100% of the Class B Common Stock of Sweetheart;
WHEREAS, in connection with the Acquisition, the Stockholders are
acquiring the number of shares of Exchangeable Preferred Stock (as defined
herein) and Class C Common Stock (as defined herein) of the Company set forth
opposite their respective names on Schedule I hereto; and
WHEREAS, in connection with the Acquisition, under certain
circumstances, the Stockholders may acquire Exchange Warrants (as defined
herein) to acquire the additional number of shares of Class C Common Stock set
forth opposite their respective names on Schedule I hereto.
NOW, THEREFORE, in consideration of the premises, covenants
and agreements contained herein, the receipt and sufficiency of which is hereby
acknowledged, the parties hereto, intending to be legally bound hereby, agree
as follows:
SECTION 1. DEFINITIONS. As used in this Agreement, the
following terms shall have the following meanings:
"Affiliate" of any Person shall mean any other Person who
either directly or indirectly is in control of, is controlled by, or is under
common control with such Person.
"Business Day" shall mean any Monday, Tuesday, Wednesday,
Thursday or Friday that is not a day on which banking institutions in the City
of New York are authorized by law, regulation or executive order to close.
"Class C Common Stock" shall mean the shares of Class C
Common Stock, par value $.001 per share, of the Company.
"Closing Date" shall mean the date first above written.
"Closing Securities" shall mean the shares of Exchangeable
Preferred Stock (including any Subordinated Notes) and Class C Common Stock
acquired by the Stockholders.
<PAGE>
"Discount Notes" shall mean the 12.75% Senior Secured
Discount Notes due 2008 of the Company.
"Exchangeable Preferred Stock" shall mean the shares of
Exchangeable Preferred Stock, par value $.001 per share, of the Company.
"Exchange Act" shall mean the Securities Exchange Act of
1934, as amended (or any similar successor federal statute), and the rules and
regulations thereunder, as the same are in effect from time to time.
"Exchange Warrants" shall mean warrants to purchase an
aggregate of 960,000 shares of Class C Common Stock, subject to adjustment as
set forth therein.
"Person" shall mean an individual, partnership, corporation,
limited liability company, joint venture, trust or unincorporated organization,
a government or agency or political subdivision thereof or any other entity.
"Prospectus" shall mean the prospectus included in any
Registration Statement, as amended or supplemented by a prospectus supplement
with respect to the terms of the offering of any portion of the Registrable
Securities covered by such Registration Statement and by all other amendments
and supplements to the prospectus, including post-effective amendments and all
materials incorporated by reference in such prospectus.
"Registrable Securities" shall mean the Closing Securities,
the Exchange Warrants and the Underlying Stock and any securities issuable,
issued or distributed in respect of any of such securities by way of stock
dividend or stock split or in connection with a combination of shares,
recapitalization, reorganization, merger, consolidation or otherwise.
"Registration Expenses" shall have the meaning set forth in
Section 7 hereof.
"Registration Statement" shall mean any registration
statement under the Securities Act which covers any of the Registrable
Securities pursuant to the provisions of this Agreement, including the
Prospectus, all amendments and supplements to such Registration Statement,
including post-effective amendments, all exhibits and all materials
incorporated by reference in such Registration Statement.
"Rule 415" shall mean Rule 415 promulgated under the
Securities Act, as amended from time to time, or any similar successor rule
thereto that may be promulgated by the SEC.
"SEC" shall mean the Securities and Exchange Commission, or
any other federal agency at the time administering the Securities Act.
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<PAGE>
"Securities Act" shall mean the Securities Act of 1933, as
amended (or any similar successor federal statute), and the rules and
regulations thereunder, as the same are in effect from time to time.
"Shelf Registration" shall mean the registration of
securities for sale on a continuous or delayed basis pursuant to Rule 415.
"Shelf Registration Statement" shall mean a Registration
Statement filed in connection with a Shelf Registration.
"Subordinated Notes" shall mean the notes issuable upon
exchange of the Exchangeable Preferred Stock pursuant to the terms thereof.
"Sweetheart Stockholders Agreement" shall mean the Sweetheart
Holdings Inc. Stockholders' Agreement dated as of the date first above written
among Sweetheart, the Company and the Stockholders.
"Underlying Stock" shall mean the shares of Class C Common
Stock issuable upon exercise of the Exchange Warrants and any securities
issuable, issued or distributed in respect of any of such shares by way of
stock dividend or stock split or in connection with a combination of shares,
recapitalization, reorganization, merger, consolidation or otherwise.
"Underwritten Offering" shall mean a registered offering in
which securities of the Company are sold to an underwriter for reoffering to
the public.
SECTION 2. TRANSFER OF SECURITIES.
a. Restraints on Transfer. Except as otherwise provided in
this Agreement, each Stockholder may sell, transfer, pledge, exchange or
otherwise dispose of such Stockholder's Registrable Securities at any time to
any person or entity.
b. Legends. The Stockholders agree that the Company may
cause each certificate representing Registrable Securities to bear the
following legend on the face or reverse side thereof:
"The securities represented by this certificate are subject
to certain transfer restrictions pursuant to a certain
Stockholders' Rights Agreement dated as of March 12, 1998
among the Company and certain of its stockholders. Notice of
such Agreement is hereby given and a copy of it is on file at
the principal office of the Company.
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SECTION 3. REGISTRATION.
a. Shelf. The Company shall prepare, and, on or prior to the
earlier of (i) 90 days after the Closing Date or (ii) the date on which the
Company files a Registration Statement with respect to an exchange offer for
the Discount Notes, file with the SEC a Shelf Registration Statement covering
the resale of the Closing Securities, if any are retained by the Stockholders.
b. Demand. At any time after the Exchange Warrants are issued
to the Stockholders pursuant to the Sweetheart Stockholders' Agreement, AIP, on
behalf of all of the Stockholders, shall have the right to request in writing,
specifying that such request is made pursuant to this Section 3(b), that the
Company effect a registration under the 1933 Act of the Exchange Warrants and
the Underlying Stock and specifying the intended method of disposition thereof
(which may include a continuous or delayed offering). Upon receipt of such
written request, the Company will use its best efforts to effect, as
expeditiously as possible, the registration under the Securities Act of the
Exchange Warrants and the Underlying Stock which the Company has been so
requested to register by the Stockholders (a "Demand Registration"). The
Company shall be obligated to effect only two Demand Registrations pursuant to
this Section 3(b); provided, however, that the Company shall not be required to
file a Registration Statement or, in the case of an Underwritten Offering
pursuant to a Shelf Registration Statement, take any action in connection with
a shelf draw-down within four months of the effectiveness of a prior Demand
Registration Statement which is not a Shelf Registration or the filing of a
final Prospectus in connection with an underwritten offering pursuant to a
Shelf Registration. Upon receipt of any request for registration pursuant to
this Section 3(b), if there are other holders of Class C Common Stock, the
Company shall promptly give written notice of such request to all such other
holders. The Company shall include in the requested registration all securities
requested to be included by such of the other holders as shall make such
request by written notice to the Company delivered within fifteen Business Days
after their receipt of the Company's notice. If the Company shall receive a
request for inclusion in the registration of Registrable Securities of
additional holders, it shall promptly so inform AIP on behalf of all of the
Stockholders.
c. Effectiveness of Registration Statement. The Company
agrees to use its best efforts to (i) cause the Shelf Registration Statement to
become effective as promptly as practicable; (ii) cause the Registration
Statement relating to any Demand Registration to become effective as promptly
as practicable following the demand therefor; (iii) keep thereafter such
Registration Statements effective continuously for the period specified in the
next succeeding sentence; and (iii) prevent the happening of any event of the
kinds described in clauses (2), (3) or (4) of Section 5(a)(ii). The Company
will use its best efforts pursuant to this Section to keep a Registration
Statement continuously effective (except as otherwise permitted under this
Agreement) for a period ending on the earliest of (A) the date which is 180
days after, or, as to a Shelf Registration Statement, the second anniversary
of, the effective date of such Registration Statement (subject to extension as
provided in the final paragraph of Section 5(a)), (B) the date on which all
Registrable Securities covered by such Registration Statement have
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been sold and the distribution contemplated thereby has been completed and (C)
the date on which the Stockholders may sell all of the Registrable Securities
covered by such Registration Statement without restriction pursuant to Rule 144
promulgated under the Securities Act unless the Registration Statement relates
to an underwritten public offering of not less than 50% of the original number
of shares of Underlying Stock (calculated as if the Exchange Warrants had been
exercised on the date hereof).
(d) Inclusion of Other Securities. The Company and any other
holder of the Company's securities who has registration rights may include its
securities in any registration effected pursuant to Section 3; provided,
however, that if the managing underwriter or underwriters of a proposed
Underwritten Offering contemplated thereby advise the holder or holders of
securities to be included in such offering in writing that the total amount or
kind of securities which the Company or any such other holder intends to
include in such proposed public offering is such as would, in the judgment of
the managing underwriter or underwriters, materially adversely affect the
success of the proposed public offering requested by the Stockholders, then the
amount or kind of securities to be offered for the account of the Company or
any such other holder shall be reduced to the extent necessary to reduce the
total amount or kind of securities to be included in such proposed public
offering to the amount or kind recommended by such managing underwriter or
underwriters.
(e) Deferral of Filing. The Company may defer the filing (but
not the preparation) of a Registration Statement required by Section 3(b) until
a date not later than 90 days after the proposed filing date (or, if longer,
120 days after the effective date of the registration statement contemplated by
clause (ii) below) if (i) at the time the Company receives a written request
for a Demand Registration from AIP, the Company or any of its subsidiaries is
engaged in confidential negotiations or other confidential business activities,
disclosure of which would be required in such Registration Statement (but would
not be required if such Registration Statement were not filed) and the Board of
Directors of the Company determines in good faith that such disclosure would be
materially detrimental to the Company and its stockholders or (ii) prior to
receiving a written request for a Demand Registration from AIP, the Board of
Directors of the Company had determined to effect a registered underwritten
public offering of the Company's securities for the Company's account and the
Company had taken substantial steps (including, but not limited to, selecting a
managing underwriter for such offering) and is proceeding with reasonable
diligence to effect such offering and the Board of Directors of the Company
determines in good faith that the filing of a Registration Statement pursuant
to Section 3(b), in light of the intended method of distribution, would
materially adversely affect such offering. A deferral of the filing of a
Registration Statement pursuant to this Section 3(e) shall be lifted and the
requested Registration Statement shall be filed forthwith if, in the case of a
deferral pursuant to clause (i) of the preceding sentence, the negotiations or
other activities are disclosed or terminated, or, in the case of a deferral
pursuant to clause (ii) of the preceding sentence, the proposed registration
for the Company's account is abandoned. In order to defer the filing of a
Registration Statement pursuant to this Section 3(e), the Company shall
promptly (but in any event within ten days), upon determining to seek such
deferral, deliver to AIP, on behalf of all of the Stockholders, a certificate
signed by an executive
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officer of the Company stating that the Company is deferring such filing
pursuant to this Section 3(e) and a general statement of the reason for such
deferral and an approximation of the anticipated delay. Within twenty days
after receiving such certificate, AIP, on behalf of all of the Stockholders,
may withdraw its request for a Demand Registration by giving notice to the
Company; if withdrawn, such request shall be deemed not to have been made for
purposes of this Agreement. The beginning of any deferral period shall be at
least 360 days after the end of any prior deferral period.
SECTION 4. PIGGYBACK REGISTRATION. If the Company at any time
proposes to file a registration statement with respect to Exchangeable
Preferred Stock or Common Stock, whether for its own account (other than a
registration statement on Form S-4 or S-8 (or any successor or substantially
similar form), or pursuant to an employee stock option, stock purchase or
compensation plan) or for the account of a holder of securities of the Company
(a "Requesting Holder"), then the Company shall in each case give written
notice of such proposed filing to AIP, on behalf of all of the Stockholders, at
least twenty Business Days before the anticipated filing date of any such
registration statement by the Company, and such notice shall offer to each
Stockholder the opportunity to have any or all of the Registrable Securities
held by such Person included in such registration statement. AIP, on behalf of
all of the Stockholders shall so advise the Company in writing within fifteen
Business Days after the date of receipt of such notice (which request shall set
forth the amount of Registrable Securities for which registration is
requested), and the Company shall include in such registration statement all
such Registrable Securities so requested to be included therein; provided,
however, that the Company may at any time withdraw or cease proceeding with any
such registration statement if it shall at the same time withdraw or cease
proceeding with the registration of all other securities originally proposed to
be registered. Notwithstanding the foregoing, if the managing underwriter or
underwriters of any such proposed public offering advises the Company in
writing that the total amount or kind of securities which the Stockholders, the
Company and any other persons or entities intend to be included in such
proposed public offering is such as would, in the judgment of the managing
underwriter or underwriters, materially adversely affect the success of such
proposed public offering, then, first, the amount or kind of securities to be
offered for the accounts of any other persons requesting registration of
securities pursuant to rights similar to the rights of the Stockholders under
this Section 4 (other than any Requesting Holder) and, second, the amount or
kind of securities to be offered for the account of the Stockholders shall be
reduced, pro rata among each such category based on the number, amount or kind
of securities to be included in such proposed public offering, to the extent
necessary to reduce the total amount or kind of securities to be included in
such proposed public offering to the amount or kind recommended by such
managing underwriter or underwriters before the securities offered by the
Company or any Requesting Holder are so reduced.
SECTION 5. REGISTRATION PROCEDURES.
(a) General. In connection with the Company's registration
obligations pursuant to Section 3 hereof, the Company will file and/or use its
best efforts to keep effective the relevant Registration Statement to permit
the sale of such securities in accordance with the
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<PAGE>
intended method or methods of distribution thereof, and pursuant thereto the
Company will as expeditiously as practicable:
(i) prepare and file with the SEC a new Registration
Statement or such amendments and post-effective amendments to an
existing Registration Statement as may be necessary to keep such
Registration Statement effective for the time period set forth in
Section 3(c), provided that as soon as practicable, but in no event
later than five Business Days before filing such Registration
Statement, any related Prospectus or any amendment or supplement
thereto, other than any amendment or supplement made solely as a
result of incorporation by reference of documents filed with the SEC
subsequent to the filing of such Registration Statement, the Company
shall furnish to AIP, on behalf of all of the Stockholders, and the
underwriters, if any, copies of all such documents proposed to be
filed, which documents shall be subject to the review of AIP and the
underwriters; the Company shall not file any Registration Statement or
amendment thereto or any Prospectus or any supplement thereto (other
than any amendment or supplement made solely as a result of
incorporation by reference of documents filed with the SEC subsequent
to the filing of such Registration Statement) to which the managing
underwriters of the applicable offering, if any, or AIP shall have
reasonably objected in writing within three Business Days after
receipt of such documents on the basis that such Registration
Statement or amendment thereto or Prospectus or supplement thereto
does not comply in all material respects with the requirements of the
Securities Act or that any particular information that is to be
contained in such Registration Statement, amendment, Prospectus or
supplement that relates specifically to such Stockholder or to the
manner of distribution is inaccurate in any material respect, and if
the Company is unable to file any such document due to the objections
of such underwriters or AIP, the Company shall use its best efforts to
cooperate with such underwriters and AIP to prepare, as soon as
practicable, a document that is responsive in all material respects to
the reasonable objections of such underwriters and AIP; cause the
Prospectus to be supplemented by any required Prospectus supplement,
and as so supplemented to be filed pursuant to Rule 424 under the
Securities Act; and comply with the provisions of the Securities Act
applicable to the Company with respect to the disposition of all
Registrable Securities covered by such Registration Statement during
the applicable period in accordance with the intended method or
methods of distribution by the sellers thereof set forth in such
Registration Statement or supplement to the Prospectus;
(ii) notify AIP, on behalf of all of the
Stockholders, and the managing underwriters, if any, promptly (1) when
a new Registration Statement, Prospectus or any Prospectus supplement
or post-effective amendment has been filed, and, with respect to any
new Registration Statement or post-effective amendment, when it has
become effective, (2) of any stop order suspending the effectiveness
of any Registration Statement or the initiation of any proceedings for
that purpose, (3) of the receipt by the Company of any notification
with respect to the suspension of the qualification of the Registrable
Securities for sale in any jurisdiction or the initiation or
threatening of any proceeding for such purpose and (4) of the
happening of any event which (A) makes any statement
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<PAGE>
of a material fact made in any Registration Statement, Prospectus or
any document incorporated therein by reference untrue or which
requires the making of any changes in any Registration Statement,
Prospectus or any document incorporated therein by reference in order
to make the statements therein (in the case of any Prospectus, in the
light of the circumstances under which they were made) not misleading
or (B) would require under applicable law (including without
limitation the rules and regulations of the SEC, the National
Association of Securities Dealers, Inc. or any securities exchange or
quotation system operated by a national securities association on
which the Company's securities are traded or listed) that such
Registration Statement, Prospectus or other document be amended; and
use its best efforts to make such filings, amendments and supplements
and to obtain as promptly as practicable the withdrawal of any order
or other action suspending the effectiveness of any Registration
Statement or suspending the qualification or registration (or
exemption therefrom) of the securities for sale in any jurisdiction;
(iii) if reasonably requested by the managing
underwriter or underwriters or AIP, on behalf of all of the
Stockholders, promptly incorporate in a Prospectus supplement or
post-effective amendment such information as the managing underwriters
and AIP agree should be included therein relating to the sale of the
Registrable Securities, including, without limitation, information
with respect to the aggregate number of Registrable Securities being
sold to such underwriters, the purchase price being paid therefor by
such underwriters and with respect to any other terms of the
Underwritten Offering of the Registrable Securities to be sold in such
offering; and promptly make all required filings of such Prospectus
supplement or post-effective amendment;
(iv) furnish to the Stockholders and each managing
underwriter, without charge, copies of the then effective Registration
Statement and any post-effective amendments thereto, including
financial statements and schedules, all documents incorporated therein
by reference and all exhibits (including those incorporated by
reference);
(v) deliver to the Stockholders and the
underwriters, if any, without charge, as many copies of the then
effective Prospectus (including each prospectus subject to completion)
and any amendments or supplements thereto as such Persons may
reasonably request;
(vi) register or qualify or cooperate with the
Stockholders, the underwriters, if any, and their respective counsel
in connection with the registration or qualification of such
Registrable Securities for offer and sale under the securities or blue
sky laws of such jurisdictions as any Stockholder or any underwriter
reasonably requests in writing and do any and all other acts or things
reasonably necessary or advisable to enable the disposition in such
jurisdictions of the Registrable Securities covered by the then
effective Registration Statement; provided, however, that the Company
will not be
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<PAGE>
required to (1) qualify to do business in any jurisdiction where it
would not otherwise be required to qualify, but for this paragraph
(vi) or (2) subject itself to general taxation in any such
jurisdiction;
(vii) cooperate with the Stockholders and the
managing underwriters, if any, to facilitate the timely preparation
and delivery of certificates representing Registrable Securities to be
sold and not bearing any restrictive legends;
(viii) upon the occurrence of any event contemplated
by clause (4) of paragraph (ii) above, promptly prepare a supplement
or post-effective amendment to the Registration Statement or the
related Prospectus or any document incorporated therein by reference
or file any other required document so that, as thereafter delivered
to the purchasers of the securities, the Prospectus will not contain
an untrue statement of a material fact or omit to state any material
fact necessary to make the statements therein, in the light of the
circumstances in which they were made, not misleading;
(ix) provide a CUSIP number for the Registrable
Securities;
(x) otherwise use its best efforts to comply with
all applicable rules and regulations of the SEC relating to such
registration and the distribution of the securities being offered and
make generally available to its securities holders earnings statements
satisfying the provisions of Section 11(a) of the Securities Act;
(xi) make available for inspection by a
representative of AIP, on behalf of all of the Stockholders, any
underwriter participating in any disposition pursuant to such
registration, and any attorney or accountant retained by AIP or any
such underwriter, all financial and other records, pertinent corporate
documents and properties of the Company and cause the Company's
officers, directors and employees to supply all information reasonably
requested by, and to cooperate fully with, any such representative,
underwriter, attorney or accountant in connection with such
registration, and otherwise to cooperate fully in connection with any
due diligence investigation; provided that such representatives,
underwriters, attorneys or accountants enter into a confidentiality
agreement, in form and substance reasonably satisfactory to the
Company, prior to the release or disclosure to them of any such
information, records or documents;
(xii) subject to the proviso in paragraph (vi)
above, cause the Registrable Securities covered by the Registration
Statement to be registered with or approved by such other governmental
agencies or authorities as may be necessary to enable the seller or
sellers thereof or the underwriters, if any, to consummate the
disposition of such securities (other than as may be required by the
governmental agencies or authorities of any foreign jurisdiction and
other than as may be required by a law applicable to a selling
Stockholder by reason of its own activities or business other than the
sale of Registrable Securities);
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<PAGE>
(xiii) use its reasonable best efforts to cause all
such Registrable Securities to be listed on any securities exchange on
which the class of Registrable Securities being registered is then
listed, if such Registrable Securities are not already so listed and
if such listing is then permitted under the rules of such exchange,
and to provide a transfer agent and registrar for such Registrable
Securities covered by such Registration Statement no later than the
effective date of such Registration Statement;
(xiv) enter into agreements (including an
underwriting agreement in customary form) and take all appropriate and
all commercially reasonable actions in order to expedite or facilitate
the disposition of such Registrable Securities and in such connection,
whether or not an underwriting agreement is entered into and whether
for not the registration is an underwritten registration:
(I) make customary representations and
warranties to the Stockholders and the underwriters,
if any;
(II) obtain opinions of counsel to the
Company and updates thereof (which counsel and
opinions shall be reasonably satisfactory (in form,
scope and substance) to the managing underwriters,
if any, and AIP) addressed to the Stockholders and
the underwriters covering customary matters;
(III) obtain "cold comfort" letters and
updates thereof from the Company's independent
certified public accountants, in customary form and
substance, addressed to the Stockholders and the
underwriters, if any, on such date or dates as may
be reasonably requested by AIP or the managing
underwriter;
(IV) provide the indemnification in
accordance with the provisions and procedures of
Section 8 hereof to all parties to be indemnified
pursuant to such Section (including customary
contribution provisions required by any
underwriters); and
(V) deliver such documents and certificates
as may be reasonably requested by AIP and the
managing underwriters, if any, to evidence
compliance with clause (ii) above and with any
customary conditions contained in the underwriting
agreement or other agreement entered into by the
Company;
(xv) make available its executive officers for a
reasonable period of time to participate in road show or other
investor presentations in connection with any offering; and
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(xvi) use its best efforts to take all action
necessary or advisable to effect such registration in the manner
contemplated by this Agreement.
The Company may require each Stockholder to furnish to the
Company in writing such information regarding such seller and the distribution
of such securities as the Company may from time to time reasonably request in
writing.
Each Stockholder agrees by acquisition of the Registrable
Securities that, upon receipt of any notice from the Company of the happening
of any event of the kind described in Section 5(a)(ii), such Stockholder will
forthwith discontinue disposition of such Registrable Securities pursuant to
the then current Prospectus until (1) such Stockholder is advised in writing by
the Company that a new Registration Statement covering the offer of the
relevant Registrable Securities has become effective under the Securities Act,
or (2) such Stockholder receives copies of a supplemented or amended Prospectus
contemplated by this Section 5(a), or (3) such Stockholder is advised in
writing by the Company that the use of the Prospectus may be resumed (the event
specified in clause (1) or (2), the "Resumption Date"). In the event the
Company shall give any such notice, the effective period specified in Section
3(c) shall be extended from the date of the giving of such notice through the
Resumption Date. The Company shall use its best efforts to limit the duration
of any discontinuance with respect to the disposition of securities pursuant to
this paragraph.
(b) Additional Procedures for Shelf Registration. If any
Stockholder proposes, from time to time, to effect a public sale or
distribution of all or a part of the Registrable Securities pursuant to a Shelf
Registration (a "shelf draw-down") which would require preparation of a
supplement to the Prospectus, such Stockholder shall so notify AIP. Upon
receipt of any request for a shelf draw-down in connection with an Underwritten
Offering pursuant to this Section 5(b) from any Stockholder, AIP shall promptly
give written notice of such request to all other Stockholders. AIP, on behalf
of all of the Stockholders, shall deliver to the Company, at least five
Business Days before such proposed sale or distribution, a written notice
describing, in reasonable detail, the number of Registrable Securities to be
offered and sold pursuant to such Shelf Registration, the intended method of
disposition of such Registrable Securities, and any other material information
that it deems to be relevant to the proposed sale or distribution. The Company
shall include in the requested shelf draw-down all Registrable Securities
requested to be included by AIP; provided that if the managing underwriter or
underwriters of the proposed Underwritten Offering advise AIP in writing that
the total amount of securities to be included in such proposed public offering
is such as would, in the judgment of the managing underwriter or underwriters,
materially adversely affect the success of such proposed public offering, then
the amount of securities to be offered for the account of all Stockholders
shall be reduced pro rata, to the extent necessary to reduce the total amount
of securities to be included in such proposed public offering to the amount
recommended by such managing underwriter or underwriters. Any such Underwritten
Offering shall also be subject to the provisions of Section 3.
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(c) Procedures for Piggyback Registration. In connection with
the Company's registration obligations pursuant to Section 4 hereof, the
Company will file and/or use its best efforts to keep effective the relevant
Registration Statement to permit the sale of such securities in accordance with
the intended method or methods of distribution thereof, and pursuant thereto
the Company will comply with the provisions of Section 5(a), to the extent
applicable.
SECTION 6. LOCK-UP. In the case of the registration of any
underwritten primary offering (other than any registration by the Company on
Form S-4 or Form S-8 (or any successor or substantially similar form), or of
securities issued or issuable pursuant to an employee stock option, stock
purchase or compensation plan), each Stockholder agrees, if and to the extent
requested in writing by the managing underwriter or underwriters administering
such offering as promptly as reasonably practicable prior to the commencement
of the 14-day period referred to below, not to effect any public sale or
distribution of Exchange Warrants or Underlying Stock except as part of such
Underwritten Offering during the period beginning 14 days prior to the
contemplated closing date of such Underwritten Offering and during the period
ending on the earlier of (i) 180 days after the closing date of such
Underwritten Offering and (ii) the date such sale or distribution is permitted
by such managing underwriter or underwriters.
SECTION 7. REGISTRATION EXPENSES. All expenses incident to
the Company's performance of or compliance with this Agreement, including
without limitation all registration and filing fees, fees and expenses of
compliance with securities or blue sky laws (including reasonable fees and
disbursements of counsel in connection with blue sky qualifications or
registrations (or the obtaining of exemptions therefrom) of Registrable
Securities), printing expenses (including expenses of printing Prospectuses),
messenger and delivery expenses, internal expenses (including, without
limitation, all salaries and expenses of its officers and employees performing
legal or accounting duties), fees and disbursements of its counsel and its
independent certified public accountants (including the expenses of any
"comfort" letters required by or incident to such performance or compliance),
securities acts liability insurance (if the Company elects to obtain such
insurance), fees and expenses of any special experts retained by the Company in
connection with any registration hereunder, fees and expenses of other Persons
retained by the Company, and reasonable out-of-pocket expenses incurred by the
Stockholders (except as set forth in the following proviso) (all such expenses
being referred to as "Registration Expenses"), shall be borne by the Company,
whether or not any registration statement becomes effective); provided,
however, that Registration Expenses shall not include any underwriting
discounts, commissions or fees attributable to the sale of Registrable
Securities or fees and expenses of legal counsel to any of the Stockholders
(other than a single counsel for all of the selling Stockholders).
SECTION 8. INDEMNIFICATION.
(a) Indemnification by the Company. The Company agrees to
indemnify and hold harmless, to the full extent permitted by law, each
Stockholder and their respective officers, directors, trustees, employees,
partners, principals, equity holders, advisors, attorneys and agents, against
all losses, claims, damages, liabilities and expenses resulting from any untrue
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statement of a material fact in, or any omission of a material fact required to
be stated in, any Registration Statement or Prospectus or necessary to make the
statements therein (in the case of a Prospectus, in light of the circumstances
under which they were made) not misleading; provided, however, that the Company
will not be liable in any such case to the extent that any such loss, claim,
damage, liability or expense (i) arises out of or is based upon any such untrue
statement or alleged untrue statement or omission or alleged omission made
therein in reliance upon and in conformity with written information furnished
to the Company by or on behalf of the Stockholders specifically for inclusion
therein or (ii) is caused by any untrue statement or omission, or any alleged
untrue statement or omission, made in a Prospectus but eliminated or remedied
in a subsequent Prospectus if the Company shall have previously furnished
copies thereof to the relevant Stockholder in accordance with this Agreement
and a copy of the Prospectus was not sent or given by such Stockholder or on
its behalf to the purchaser of Registrable Securities at or prior to the sale
of such Registrable Securities to such Person. The Company will also indemnify
underwriters participating in the distribution, their respective officers,
directors, employees, partners, principals, equity holders, advisors, attorneys
and agents, and each Person who controls such underwriters (within the meaning
of the Securities Act), to the same extent as provided above with respect to
the indemnification of the Stockholders, if so requested.
(b) Indemnification by Stockholders. In connection with any
Registration Statement in which a Stockholder is participating, such
Stockholder, severally but not jointly, agrees to indemnify and hold harmless,
to the full extent permitted by law, the Company, its officers, directors,
employees, equity holders, advisors, attorneys and agents, and each Person who
controls the Company (within the meaning of the Securities Act) against any
losses, claims, damages, liabilities and expenses resulting from any untrue
statement of material fact in, or any omission of a material fact required to
be stated in, the Registration Statement or Prospectus or necessary to make the
statements therein (in the case of a Prospectus, in light of the circumstances
under which they were made) not misleading, to the extent that such untrue
statement or omission is contained in any information furnished in writing by
such Stockholder to the Company specifically for inclusion therein. The Company
and the other Persons described above shall be entitled to receive indemnities
from underwriters participating in the distribution, to the same extent as
provided above with respect to information so furnished in writing by such
Persons specifically for inclusion in any Prospectus or Registration Statement.
(c) Conduct of Indemnification Proceedings. Any Person
entitled to indemnification hereunder will (i) give prompt notice to the
indemnifying party of any claim with respect to which it seeks indemnification
and (ii) permit such indemnifying party to assume the defense of such claim
with counsel reasonably satisfactory to the indemnified party; provided,
however, that any Person entitled to indemnification hereunder shall have the
right to employ separate counsel and to participate in the defense of such
claim, but the fees and expenses of such counsel shall be at the expense of
such indemnified Person unless (A) the indemnifying party has agreed to pay
such fees or expenses, (B) the indemnifying party shall have failed to assume
the defense of such claim and employ counsel reasonably satisfactory to the
indemnified party in a timely manner or (C) in the reasonable judgment of any
such Person, based upon
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advice of its counsel, a conflict of interest may exist between such person and
the indemnifying party with respect to such claims (in which case, if the
Person notifies the indemnifying party in writing that such Person elects to
employ separate counsel at the expense of the indemnifying party, the
indemnifying party shall not have the right to assume the defense of such claim
on behalf of such person). The indemnifying party will not be subject to any
liability for any settlement made without its consent (but such consent will
not be unreasonably withheld or delayed). No indemnified party will be required
to consent to entry of any judgment or enter into any settlement which does not
include as an unconditional term thereof the giving by the claimant or
plaintiff to such indemnified party a release from all liability in respect of
such claim or litigation. An indemnifying party who is not entitled to, or
elects not to, assume the defense of the claim will not be obligated to pay the
fees and expenses of more than one counsel for all parties indemnified by such
indemnifying party with respect to such claim, as well as one local counsel in
each relevant jurisdiction.
(d) Contribution. If for any reason the indemnification
provided for in Section 7(a) or Section 7(b) is unavailable to an indemnified
party or insufficient to hold it harmless as contemplated by Section 7(a) and
Section 7(b), then, as between the Company and the Stockholders, the
indemnifying party shall contribute to the amount paid or payable by the
indemnified party as a result of such loss, claim, damage or liability in such
proportion as is appropriate to reflect the relative fault of the indemnifying
party and the indemnified party, which shall be determined by reference to,
among other things, whether the untrue, or alleged untrue, statement of a
material fact or the omission or alleged omission to state a material fact
relates to information supplied by the Company, the Stockholders or an
underwriter and the parties' relative intent, knowledge, access to information
and opportunity to correct or prevent such untrue statement or omission, as
well as any other relevant equitable considerations. No Person guilty of
fraudulent misrepresentation (within the meaning of Section 11(f) of the
Securities Act) shall be entitled to contribution from any Person who was not
guilty of such fraudulent misrepresentations.
SECTION 9. PARTICIPATION IN UNDERWRITTEN REGISTRATIONS.
(a) Selection of Managing Underwriter. If any of the
Registrable Securities covered by a Demand Registration or the Shelf
Registration contemplated by Section 3(a) hereunder are to be sold in an
Underwritten Offering, the investment banker or investment bankers and manager
or managers that will administer the offering will be selected by the
Stockholders; provided that such investment bankers and managers shall be
reasonably satisfactory to the Company.
(b) Participation in Underwritten Offering. No Person may
participate in any Underwritten Offering hereunder unless such Person (i)
agrees to sell such Person's Registrable Securities on the basis provided in
any underwriting arrangements approved by AIP, on behalf of all of the
Stockholders, and (ii) completes and executes all questionnaires, powers of
attorney, indemnities, underwriting agreements and other documents required
under the terms of such underwriting arrangements. Nothing in this Section 9
shall be construed to create any additional
- 14 -
<PAGE>
rights regarding the registration of Registrable Securities in any Person
otherwise than as set forth herein.
SECTION 10. REDEMPTION OF EXCHANGE WARRANTS.
(a) Class B Preferred Stock Redemption. If the Company
redeems its Class B Series 1 Preferred Stock, par value $.001 per share ("Class
B Preferred Stock"), in whole or in part at any time, the Company shall be
required to make an offer to the Stockholders to apply 10% of the aggregate
amount which would otherwise be applied to such redemption of the Class B
Preferred Stock (such 10%, the "Requisite Amount") to the repurchase of
Exchange Warrants from the Stockholders or, if such redemption occurs prior to
the Exchange (as defined in the Sweetheart Stockholders' Agreement), to the
reduction of the number of Exchange Warrants issuable upon the Exchange
("Warrant Rights"). If the repurchase is consummated on or prior to March 12,
2003, the price at which each Exchange Warrant or Warrant Right would be so
repurchased shall be the Redemption Price (as defined in the Exchange Warrant)
of an Exchange Warrant, including any accretion thereon, as determined pursuant
to Section 8(a) of the Exchange Warrant. If the repurchase is consummated after
March 12, 2003, the price at which each Exchange Warrant or Warrant Right would
be so repurchased shall be the "fair market value" (as defined below) of the
Underlying Stock for which such Exchange Warrant (or Exchange Warrant issuable
upon exercise of a Warrant Right) is then exercisable. Each Stockholder may
require the Company to repurchase that number of whole Exchange Warrants or
Warrant Rights which has an aggregate Redemption Price or fair market value, as
the case may be, equal to the product of (i) the Requisite Amount times (ii) a
fraction in which the numerator is the number of Exchange Warrants received by
such Stockholder upon the Exchange (or which would be received by such
Stockholder upon the exercise of its Warrant Rights in the Exchange) and the
denominator is the total number of Exchange Warrants received by all of the
Stockholders upon the Exchange (or which would be received by all of the
Stockholders upon the exercise of all Warrant Rights in Exchange). In the event
that any or all of the Exchange Warrants have been exercised, each Stockholder
may elect to have the Company repurchase that number of shares of Underlying
Stock, or a combination of Exchange Warrants and Underlying Stock (treating
that number of shares of Underlying Stock for which one Exchange Warrant is
then exercisable as equivalent to one Exchange Warrant). For the foregoing
purposes, the "fair market value" of a share of Underlying Stock shall be as
agreed upon by the Company and AIP, on behalf of all of the Stockholders, or,
failing such agreement within ten (10) Business Days after the date of the
Repurchase Notice (as defined below), such fair market value shall be the
average of the fair market value as determined by two investment bankers, one
selected by the Company and the other selected by AIP, on behalf of all of the
Stockholders; provided, that if the Common Stock of the Company of any class is
publicly traded on a national securities exchange or in an established
over-the-counter market, the fair market value shall be the average of the
daily closing prices of a share of Common Stock for the 20 consecutive trading
days ending on the day immediately preceding the date of the Repurchase Notice.
(b) Repurchase Offer. Not less than fifteen (15) Business
Days prior to the redemption of Class B Preferred Stock, the Company will
deliver a notice (the "Repurchase
- 15 -
<PAGE>
Notice") to AIP, on behalf of all of the Stockholders, which shall offer to
repurchase Exchange Warrants (or Warrant Rights or Underlying Stock, as the
case may be) pursuant to this Section 10. The Repurchase Notice shall state (i)
the Requisite Amount; (ii) price at which Exchange Warrants or Warrant Rights
are to be repurchased, if then determined, or, if such price is not then
determined, that such is the case; (iii) the anticipated date on which such
repurchase shall be consummated (which shall be at least ten (10) Business Days
after the date of the Repurchase Notice); and (iv) that Stockholders electing
to have any or all of such Exchange Warrants (or Warrant Rights or Underlying
Stock) repurchased shall be required to surrender the certificates representing
such securities with such customary documents of surrender and transfer as the
Company may reasonably request, duly completed to the Company at the address
specified in the notice at least three (3) days before the date of repurchase.
(c) Consummation of Repurchase. On the repurchase date, the
Company shall accept for payment the Exchange Warrants, Warrant Rights and/or
Underlying Stock tendered pursuant to the Repurchase Notice. The Company shall
promptly (but in any case not later than three (3) Business Days after the
repurchase date) mail or deliver to AIP, on behalf of all of the Stockholders,
an amount equal to the repurchase price of the securities tendered by the
Stockholders and accepted by the Company for repurchase, and the Company shall
promptly issue new certificates for Exchange Warrants and/or Underlying Stock
for the number of securities equal to any unpurchased portion of the
certificates so surrendered.
(d) Cancellation of Exchange Warrants and Underlying Stock.
Because the Class B Preferred Stock is convertible into One Million Three
Hundred Thirty Four Thousand Nine Hundred and Forty Five (1,334,945) shares of
Class A Common Stock, the number of Warrants which the Stockholders are
entitled to receive upon the Exchange is One Hundred Forty Eight Thousand Three
Hundred and Twenty Seven (148,327) greater than the number would have been had
the Class B Preferred Stock not been issued. If the Company redeems the Class B
Preferred Stock, in whole or in part, the number of Exchange Warrants which the
Stockholders are entitled to receive upon the Exchange shall be adjusted to
that number of Exchange Warrants calculated as if the Class B Preferred Stock
so redeemed had never been issued, with each Stockholder bearing that portion
of such adjustment equal to a fraction, the numerator of which is the number of
Exchange Warrants which such Stockholder would have received prior to such
adjustment and the denominator of which is the total number of Exchange
Warrants which all of the Stockholders would have received prior to such
adjustment. If any such redemption occurs after the Exchange, the Stockholders
shall surrender to the Company for cancellation, without additional
consideration, that number of Exchange Warrants (duly endorsed for transfer and
accompanied by all requisite stock transfer stamps) equal to the excess of the
total number of Exchange Warrants received by all of the Stockholders upon the
Exchange over that number of Exchange Warrants which all of the Stockholders
would have received had the Class B Preferred Stock never been issued,, with
each Stockholder being responsible for the surrender of that portion of such
excess equal to a fraction, the numerator of which is the number of Exchange
Warrants which such Stockholder received upon the Exchange and the denominator
of which is the total number of Exchange Warrants which all of the Stockholders
received upon the Exchange. In the event any Stockholder is unable to surrender
the full
- 16 -
<PAGE>
number of Exchange Warrants required by the preceding sentence, such
Stockholder shall surrender Underlying Stock, or a combination of Exchange
Warrants and Underlying Stock (treating that number of shares of Underlying
Stock for which one Exchange Warrant is then exercisable as equivalent to one
Exchange Warrant). Each Stockholder agrees that it will retain sufficient
Exchange Warrants and/or Underlying Stock to meet its obligations under this
Section 10(d). In the event any Stockholder fails to surrender the full number
of Exchange Warrants and/or Underlying Stock required by this Section 10(d), in
addition to all other remedies available to the Company, the Company may
unilaterally cancel the proper number of such Exchange Warrants and/or shares
of Underlying Stock registered in such Stockholder's name or owned by such
Stockholder. Each surrender of Exchange Warrants and Underlying Stock pursuant
to this Section 10(d) shall be free and clear of all liens, claims and
encumbrances.
(e) Consummation of Redemption. To the extent that all or any
portion of the Requisite Amount is not applied to the repurchase of Exchange
Warrants and/or Underlying Stock pursuant to this Section 10, such amount shall
be applied to the redemption of Class B Preferred Stock.
10A. TAG-ALONG AND DRAG-ALONG RIGHTS.
(a.) Tag-Along Rights. (i) If Dennis Mehiel or any Affiliate
of Dennis Mehiel (collectively, "Mehiel") proposes a transaction or
series of related transactions in which it will sell, transfer or
otherwise dispose of for value (collectively, "Sell", with the noun
form being a "Sale") shares of Common Stock (the "Initial Shares") in
an amount in excess of 30% of the then aggregate number of outstanding
shares of Common Stock to a third party or parties, then, subject to
the provisions of this Section 10A and Section 10(d), the Stockholders
shall have the right to participate in such Sale and sell all or a
portion of the Exchange Warrants or Underlying Stock owned by them
(determined as provided below) to such third party or parties. Mehiel
shall deliver to AIP written notice (the "Notice of Sale") of such
proposed Sale, which shall specify the terms and conditions of such
proposed Sale, including the number of shares of Common Stock to be
Sold, the price at which such shares will be Sold and the anticipated
date of consummation of such Sale. On or before the date (the
"Tag-Along Date") which is 30 days after the date of the Notice of
Sale, by written notice (the "Tag-Along Notice") AIP may, on behalf of
all of the Stockholders, irrevocably elect to Sell an aggregate number
of Exchange Warrants or Underlying Stock equal to all or a portion of
each Stockholder's Tag-Along Portion (as defined below) as specified
in the Tag-Along Notice on the same terms and conditions in respect of
such shares as are specified in the Notice of Sale.
(ii) For purposes hereof, a Stockholder's "Tag-Along Portion"
shall mean a number of shares of Underlying Stock (or Exchange
Warrants exercisable for such number of shares) equal to the total
number of Initial Shares multiplied by a fraction, the numerator of
which is the number of shares of Underlying Stock then held by such
- 17 -
<PAGE>
Stockholder and the denominator of which is the total number of shares
of Common Stock then outstanding. (For the purposes of the foregoing
calculation, all outstanding Exchange Warrants shall be deemed to have
been exercised in full.) If AIP timely makes the election to Sell
Exchange Warrants or Underlying Stock with Mehiel, the number of
shares to be Sold by Mehiel pursuant to this Section 10A(a) in respect
of such Notice of Sale shall be reduced by the Tag-Along Portions
specified in the Tag-Along Notice unless the purchaser or purchasers
agree to acquire additional shares pro rata from Mehiel and the
Stockholders participating in such Sale on the same terms and
conditions as are specified in the Notice of Sale; provided, however,
that the Stockholders shall not be required to make any
representations or warranties (other than with respect to their
ownership of their Exchange Warrants and Underlying Stock) to the
purchaser or purchasers or to agree to indemnify the purchaser or
purchasers in connection with such sale (other than with respect to
their ownership of their Exchange Warrants and Underlying Stock).
(iii) Each Stockholder agrees to take all steps necessary to
enable it to comply with the provisions of this Section 10A(a),
including, without limitation, the execution of all documents in
connection with such Sale, the delivery, against payment therefor, of
certificates for all such Exchange Warrants and Underlying Stock duly
endorsed or accompanied by appropriate instruments of transfer and
free and clear of any liens or other encumbrances, and, if requested
by Mehiel, the voting of all Exchange Warrants and Underlying Stock
owned by such Stockholder in the manner requested by Mehiel in order
to effect such Sale.
(iv) Mehiel may abandon any such Sale at any time for any
reason or without reason. If Mehiel does not complete the Sale within
90 days after the anticipated date of consummation set forth in the
Notice of Sale (unless such failure to complete is due to actions, or
the failure to act when required to act, of the Stockholders) or
proposes to effect the Sale on terms materially different from those
specified in the Notice of Sale, then the Sale shall remain subject to
the provisions of this Section 10A and Mehiel shall be required to
comply with the provisions of this Section 10A with respect to any
future Sale.
(v) Upon consummation of a Sale pursuant to this Section 10A,
any rights or obligations pursuant to this Agreement will terminate
with respect to the Exchange Warrants and Underlying Stock so Sold and
the purchaser of such Exchange Warrants and Underlying Stock.
b. Drag-Along Right. If Mehiel proposes a transaction or
series of related transactions in which it will Sell shares of Common
Stock for cash in an amount in excess of 30% of the then aggregate
number of outstanding shares of Common Stock to an unaffiliated third
party or parties, then Mehiel shall have the right (the "Drag-Along
Right") to require each of the Stockholders to Sell all, but, subject
to the provisions of Section 10(d), not less than all, of the Exchange
Warrants and Underlying Stock owned
- 18 -
<PAGE>
by such Stockholders for the same per share consideration and
otherwise on the same terms and conditions as Mehiel. Each Stockholder
agrees to take all steps necessary to enable it to comply with the
provisions of this Section 10A(b), including, without limitation, the
execution of all documents in connection with such Sale, the delivery,
against payment therefor, of certificates for all such Exchange
Warrants and Underlying Stock duly endorsed or accompanied by
appropriate instruments of transfer and free and clear of any liens or
other encumbrances, and, if requested by Mehiel, the voting of all
Exchange Warrants and Underlying Stock owned by such Stockholder in
the manner requested by Mehiel in order to effect such Sale; provided,
however, that the Stockholders shall not be required to make any
representations or warranties (other than with respect to their
ownership of their Exchange Warrants and Underlying Stock) to the
purchaser or purchasers or to agree to indemnify the purchaser or
purchasers in connection with such sale (other than with respect to
their ownership of their Exchange Warrants and Underlying Stock). To
exercise a Drag-Along Right, Mehiel shall give AIP, on behalf of all
of the Stockholders, a written notice (the "Drag-Along Notice")
containing (i) the name and address of the third party or parties to
whom shares of Common Stock will be Sold and (ii) the proposed
purchase price thereof, terms of payment and other material terms and
conditions of the Sale. Each Stockholder shall thereafter be obligated
to Sell its Exchange Warrants and Underlying Stock subject to such
Drag-Along Notice; provided that the Sale is consummated within 90
days after the anticipated date of consummation set forth in the Drag
Along Notice. If the Sale is not consummated, for any reason
(including abandonment of such Sale by Mehiel), on or before the
expiration of such 90-day period, then each Stockholder shall no
longer be obligated to Sell such Exchange Warrants or Underlying Stock
pursuant to that specific Drag-Along Notice, but each Stockholder's
Shares shall remain subject to the provisions of this Section 10A.
SECTION 11. AMENDMENTS AND WAIVERS. The provisions of this
Agreement, including the provisions of this Section 11, may not be amended,
modified or supplemented except with the written consent of a majority in
interest of the Stockholders and the Company. Any provision of this Agreement
may be waived if, but only if, such waiver is in writing and is signed by the
party waiving such provision.
SECTION 12. NOTICES. All notices and other communications
provided for or permitted hereunder shall be made in writing by registered or
certified first-class mail, hand- delivery, telecopier, or air-courier
guaranteeing overnight delivery:
(a) If to a Stockholder, at the most current address
given by such Stockholder to the Company, in accordance with the
provisions of this Section 12.
(b) If to the Company, at 115 Stevens Avenue,
Valhalla, New York, 10595, attention: Harvey L. Friedman, Esq.;
telecopier no. (914) 749-3280.
- 19 -
<PAGE>
All such notices and other communications shall be deemed to have been given
and received: if mailed by registered or certified first-class mail, on the
third Business Day after the date of such mailing; if by hand delivery, on the
date of such delivery; if by telecopier, if during normal business hours, on
the date of facsimile, if not, on the next Business Day after the date of
facsimile; and if sent by recognized air courier, on the first Business Day
following the date of such sending.
SECTION 13. SUCCESSORS AND ASSIGNS. This Agreement may not be
assigned by a party without the written consent of the other parties, and shall
inure to the benefit of and be binding upon the parties hereto and their
respective successors, heirs, executors, administrators, personal
representatives and permitted assigns. Notwithstanding the foregoing, (i) First
Plaza Group Trust and Leeway & Co. shall have the right to assign this
Agreement or transfer in whole or in part their obligations under this
Agreement to one or more successor trustees, plans or nominees for, or
successor by reorganization of, a qualified pensions trust, (ii) in the event
one or more of the Stockholders transfer Exchange Warrants or Underlying Stock
to a third party (other than in a public sale), the transferees shall have the
right to become a "Stockholder" under this Agreement by signing a counterpart
hereof, in which event such transferee shall be bound by the terms and
provisions of this Agreement and the Exchange Warrants or Underlying Stock so
acquired by such transferee shall be deemed to be "Registrable Securities"
under this Agreement, and (iii) in the event Closing Securities are transferred
pursuant to an offering effected pursuant to Rule 144A under the Securities
Act, such Closing Securities shall cease to be "Closing Securities" or
"Registrable Securities" for the purposes of this Agreement and no transferee
of such Closing Securities shall be deemed a "Stockholder" under, or have any
rights or obligations under, this Agreement.
SECTION 14. COUNTERPARTS. This Agreement may be executed in
any number of counterparts and by the parties hereto in separate counterparts,
each of which when so executed shall be deemed to be an original and all of
which taken together shall for all purposes constitute one and the same
agreement.
SECTION 15. HEADINGS. The headings in this Agreement are for
convenience of reference only and shall not limit or otherwise affect the
meaning hereof.
SECTION 16. GOVERNING LAW; JURISDICTION; FORUM. This
Agreement shall be governed and construed in accordance with the laws of the
State of New York, without giving effect to conflicts of laws principles
thereof.
SECTION 17. SEVERABILITY. In the event that any one or more
of the provisions contained herein, or the application thereof, is held
invalid, illegal or unenforceable in any respect, the validity, legality and
enforceability of the remaining provisions contained herein, and the
applications thereof, shall not in any way be affected or impaired thereby.
SECTION 18. ENTIRE AGREEMENT. This Agreement is intended by
the parties as a final expression of their agreement and is intended to be a
complete and exclusive statement
- 20 -
<PAGE>
of the agreement and understanding of the parties hereto in respect of the
subject matter contained herein. This Agreement supersedes all prior agreements
and understandings between the parties with respect to such subject matter.
SECTION 19. DESIGNATION. AIP is hereby irrevocably
designated as the representative of the Stockholders for the purposes set
forth in this Agreement. By execution of this Agreement, each of the other
Stockholders has duly empowered AIP to act as such representative.
[Remainder of Page Intentionally Left Blank]
- 21 -
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this
Agreement as of the date first written above.
SF HOLDINGS GROUP, INC.
By: /s/ Hans H. Heinsen
----------------------------------
Name: Hans H. Heinsen
Title: Chief Financial Officer
AMERICAN INDUSTRIAL PARTNERS
CAPITAL FUND L.P.
By: American Industrial Partners L.P., its
general partner
By: American Industrial Partners Management
Company, Inc.
By: /s/ Kenneth Pereira
----------------------------------
Name: Kenneth Pereira
Title:
LEEWAY & CO.
By: State Street Bank and Trust Company, a
general partner
By: /s/ Kimberly Moynihan
----------------------------------
Name: Kimberly Moynihan
Title: Assistant Secretary
MELLON BANK, N.A., as Trustee for
FIRST PLAZA GROUP TRUST (as directed
by General Motors Investment Management
Corporation)
By: /s/ Bernadette Rist
----------------------------------
Name: Bernadette Rist
Title: Authorized Signature
/s/ Donald W. Davis
-----------------------
Donald W. Davis
- 22 -
<PAGE>
/s/ Robert J. Klein
-------------------------
Robert J. Klein
/s/ Thomas H. Barrett
-------------------------
Thomas H. Barrett
/s/ Kenneth A. Pereira
-------------------------
Kenneth A. Pereira
/s/ Larence W. Ward, Jr.
-------------------------
Lawrence W. Ward, Jr.
/s/ William F. McLaughlin
-------------------------
William F. McLaughlin
By its signature below,
CREATIVE EXRESSIONS GROUP,
INC., as the original holder
of the Class B Preferred
Stock, hereby accepts and
agrees to be bound by the
terms of Section 10 of the
foregoing Stockholders' Rights
Agreement
CREATIVE EXPRESSIONS GROUP, INC.
By: /s/ Harvey L. Friedman
----------------------------
Name: Harvey L. Friedman
Title: Secretary
- 23 -
<PAGE>
By his signature below, DENNIS MEHIEL
hereby accepts and agrees to be bound by
the terms of Section 10A of the foregoing
Stockholders' Rights Agreement.
/s/ Dennis Mehiel
- ------------------------------
Dennis Mehiel
- 24 -
<PAGE>
SCHEDULE I
<TABLE>
<CAPTION>
Class C Exchange
Stockholder Preferred Stock Common Stock Warrants
- ----------- --------------- ------------ ----------
<S> <C> <C> <C>
American Industrial Partners Capital
Fund, L.P. 1545.387 57,179.319 494,523.84
Leeway & Co. 1003.824 37,141.488 321,223.68
Mellon Bank, N.A., as Trustee for
First Plaza Group Trust 430.209 15,917.733 137,666.88
Donald W. Davis 1.434 53.058 458.88
Robert J. Klein .288 10.656 92.16
Thomas H. Barrett 1.434 53.058 458.88
Kenneth A. Pereira .072 2.664 23.04
Lawrence W. Ward, Jr. .144 5.328 46.08
William F. McLaughlin 17.208 636.696 5,506.56
--------- ------------ ----------
3000.000 111,000.000 960,000.00
</TABLE>
- 25 -
<PAGE>
SWEETHEART HOLDINGS INC.
STOCKHOLDERS' AGREEMENT
This Stockholders' Agreement (the "Agreement") dated as of March 12,
1998 is made by and among Sweetheart Holdings Inc., a Delaware corporation (the
"Company"), SF Holdings Group, Inc., a Delaware corporation ("SF Holdings"),
American Industrial Partners Capital Fund L.P., a Delaware limited partnership
("AIP"), and the other stockholders of the Company listed on Schedule A hereto
(together with AIP, the "Original Stockholders").
WHEREAS, pursuant to an Investment Agreement dated as of December 29,
1997 among the Original Stockholders and SF Holdings, SF Holdings will
simultaneously herewith acquire 48% of the Class A Common Stock and 100% of the
Class B Common Stock of the Company; and
WHEREAS, the Original Stockholders and SF Holdings (collectively, the
"Stockholders") desire to enter into an agreement with respect to the ownership
and the transfer or other disposition of the securities of the Company.
NOW, THEREFORE, in consideration of the mutual covenants contained
herein, the parties hereto agree as follows:
1. Definitions.
"Business Day" shall mean any day that is not a Saturday or
Sunday or a legal holiday on which banks are authorized or required to be
closed in New York, New York.
"Closing Date" shall mean the date first above written.
"Common Stock" shall mean the common stock, par value $.01
per share, of the Company, including the Class A Common Stock and Class B
Common Stock.
"Exchange Date" shall mean the date on which the
Exchange is consummated.
"Sale" or "Sell" shall mean any sale, transfer or other
disposition of any Shares for value.
"Shares" shall mean any shares of the Class A Common Stock or
the Class B Common Stock of the Company held by the Stockholders.
"Transfer" shall mean any Sale, assignment, pledge,
hypothecation or other disposition of any Shares.
<PAGE>
"Warrant Purchase Period" shall mean the period from the
Closing Date to and including the fifth anniversary thereof.
2. Corporate Governance.
a. Management of the Company. The Company and its
subsidiaries shall be administered in accordance with the provisions
of the Second Restated Management Services Agreement dated as of the
date hereof, as amended, by and among the Company, Sweetheart Cup
Company Inc., American Industrial Partners Management Company and SF
Holdings, the Amended and Restated Certificate of Incorporation of the
Company, the Amended and Restated By-Laws of the Company, the
certificate of incorporation and by-laws (or other comparable
organizational documents) of the subsidiaries of the Company and the
laws of their respective jurisdictions of incorporation.
b. Board of Directors. The Board of Directors of the Company
shall consist of a total of five (5) directors, three (3) of whom
shall be nominated by the Original Stockholders and two (2) of whom
shall be nominated by SF Holdings. The Stockholders agree to vote all
their shares of Class A Common Stock of the Company (whether in
person, by proxy or by written consent) and take all other necessary
or desirable actions in order to elect a Board of Directors of the
Company in accordance with the provisions of this Section 2(b).
c. Board of Directors of Subsidiaries. The Board of
Directors of each of Sweetheart Cup Company, Inc., Lily-
Canada Holdings, Inc. and Lily Cups, Inc. shall consist of a
total of five (5) directors, each of whom shall also be a
director of the Company.
d. Vacancies. A director nominated by the Original
Stockholders may not be removed without cause except by the
Stockholders at the written request of the Original Stockholders. A
director nominated by SF Holdings may not be removed without cause
except by the Stockholders at the written request of SF Holdings. No
director may be removed for cause except by the vote of the holders of
at least 80% of the shares of Class A Common Stock outstanding. In the
event that a director nominated by the Original Stockholders ceases to
serve or is unable to continue in that capacity for any reason, the
Original Stockholders shall nominate a replacement and the
Stockholders shall vote their shares and take all other necessary or
desirable actions to elect the person so nominated to fill such
vacancy. In the event that a director nominated by SF Holdings ceases
to serve or is unable to continue in that capacity for any reason, SF
Holdings shall nominate a replacement and the Stockholders shall vote
their shares and take all other necessary or
2
<PAGE>
desirable actions to elect the person so nominated to fill
such vacancy.
3. Restrictions on Transfer of Shares.
a. Transfer of Shares. No Stockholder may Transfer any Shares
except for Transfers in accordance with the provisions of this Section
3. Any Transfer or attempted Transfer of any Shares in violation of
any provision of this Agreement shall be void, and the Company shall
not record such transfer on its books or treat any purported
transferee of such Shares as the owner of such shares for any purpose.
b. Permitted Transfers. Subject to the provisions of
Section 3(c), SF Holdings may Transfer any or all of its Shares at
any time to any person or entity.
c. Tag-Along Rights.
(i) If SF Holdings proposes a transaction or series of
related transactions in which it will Sell Shares (the "Initial
Shares") in an amount in excess of 30% of the then aggregate number of
outstanding Shares to a third party or parties, then, subject to the
provisions hereof, the Original Stockholders shall have the right to
participate in such Sale and sell all or a portion of the Shares owned
by them (determined as provided below) to such third party or parties.
SF Holdings shall deliver to AIP written notice (the "Notice of Sale")
of such proposed Sale, which shall specify the terms and conditions of
such proposed Sale, including the number of Shares to be Sold, the
price at which such Shares will be Sold and the anticipated date of
consummation of such Sale. On or before the date (the "Tag- Along
Date") which is 30 days after the date of the Notice of Sale, by
written notice (the "Tag-Along Notice") AIP may, on behalf of all of
the Original Stockholders, irrevocably elect to Sell an aggregate
number of Shares equal to all or a portion of each Original
Stockholder's Tag-Along Portion (as defined below) as specified in the
Tag-Along Notice on the same terms and conditions in respect of such
Shares as are specified in the Notice of Sale. If AIP does not timely
make such election, AIP may, on behalf of all of the Original
Stockholders, irrevocably elect, subject to concurrent consummation of
the Sale of the Initial Shares, to cause the Exchange (as defined
herein) pursuant to Section 4 hereof.
(ii) For purposes hereof, an Original Stockholder's
"Tag-Along Portion" shall mean a number of Shares equal to the total
number of Initial Shares multiplied by a fraction, the numerator of
which is the number of Shares then held by such Original Stockholder
and the denominator of which is the total number of Shares then
outstanding. If AIP timely makes the election to Sell Shares with SF
Holdings, the
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number of Shares to be Sold by SF Holdings pursuant to this Section
3(c) in respect of such Notice of Sale shall be reduced by the
Tag-Along Portions specified in the Tag-Along Notice unless the
purchaser or purchasers agree to acquire additional Shares pro rata
from SF Holdings and the Original Stockholders participating in such
Sale on the same terms and conditions as are specified in the Notice
of Sale; provided, however, that the Original Stockholders shall not
be required to make any representations or warranties (other than with
respect to their ownership of their Shares) to the purchaser or
purchasers or to agree to indemnify the purchaser or purchasers in
connection with such sale (other than with respect to their ownership
of their Shares).
(iii) Each Original Stockholder agrees to take all steps
necessary to enable it to comply with the provisions of this Section
3(c), including, without limitation, the execution of all documents in
connection with such Sale, the delivery, against payment therefor, of
certificates for all such Shares duly endorsed or accompanied by
appropriate instruments of transfer and free and clear of any liens or
other encumbrances, and, if requested by SF Holdings, the voting of
all Shares owned by such Original Stockholder in the manner requested
by SF Holdings in order to effect such Sale.
(iv) SF Holdings may abandon any such Sale at any time for
any reason or without reason, in which case none of the Original
Stockholders shall have the right to Sell any Shares or to effect the
Exchange with respect to such Sale (unless otherwise able to do so
pursuant to clause (i) of Section 4(a)). If SF Holdings does not
complete the Sale within 90 days after the anticipated date of
consummation set forth in the Notice of Sale (unless such failure to
complete is due to actions, or the failure to act when required to
act, of the Original Stockholders) or proposes to effect the Sale on
terms materially different from those specified in the Notice of Sale,
then the Sale shall remain subject to the provisions of this Section 3
and SF Holdings shall be required to comply with the provisions of
this Section 3(c) with respect to any future Sale.
(v) Upon consummation of a Sale pursuant to this Section
3(c), any rights or obligations pursuant to this Section 3(c) will
terminate with respect to the Shares so Sold and the purchaser of such
Shares.
d. Drag-Along Right. If SF Holdings proposes a transaction or
series of related transactions in which it will Sell Shares for cash
in an amount in excess of 30% of the aggregate number of outstanding
Shares to an unaffiliated third party or parties, then SF Holdings
shall have the right (the "Drag-Along Right") to require each of the
Original Stockholders to Sell all, but not less than
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all, of the Shares owned by such Original Stockholders for the same
per share consideration and otherwise on the same terms and conditions
as SF Holdings. Each Original Stockholder agrees to take all steps
necessary to enable it to comply with the provisions of this Section
3(d), including, without limitation, the execution of all documents in
connection with such Sale, the delivery, against payment therefor, of
certificates for all such Shares duly endorsed or accompanied by
appropriate instruments of transfer and free and clear of any liens or
other encumbrances, and, if requested by SF Holdings, the voting of
all Shares owned by such Original Stockholder in the manner requested
by SF Holdings in order to effect such Sale; provided, however, that
the Original Stockholders shall not be required to make any
representations or warranties (other than with respect to their
ownership of their Shares) to the purchaser or purchasers or to agree
to indemnify the purchaser or purchasers in connection with such sale
(other than with respect to their ownership of their Shares). To
exercise a Drag-Along Right, SF Holdings shall give AIP, on behalf of
all of the Original Stockholders, a written notice (the "Drag-Along
Notice") containing (i) the name and address of the third party or
parties to whom Shares will be Sold and (ii) the proposed purchase
price thereof, terms of payment and other material terms and
conditions of the Sale. Each Original Stockholder shall thereafter be
obligated to Sell its Shares subject to such Drag-Along Notice,
provided that the Sale is consummated within 90 days after the
anticipated date of consummation set forth in the Drag Along Notice.
If the Sale is not consummated, for any reason (including abandonment
of such Sale by SF Holdings), on or before the expiration of such
90-day period, then each Original Stockholder shall no longer be
obligated to Sell such Shares pursuant to that specific Drag-Along
Notice, but each Original Stockholder's Shares shall remain subject to
the provisions of this Section 3. In lieu of selling any Shares
pursuant to the terms specified in the Drag-Along Notice, AIP may, on
behalf of all of the Original Stockholders, within five (5) days after
the date of the Drag-Along Notice, irrevocably elect, subject to the
concurrent consummation of the Sale by SF Holdings, to cause the
Exchange pursuant to Section 4 hereof.
4. The Exchange.
a. Exchange Upon Election of AIP. Following the fifth
anniversary of the Closing Date or an election by AIP pursuant to
Sections 3(c) or 3(d) hereof and the concurrent consummation of the
Sale contemplated thereby, whichever shall first occur, AIP, on behalf
of all of the Original Stockholders, shall have the right to exchange
(the "Exchange") the Shares held by the Original Stockholders for
Warrants (the "Warrants") in the form annexed hereto as
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Annex A to purchase an aggregate of 960,000 shares of Class C Common
Stock, par value $.001 per share, of SF Holdings, subject to
adjustment pursuant to the anti-dilution provisions thereof from and
after the Closing Date and subject to proportionate reduction to the
extent a portion of the Shares held by the Original Stockholders have
been Sold pursuant to Section 3. In connection with the Exchange, each
Original Stockholder shall be entitled to receive Warrants to purchase
a pro rata number of shares of Class C Common Stock based upon the
number of Shares held at such time by such Original Stockholder
relative to the total number of Shares held at such time by all of the
Original Stockholders. In order to cause the Exchange, AIP shall
surrender the certificates representing the Shares of the Original
Stockholders at the principal office of SF Holdings and shall deliver
to SF Holdings at such office written notice of its election to cause
the Exchange; provided, however, that SF Holding shall not be
obligated to issue the Warrants unless either the certificates
representing the Shares are delivered as provided above or AIP
notifies SF Holdings that any of such certificates have been lost,
stolen or destroyed and promptly executes an agreement reasonably
satisfactory to SF Holdings to indemnify SF Holdings from any loss
incurred by it in connection with such Shares. SF Holdings shall issue
and deliver the Warrants to AIP within three (3) Business Days after
delivery to SF Holdings of such election notice and such Shares, or
after receipt of such agreement and indemnification.
b. Exchange Upon Election of SF Holdings. SF Holdings shall
have the right, at any time during the Warrant Purchase Period, to
cause the Exchange, subject to the provisions of this Section 4(b).
Notice of SF Holdings's election to require the Exchange shall be
delivered to AIP not less than ten (10) Business Days prior to the
Exchange Date, which shall be specified in such notice. On the
Exchange Date, SF Holdings shall deliver the Warrants, or cause the
Warrants to be delivered, to AIP, against presentation and surrender
to SF Holdings by AIP on behalf of all of the Original Stockholders of
the certificates representing the Shares of the Original Stockholders,
or after receipt of the agreement and indemnification described in
Section 4(a) above, at the principal office of SF Holdings. From and
after the Exchange Date, the Shares of the Original Stockholders shall
be canceled and all rights of the Original Stockholders as
stockholders of the Company and pursuant to this Agreement shall
cease.
c. Mandatory Exchange. In the event of a merger of the
Company with and into SF Holdings or with and into The Fonda Group,
Inc., SF Holdings shall be required to effect
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the Exchange, concurrently with such merger, in accordance with the
provisions of Section 4(b) hereof.
5. Term. This Agreement shall continue in full force and effect until
the earliest of: (a) the date on which no Shares are held by any of the
Original Stockholders; (b) the date this Agreement is terminated by the
unanimous written consent of the Stockholders; or (c) the tenth anniversary of
the date of this Agreement.
6. Representations and Warranties of the Stockholders. Each
Stockholder (as to itself or himself only) represents and warrants to the other
Stockholders and the Company that:
a. this Agreement has been duly and validly authorized,
executed and delivered by such Stockholder and constitutes a legal and
binding obligation of such Stockholder, enforceable against such
Stockholder in accordance with its terms; and
b. the execution, delivery and performance by such
Stockholder of this Agreement and the consummation by such Stockholder
of the transactions contemplated hereunder will not, with or without
the giving of notice or lapse of time, (i) violate any provision of
law, statute, rule or regulation to which the Stockholder is subject,
(ii) violate any order, judgment or decree applicable to such
Stockholder or (iii) conflict with, or result in a breach or default
under, any term or condition of any agreement or other instrument to
which such Stockholder is a party or by which such Stockholder is
bound, except for such violations, conflicts, breaches or defaults
that would not materially affect the Stockholder's ability to perform
its obligations hereunder.
7. Stock Certificates. A copy of this Agreement shall be filed with
the Secretary of the Company and kept with the records of the Company. The
Stockholders agree to cause each certificate representing Shares to bear the
following legend on the face or reverse side thereof:
"The shares represented by this certificate are subject to
certain transfer and voting restrictions pursuant to a
certain Stockholders' Agreement dated as of March 12, 1998
among the Company and its stockholders. Notice of such
agreement is hereby given and a copy of it is on file at the
principal office of the Company.
8. Notice. All communications under this Agreement shall be in
writing and shall be delivered by hand or by telecopier or mailed by overnight
courier or by registered or certified mail, postage prepaid:
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a. if to SF Holdings, at 115 Stevens Avenue, Valhalla, New York,
10595, Attention: Harvey L. Friedman;
b. if to any of the Original Stockholders, to American Industrial
Partners Capital Fund L.P., One Maritime Plaza, Suite 2525, San
Francisco, California, 94111, Attention: Kim Marvin.
Any notice so addressed shall be deemed to be given: if delivered by hand, on
the date of such delivery; if delivered by telecopier, when receipt is
mechanically acknowledged; if mailed by courier, on the first Business Day
following the date of such mailing; and if mailed by registered or certified
mail, on the third Business Day after the date of such mailing.
9. Entire Agreement. This Agreement is intended by the parties as a
final expression of their agreement and intended to be a complete and exclusive
statement of the agreement and understanding of the parties hereto in respect
of the subject matter contained herein. There are no restrictions, promises,
warranties or undertakings, other than those set forth or referred to herein or
in the Stockholders Agreement (the "Original Stockholders Agreement") dated as
of August 30, 1993 by and among AIP, First Plaza Group Trust, Leeway & Co., and
the parties scheduled thereto. In the event of a conflict or inconsistency
between the provisions hereof and of the Original Stockholders Agreement, the
provisions of this Agreement shall govern.
10. Designation. AIP is hereby irrevocably designated as the
representative of the Original Stockholders for the purposes set forth in this
Agreement. By execution of this Agreement, each of the other Original
Stockholders has duly empowered AIP to act as such representative.
11. Amendment. This Agreement may only be amended or altered in any of
its provisions with the written consent of the Company and the holders of 80%
of the Class A Common Stock of the Company; provided, however, that no such
amendment shall adversely affect any Stockholder in a discriminatory fashion
without the consent of such Stockholder.
12. Specific Performance. Each of the Stockholders acknowledges and
agrees that in the event of any breach of this Agreement, the non-breaching
party or parties would be irreparably harmed and could not be made whole by
monetary damages. The Stockholders hereby agree that, in addition to any other
remedy to which they may be entitled at law or in equity, they shall be
entitled to compel specific performance of this Agreement.
13. Assignment. This Agreement is not assignable except in
connection with a Sale of Shares in accordance with Section 3(c) or 3(d) of
this Agreement. This Agreement shall be binding upon
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<PAGE>
and inure to the benefit of the parties and their respective successors, heirs,
and legal representatives. Notwithstanding the foregoing, First Plaza Group
Trust and Leeway & Co. shall have the right to assign this Agreement or
transfer i whole or in part its obligations under this Agreement to one or more
successor trustees, plans or nominees for, or successor(s) by reorganization
of, a qualified pension plan trust.
14. Governing Law. This Agreement shall be governed and construed in
accordance with the laws of the State of New York, without giving effect to
conflicts of laws principles thereof.
15. Headings. The headings in this Agreement are for convenience of
reference only and shall not limit or otherwise affect the meaning hereof.
16. Severability. If any provision of this Agreement shall be
invalid, illegal or unenforceable in any jurisdiction, the validity, legality
and enforceability of the remaining provisions, or of such provision in any
other jurisdiction, shall not in any way be affected or impaired thereby.
17. Counterparts. This Agreement may be executed in one or more
counterparts, each of which shall be deemed an original and all of which taken
together shall constitute one and the same instrument.
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<PAGE>
IN WITNESS WHEREOF, the undersigned have executed, or have
caused to be executed, this Agreement on the date first written above.
SWEETHEART HOLDINGS INC.
By: /s/ Dan Carson
-------------------------------
Name: Dan Carson
Title: Vice President
SF HOLDINGS GROUP, INC.
By: /s/ Hans Heinsen
-------------------------------
Name: Hans Heinsen
Title: Chief Financial Officer
AMERICAN INDUSTRIAL PARTNERS
CAPITAL FUND L.P.
By: American Industrial Partners
L.P., its general partner
By: American Industrial Partners
Management Company, Inc.
By: /s/ Kenneth Pereira
-------------------------------
Name: Kenneth Pereira
Title: Principal
LEEWAY & CO.
By: State Street Bank and Trust
Company
By: /s/ Kimberly Moynihan
-------------------------------
Name: Kimberly Moynihan
Title: Assistant Secretary
MELLON BANK, N.A., as
Trustee for FIRST PLAZA
GROUP TRUST (as directed
by General Motors
Investment Management
Corporation)
By: Bernadette Rist
-------------------------------
Name: Bernadette Rist
Title: Authorized Signatory
/s/ Donald W. Davis
---------------------------------
Donald W. Davis
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/s/ Robert J. Klein
-------------------------
Robert J. Klein
/s/ Thomas H. Barrett
-------------------------
Thomas H. Barrett
/s/ Kenneth A. Pereira
-------------------------
Kenneth A. Pereira
/s/ Lawrence W. Ward, Jr.
-------------------------
Lawrence W. Ward, Jr.
/s/ William F. McLaughlin
-------------------------
William F. McLaughlin
11
<PAGE>
EXECUTION COPY
STOCKHOLDERS AGREEMENT
THIS STOCKHOLDERS AGREEMENT is made as of March 12, 1998, by
and among SF Holdings Group, Inc., a Delaware corporation (the "Company") and
Bear, Stearns & Co. Inc. and SBC Warburg Dillon Read Inc. (each, an "Initial
Purchaser" and together, the "Initial Purchasers") on behalf of the holders of
the Shares (as defined below). The parties hereto (other than the Company) and
any person who shall hereafter become a party to this Agreement (as defined
below) are sometimes hereinafter referred to as a "Stockholder" or,
collectively, as the "Stockholders."
RECITALS
A. The Company and the Initial Purchasers entered into a Purchase
Agreement dated March 5, 1998 (the "Purchase Agreement") pursuant to which the
Company has agreed to sell to the Initial Purchasers, the Units (the "Units")
consisting of $144,000,000 in aggregate principal amount at maturity of 12 3/4%
Senior Secured Discount Notes due 2008 (the "Senior Secured Discount Notes")
and 288,000 shares of Class C Common Stock, par value $.001 per share (the
"Shares").
B. As a condition to the Purchase Agreement the Company agreed to
grant to the Stockholders the rights contained in this Agreement.
C. The parties hereto also desire to give effect to the arrangements
between them as to any future transfer of or dealing with the Shares of the
Company as hereinafter provided.
In consideration of the mutual covenants, undertakings, agreements,
representations and warranties hereinafter contained, and for other good and
valuable consideration, the receipt and sufficiency of which are hereby
acknowledged by the parties, it is hereby agreed as follows:
ARTICLE I.
DEFINITIONS
As used in this Agreement, and unless the context requires a different meaning,
the following terms have the meanings indicated and include the plural as well
as the singular:
Act. The Securities Act of 1933, as amended.
Agreement. This Stockholders Agreement, as the same may be
amended, supplemented or modified in accordance with the terms hereof.
Blackout. As defined in Section 2.3(h).
Board. The Board of Directors of the Company.
Business Day. Each Monday, Tuesday, Wednesday, Thursday
and Friday which is not a day on which banking institutions in the City of New
York, New York, are authorized or obligated by law to close.
<PAGE>
Commission. As defined in Section 2.1(a).
Common Stock. The Class A Common Stock, the Class B Common
Stock, the Class C Common Stock or all of the Class A Common Stock, Class B
Common Stock, and Class C Common Stock, as the context requires.
Company. As defined in the preamble to this Agreement.
Demand Registration. As defined in Section 2.2(a).
Effective Date. The time and date of the execution of this
Agreement.
Equity Offering. An underwritten public offering of common
stock (other than Disqualified Stock (as defined in the Indenture for the
Senior Secured Discount Notes)) of the Company registered under the Act (other
than a public offering registered on Form S-8 under the Securities Act).
Initiating Holder. As defined in Section 2.2(a).
Person. An individual or a corporation, partnership,
trust, incorporated or unincorporated association, joint venture, joint stock
company, government (or an agency or political subdivision thereof) or other
entity of any kind.
Piggyback Registrants. As defined in Section 2.1(b).
Piggyback Registration. As defined in Section 2.1(a).
Registrable Securities. The Shares (a) unless such Shares
(i) have been effectively registered under the Act and disposed of in
accordance with the Registration Statement covering them or (ii) have been sold
to the public pursuant to Rule 144 (or any similar provision then in force)
under the Act and all restrictive legends required by the Act have been removed
from the certificate representing such Shares; and (b) with respect to any
Shares held by Stockholders other than Shares identified in clause (a), such
Shares until such time as the Company has a class of securities registered
under Section 12(b) or (g) of the Exchange Act and all of the Shares held by
such Stockholder can be sold by it to the public without volume limitation
pursuant to Rule 144 (or any similar provision then in force) under the Act or
other restrictions on transfer, and the restrictive legends required by the Act
have been removed from the certificates representing such Shares.
Registration Statement. Any registration statement of the
Company filed pursuant to the Act and which covers any of the Registrable
Securities pursuant to the provisions of this Agreement, including the
Prospectus and any amendments and supplements to such Registration Statement,
including post-effective amendments, and all exhibits and all material
incorporated by reference in such Registration Statement.
Rights. Any outstanding subscriptions, options, warrants,
rights, convertible securities or other agreements or commitments of any
character obligating the Company to issue any securities.
Stockholder. As defined in the preamble to this Agreement.
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Triggering Event. The occurrence of any of the following
events: (i) the day immediately prior to a Change of Control, (ii) the 90th day
(or such earlier date as determined by the Company in its sole discretion)
following the initial Equity Offering of the Company or (iii) other than as a
result of the initial Equity Offering of the Company, the day on which a class
of common equity securities of the Company is listed on a national securities
exchange or authorized for quotation on the Nasdaq National Market System or is
otherwise subject to registration under the Exchange Act.
ARTICLE II.
REGISTRATION RIGHTS
SECTION 2.1. PIGGYBACK REGISTRATION RIGHTS.
(a) Right to Piggyback. Whenever the Company proposes to
register any shares of Common Stock with the Securities and Exchange Commission
(the "Commission") under the Act, for its own account or for the account of any
of its security holders covering the sale of Common Stock (other than (a) a
registration statement on Form S-4 or S-8 or (b) a registration statement filed
in connection with an offer of securities solely to existing security holders
or (c) a Demand Registration pursuant to Section 2.2 hereof), and the
Registration Statement may be used for the Registrable Securities held by the
Stockholders party to this Agreement (such registration a "Piggyback
Registration"), the Company will give written notice to all such Stockholders,
at least 20 Business Days prior to the anticipated filing date, of its
intention to effect such a registration, which notice will specify the kind and
number of securities proposed to be registered, the distribution arrangements
and such other information that at the time would be appropriate to include in
such notice, and will, subject to subsection (b) below, include in such
registration all Registrable Securities with respect to which the Company has
received written requests for inclusion therein within 20 Business Days after
the effectiveness of the Company's notice. Except as may otherwise be provided
in this Agreement, Registrable Securities with respect to which such request
for registration has been received will be registered by the Company and
offered to the public in a registration pursuant to this Section 2.1 on the
same terms and conditions as those applicable to the registration of shares of
Common Stock to be sold by the Company and by any other Stockholder selling
under such Piggyback Registration. A Piggyback Registration shall not apply to
any Equity Offering that is the initial Equity Offering of the Company unless
the securities of other selling security holders are to be included therein.
Each such Piggyback Registration shall comply with the procedures set forth in
Section 2.3 hereof.
(b) Priority on Piggyback Registrations. If the managing
underwriter or underwriters, if any, advise the holders of Registrable
Securities (such holders, "Piggyback Registrants") wishing to participate in
the Piggyback Registration in writing that in its or their reasonable opinion
or, in the case of a Piggyback Registration not being underwritten, the Company
shall reasonably determine (and notify the Piggyback Registrants of such
determination) after consultation with an investment banker of nationally
recognized standing, that the number or kind of securities proposed to be sold
in such registration (including Registrable Securities to be included pursuant
to subsection (a) above) will adversely affect the success of such offering,
the Company will include in such registration the number of securities, if any,
which, in the opinion of such underwriter or underwriters, or the Company, as
the case may be, can be sold as follows: (i) first, the shares the Company
proposes to sell, and any shares of Common Stock that any person has the right
to sell in the offering pursuant to any agreement in effect on the date of this
Agreement other than this Agreement, and (ii) second, the Registrable
Securities requested to be included in such registration by the Piggyback
Registrants. To the extent that the privilege of including Registrable
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<PAGE>
Securities in any Piggyback Registration must be allocated among the Piggyback
Registrants, the allocation shall be made pro rata among them based on the
number of Registrable Securities that each such participant shall have
requested to include therein.
(c) Selection of Underwriters. If any Piggyback Registration
is an underwritten offering, the Company will select a managing underwriter or
underwriters to administer the offering, which managing underwriter or
underwriters will be of nationally recognized standing.
(d) Fees and Expenses. The Company shall pay all of the
expenses of each Registration, except that each Piggyback Registrant shall pay
all fees and expenses of their respective counsel and the underwriting
discounts and fees and transfer taxes applicable to their respective securities
included in such Registration.
SECTION 2.2. DEMAND REGISTRATION.
(a) Eligibility. After the earlier to occur of March 15, 2002
or the occurrence of a Triggering Event, the Stockholders of one-quarter or
more of the Shares (the "Initiating Holder") shall be entitled to make a
written request to the Company (specifying that it is being made pursuant to
this Section 2.2) that the Company file a Registration Statement under the Act
(or a similar document pursuant to any other statute then in effect
corresponding to the Act) covering the registration of all or any portion of
the Registrable Securities held by such Initiating Holder (a "Demand
Registration"). In such event, the Company shall use its best efforts to cause
to be registered under the Act all Registrable Securities that the Initiating
Holder has requested be registered.
(b) Right to Join.
(i) Notice. Whenever an Initiating Holder exercises
a Demand Registration pursuant to Section 2.2(a) hereof and the
Registration Statement associated with such Demand Registration may be
used for the Registrable Securities held by the other Stockholders
party to this Agreement, the Company, on behalf of the Initiating
Holder, shall give written notice to such Stockholders, at least 20
Business Days prior to the anticipated filing date, of the intention
to effect such a registration, which notice will specify the kind and
number of securities proposed to be registered, the distribution
arrangements and such other information that at the time would be
appropriate to include in such notice, and will, subject to subsection
(b) below, include in such registration all Registrable Securities
with respect to which the Company has received written requests for
inclusion therein within 20 Business Days after the effectiveness of
the Initiating Holder's notice. Except as may otherwise be provided in
this Agreement, Registrable Securities with respect to which such
request for registration has been received will be registered by the
Company and offered to the public in a registration pursuant to this
Section 2.2 on the terms and conditions at least as favorable as those
applicable to the registration of shares of Registrable Securities to
be sold by the Initiating Holder.
(ii) Priority. If the managing underwriter or
underwriters, if any, advise the holders of Registrable Securities
wishing to participate in the Demand Registration (such holders,
"Demand Registrants") in writing that in its or their reasonable
opinion or, in the case of a Demand Registration not being
underwritten, the Company shall reasonably determine (and notify the
Demand Registrants of such determination) after consultation with an
investment banker of nationally recognized standing, that the number
or kind of securities proposed to be sold in such registration
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<PAGE>
will adversely affect the success (including, without limitation, an
impact on the selling price or the number of shares that the
Initiating Holder may sell) of the offering of the shares the
Initiating Holder proposes to sell, the Company will include in such
registration the number of securities, if any, which, in the opinion
of such underwriter or underwriters, or the Company, as the case may
be, can be sold as follows: (A) first, the shares the Initiating
Holder proposes to sell and the Registrable Securities requested to
be included in such registration by the other Demand Registrants, (B)
second, any Registrable Securities requested to be included in such
registration by the Company and (C) third, any shares of Common Stock
that any person has the right to sell in the offering pursuant to any
agreement other than this Agreement. To the extent that the privilege
of including Registrable Securities in any Piggyback Registration
must be allocated among the Demand Registrants and the Initiating
Holder, the allocation shall be made pro rata among them based on the
number of Registrable Securities that each such participant shall
have requested to include therein.
(c) Underwritten Offering. If the Initiating Holder intends
to distribute the Registrable Securities included in its request by means of an
underwritten offering, it shall so advise the Company as a part of its request
pursuant to Section 2.2(a) above. In such event, the Initiating Holder and the
Company shall enter into an underwriting agreement in customary form with the
underwriter or underwriters thereof. Such underwriter or underwriters shall be
selected by the Initiating Holder and shall be approved by the Company, which
approval shall not be unreasonably withheld.
(d) Company Election to Effect Primary Registration.
Notwithstanding anything to the contrary contained herein, at any time any
Initiating Holder shall request a Demand Registration pursuant to this Section
2.2, the Company may elect at that time to effect an underwritten primary
registration if the Board believes that such primary registration would be in
the best interests of the Company. Promptly after receiving a written request
for a Demand Registration, the Company shall notify the members of its Board
(and the Board shall consider the issue as soon as practicable after receiving
such request), and the Company shall meet with the managing underwriters, if
any, and shall decide whether or not to effect an underwritten primary
registration on behalf of the Company. If the Company elects to effect an
underwritten primary registration after receiving a request for a Demand
Registration, the Company shall give prompt written notice (and in any event
within 30 Business Days after receiving a written request for a Demand
Registration) to all Stockholders holding Registrable Securities of its
intention to effect such an underwritten primary registration and shall afford
such Stockholders rights to Piggyback Registrations contained in Section 2.1;
provided, however, that the Company may not make such an election with respect
to two consecutive Demand Registration requests, unless the Company has
included or includes in at least one of such primary registrations all of the
Registrable Securities requested to be included therein by the Stockholders. In
the event that the Company so elects to effect an underwritten primary
registration after receiving a request for a Demand Registration, (i) such
registration shall not count as a Demand Registration for purposes of this
Section 2.2 and (ii) the Company shall have the sole discretion to designate
the managing underwriter or underwriters to be used in connection with such
registration.
(e) Number of Demands; Expenses. The Stockholders shall be
entitled to one Demand Registration and the Company shall be obligated to pay
all of the expenses associated with such Demand Registration. Notwithstanding
the foregoing the Stockholders shall pay all fees and expenses of such
Stockholders' counsel and the underwriting discounts and fees and transfer
taxes applicable to the securities of the Initiating Holder included in such
registration. A registration shall not be deemed a Demand Registration pursuant
to this Section 2.2 unless the registration statement filed with respect
thereto includes at least 66 2/3% of the securities requested to be included
therein by the Initiating Holder and the
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Demand Registrants and such Registration Statement is declared effective under
the Act. Each of the Initiating Holder and the Demand Registrants has the right
to include, in any of its Demand Registrations pursuant to this Section 2.2,
Shares of any Person to whom it has transferred Shares, up to the number of
shares which the Initiating Holder transferred to such Person, less the number
of shares that have been subsequently transferred by such Person.
(f) Compliance with Procedures. Demand Registration made
pursuant to this Section 2.2 shall comply with the procedures set forth in
Section 2.3 hereof.
SECTION 2.3. REGISTRATION PROCEDURE.
(a) With respect to any Piggyback Registration and any Demand
Registration, the Company will as expeditiously as practicable:
(i) prepare and file with the Commission a
Registration Statement and use its reasonable efforts to cause such
Registration Statement to become effective, and in the case of a
Demand Registration pursuant to Section 2.2 within 120 days of such
Demand Registration;
(ii) prepare and file with the Commission such
amendments and post-effective amendments to the Registration Statement
as may be necessary to keep the Registration Statement continuously
effective for the shorter of (i) 180 days and (ii) such period of time
as all of the Shares included in such Registration Statement shall
have been sold thereunder, in accordance with the plan(s) of
distribution described therein; cause the prospectus to be
supplemented by any required prospectus supplement, and as so
supplemented to be filed pursuant to Rule 424 under the Act; and
comply with the provisions of the Act applicable to it with respect to
the disposition of all securities covered by such Registration
Statement during the applicable period in accordance with the intended
methods of disposition by the sellers thereof set forth in such
Registration Statement or in the prospectus, as supplemented;
(iii) furnish to any Piggyback Registrants or Demand
Registrants, as the case may be, and the underwriter or underwriters,
if any, without charge, at least one signed copy of the Registration
Statement and any post-effective amendment thereto, upon request, as
soon as such documents become available to the Company, and such
number of conformed copies thereof and such number of copies of the
prospectus (including each preliminary prospectus) and any amendments
or supplements thereto, and any documents incorporated by reference
therein, as such person or underwriter may reasonably request in order
to facilitate the disposition of the securities being sold by such
person;
(iv) notify Piggyback Registrants or Demand
Registrants, as the case may be, at any time when a prospectus
relating thereto is required to be delivered under the Act, of the
happening of any event as a result of which the prospectus included in
such Registration Statement contains any untrue statement of a
material fact or omits to state a material fact necessary to make the
statements therein (in the case of the prospectus or any preliminary
prospectus, in light of the circumstances under which they were made)
not misleading, and the Company will, as promptly as practicable
thereafter prepare and file with the Commission and furnish a
supplement or amendment to such prospectus so that, as thereafter
delivered to the purchasers of such securities, such prospectus will
not contain any untrue statement of a material fact or omit to state a
material fact required to be stated therein or necessary to make the
statements therein, in light of the
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circumstances under which they were made, not misleading;
(v) enter into customary agreements (including an
underwriting agreement in customary form in the case of an
underwritten offering), make such representation and warranties to the
sellers and underwriter as in form and substance and scope are
customarily made by issuers to underwriters in underwritten offerings
and take such other actions as the holders of a majority of the
securities or the managing underwriter or agent, if any, reasonably
require in order to expedite or facilitate the disposition of such
securities;
(vi) use its reasonable efforts to obtain a "cold
comfort" letter from the Company's independent public accountants in
customary form and covering such matters of the type customarily
covered by "cold comfort" letters as the holders of a majority of the
securities being sold or the managing underwriter reasonably request;
(vii) use its reasonable efforts to obtain an
opinion or opinions from counsel for the Company in customary form and
reasonably satisfactory to such holders, underwriters or agents and
their counsel;
(viii) make generally available to its security
holders earnings statements, which need not be audited, satisfying the
provisions of Section 11(a) of the Act no later than 90 Business Days
after the end of the 12-month period beginning with the first month of
the Company's first fiscal quarter commencing after the effective date
of the Registration Statement, which earnings statements shall cover
said 12-month period; and
(ix) on or prior to the date on which the
Registration Statement is declared effective, use its reasonable
efforts to register or qualify, and cooperate with Piggyback
Registrants or Demand Registrants, as the case may be, the managing
underwriter or underwriters or agent, if any, and their counsel, the
securities covered by the Registration Statement for offer and sale
under the securities or blue sky laws of each state and other
jurisdiction of the United States as any such person or underwriter
reasonably requests in writing, use its reasonable efforts to keep
each registration or qualification effective, including through new
filings, or amendments or renewals, during the period such
Registration Statement is required to be kept effective and do any and
all other acts or things reasonably necessary or advisable to enable
the disposition in all such jurisdictions of the securities covered by
the applicable Registration Statement provided, however, that the
Company will not be required to qualify generally to do business in
any jurisdiction where it is not then so qualified or to take any
action which would subject it to general service of process in and
such jurisdiction.
(b) It shall be a condition precedent to the Company's
obligation to register Registrable Securities pursuant to the provisions hereof
that Piggyback Registrants or Demand Registrants, as the case may be, shall
provide promptly to the Company such information as the Company may reasonably
request at any time and from time to time upon reasonable prior notice to
enable the Company to comply with any applicable law or regulation or to
facilitate the preparation of the Registration Statement.
(c) The Company shall indemnify and hold harmless each
Piggyback Registrant or Demand Registrant, as the case may be, and any
underwriter (as defined in the Act) of any Piggyback Registrant's or Demand
Registrant's securities and each person, if any, who controls such Piggyback
Registrant or Demand Registrant, as the case may be, or such underwriter within
the meaning of the Act
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(but only if such Piggyback Registrant or such underwriter agrees to indemnify
the persons mentioned in Section 2.1(d) in the manner set forth in Section
2.1(d)) from and against, and will reimburse each Piggyback Registrant or
Demand Registrant, as the case may be, and each such underwriter and
controlling person with respect to, any and all claims, losses, damages,
liabilities, costs and expenses, insofar as such claims, losses, damages,
liabilities, costs and expenses are caused by any untrue statement or alleged
untrue statement of any material fact contained in such Registration Statement,
any prospectus contained therein or any amendment or supplement thereto, or
arise out of or are based upon the omission or alleged omission to state
therein a material fact required to be stated therein or necessary to make the
statements therein not misleading; provided, however, that the Company shall
not be liable in any such case to the extent that any such claim, loss, damage,
liability, cost, or expense arises out of or is based upon any untrue statement
or alleged untrue statement or omission or alleged omission so made in
conformity with information furnished by such Piggyback Registrant or Demand
Registrant, as the case may be, such underwriter, or such controlling person in
writing specifically for inclusion therein.
(d) In the event that any Piggyback Registrant's securities
or Demand Registrant's securities, as the case may be, are included in a
Registration Statement, such Piggyback Registrant or Demand Registrant shall
indemnify and hold harmless the Company, its directors, officers who have
signed such Registration Statement, and each person, if any, who controls the
Company within the meaning of the Act from and against, and will reimburse the
Company and each such director, officer and controlling person with respect to,
any and all claims, losses, damages, liabilities, costs, and expenses to which
the Company or any such director, officer, or controlling person may become
subject under the Act or otherwise, insofar as such claim, losses, damages,
liabilities, costs, or expenses are caused by any untrue statement or alleged
untrue statement of any material fact contained in any Registration Statement,
any prospectus contained therein, or any amendment or supplement thereto, or
arise out of or are based upon the omission or alleged omission to state
therein a material fact required to be stated therein or necessary to make the
statements therein not misleading in each case to the extent, but only to the
extent, that such untrue statement or alleged untrue statement or omission or
alleged omission was so made in conformity with written information furnished
by such Piggyback Registrant for inclusion therein provided, however that no
Piggyback Registrant or Demand Registrant, as the case may be, shall be
required to pay an amount greater than the net cash proceeds received by such
Piggyback Registrant or Demand Registrant, as the case may be, with respect to
the sale of any Registrable Securities of such Piggyback Registrant or Demand
Registrant, as the case may be.
(e) Promptly after receipt by an indemnified party, pursuant
to the provisions of Section 2.1(d) or 2.1(e) hereof, of notice of the
commencement of any action, such indemnified party shall, if a claim thereof is
to be made against the indemnifying party pursuant to the provisions of said
Sections 2.1(d) or 2.1(e), notify the indemnifying party of the commencement
thereof, but the omission so to notify the indemnifying party will not relieve
it from any liability which it may have to any indemnifying party otherwise
than hereunder. In case such action is brought against any indemnified party,
and it notifies the indemnifying party of the commencement thereof, the
indemnifying party shall have the right to participate in, and to the extent
that it may wish, jointly with any other indemnifying party similarly notified,
to assume the defense thereof, at the sole expense of the indemnifying party,
with counsel reasonably satisfactory to such indemnified party, and after
notice of its election so to assume the defense thereof, the indemnifying party
shall not be liable to such indemnified party, pursuant to the provisions of
said Sections 2.1(d) or 2.1(e), for any legal or other expense subsequently
incurred by such indemnified party in connection with the defense thereof,
other than reasonable costs of investigation.
(f) If for any reason the indemnification provided for in
Section 2.1(d) or 2.1(e) is
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<PAGE>
unavailable to an indemnified party, then the indemnifying party shall
contribute to the amount paid or payable by the indemnified party as a result
of such loss, claim, damage, or liability in such proportion as is appropriate
to reflect not only the relative benefits received by the indemnified party and
the indemnifying party, but also the relative fault of the indemnified party
and the indemnifying party, as well as any other relevant equitable
considerations, provided, however, that no Piggyback Registrant or Demand
Registrant, as the case may be, shall be required to contribute an amount
greater than the net proceeds received by such Piggyback Registrant or Demand
Registrant, as the case may be, with respect to the sale of any Registrable
Securities of such Piggyback Registrant or Demand Registrant, as the case may
be. No person guilty of fraudulent misrepresentation (within the meaning of
Section 11(f) of the Act) shall be entitled to contribution from any person who
was not guilty of fraudulent misrepresentation.
(g) No Piggyback Registrant or Demand Registrant, as the case
may be, may participate in any underwritten registration hereunder unless such
Piggyback Registrant or Demand Registrant, as the case may be, (a) agrees to
sell its securities included therein on the basis provided in any underwriting
arrangements approved by the persons or entities entitled to approve such
arrangements and (b) accurately completes and executes all questionnaires,
powers of attorney, underwriting agreements and other documents customarily
required under the terms of such underwriting arrangements.
(h) Notwithstanding anything in this Agreement to the
contrary, the Company may postpone the filing period, suspend the effectiveness
of any registration statement, suspend the use of any prospectus and shall not
be required to amend or supplement the registration statement, any related
prospectus or any document incorporated therein by reference (other than an
effective registration statement being used for an underwritten offering) in
the event that, and for a period (a "Black Out Period") not to exceed an
aggregate of 45 days with respect to a Demand Registration, (i) an event or
circumstance occurs and is continuing as a result of which the Registration
Statement, any related prospectus or any document incorporated therein by
reference as then amended or supplemented would, in the Company's good faith
judgment, contain an untrue statement of a material fact or omit to state a
material fact necessary in order to make the statements therein, in the light
of the circumstances under which they were made, not misleading, and (ii) (A)
the Company determines in its good faith judgment that the disclosure of such
an event at such time would have a material adverse effect on the business,
operations or prospects of the Company or (B) the disclosure otherwise relates
to a material business transaction which has not yet been publicly disclosed;
provided further, that the Effectiveness Period shall be extended by the number
of days in any Black Out Period.
ARTICLE III.
MISCELLANEOUS
SECTION 3.1. ASSIGNMENT. Except as specifically provided in this Agreement, the
Company may not assign or transfer its rights, benefits, duties, burdens, or
obligations under this Agreement without the consent of all the parties hereto.
If there is an assignment or transfer of any rights, benefits, duties, burdens
or obligations under this Agreement, then such transferee or assignee shall
agree in writing to accept,
9
<PAGE>
assume and be bound by all of the provisions of this Agreement to the same
extent as its assignor or transferor.
SECTION 3.2. SEPARABILITY OF PROVISIONS. Should any Section or any part of a
Section within this Agreement be rendered void, invalid or unenforceable by any
court of law for any reason, such invalidity or unenforceability shall not void
or render invalid or unenforceable any other Section or part of a Section in
this Agreement.
SECTION 3.3. NOTICES. All notices, demands or other communications hereunder
shall be in writing and shall be deemed to have been duly given (i) if
delivered in person, upon delivery thereof, or (ii) if mailed, certified first
class mail, postage pre-paid, with return receipt requested, on the fifth day
after the mailing, or (iii) if sent by telex or facsimile transmission, with a
copy mailed on the same day in the same manner provided in (ii) above, when
transmitted and receipt is confirmed by telephone or telex or facsimile
response, or (iv) if otherwise actually delivered, when delivered:
(a) If to the Company, to:
SF Holdings Group, Inc.
115 Stevens Avenue
Valhalla, New York 10595; and
(b) If to any Demand Registrant or Piggyback Registrant,
to the address set forth on the records of the
Transfer Agent for the Shares, with a copy to the
Transfer Agent.
at such other address as any addressee may request in writing by notice to all
other addresses.
SECTION 3.4. ENTIRE AGREEMENT. This Agreement shall be binding upon and shall
inure to the benefit of the parties hereto and their respective heirs, personal
representatives, permitted assigns and successors.
SECTION 3.5. THIRD PARTY BENEFICIARIES. Nothing in this Agreement, expressed or
implied, is intended to confer on any Person other than the parties hereto or
their respective successors and permitted assigns, any rights, remedies,
obligations or liabilities under or by reason of this Agreement (except that
without the need for an express assignment subsequent Stockholders, to the
extent such successor or assign acquired Registrable Securities from a
Stockholder, this Agreement shall inure to the benefit of and be binding upon
such Person).
SECTION 3.6. CONSTRUCTION. In this Agreement, headings are for convenience only
and shall not affect interpretation, and except to the extent that the context
otherwise requires: references to any legislation or to any provision of any
legislation include any modification or re-enactment of, or any legislative
provision substituted for, and all statutory instruments issued under, such
legislation or such provision; words denoting the singular include the plural
and vice versa; words denoting individuals include corporations and other
Persons and vice versa; words denoting any gender include all genders;
references to any document, agreement or other instrument (including this
Agreement) include references to such document, agreement or other instrument
as amended, novated, supplemented or replaced from time to time; references to
clauses, sub-clauses, Sections, sub-sections, Schedules and Exhibits are to
clauses, sub-clauses, Sections, sub-sections, Schedules and Exhibits of this
Agreement; "or" is not exclusive; "$", and all other references to dollar
amounts, are in U. S. currency; references to any party to this Agreement or
any other document,
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agreement or other instrument includes its successors or permitted assigns; and
"writing" and cognate expressions include all means of reproducing words in a
tangible and permanently visible form.
SECTION 3.7. COUNTERPARTS. This Agreement may be signed in any number of
counterparts with the same effect as if the signatures of each such counterpart
were upon the same instrument.
SECTION 3.8. GOVERNING LAW. This Agreement shall be construed in accordance
with and be governed by the laws of the State of New York applicable to
contracts made within, and to be performed within, such state, excluding choice
of law principles of such state that would require the application of the laws
of a jurisdiction other than such state.
SECTION 3.9. AMENDMENTS AND WAIVERS. Neither this Agreement nor any term hereof
may be changed, waived, discharged or terminated orally or in writing, except
that any term of this Agreement may be amended and the observance of any such
term may be waived (either generally or in a particular instance and either
retroactively or prospectively) with (but only with) the written consent of all
of the parties hereto provided, however, that no such amendment or waiver shall
extend to or affect any obligation not expressly waived or impair any right
consequent therein. No delay or omission to exercise any right, power or remedy
accruing to any party hereto shall impair any such right, power or remedy of
such party nor be construed to be a waiver of any such right, power or remedy
nor constitute any course of dealing or performance hereunder.
SECTION 3.10. NO INCONSISTENT AGREEMENTS. The Company will not on or after the
date of this Agreement, enter into any agreement with respect to its securities
that is inconsistent with the rights granted to the Stockholders in this
Agreement or otherwise conflicts with the provisions hereof. The Company has
not previously entered into any agreement granting any registration rights with
respect to its securities to any Person excluding the registration rights
granted to the Sweetheart Stockholders. The rights granted to the Holders
hereunder do not in any way conflict with and are not inconsistent with the
rights granted to the holders of the Company's securities under any agreement
in effect on the date hereof.
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IN WITNESS WHEREOF, the parties have executed this Agreement
as of the date first above written.
SF HOLDINGS GROUP, INC.
By: /s/ Hans Heinsen
-----------------------------------
Name: Hans Heinsen
Title: Chief Financial Officer
BEAR, STEARNS & CO. INC.
By: /s/ James C. Deir
---------------------------------
Name: James C. Deir
Title: Managing Director
SBC WARBURG DILLON READ INC.
By: /s/ David Dickson
---------------------------------
Name: David Dickson
Title: Managing Director
12
<PAGE>
EXECUTION COPY
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SF HOLDINGS GROUP, INC.
-------------------------------------------
$144,000,000
144,000 UNITS CONSISTING OF
12 3/4% SERIES A SENIOR SECURED DISCOUNT NOTES DUE 2008 AND
288,000 SHARES OF CLASS C COMMON STOCK
-------------------------------------------
PLEDGE AGREEMENT
March 12, 1998
THE BANK OF NEW YORK
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
<PAGE>
PLEDGE AGREEMENT
This PLEDGE AGREEMENT (as amended, modified or supplemented
from time to time in accordance with its terms, the "Agreement"), dated as of
March 12, 1998, is made by SF HOLDINGS GROUP, INC., a Delaware corporation,
whose mailing address is 115 Stevens Avenue, Valhalla, New York 10595 (the
"Grantor"), in favor of THE BANK OF NEW YORK, in its capacity as trustee, for
the ratable benefit of the holders (the "Securityholders") from time to time of
the Senior Secured Discount Notes (as hereinafter defined) (the "Secured
Party").
RECITALS
A. The Grantor is a party to that certain indenture dated as
of the date hereof (as amended, supplemented or otherwise modified from time to
time, the "Indenture", between the Grantor and the Secured Party, pursuant to
which the Grantor will issue $77,538,240 in gross proceeds of 144,000 Units
(the "Units"), each consisting of $1,000 in aggregate principal amount at
maturity of its 12 3/4% Senior Secured Discount Notes due 2008 (including all
Series A and Series B Senior Secured Discount Notes to be issued from time to
time pursuant to the Indenture, collectively, the "Senior Secured Discount
Notes") and 2 shares (the "Shares") of Class C Common Stock, par value $.001
per share of the Company (the "Class C Common Stock"), the proceeds of which
will be used to fund the acquisition by the Grantor of 48% of the total
outstanding voting common stock, par value $.01 per share, of Sweetheart (the
"Sweetheart Class A Common Stock") and 100% of the total outstanding non-voting
common stock, par value $.01 per share, of Sweetheart (the "Sweetheart Class B
Common Stock" and together with the Sweetheart Class A Common Stock, the
"Sweetheart Common Stock"), which will represent 90% of the total outstanding
Sweetheart Common Stock (the "Sweetheart Investment"). All terms, covenants,
conditions, provisions and requirements of the Indenture are incorporated by
reference in this Agreement.
B. The terms of the Indenture require that the Grantor
execute and deliver this Agreement in order to secure the payment and
performance by the Grantor of all of its Obligations (as defined in the
Indenture) under the Indenture, the Senior Secured Discount Notes and the
Collateral Documents to which the Grantor is a party (collectively, the
"Secured Obligations").
AGREEMENT
NOW, THEREFORE, in order to induce the Securityholders to
purchase the Senior Secured Discount Notes, and for other good and valuable
consideration, the receipt and adequacy of which hereby is acknowledged, the
Grantor hereby represents, warrants, covenants, agrees and pledges as follows:
1. Definitions. This Agreement is the Pledge Agreement
referred to in the Indenture and is one of the Collateral Documents referred to
therein. Terms defined in the Indenture and not otherwise defined in this
Agreement shall have the meanings given those terms in the Indenture as though
set forth herein in full unless the context otherwise requires. In addition,
the following terms shall have the meanings respectively set forth after each:
<PAGE>
"Accreted Value" has the meaning assigned in the Indenture.
"Bankruptcy Default" means a Default under Section 6.01(h) or (i) of
the Indenture without giving effect to the passage of time.
"Capital Stock" has the meaning assigned in the Indenture.
"Certificates" means all certificates, instruments or other
documents now or hereafter representing or evidencing any Pledged Securities.
"Collateral Documents" means this Agreement and any other
agreements, instruments, financing statements or other documents that evidence
or set forth the security interest of the Secured Party in the Pledged
Collateral.
"Default Rate" means the lesser of (a) the maximum rate of interest
allowed by applicable law, and (b) two percent (2%) per annum in excess of the
interest rate borne by the Senior Secured Discount Notes or, in the case where
a default occurs prior to March 15, 2003, the Accreted Value thereof.
"Fonda" means The Fonda Group, Inc.
"Intercompany Notes" means all intercompany notes issued in favor of
the Grantor by any of the current and future Restricted Subsidiaries of the
Grantor, including Fonda and Sweetheart.
"Laws" means, collectively, all international, foreign, federal,
state and local statutes, treaties, rules, regulations, ordinances, codes and
administrative or judicial precedents.
"Payment Default" means a Default under Section 6.01(a) or (b) of
the Indenture, without giving effect to any notice and/or cure periods.
"Pledged Collateral" means any and all property of the Grantor now
or hereafter pledged and delivered to the Secured Party pursuant to and under
this Agreement, and includes without limitation the Pledged Securities, the
Certificates representing or evidencing same, the Intercompany Notes, all
Collateral Documents related thereto, any and all proceeds and products of any
of the foregoing, and any and all collections, dividends, distributions,
redemption payments or liquidation payments with respect to any of the
foregoing.
"Pledged Securities" means (i) any and all issued and outstanding
Capital Stock of each Restricted Subsidiary, (ii) any and all securities now or
hereafter issued in substitution, exchange or replacement therefor, or with
respect thereto, (iii) any and all warrants, options or other rights to
subscribe to or acquire any additional Capital Stock of each Restricted
Subsidiary owned by the Grantor, and (iv) any and all additional Capital Stock
hereafter acquired by the Grantor in each Restricted Subsidiary; provided
however that if any Restricted Subsidiary is organized and existing under the
laws of any jurisdiction outside of the United States then only 65% of all
issued and outstanding Capital Stock of such entity shall be deemed to be
Pledged Securities and subject to this Agreement.
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"Restricted Subsidiary" has the meaning assigned in the Indenture.
"Sweetheart" means Sweetheart Holdings Inc. and its subsidiaries.
2. Creation of Security Interest.
2.1 Pledge of Pledged Collateral. The Grantor hereby pledges and
grants to the Secured Party a security interest in and to all Pledged
Collateral owned by the Grantor together with all products, proceeds,
dividends, redemption payments, liquidation payments, cash, instruments and
other property, and any and all rights, titles, interests, privileges, benefits
and preferences appertaining or incidental to the Pledged Collateral. The
security interest and pledge created by this Section shall continue in effect
so long as any of the Secured Obligations are owed to the Secured Party.
2.2 Delivery of Certain Pledged Collateral. On or before the date
hereof, the Grantor shall cause to be pledged and delivered to the Secured
Party the following Pledged Collateral:
(a) Certificates evidencing all issued and outstanding Pledged
Securities; and
(b) All issued and outstanding Intercompany Notes.
Following the date hereof, additional Pledged Collateral may from time to time
be delivered to the Secured Party by agreement between the Secured Party and
the Grantor or as required by the Indenture. All Certificates at any time
delivered to the Secured Party shall be in suitable form for transfer by
delivery, or shall be accompanied by duly executed instruments of transfer or
assignment in blank, all in form and substance reasonably satisfactory to the
Secured Party. The Secured Party shall hold all Certificates pledged hereunder
pursuant to this Agreement unless and until released in accordance with Section
2.3 or 12 of this Agreement. The Intercompany Notes, when delivered and pledged
to the Secured Party hereunder, shall be in suitable form for transfer by
delivery, or shall be accompanied by duly executed instruments of transfer or
assignment in blank, all in form and substance reasonably satisfactory to the
Secured Party. The Secured Party shall hold the Intercompany Notes pursuant to
this Agreement until released in accordance with Section 2.3 or 12 of this
Agreement, subject, however, to the provisions of Section 11 and other related
provisions of this Agreement.
2.3 Release of Pledged Collateral. Pledged Collateral that is
required to be released from the pledge and security interest created by this
Agreement in order to permit the Grantor to consummate any disposition of stock
or assets, merger, consolidation, amalgamation, investment, acquisition,
dividend or distribution that the Grantor is entitled to consummate pursuant to
the Indenture, shall be so released by the Secured Party at such times and to
the extent necessary to permit the Grantor to consummate such permitted
transactions promptly following the Secured Party's receipt of a written
request therefor by the Grantor (which request shall be accompanied by all
documentation required under the Indenture in connection with such request)
specifying the purpose for which release is requested and such further
certificates or other documents as the Secured Party reasonably shall request
in its discretion to confirm that the Grantor is permitted to consummate such
permitted transaction together with any other documents as may be required
under the Indenture. Pledged Collateral that is required to be released from
the pledge and security interest created by this Agreement with respect to any
Restricted Subsidiary that the Board of Directors shall designate to be an
Unrestricted Subsidiary in accordance with the provisions of the Indenture
shall be released in accordance with the foregoing provisions of this Section
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2.3. Any request for any permitted release shall be transmitted to the Secured
Party. Subject to the provisions of Section 11 and other related provisions of
this Agreement, the Secured Party, at the expense of the Grantor, promptly
shall redeliver all Certificates or other Pledged Collateral (other than cash)
then subject to this Agreement and shall execute and deliver to the Grantor all
documents requested by the Grantor, which documents shall be prepared by the
Grantor, that are reasonably necessary to release Pledged Collateral of record
whenever the Grantor shall be entitled to the release thereof in accordance
with Section 12 of this Agreement or this Section 2.3. Any such action taken by
the Secured Party shall be without warranty by or recourse to the Secured
Party, except as to the absence of any prior assignments by the Secured Party
of its interests in the Pledged Collateral, and shall be at the expense of the
Grantor. The Secured Party may conclusively rely on any certificate delivered
to it by the Grantor stating that the execution of such documents and release
of the Pledged Collateral is in accordance with and permitted by the terms of
this Agreement and the Indenture.
2.4 Representations and Warranties Regarding Pledged Securities.
(a) Schedule "A", annexed hereto and made a part hereof, sets forth
with respect to the Grantor (i) the name of each Restricted Subsidiary of the
Grantor and (ii) with respect to each such Restricted Subsidiary (x) the number
of shares of each class of Capital Stock of such Subsidiary that is issued and
outstanding and (y) the number of shares of each class of Capital Stock of such
Subsidiary that is held by the Grantor.
(b) As of the date hereof, except as set forth on Schedule "A" there
are no other shares of Capital Stock required to be pledged to the Secured
Party under the terms of this Agreement.
(c) As of the date hereof, all of the Pledged Securities of each
Restricted Subsidiary are free and clear of any security interest, claim, lien,
limitation on voting rights or encumbrance.
2.5 Representations and Warranties Regarding Intercompany Notes.
(a) Schedule "B", annexed hereto and made a part hereof, sets forth
with respect to each Restricted Subsidiary of the Grantor the amount of each
Intercompany Note of such Restricted Subsidiary that is issued and outstanding
and that is held by the Grantor.
(b) As of the date hereof, except as set forth on Schedule "B" there
are no other Intercompany Notes required to be pledged to the Secured Party
under the terms of this Agreement.
3. Security for Obligations. This Agreement and the pledges and
security interests granted herein secure the payment when due, in full in cash,
and full performance of, all Secured Obligations now or hereafter existing
under the Indenture, the Senior Secured Discount Notes and the Collateral
Documents, whether for principal, interest, premium, if any, fees, expenses or
otherwise, including without limitation all obligations of the Grantor now or
hereafter existing under this Agreement, and all interest that accrues or
accretes on all or any part of any of the Secured Obligations after the filing
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of any petition or pleading against the Grantor for a proceeding under any
Bankruptcy Law.
4. Further Assurances. The Grantor agrees that at any time, and from
time to time, at the expense of the Grantor, it will promptly prepare, execute,
deliver and file or record all further financing statements, instruments and
documents, and will take all further actions, including causing the Grantor's
Restricted Subsidiaries to so execute, deliver, file or take other actions,
that may be necessary or desirable, or that the Secured Party reasonably may
request, in order to perfect and protect any pledge or security interest
granted hereby or to enable the Secured Party to exercise and enforce its
rights and remedies hereunder with respect to any Pledged Collateral and to
preserve and protect the Pledged Collateral, including, without limitation,
payment prior to delinquency of all taxes, assessments and other charges
imposed on or relating to the Pledged Collateral. The Grantor hereby consents
and agrees that the issuers of, or obligors on, the Pledged Collateral, or any
registrar or transfer agent or trustee for any of the Pledged Collateral, shall
be entitled to accept the provisions of this Agreement as conclusive evidence
of the right of the Secured Party to effect any transfer or exercise any right
hereunder, notwithstanding any other notice or direction to the contrary
heretofore or hereafter given by the Grantor or any other Person to such
issuers or such obligors or to any such registrar or transfer agent or trustee.
5. Voting Rights; Dividends; etc. So long as no Bankruptcy Default,
Payment Default or Event of Default under the Indenture occurs and remains
continuing:
5.1 Voting Rights. The Grantor shall be entitled to exercise any and
all voting and other consensual rights pertaining to the Pledged Securities, or
any part thereof, for any purpose not inconsistent with the terms of this
Agreement or the Indenture; provided, however, that the Grantor shall not
exercise, or shall refrain from exercising, any such right if it would result
in a Default or an Event of Default.
5.2 Dividend and Distribution Rights. The Grantor shall be entitled
to receive and to retain and use any and all dividends or distributions paid in
respect of the Pledged Securities other than distributions required to be
deposited with the Secured Party pursuant to the terms of the Indenture;
provided, however, that any and all such dividends or distributions received in
the form of Capital Stock shall be, and the Certificates representing such
Capital Stock forthwith shall be delivered to the Secured Party to hold as,
Pledged Collateral and shall, if received by the Grantor, be received in trust
for the benefit of the Secured Party, be segregated from the other property of
the Grantor and forthwith be delivered to the Secured Party as Pledged
Collateral in the same form as so received (with any necessary endorsements).
5.3 Rights Pursuant to Pledged Collateral. Prior to the occurrence
of a Bankruptcy Default, Payment Default or Event of Default, the Grantor shall
have the sole power, right and authority to (a) make demands for payment under
the Intercompany Notes and (b) exercise the rights and remedies provided for in
the Intercompany Notes (provided that no holder of any Intercompany Note other
than the Grantor shall be entitled to demand payment of any Intercompany Note
prior to the acceleration of the obligations evidenced by the Senior Secured
Discount Notes pursuant to the Indenture).
6. Rights During Event of Default. When a Bankruptcy Default,
Payment Default or Event of Default has occurred and is continuing:
6.1 Voting, Dividend and Distribution Rights. At the option of the
Secured Party, all rights of the Grantor to exercise the voting and other
consensual rights which it would
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otherwise be entitled to exercise pursuant to Section 5.1 above, and to receive
the dividends and distributions which it would otherwise be authorized to
receive and retain pursuant to Section 5.2 above, shall cease upon one day's
prior written notice to the Grantor, and all such rights shall thereupon become
vested in the Secured Party who shall thereupon have the sole right to exercise
such voting and other consensual rights and to receive such dividends and
distributions to be held in the Cash Collateral Account in accordance with the
provisions of the Indenture.
6.2 Dividends and Distributions Held in Trust. All dividends and
other distributions which are received by the Grantor contrary to the
provisions of this Agreement or of the Indenture shall be received in trust for
the benefit of the Secured Party, shall be segregated from other funds of the
Grantor and forthwith shall be paid over to the Secured Party for deposit in
the Collateral Account as Pledged Collateral in the same form as so received
(with any necessary endorsements) and held in the Collateral Account in
accordance with the provisions of the Indenture.
6.3 Irrevocable Proxy. The Grantor hereby revokes all previous
proxies with regard to the Pledged Securities and appoints the Secured Party as
its proxyholder to attend and vote at any and all meetings of the shareholders
of the corporation(s) which issued the Pledged Securities, and any adjournments
thereof, held on or after the date of the giving of this proxy and prior to the
termination of this proxy and to execute any and all written consents of
shareholders of such corporation(s) executed on or after the date of the giving
of this proxy and prior to the termination of this proxy, with the same effect
as if the Grantor had personally attended the meetings or had personally voted
its shares or had personally signed the written consents; provided, however,
that (a) the proxyholder shall have rights hereunder only upon the occurrence
and during the continuance of a Bankruptcy Default, Payment Default or Event of
Default, and (b) the Secured Party shall have given the notice to the Grantor
specified by Section 6.1. The Grantor hereby authorizes the Secured Party to
substitute another person as the proxyholder and, upon the occurrence or during
the continuance of any Bankruptcy Default, Payment Default or Event of Default,
hereby authorizes and directs the proxyholder to file this proxy and the
substitution instrument with the secretary of the appropriate corporation. This
proxy is coupled with an interest and is irrevocable until such time as all
Secured Obligations have been paid and performed in full.
6.4 Collections. All collections or other amounts received by the
Grantor with respect to the Intercompany Notes or with respect to any security
therefor following the occurrence and during the continuance of a Payment
Default, a Bankruptcy Default or an Event of Default, or if any such
collections or other amounts constitute funds required to be deposited with the
Trustee pursuant to the provisions of the Indenture, shall be paid over to the
Secured Party to be held in the Cash Collateral Account as provided in the
Indenture.
7. Transfers and Other Liens. The Grantor agrees that, except as
specifically permitted under the Indenture, it will not (i) sell, assign,
exchange, transfer or otherwise dispose of, or contract to sell, assign,
exchange, transfer or otherwise dispose of, or grant any option with respect
to, any of the Pledged Collateral, (ii) create or permit to exist any Lien upon
or with respect to any of the Pledged Collateral, except for Liens in favor of
the Secured Party, or (iii) take any action with respect to the Pledged
Collateral which is inconsistent with the provisions or purposes of the
Indenture, this Agreement or any other Collateral Document.
8. Secured Party Appointed Attorney-in-Fact. The Grantor hereby
irrevocably appoints the Secured Party as the Grantor's attorney-in-fact,
effective upon and during the continuance
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of a Default or Event of Default, with full authority in the place and stead of
the Grantor, and in the name of the Grantor, or otherwise, from time to time,
in the Secured Party's sole and absolute discretion for the benefit of the
Securityholders to do any of the following acts or things: (a) to do all acts
and things and to execute all documents necessary or advisable to perfect and
continue perfected the security interests created by this Agreement and to
preserve, maintain and protect the Pledged Collateral; (b) to do any and every
act which the Grantor is obligated to do under this Agreement and which the
Grantor shall have failed to do; (c) to prepare, sign, file and record, in the
Grantor's name, any financing statement covering the Pledged Collateral; and
(d) to endorse and transfer all or the applicable portion of the Pledged
Collateral upon foreclosure thereon by the Secured Party; provided, however,
that the Secured Party shall be under no obligation whatsoever to take any of
the foregoing actions, and the Secured Party shall have no liability or
responsibility for any act (other than the Secured Party's own gross negligence
or willful misconduct) or omission taken with respect thereto. The Grantor
hereby agrees to repay immediately upon demand all reasonable costs and
expenses, including attorneys' fees, incurred or expended by the Secured Party
in exercising any right or taking any action under this Agreement, together
with interest thereon at the Default Rate from the date incurred. The parties
hereto agree that the Secured Party shall have no obligation to expend or risk
its own funds or otherwise incur any financial liability in the performance of
any of its duties hereunder.
9. Secured Party May Perform Secured Obligations. If the Grantor
fails to perform any Secured Obligation contained herein, and any applicable
cure period has expired, the Secured Party may, but without any obligation to
do so and without demand upon or prior notice to the Grantor, perform the same
and take such other action as the Secured Party may deem necessary or desirable
to protect the Pledged Collateral or the Secured Party's security interests
therein, the Secured Party being hereby authorized (without limiting the
general nature of the authority hereinabove conferred) to pay, purchase,
contest and compromise any Lien which in the reasonable judgment of the Secured
Party appears to be prior or superior to the Secured Party's security interests
hereunder (other than Liens described in clauses (iii), (iv), (vii), (viii) and
(x) and all amendments, modifications, successors to and replacements of such
Liens to the extent permitted under clause (xi) of the definition of Permitted
Liens in the Indenture), and in exercising any such powers and authority to pay
necessary expenses, employ counsel and pay reasonable attorneys' fees, all of
which shall be deemed to be Secured Obligations at the expense of the Grantor.
The Secured Party shall notify the Grantor as soon as practicable of any such
action taken by the Secured Party, provided that the failure of the Secured
Party to so notify the Grantor shall not relieve the Grantor of any of its
obligations hereunder. The Grantor hereby agrees to repay upon demand all sums
so expended by the Secured Party, together with interest at the Default Rate
from the date incurred. Except as expressly set forth in Section 16(k) hereof,
the Secured Party shall be under no duty or obligation to (i) preserve,
maintain or protect the Pledged Collateral or any of the Grantor's rights or
interest therein, (ii) exercise any voting rights with respect to the Pledged
Collateral, whether or not a Bankruptcy Default, Payment Default or Event of
Default has occurred or is continuing, or (iii) except as otherwise provided
herein or in any other Collateral Document, make or give any notices of
default, presentments, demands for performance, notices of nonperformance or
dishonor, protests, notices of protest or notice of any other nature whatsoever
in connection with the Pledged Collateral on behalf of the Grantor or any other
Person having any interest therein; and the Secured Party does not assume and
shall not be obligated to perform the obligations of the Grantor, if any, with
respect to the Pledged Collateral.
10. Reasonable Care. The Secured Party shall be deemed to have
exercised reasonable care in the custody and preservation of the Pledged
Collateral in its possession if the Pledged Collateral is accorded treatment
substantially similar to that which the Secured Party accords its own
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property, it being understood that the Secured Party shall not have any
responsibility for (i) ascertaining or taking action with respect to calls,
conversions, exchanges, maturities, tenders or other matters relative to any
Pledged Collateral, whether or not the Secured Party has or is deemed to have
knowledge of such matters, (ii) taking any necessary steps to preserve rights
against any Person with respect to any Pledged Collateral, or (iii) any act
which does not constitute gross negligence.
11. Events of Default and Remedies.
11.1 The occurrence of any Event of Default under the Indenture
shall constitute an Event of Default under this Agreement.
11.2 Rights Upon Event of Default. Upon the occurrence and during
the continuance of an Event of Default, the Grantor shall be in default
hereunder and the Secured Party shall have in any jurisdiction where
enforcement is sought, in addition to all other rights and remedies that the
Secured Party may have under this Agreement and under applicable Laws or in
equity, all rights and remedies of a secured party under the Uniform Commercial
Code as enacted in any such jurisdiction, and in addition the following rights
and remedies, all of which may be exercised with or without further notice to
the Grantor except such notice as may be specifically required herein:
(a) to notify any issuer of any Pledged Securities, and any and all
other obligors on any Pledged Collateral, that the same has been pledged to the
Secured Party and that all dividends and other payments thereon are to be made
directly and exclusively to the Secured Party; to renew, extend, modify, amend,
accelerate, accept partial payments on, make allowances and adjustments and
issue credits with respect to, release, settle, compromise, compound, collect
or otherwise liquidate, on terms acceptable to the Secured Party, in whole or
in part, the Pledged Collateral and any amounts owing thereon or any guaranty
or security therefor; and to give all consents, waivers and ratifications with
respect to the Pledged Collateral and exercise all other rights (including
voting rights), powers and remedies and otherwise act with respect thereto as
if the Secured Party were the owner thereof;
(b) to enforce payment and prosecute any action or proceeding with
respect to any and all of the Pledged Collateral and take or bring, in the
Secured Party's name or in the name of the Grantor, all steps, actions, suits
or proceedings deemed by the Secured Party necessary or desirable to effect
collection of or to realize upon the Pledged Collateral;
(c) in accordance with applicable Laws, to take possession of the
Pledged Collateral with or without judicial process;
(d) to endorse, in the name of the Grantor, all checks, notes,
drafts, money orders, instruments and other evidences of payment relating to
the Pledged Collateral;
(e) to transfer any or all of the Pledged Collateral into the name
of the Secured Party or its nominee or nominees; and
(f) in accordance with applicable Laws, to foreclose the Liens and
security interests created under this Agreement or under any other agreement
relating to the Pledged Collateral by any available judicial procedure or
without judicial process, and to sell, assign or otherwise dispose of the
Pledged Collateral or any part thereof, either at public or private sale or at
any broker's
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board or securities exchange, in lots or in bulk, for cash, on credit or for
future delivery, or otherwise, with or without representations or warranties,
and upon such terms as shall be acceptable to the Secured Party; all at the
sole option of and in the sole discretion of the Secured Party.
11.3 Notice of Sale. The Secured Party shall give the Grantor at
least ten (10) days' written notice of any sale of all or any part of the
Pledged Collateral. Any sale of the Pledged Collateral shall be held at such
time or times and at such place or places as the Secured Party may
determine in the exercise of its sole and absolute discretion. The Secured
Party may bid (which bid may be, in whole or in part, in the form of
cancellation of Secured Obligations) for and purchase for the account of the
Secured Party or any nominee of the Secured Party the whole or any part of the
Pledged Collateral. The Secured Party shall not be obligated to make any sale
of the Pledged Collateral if it shall determine not to do so regardless of the
fact that notice of sale of the Pledged Collateral may have been given. The
Secured Party may, without notice or publication, except as required by
applicable law, adjourn the sale from time to time by announcement at the time
and place fixed for sale, and such sale may, without further notice (except as
required by applicable law), be made at the time and place to which the same
was so adjourned.
11.4 Title of Purchasers. Upon consummation of any sale of Pledged
Collateral pursuant to this Section 11, the Secured Party shall have the right
to assign, transfer and deliver to the purchaser or purchasers thereof the
Pledged Collateral so sold. Each such purchaser at any such sale shall hold the
Pledged Collateral sold absolutely free from any claim or right on the part of
the Grantor, and the Grantor hereby waives (to the extent permitted by
applicable Laws) all rights of redemption, stay and appraisal which it now has
or may at any time in the future have under any rule of law or statute now
existing or hereafter enacted. If the sale of all or any part of the Pledged
Collateral is made on credit or for future delivery, the Secured Party shall
not be required to apply any portion of the sale price to the Secured
Obligations until such amount actually is received by the Secured Party, and
any Pledged Collateral so sold may be retained by the Secured Party until the
sale price is paid in full by the purchaser or purchasers thereof. The Secured
Party shall incur no liability in case any such purchaser or purchasers shall
fail to pay for the Pledged Collateral so sold, and, in the case of any such
failure, the Pledged Collateral may be sold again upon like notice.
11.5 Disposition of Proceeds of Sale. The cash proceeds resulting
from the collection, liquidation, sale or other disposition of the Pledged
Collateral shall be deposited in the Cash Collateral Account and be applied,
first, to the costs and expenses (including attorneys' fees) of retaking,
holding, storing, processing and preparing for sale, selling, collecting and
liquidating the Pledged Collateral, and the like; second, to the satisfaction
of all Secured Obligations, with application as to any particular Secured
Obligations to be in the order set forth in the Indenture or as determined by
the Trustee; and third, any surplus remaining after the satisfaction of all
Secured Obligations, to be paid over to the Grantor or to whomsoever may be
lawfully entitled to receive such surplus.
12. Release of the Grantor. This Agreement and the Secured Party's
security interest in the Pledged Collateral then subject to this Agreement
shall be released when all Secured Obligations have been paid in full in cash
or otherwise performed in full, subject however, to the provisions of Section
11 and other related provisions of this Agreement. Upon such release of the
Grantor's Pledged Collateral hereunder, the Secured Party shall return all
Certificates representing the Pledged Collateral then subject to this Agreement
to the Grantor and shall prepare, endorse, execute, deliver, record and file
all instruments and documents, which shall be prepared by the Grantor and do
all other acts and things, reasonably required for the return of the Pledged
Collateral to the Grantor and to evidence or
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document the release of the Secured Party's interests arising under this
Agreement, all as requested by, and at the expense of, the Grantor. In addition
to the foregoing, the Grantor shall have the release rights set forth in
Section 2.3. Any such action taken by the Secured Party shall be without
warranty by or recourse to the Secured Party, except as to the absence of any
prior assignments by the Secured Party of its interest in the Pledged
Collateral, and shall be at the expense of the Grantor. The Secured Party may
conclusively rely on any certificate delivered to it by the Grantor stating
that the execution of such documents and release of the Pledged Collateral is
in accordance with and permitted by the terms of this Agreement and the
Indenture.
13. Covenant Not to Issue Uncertificated Securities. The Grantor
represents and warrants to the Secured Party that all of the Capital Stock
issued by its Restricted Subsidiaries is in certificated form and covenants to
the Secured Party that it will not cause or permit any Restricted Subsidiary to
issue any Capital Stock in uncertificated form or seek to convert all or any
part of its existing common stock into uncertificated form.
14. Covenant Not to Dilute Interests of the Secured Party in Pledged
Securities. The Grantor represents, warrants and covenants to the Secured Party
that it will not at any time cause or permit any of its Restricted Subsidiaries
to issue any additional Capital Stock or any warrants, options or other rights
to acquire any additional Capital Stock, if the effect thereof would be to
dilute in any way the interests of the Secured Party in any Pledged Securities.
15. Amendments, Waivers and Consents. Any amendment or waiver of any
provision of this Agreement and any consent to any departure by the Grantor
from any provision of this Agreement shall be effective only if made or given
in compliance with all of the terms and provisions of the Indenture and neither
the Secured Party nor any Securityholder shall be deemed, by any act, delay,
indulgence, omission or otherwise, to have waived any right or remedy hereunder
or to have acquiesced in any Default or Event of Default or in any breach of
any of the terms and conditions hereof. Failure of the Secured Party to
exercise, or delay in exercising, any right, power or privilege hereunder shall
not operate as a waiver thereof. No single or partial exercise of any right,
power or privilege hereunder shall preclude any other or further exercise
thereof or the exercise of any other right, power or privilege. A waiver by the
Secured Party or any Securityholder of any right or remedy hereunder on any one
occasion shall not be construed as a bar to any right or remedy that the
Secured Party or such Securityholder would otherwise have on any future
occasion. The rights and remedies herein provided are cumulative, may be
exercised singly or concurrently and are not exclusive of any rights or
remedies provided by law.
16. General Provisions.
a. Notices. All notices, approvals, consents or other communications
required or desired to be given hereunder shall be in the form and manner
provided in and delivered to the Grantor at the address set forth in the
Indenture.
b. No Adverse Interpretation of Other Agreements. This Agreement may
not be used to interpret another pledge, security or debt agreement of the
Grantor or any subsidiary of the Grantor. No such pledge, security or debt
agreement may be used to interpret this Agreement.
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c. Severability. The provisions of this Agreement are severable, and
if any clause or provision shall be held invalid, illegal or unenforceable in
whole or in part in any jurisdiction, then such invalidity or unenforceability
shall affect in that jurisdiction only such clause or provision, or part
thereof, and shall not in any manner affect such clause or provision in any
other jurisdiction or any other clause or provision of this Agreement in any
jurisdiction.
d. Headings. The headings in this Agreement have been inserted for
convenience of reference only, are not to be considered a part hereof and shall
in no way modify or restrict any of the terms or provisions hereof.
e. Counterpart Originals. This Agreement may be signed in two or
more counterparts, each of which shall be deemed an original, but all of which
shall together constitute one and the same agreement.
f. Benefits of Agreement; Successors and Assigns. Nothing in this
Agreement, express or implied, shall give to any person, other than the Secured
Party, the Securityholders and their respective successors, transferees and
assignees hereunder, any benefit or any legal or equitable right, remedy or
claim under this Agreement. This Agreement shall be binding upon the Grantor,
its successors and assigns, and inure, together with the rights and remedies of
the Secured Party hereunder, to the benefit of the Secured Party, the
Securityholders and their respective successors, transferees and assigns. The
Grantor shall not, without the prior written consent of the Secured Party,
assign any rights, duties or obligations under this Agreement.
g. Reinstatement. This Agreement shall continue to be effective or
be reinstated, as the case may be, if at any time any amount received by the
Secured Party or any Securityholder in respect of the Secured Obligations is
rescinded or must otherwise be restored or returned by the Secured Party or any
Securityholder upon the insolvency, bankruptcy, dissolution, liquidation or
reorganization of the Grantor or upon the appointment of any receiver,
intervenor, conservator, trustee or similar official for the Grantor or any
substantial part of its assets, or otherwise, all as though such payments had
not been made.
h. Survival of Provisions. All representations, warranties and
covenants of the Grantor contained herein shall survive the execution and
delivery of this Agreement, and shall terminate only upon the full and final
payment and performance of the Secured Obligations.
i. Waivers. The Grantor waives presentment and demand for payment of
any of the Secured Obligations, protest and notice of dishonor or default with
respect to any of the Secured Obligations, and all other notices to which the
Grantor might otherwise be entitled, except as otherwise expressly provided
herein or in the Indenture.
j. Authority of the Secured Party. (i) The Secured Party shall have
and be entitled to exercise all powers hereunder that are specifically granted
to the Secured Party by the terms hereof, together with such powers as are
reasonably incident thereto. The Secured Party may perform any of its duties
hereunder or in connection with the Pledged Collateral by or through agents or
employees and shall be entitled to retain counsel and to act in reliance upon
the advice of counsel concerning all such matters. Neither the Secured Party,
any director, officer, employee, attorney or agent of the Secured Party nor the
Securityholders shall be liable to the Grantor for any action taken or omitted
to be taken by it or them hereunder, except for its or their own gross
negligence or willful misconduct,
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nor shall the Secured Party be responsible for the validity, effectiveness or
sufficiency hereof or of any document or security furnished pursuant hereto.
The Secured Party and its directors, officers, employees, attorneys and agents
shall be entitled to rely on any communication, instrument or document believed
by it or them to be genuine and correct and to have been signed or sent by the
proper person or persons.
(ii) The Grantor acknowledges that the rights and
responsibilities of the Secured Party under this Agreement with respect to any
action taken by the Secured Party or the exercise or non-exercise by the
Secured Party of any option, right, request, judgment or other right or remedy
provided for herein or resulting or arising out of this Agreement shall, as
between the Secured Party and the Securityholders, be governed by the Indenture
and by such other agreements with respect thereto as may exist from time to
time among them, but, as between the Secured Party and the Grantor, the Secured
Party shall be conclusively presumed to be acting as agent for the
Securityholders with full and valid authority so to act or refrain from acting,
and the Grantor shall not be obligated or entitled to make any inquiry
respecting such authority.
k. No Duty. The powers conferred on the Secured Party and the
Securityholders hereunder are solely to protect their interests in the Pledged
Collateral and shall not impose any duty upon them to exercise any such powers.
Except for the safe custody of any Pledged Collateral that may come into its
possession and the accounting for moneys actually received by it hereunder, the
Secured Party shall have no duty as to any Pledged Collateral or as to the
taking of any necessary steps to preserve rights against prior parties or any
other rights pertaining to any Pledged Collateral. The Secured Party shall be
deemed to exercise reasonable care in the custody and preservation of the
Pledged Collateral if such Pledged Collateral is accorded treatment
substantially equal to that which the Secured Party accords similar property in
similar situations, it being understood that the Secured Party shall have no
responsibility or liability for the collection of any proceeds of any Pledged
Collateral or by reason of any invalidity, lack of value or uncollectibility of
any of the payments received by it from obligors or otherwise.
l. Payment of Fees and Expenses. The Grantor will upon demand pay to
the Secured Party, or advance if requested, without duplication, the amount of
any and all expenses with interest thereon at the Default Rate from the date
incurred, including, without limitation, the fees and disbursements of its
counsel and of any experts and agents, that the Secured Party may incur in
connection with (i) the administration of this Agreement, (ii) the custody,
preservation, or the sale of, collection from, or other realization upon, any
of the Pledged Collateral, (iii) the exercise or enforcement of any of the
rights of the Secured Party hereunder or (iv) the failure by the Grantor to
perform or observe any of the provisions hereof.
m. Final Expression. This Agreement, together with any other
agreement executed in connection herewith, is intended by the parties as a
final expression of this Agreement and is intended as a complete and exclusive
statement of the terms and conditions thereof.
n. Grantor Remains Liable; Obligations Absolute. (i) Anything herein
to the contrary notwithstanding: (a) the Grantor shall remain liable under any
Intercompany Notes (and any documents related thereto) included in the Pledged
Collateral, to the extent set forth therein, to perform all of its duties and
obligations thereunder to the same extent as if this Agreement had not been
executed, (b) the exercise by the Secured Party of any of the rights hereunder
shall not release the Grantor from any of its duties or obligations under the
Intercompany Notes (and any documents related thereto) included in the Pledged
Collateral, and (c) the Secured Party shall not have any obligation or
liability
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under any Intercompany Notes (and any documents related thereto) included in
the Pledged Collateral by reason of this Agreement, nor shall the Secured Party
be obligated to perform any of the obligations or duties of the Grantor
thereunder or to take any action to collect or enforce any claim for payment
assigned hereunder.
(ii) All obligations of the Grantor hereunder shall be absolute and
unconditional irrespective of:
(a) any bankruptcy, insolvency, reorganization, arrangement,
readjustment, composition, liquidation or the like of the Grantor or any
Restricted Subsidiary;
(b) any lack of validity or enforceability of the Indenture or any
other Collateral Document, or any other agreement or instrument relating
thereto;
(c) any change in the time, manner or place of payment of, or in any
other term of, all or any of the Secured Obligations, or any other amendment or
waiver of or any consent to any departure from the Indenture or any other
Collateral Document, or any other agreement or instrument relating thereto;
(d) any exchange, release or non-perfection of any other collateral,
or any release or amendment or waiver of or consent to any departure from any
guarantee, for all or any of the Secured Obligations;
(e) any exercise or non-exercise, or any waiver of any right,
remedy, power or privilege under or in respect of this Agreement or any other
Collateral Document except as specifically set forth in a waiver granted
pursuant to the provisions of Section 15 hereof or the provisions of such other
Collateral Document; or
(f) any other circumstances which might otherwise constitute a
defense available to, or a discharge of, the Grantor.
o. Rights of Securityholders. No Securityholder shall have any
independent rights hereunder other than those rights granted to individual
Securityholders pursuant to the Indenture; provided that nothing in this
subsection (o) shall limit any rights granted to the Secured Party under the
Senior Secured Discount Notes, the Indenture or the Collateral Documents.
p. Liens; Setoff. The Grantor hereby grants to the Secured Party a
continuing Lien for all of the Secured Obligations upon any and all monies,
securities, and other property of the Grantor, now or hereafter held or
received by or in transit to, the Secured Party, from or for the Grantor.
Without implying any limitation on any other rights the Secured Party may have
under the Collateral Documents or applicable Laws, during the continuance of an
Event of Default, the Secured Party is hereby authorized by the Grantor at any
time and from time to time, without notice to the Grantor, to offset and apply
to all or any part of the Secured Obligations then outstanding (whether or not
then due) all moneys, credits and other property of any nature whatsoever of
the Grantor now or at any time hereafter in the possession of, in transit to or
from, under the control or custody of, or on deposit with, the Secured Party or
any Affiliate of the Secured Party, all in such order and manner as shall be
determined by the Secured Party in its sole and absolute discretion.
14
<PAGE>
17. Governing Law; Submission to Jurisdiction; Waiver of Jury Trial;
Waiver of Damages.
(I) THIS AGREEMENT SHALL BE GOVERNED BY AND INTERPRETED UNDER THE
LAWS OF THE STATE OF NEW YORK, AND ANY DISPUTE ARISING OUT OF, CONNECTED WITH,
RELATED TO, OR INCIDENTAL TO THE RELATIONSHIP ESTABLISHED BETWEEN THE GRANTOR
AND THE SECURED PARTY ON BEHALF OF THE SECURITYHOLDERS IN CONNECTION WITH THIS
AGREEMENT, AND WHETHER ARISING IN CONTRACT, TORT, EQUITY OR OTHERWISE, SHALL BE
RESOLVED IN ACCORDANCE WITH THE INTERNAL LAWS (AS OPPOSED TO THE CONFLICTS OF
LAWS PROVISIONS) AND DECISIONS OF THE STATE OF NEW YORK.
(II) THE GRANTOR AGREES THAT THE SECURED PARTY SHALL, IN ITS
CAPACITY AS THE SECURED PARTY OR IN THE NAME AND ON BEHALF OF ANY
SECURITYHOLDER(S), HAVE THE RIGHT, TO THE EXTENT PERMITTED BY APPLICABLE LAW,
TO PROCEED AGAINST THE GRANTOR OR ITS PROPERTY IN A COURT IN ANY LOCATION
REASONABLY SELECTED IN GOOD FAITH TO ENABLE THE SECURED PARTY TO REALIZE ON
SUCH PROPERTY, OR TO ENFORCE A JUDGMENT OR OTHER COURT ORDER ENTERED IN FAVOR
OF THE SECURED PARTY. THE GRANTOR AGREES THAT IT WILL NOT ASSERT ANY PERMISSIVE
COUNTERCLAIMS, SETOFFS OR CROSS-CLAIMS IN ANY PROCEEDING BROUGHT BY THE
SECURED PARTY TO REALIZE ON SUCH PROPERTY, OR TO ENFORCE A JUDGMENT OR OTHER
COURT ORDER IN FAVOR OF THE SECURED PARTY. THE GRANTOR WAIVES ANY OBJECTION
THAT IT MAY HAVE TO THE LOCATION OF THE COURT IN WHICH THE SECURED PARTY HAS
COMMENCED A PROCEEDING DESCRIBED IN THIS PARAGRAPH INCLUDING, WITHOUT
LIMITATION, ANY OBJECTION TO THE LAYING OF VENUE OR BASED ON THE GROUNDS OF
FORUM NON CONVENIENS.
(III) THE GRANTOR AND THE SECURED PARTY EACH WAIVES ANY RIGHT TO
HAVE A JURY PARTICIPATE IN RESOLVING DISPUTES, WHETHER SOUNDING IN CONTRACT,
TORT, OR OTHERWISE ARISING OUT OF, CONNECTED WITH, RELATED TO OR INCIDENTAL TO
THE RELATIONSHIP ESTABLISHED BETWEEN THEM IN CONNECTION WITH THIS AGREEMENT.
INSTEAD, ANY DISPUTES RESOLVED IN COURT WILL BE RESOLVED IN A BENCH TRIAL
WITHOUT A JURY.
(IV) THE GRANTOR AGREES THAT NEITHER THE SECURED PARTY NOR ANY
SECURITYHOLDER SHALL HAVE ANY LIABILITY TO THE GRANTOR (WHETHER SOUNDING IN
TORT, CONTRACT OR OTHERWISE) FOR LOSSES SUFFERED BY THE GRANTOR IN CONNECTION
WITH, ARISING OUT OF, OR IN ANY WAY RELATED TO, THE TRANSACTIONS CONTEMPLATED
AND THE RELATIONSHIP ESTABLISHED BY THIS AGREEMENT, OR ANY ACT, OMISSION OR
EVENT OCCURRING IN CONNECTION THEREWITH, UNLESS IT IS DETERMINED BY A FINAL AND
NONAPPEALABLE JUDGMENT OF A COURT THAT IS BINDING ON THE SECURED PARTY OR SUCH
SECURITYHOLDER, AS THE CASE MAY BE, THAT SUCH LOSSES WERE THE RESULT OF ACTS OR
OMISSIONS ON THE PART OF THE SECURED PARTY OR SUCH SECURITYHOLDER, AS THE CASE
MAY BE, CONSTITUTING GROSS NEGLIGENCE OR WILLFUL MISCONDUCT.
(V) THE GRANTOR WAIVES ALL RIGHTS OF NOTICE AND HEARING OF ANY KIND
PRIOR TO THE EXERCISE BY THE SECURED PARTY OR ANY SECURITYHOLDER OF ITS RIGHTS
DURING THE CONTINUANCE OF AN EVENT OF DEFAULT TO REPOSSESS THE PLEDGED
COLLATERAL WITH JUDICIAL PROCESS OR TO REPLEVY, ATTACH OR LEVY UPON THE PLEDGED
COLLATERAL OR OTHER SECURITY FOR THE SECURED OBLIGATIONS. THE GRANTOR WAIVES
THE POSTING OF ANY BOND OTHERWISE REQUIRED OF THE SECURED PARTY OR ANY
SECURITYHOLDER IN CONNECTION WITH ANY JUDICIAL PROCESS OR PROCEEDING TO OBTAIN
POSSESSION OF, REPLEVY, ATTACH
15
<PAGE>
OR LEVY UPON PLEDGED COLLATERAL OR OTHER SECURITY FOR THE SECURED OBLIGATIONS,
TO ENFORCE ANY JUDGMENT OR OTHER COURT ORDER ENTERED IN FAVOR OF THE SECURED
PARTY OR ANY SECURITYHOLDER, OR TO ENFORCE BY SPECIFIC PERFORMANCE, TEMPORARY
RESTRAINING ORDER OR PRELIMINARY OR PERMANENT INJUNCTION THIS AGREEMENT OR ANY
OTHER AGREEMENT OR DOCUMENT AMONG THE GRANTOR ON THE ONE HAND AND THE SECURED
PARTY AND/OR THE SECURITYHOLDERS ON THE OTHER HAND.
[Signature Page Follows]
16
<PAGE>
IN WITNESS WHEREOF, the Grantor has caused this Agreement to
be duly executed and delivered as of the date first above written.
"Grantor"
SF HOLDINGS GROUP, INC.,
a Delaware corporation
By: /s/ Hans Heinsen
------------------------------
Name: Hans Heinsen
Title: Chief Financial Officer
"Secured Party"
ACCEPTED AND AGREED AS OF
THE DATE FIRST ABOVE WRITTEN:
THE BANK OF NEW YORK,
as Trustee
By: /s/ Mary Jane Morrissey
------------------------------
Name: Mary Jane Morrissey
Title: Vice President
<PAGE>
SCHEDULE "A"
------------
Pledged Securities: Stock of Restricted Subsidiaries
----------------------------------------------------
Number of Shares of Number of Shares of
Restricted Each Class of Issued & Each Class of Capital
Subsidiary Outstanding Capital Stock Stock Held by Grantor
- ---------- ------------------------- ---------------------
The Fonda 100 shares of Common 100 shares of Common
Group, Inc. Stock, par value $.001 Stock, par value $.001
Sweetheart 1,046,000 shares of 502,080 shares of
Holdings Inc. Sweetheart Class A Sweetheart Class A
Common Stock Common Stock
Sweetheart 4,393,200 shares of 4,393,200 shares of
Holdings Inc. Sweetheart Class B Sweetheart Class B
Common Stock Common Stock
A-1
<PAGE>
SCHEDULE "B"
------------
Intercompany Notes of Restricted Subsidiaries
---------------------------------------------
Amount of Each
Restricted Subsidiary Issued and Outstanding Intercompany Note
- --------------------- ----------------------------------------
The Fonda Group, Inc. None.
Sweetheart Holdings Inc. None.
B-1
<PAGE>
TAX SHARING AGREEMENT
This AGREEMENT, effective as of March 12, 1998, by and among SF
Holdings Group, Inc. ("Parent") and The Fonda Group, Inc. ("Subsidiary"):
WITNESSETH:
WHEREAS, the parties hereto are part of an affiliated group (the
"Affiliated Group," the members of which are hereinafter sometimes referred to
as "Members," or in the singular "Member"), as defined in Section 1504(a) of
the Internal Revenue Code of 1986, as amended (the "Code"); and
WHEREAS, such Affiliated Group intends to file a consolidated federal
income tax return in accordance with section 1501 of the Code; and
WHEREAS, Parent is the common parent of the Affiliated Group, within
the meaning of Code Section 1504(a)(1) and the Treasury Regulations issued
pursuant to section 1502 of the Code; and
WHEREAS, it is the intent and desire of the parties hereto that a
method be established for reimbursing Parent for payment of Subsidiary's
allocable share of the Affiliated Group's consolidated "federal income tax
liability" (as determined under Treasury Regulation ss. 1.1502- 2); for
compensating Subsidiary for use of its "net operating loss" or "tax credits" in
arriving at such tax liability; and to provide for the allocation and payment
of any refund arising from a carryback of net operating losses or tax credits
from subsequent taxable years.
NOW, THEREFORE, in consideration of the mutual covenants and promises
contained herein, the parties hereto agree as follows:
1. Subsidiary shall execute and file such consents, elections,
and other documents that may be required or appropriate for the proper filing
of U.S. consolidated federal income tax returns for the taxable years in which
this Agreement is in effect.
2. The tax liability of the Affiliated Group shall be allocated
to Subsidiary in the following manner:
Step 1. The consolidated federal income tax liability of the
Affiliated Group, as determined under Treasury Regulation ss. 1.1502-2, shall
be allocated to Subsidiary in accordance with the method set forth in section
1552(a)(1) of the Code and Treasury Regulation ss. 1.1552-1(a)(1) and (b) (or
in accordance with one of the methods set forth in section 1552(a)(2) or (3) if
the Affiliated Group elects to adopt such an alternative method);
<PAGE>
Step 2. An additional amount shall be allocated to Subsidiary equal to
100 percent of the excess, if any, of (1) the "separate return tax liability"
of Subsidiary for the taxable year over (2) the tax liability of Subsidiary as
determined in accordance with Step 1 of Paragraph 2 of this Agreement. For
purposes of the preceding sentence, the "separate return tax liability" shall
be determined as if Subsidiary were filing a separate tax return under the
Code, without application of the exceptions contained in Treasury Regulation
ss. 1.1552-1(a)(2)(ii). For purposes of determining the "separate return tax
liability" of Subsidiary:
a. Any dividends received from another Member will be assumed to
qualify for the 100 percent dividends received deduction of
section 243 of the Code, or shall be eliminated from such
calculation in accordance with Treasury Regulation ss.
1.1502-13(f).
b. Gain or loss on intercompany transactions, whether deferred
or not, shall be treated in the manner required by Treasury
Regulation ss. 1.1502-13.
c. Limitations on the calculation of a deduction or the
utilization of tax credits or the calculation of a tax
liability shall be made on a consolidated basis. Accordingly,
the limitations provided in sections 38(c), 56, 170(b)(2),
and 172(b)(2) of the Code and similar limitations shall be
applied on a consolidated basis.
d. Elections as to tax credits and tax computations that may
have been different from the consolidated treatment if
separate returns were filed shall be made on an annual basis
by Parent.
Step 3. The total of any additional amounts allocated to Subsidiary
pursuant to Step 2 of Paragraph 2 of this Agreement (including amounts
allocated as a result of a carryback) shall be paid (as provided in paragraph 5
of this Agreement) by Subsidiary to Parent. If (1) Subsidiary's "separate
return tax liability" for a taxable year is zero, and (2) the aggregate
"separate return tax liabilities" of the other Members of the Affiliated Group
(determined under Step 2 of this Paragraph 2) exceed their aggregate tax
liability for such year determined under Step 1 of this Paragraph 2, then
Parent shall pay to Subsidiary the portion of such excess, if any, attributable
to the Affiliated Group's utilization in such year of a net operating loss or
tax credit of Subsidiary (taking into account carrybacks or carryforwards).
Subsidiary's share of any such excess shall be determined by Parent in a
reasonable and consistent basis, which will generally be the case if the share
is equal to 35 percent of net operating losses utilized and 100 percent of tax
credits utilized (unless, due to special circumstances, this would be
inequitable) as substantiated by specific records maintained for such purposes.
Under the principles of Revenue Ruling 66-374, 1966-2 C.B. 427, the
net operating loss of Subsidiary is the deduction that Subsidiary would have
had available if it actually filed a separate return for the year and thus
would not include any portion of Subsidiary's net operating loss sustained in a
prior or subsequent year that had been absorbed by the Affiliated Group or by
Subsidiary in computing actual liabilities for prior or subsequent years.
Notwithstanding the preceding sentence, no benefit under Step 3 of Paragraph 2
of this Agreement shall be granted Subsidiary unless the net operating loss is
availed of in reducing the consolidated federal income
- 2 -
<PAGE>
tax liability of the Affiliated Group. The rules stated in the previous
sentences regarding carryover net operating losses will also apply in the
computation of other carryover items such as investment tax credits, foreign
tax credits, and charitable contribution deductions.
In calculating any benefit from a carryback or carryover of net
operating losses, adjustments shall be made to such prior or subsequent year's
separate return tax liability as required under sections 172(b)(2) and 172(d)
of the Code. For purposes of this calculation, the election under section
172(b)(3) shall be made on a separate company basis.
3. Regarding the application of the allocation method in
Paragraph 2 of this Agreement, the following principles will govern:
a. It is acknowledged that allocation of the consolidated
federal income tax liability under Treasury Regulation ss.
1.1552-1(a)(1) and Step 1 of Paragraph 2 of this Agreement
shall (in accordance with Treasury Regulation ss.
1.1552-1(b)(2)) in the amount allocated to Subsidiary (or
another Member) (i) decrease the earnings and profits of such
Member and (ii) be treated as a liability of such Member for
such amount.
b. It is acknowledged that allocations under Step 2 and Step 3
(but not Step 1) of Paragraph 2 of this Agreement to
Subsidiary (or other individual Members of the Affiliated
Group) will not create liabilities and receivables among
such Members, under the principles of Treasury
Regulationss.1.1552-1(b)(2), Revenue Ruling 73-605,
1973-2 C.B. 109, and Revenue Ruling 76-302, 1976-2 C.B. 257,
but rather will be regarded as distributions with respect to
stock, contributions to capital, or combinations thereof when
such amounts are paid pursuant to Paragraph 5 of this
Agreement.
4. The provisions of this Agreement shall be administered by Parent.
5. Subsidiary shall pay Parent its allocated consolidated federal
income tax liability under Step 1 of Paragraph 2 of this Agreement. Subsidiary
shall pay Parent, or Parent shall pay Subsidiary, as the case may be, the
respective amounts set forth in Step 3 of Paragraph 2 of this Agreement.
Payments are to be made no later than ten days after the date of filing of the
consolidated federal income tax return for such taxable year.
6. Parent shall have the right to assess Subsidiary its share of
estimated tax payments to be made on the projected consolidated federal income
tax liability for each year. Such payment shall be made ten days after such
assessment. Subsidiary shall receive credit for such prepayments in the
year-end computation under Paragraph 5 of this Agreement.
7. If part or all of an unused consolidated net operating loss or tax
credit is allocated to Subsidiary pursuant to Treasury Regulation ss.ss.
1.1502-21T and 1.1502-79A, and it is carried back or forward to a year in which
Subsidiary filed a separate income tax return or a consolidated federal income
tax return with another affiliated group, any reduction in tax liability
arising from the carryover shall be retained by Subsidiary. Parent shall
determine whether an
- 3 -
<PAGE>
election shall be made not to carry back any consolidated net operating loss
arising in a consolidated return year (including any portion allocated to
Subsidiary under Treasury Regulation ss. 1.1502-79) in accordance with section
172(b)(3) of the 1986 Code.
8. If the consolidated federal income tax liability is adjusted for
any taxable period, whether by means of an amended return, claim for refund, or
audit by the Internal Revenue Service, the liability of (or amounts owing to)
Subsidiary shall be recomputed under Paragraphs 2 and 3 of this Agreement to
give effect to such adjustments. In the case of a refund, Parent shall make
payment to Subsidiary for its share of the refund, determined in the same
manner as in Paragraph 5 of this Agreement, within ten days after the refund is
received by Parent, and in the case of an increase in tax liability, Subsidiary
shall pay to Parent its allocable share of such increased tax liability within
ten days after receiving notice of such liability from Parent. If any interest
is to be paid or received as a result of a consolidated federal income tax
deficiency or refund, such interest shall be allocated to Subsidiary in the
ratio that Subsidiary's change in consolidated federal income tax liability
bears to the total change in tax liability. Any penalty shall be allocated upon
such basis as Parent deems just and proper in view of all applicable
circumstances.
9. This Agreement shall continue to apply unless and until Parent and
Subsidiary agree in writing to terminate the Agreement or Subsidiary is no
longer a Member of the Affiliated Group. Notwithstanding such termination, this
Agreement shall continue in effect with respect to any payment or refunds due
for all taxable periods prior to termination.
10. The Agreement shall not be assignable by either party without
the prior written consent of the other.
11. All material including, but not limited to, returns, supporting
schedules, work papers, correspondence, and other documents relating to the
consolidated federal income tax returns filed for a taxable year during which
this Agreement was in effect shall be made available to any party to the
Agreement during regular business hours for a minimum period equal to
applicable federal record retention requirements.
12. A dispute or difference between the parties with respect to the
operation or interpretation of this Agreement shall be decided by three
arbitrators. Each Party shall elect one arbitrator and agree on a third. The
losing party shall bear the cost of arbitration including all fees for
attorneys and accountants.
13. Any alteration, modification, addition, deletion, or other change
in the consolidated income tax return provisions of the Code or the regulations
thereunder shall automatically be applicable to this Agreement mutatis
mutandis.
14. This Agreement shall bind and inure to the respective successors
and assigns of the parties hereto; but no assignment shall relieve any party's
obligations hereunder without the written consent of the other parties.
15. This Agreement shall be governed by the laws of the State
of Delaware.
- 4 -
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused their names to be
subscribed and executed by their respective authorized officers on the dates
indicated, effective as of the date first written above.
SF Holdings Group, Inc.
By:/s/ Hans Heinsen
_____________________________
Name: Hans Heinsen
Title: Chief Financial Officer
The Fonda Group, Inc.
By: /s/ Harvey L. Friedman
_____________________________
Name: Harvey L. Friedman
Title: Secretary
- 5 -
<PAGE>
SECOND RESTATED MANAGEMENT SERVICES AGREEMENT
Second Restated Management Services Agreement (the "Agreement"), dated
as of March 12, 1998, by and among Sweetheart Holdings Inc., a Delaware
corporation ("Holdings"), Sweetheart Cup Company Inc., a Delaware corporation
("Cup" and together with Holdings, the "Company"), American Industrial Partners
Management Company, Inc., a Delaware corporation ("AIPM"), and SF Holdings
Group, Inc., a Delaware corporation ("SF Holdings").
WHEREAS, pursuant to an Investment Agreement dated as of December 29,
1997 (the "Investment Agreement") by and among American Industrial Partners
Capital Fund L.P., the other stockholders of the Company, SF Holdings, and
Creative Expressions Group, Inc., SF Holdings will acquire 48% of the Class A
Common Stock and 100% of the Class B Common Stock of Holdings;
WHEREAS, pursuant to a Restated Management Services Agreement (the
"Existing Management Agreement"), dated as of August 31, 1993, by and among the
Company and AIPM, which is the general partner of American Industrial Partners
Capital Fund L.P., AIPM is providing certain management services to the
Company; and
WHEREAS, subject to the terms and conditions of this Agreement, the
Company desires to retain SF Holdings to provide certain management services to
the Company; and
WHEREAS, the parties hereby amend and restate the Existing Management
Agreement in its entirety as follows.
NOW, THEREFORE, in consideration of the mutual covenants contained
herein, and for other good and valuable consideration, the receipt and
sufficiency of which is hereby acknowledged, the parties hereto, intending to
be legally bound, hereby agree as follows:
1. Definitions. As used in this Agreement, the following terms shall
have the following meanings:
"Credit Agreement" shall mean the Amended and Restated Loan
and Security Agreement dated as of October 24, 1997, as amended, among
the Company, the financial institutions named therein as lenders, and
BankAmerica Business Credit, Inc. as Agent. A reference herein to the
Credit Agreement shall not include any amendment or modification
thereof that is adverse to AIPM's and/or to SF Holdings's rights
hereunder unless each of AIPM and SF Holdings, as applicable,
expressly consents in writing to the applicability of such change upon
this Agreement.
<PAGE>
"Indentures" shall mean, collectively, the Senior
Secured Note Indenture and the Senior Subordinated Note
Indenture.
"Senior Secured Note Indenture" shall mean the Indenture,
dated as of August 30, 1993, by and among Cup, United States Trust
Company of New York, as trustee, and Holdings, as guarantor, pursuant
to which the Senior Secured Notes were issued. A reference herein to
such Indenture shall not include any amendment or modification thereof
that is adverse to AIPM's and/or to SF Holdings's rights hereunder
unless each of AIPM and SF Holdings, as applicable, expressly consents
in writing to the applicability of such change upon this Agreement.
"Senior Secured Notes" means the $190,000,000 9.625% Senior
Secured Notes due 2000 of Cup.
"Senior Subordinated Note Indenture" shall mean the
Indenture, dated as of August 30, 1993, by and among Cup, United
States Trust Company of Texas, as trustee, and Holdings, as guarantor,
pursuant to which the Senior Subordinated Notes were issued. A
reference herein to such Indenture shall not include any amendment or
modification thereof that is adverse to AIPM's and/or to SF Holdings's
rights hereunder unless each of AIPM and SF Holdings, as applicable,
expressly consents in writing to the applicability of such change upon
this Agreement.
"Senior Subordinated Notes" means the $110,000,000 10.5%
Senior Subordinated Notes due 2003 of Cup.
2. Management Services.
a. Until the third anniversary of the date first above
written, AIPM shall provide financial and other corporate advisory
services to the Company. Such services shall be performed by the
qualified officers, employees or agents of AIPM as the Company may
reasonably request from time to time, and AIPM shall at all times
direct, monitor and supervise the performance of such services by such
officers, employees or agents. The Company recognizes that, during the
term of this Agreement, AIPM shall not be required to devote any
minimum number of hours or, other than as provided in the two
immediately preceding sentences, to perform any specific services or
duties on behalf of the Company. Notwithstanding anything in this
Agreement to the contrary, the rights and obligations of AIPM under
this Agreement (other than AIPM's right to receive Management Fees (as
defined herein) theretofore accrued pursuant to Section 3 hereof)
shall terminate upon the earlier to occur of (x) the third anniversary
of the date first above written, and (y) the date on which American
Industrial Partners Capital Fund, L.P. no longer holds any shares of
<PAGE>
capital stock of the Company or any equity interests in SF
Holdings.
b. During the term of this Agreement, SF Holdings shall
provide general management services to the Company and, subject to the
direction of the Board of Directors of the Company, shall have
authority, responsibility and control over all of the business
operations of the Company, including, without limitation, the
following: (i) implementing the business plan of the Company; (ii)
acquiring and disposing of assets; (iii) entering into contracts,
agreements and other commitments for, and on behalf of, the Company;
(iv) hiring, determining the compensation of, and terminating
employees of the Company other than the Chief Executive Officer, Chief
Financial Officer and Chief Operating Officer of each of Holdings and
of Cup; and (v) taking all other actions associated with management of
the day-to-day operations of the business of the Company. In addition,
SF Holdings shall provide financial and other corporate advisory
services to the Company. All of the services to be provided pursuant
to this Section 2(b) shall be performed by the qualified officers,
employees or agents of SF Holdings as the Company may reasonably
request from time to time, and SF Holdings shall at all times direct,
monitor and supervise the performance of such services by such
officers, employees or agents.
3. Management Fees.
a. The Company shall pay aggregate annual management fees of
$1,850,000 (the "Management Fees") as follows: (i) in respect of the
period from the date first above written (the "Closing Date") to the
first anniversary thereof, $925,000 to AIPM and $925,000 to SF
Holdings; (ii) in respect of the period from the first anniversary of
the Closing Date to the second anniversary of the Closing Date,
$740,000 to AIPM and $1,110,000 to SF Holdings; (iii) in respect of
the period from the second anniversary of the Closing Date to the
third anniversary of the Closing Date, $555,000 to AIPM and $1,295,000
to SF Holdings; and (iv) thereafter, in respect of each period ending
on the next following anniversary of the date of the Management
Agreement during the term of this Agreement, $1,850,000 to SF
Holdings. The Management Fees shall be payable semi-annually in
arrears forty-five (45) days after the payment of interest on the
Senior Secured Notes and the Senior Subordinated Notes.
b. Notwithstanding the provisions of Section 3(a) above, the
payment of the Management Fees shall be subject to the subordination
and other terms and conditions set forth in Section 9.15 of the Credit
Agreement and Section 4.07 of each of the Indentures. Any Management
Fees which
<PAGE>
are not paid when due as a result of the foregoing provisions shall be
paid promptly after the time such payment is not prohibited by Section
9.15 of the Credit Agreement and Section 4.07 of each of the
Indentures. If either AIPM or SF Holdings ever receives a payment of
Management Fees in contravention of this Section 3(b), it shall hold
such payment in trust for the benefit of the lenders under the Credit
Agreement and the noteholders under the Indentures. The provisions of
this Section 3(b) cannot be amended without the consent of the "Agent"
under the Credit Agreement and the "Trustees" under each Indenture.
4. Additional Expenses. In addition to the Management Fees payable
pursuant to Section 3, the Company agrees to promptly reimburse AIPM
and SF Holdings for all reasonable out-of-pocket expenses incurred by
AIPM and SF Holdings in providing the services contemplated by this
Agreement, including reasonable fees and expenses paid to consultants,
subcontractors and other third parties in connection with such
services; provided that the Chief Executive Officer of the Company
shall have previously approved the retention of such consultant,
subcontractor or other third party.
5. Term. Except as provided for herein, this Agreement shall be for an
initial term of three years from the date first above written. Such term shall
be renewed automatically for additional one-year terms thereafter unless SF
Holdings or the Company, upon approval of its Board of Directors, shall give
notice in writing within ninety days before the expiration of the initial three
year term or of any one-year renewal thereof of its desire to terminate this
Agreement. The provisions of Sections 7 and 8 shall survive the termination of
this Agreement.
6. Obligations Joint and Several. Holdings and Cup shall be jointly
and severally liable to AIPM and SF Holdings for all obligations of the Company
under this Agreement, including, without limitation, the payment of all
Management Fees and out-of-pocket expenses hereunder.
7. Indemnification. The Company will indemnify and hold harmless each
of AIPM and SF Holdings and their partners, employees, agents, representatives
and affiliates (each being an "Indemnified Party") from and against any and all
losses, claims, damages and liabilities, joint or several, to which such
Indemnified Party may become subject under any applicable federal or state law,
any claim made by any third party or otherwise, relating to or arising out of
the engagement of AIPM or SF Holdings, as applicable, pursuant to, and the
performance by AIPM or SF Holdings, as applicable, of the services contemplated
by, this Agreement, and the Company will reimburse any Indemnified Party for
all reasonable costs and expenses (including attorneys' fees and expenses) as
they are incurred in connection with the investigation of, preparation for or
defense of any pending or threatened claim, or any action or proceeding arising
therefrom,
<PAGE>
whether or not such Indemnified Party is a party hereto. The Company will not
be liable under the foregoing indemnification provision, and an Indemnified
Party shall reimburse the Company for any related payments made hereunder, to
the extent that any loss, claim, damage, liability, cost or expense is
determined by a court, in a final judgment from which no further appeal may be
taken, to have resulted primarily from the gross negligence or willful
misconduct of AIPM or SF Holdings, as applicable. No Indemnified Party shall be
liable to the Company for honest mistakes of judgment, or for action or
inaction, taken in good faith in the performance of services under this
Agreement to the extent such action would satisfy the standards for
indemnification set forth in this Section 7.
8. Non-disclosure of Confidential Information. Each of the parties
hereto understands and acknowledges that during the term of this Agreement such
party will be provided with, or have access to, confidential information,
including, without limitation, trade secrets, customer lists, proprietary
manufacturing processes and marketing information, regarding the other's
operations and market structure (all of the foregoing collectively referred to
as the "Confidential Property"). Each of the parties will regard and preserve
as confidential and as trade secrets all Confidential Property of the others.
Each party agrees that it will not, directly or indirectly, communicate or
divulge to, or use for the benefit of itself or any other person, firm,
association or corporation, without the prior consent of the other party, which
consent may be withheld for any reason, any Confidential Property, all of which
shall remain the sole and exclusive property of the appropriate party.
9. Permissible Activities. Subject to all applicable provisions of
Delaware law that impose fiduciary duties upon AIPM or its partners or
affiliates or SF Holdings or its affiliates, nothing herein shall in any way
preclude AIPM or its partners or affiliates or SF Holdings or its affiliates
from engaging in any business activities or from performing services for its or
their own account or for the account of others.
10. Binding Effect; Assignability. This Agreement shall be binding
upon and inure to the benefit of the parties hereto and their successors and
permitted assigns. This Agreement may not be transferred or assigned by any
party without the prior written consent of each other party, except that SF
Holdings may assign all or any part of its rights and obligations, including,
without limitation, its right to receive Management Fees, under this Agreement
to The Fonda Group, Inc. without the consent of any of the other parties.
11. Entire Agreement; Amendment. This Agreement constitutes the
entire agreement and understanding among the parties with respect to the
subject matter hereof and supersedes any earlier agreement with respect to the
subject matter hereof. This Agreement may be amended or modified, or any
provisions
<PAGE>
hereof may be waived; provided that such amendment or waiver is set forth in a
writing executed by the parties. No course of dealing between or among any
persons having any interest in this Agreement will be deemed effective to
modify, amend or discharge any part of this Agreement or any rights or
obligations of any person under or by reason of this Agreement.
12. Governing Law. This Agreement shall be governed by and construed
in accordance with the laws of the State of New York without giving effect to
any choice or conflict of law provision or rule (whether in the State of New
York or any other jurisdiction) that would cause the application of the laws of
any jurisdiction other than the State of New York.
13. Counterparts. This Agreement may be executed in two or more
counterparts, each of which taken together shall constitute a fully-executed
original instrument.
<PAGE>
IN WITNESS WHEREOF, each of the parties hereto has caused this
Agreement to be executed as of the day and year first above written.
SWEETHEART HOLDINGS INC.
By:/s/ Dan Carson
_______________________________
Name: Dan Carson
Title: Vice President
SWEETHEART CUP COMPANY INC.
By:/s/ Dan Carson
_______________________________
Name: Dan Carson
Title: Vice President
AMERICAN INDUSTRIAL PARTNERS
MANAGEMENT COMPANY, INC.
By:/s/ Kenneth Pereira
_______________________________
Name: Kenneth Pereira
Title: Principal
SF HOLDINGS GROUP, INC.
By:/s/ Hans Heinsen
______________________________
Name: Hans Heinsen
Title: Chief Financial Officer
<PAGE>
AMENDMENT NO. 1 TO THE SECOND RESTATED MANAGEMENT SERVICES AGREEMENT
Amendment No. 1 (the "Amendment") to the Second Restated Management
Services Agreement, dated as of March 12, 1998, by and among Sweetheart
Holdings Inc., a Delaware corporation ("Holdings"), Sweetheart Cup Company
Inc., a Delaware corporation ("Cup" and together with Holdings, the "Company"),
American Industrial Partners Management Company, Inc., a Delaware corporation
("AIPM"), and SF Holdings Group, Inc., a Delaware corporation ("SF Holdings").
WHEREAS, Holdings, Cup, AIPM and SF Holdings are parties to the Second
Restated Management Services Agreement, dated as of March 12, 1998 (the
"Management Agreement"); and
WHEREAS, the parties hereto desire to extend the term of the
Management Agreement, subject to the terms and conditions set forth herein.
NOW, THEREFORE, in consideration of the mutual covenants contained
herein, and for other good and valuable consideration, the receipt and
sufficiency of which is hereby acknowledged, the parties hereto, intending to
be legally bound, hereby agree as follows:
1. Amendment. Section 5 of the Management Agreement is
hereby amended by deleting the first sentence and replacing it
with the following sentence:
Except as provided for herein, this Agreement shall be for an initial
term commencing on the date first above written and ending on the
tenth anniversary of the date first above written.
2. Ratification. Except as expressly amended and extended
hereby, the Management Agreement is ratified and affirmed and
shall remain in full force and effect in accordance with its
terms.
3. Binding Effect; Assignability. This Amendment shall be
binding upon and inure to the benefit of the parties hereto and
their successors and permitted assigns.
4. Governing Law. This Amendment shall be governed by and construed in
accordance with the laws of the State of New York without giving effect to any
choice or conflict of law provision or rule (whether in the State of New York
or any other jurisdiction) that would cause the application of the laws of any
jurisdiction other than the State of New York.
<PAGE>
5. Counterparts. This Amendment may be executed in two or
more counterparts, each of which taken together shall constitute
a fully-executed original instrument.
- 2 -
<PAGE>
IN WITNESS WHEREOF, each of the parties hereto has caused this
Agreement to be executed as of the day and year first above written.
SWEETHEART HOLDINGS INC.
By:/s/ Dan Carson
________________________
Name: Dan Carson
Title: Vice President
SWEETHEART CUP COMPANY INC.
By:/s/ Dan Carson
________________________
Name: Dan Carson
Title: Vice President
AMERICAN INDUSTRIAL PARTNERS
MANAGEMENT COMPANY, INC.
By:/s/ Kenneth Pereiva
________________________
Name: Kenneth Pereira
Title: Principal
SF HOLDINGS GROUP, INC.
By:/s/ Hans Heinsen
________________________
Name: Hans Heinsen
Title: Chief Financial Officer
- 3 -
<PAGE>
ASSIGNMENT AND ASSUMPTION AGREEMENT
Assignment and Assumption Agreement (the "Agreement"), dated as of
March 12, 1998, by and between SF Holdings Group, Inc., a Delaware corporation
("SF Holdings"), and The Fonda Group, Inc., a Delaware corporation ("Fonda").
WHEREAS, SF Holdings is a party to that certain Second Restated
Management Services Agreement (the "Management Agreement"), dated as of March
12, 1998, as amended by Amendment No. 1 thereto dated as of March 12, 1998, by
and among Sweetheart Holdings Inc., a Delaware corporation ("Holdings"),
Sweetheart Cup Company Inc., a Delaware corporation ("Cup" and together with
Holdings, the "Company"), American Industrial Partners Management Company, Inc.
and SF Holdings; and
WHEREAS, SF Holdings desires to assign to Fonda, and Fonda desires to
assume, substantially all of the rights and obligations of SF Holdings under
the Management Agreement.
NOW, THEREFORE, in consideration of the mutual covenants contained
herein, and for other good and valuable consideration, the receipt and
sufficiency of which is hereby acknowledged, the parties hereto, intending to
be legally bound, hereby agree as follows:
1. Capitalized terms used but not defined herein shall
have the meanings ascribed to them in the Management Agreement.
2. SF Holdings hereby assigns to Fonda, and Fonda agrees to assume,
substantially all of the obligations of SF Holdings under the Management
Agreement; provided, however, that the obligations of SF Holdings pursuant to
Section 2 of the Management Agreement shall be assigned as follows:
a. During the term of the Management Agreement, Fonda shall
provide general management services to the Company and, subject to the
direction of the Board of Directors of the Company, shall have
authority, responsibility and control over all of the business
operations of the Company, including, without limitation, the
following: (i) implementing the business plan of the Company; (ii)
acquiring and disposing of assets; (iii) entering into contracts,
agreements and other commitments for, and on behalf of, the Company;
(iv) hiring, determining the compensation of, and terminating
employees of the Company other than the Chief Executive Officer, Chief
Financial Officer and Chief Operating Officer of each of Holdings and
of Cup; and (v) taking all other actions associated with management of
the day-to-day operations of the business of the Company. In addition,
Fonda shall provide financial and other corporate advisory services to
the Company. All of the services to be provided pursuant to this
Section 2(a)
<PAGE>
shall be performed by the qualified officers, employees or agents of
Fonda as the Company may reasonably request from time to time, and
Fonda shall at all times direct, monitor and supervise the performance
of such services by such officers, employees or agents.
b. During the term of the Management Agreement, SF Holdings
shall provide certain financial and other corporate advisory services
to the Company. All of the services to be provided pursuant to this
Section 2(b) shall be performed by the qualified officers, employees
or agents of SF Holdings as the Company may reasonably request from
time to time, and SF Holdings shall at all times direct, monitor and
supervise the performance of such services by such officers, employees
or agents.
3. SF Holdings assigns to Fonda, and Fonda shall be entitled to
receive, substantially all of the rights and benefits of SF Holdings under the
Management Agreement; provided, however, that the rights of SF Holdings
pursuant to Section 3 of the Management Agreement shall be assigned as follows:
SF Holdings shall receive from the Company Management Fees of $200,000
per annum. Fonda shall receive from the Company Management Fees of
$725,000 in respect of the period from the date of the Management
Agreement to the first anniversary thereof; $910,000 in respect of the
period from the first anniversary of the date of the Management
Agreement to the second anniversary of the date of the Management
Agreement; (iii) $1,095,000 in respect of the period from the second
anniversary of the date of the Management Agreement to the third
anniversary of the date of the Management Agreement; and (iv)
$1,650,000 thereafter, in respect of each period ending on the next
following anniversary of the date of the Management Agreement during
the term of the Management Agreement.
4. In consideration of the assignment by SF Holdings of substantially
all of its rights under the Management Agreement, upon the execution of this
Agreement, Fonda shall pay SF Holdings $7,000,000 by wire transfer of
immediately available funds.
5. This Agreement shall be binding upon and inure to the
benefit of the parties hereto and their successors and permitted
assigns.
6. This Agreement shall be governed by and construed in accordance
with the laws of the State of New York without giving effect to any choice or
conflict of law provision or rule (whether in the State of New York or any
other jurisdiction) that would cause the application of the laws of any
jurisdiction other than the State of New York.
- 2 -
<PAGE>
7. This Agreement may be executed in two or more
counterparts, each of which taken together shall constitute a
fully-executed original instrument.
- 3 -
<PAGE>
IN WITNESS WHEREOF, each of the parties hereto has caused this
Agreement to be executed as of the day and year first above written.
SF HOLDINGS GROUP, INC.
By:/s/ Hans Heinsen
________________________
Name: Hans Heinsen
Title: Chief financial Officer
THE FONDA GROUP, INC.
By:/s/ Harvey L. Friedman
________________________
Name: Harvey L. Friedman
Title: Secretary
- 4 -
<PAGE>
EXHIBIT 12.1
COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES
FONDA GROUP INC.
<TABLE>
<CAPTION>
Fiscal year ended July
-----------------------------------------------------------------------------------
1993 1994 1995 1996 1997
--------------- --------------- --------------- --------------- ---------------
(dollars in thousands)
<S> <C> <C> <C> <C> <C>
Income before taxes $ 1,416 $ 490 $ 3,767 $ 5,930 $ 11,603
Fixed charges from below 1,575 1,639 3,326 8,526 10,345
Less: Interest capitalized (163)
--------------- --------------- --------------- --------------- ---------------
Total earnings (numerator) $ 2,991 $ 2,129 $ 7,093 $ 14,456 $ 21,785
Fixed charges:
Rent expense $ 1,122 $ 1,114 $ 1,150 $ 1,775 $ 2,025
--------------- --------------- --------------- --------------- ---------------
Portion of rent considered interest $ 374 $ 371 $ 383 $ 592 $ 675
Interest expense 1,201 1,268 2,943 7,934 9,507
Interest capitalized 163
--------------- --------------- --------------- --------------- ---------------
Total Fixed Charges $ 1,575 $ 1,639 $ 3,326 $ 8,526 $ 10,345
Ratio of earnings to fixed charges 1.9x 1.3x 2.1x 1.7x 2.1x
=============== =============== =============== =============== ===============
<CAPTION>
Pro Forma results
-----------------------------------------------------
Six months ended Six months Twelve months
January Year ended ended ended
--------------------------------
1997 1998 July 27,1997 January 25, 1998 January 25, 1998
--------------- --------------- ---------------- ----------------- -----------------
(dollars in thousands)
<S> <C> <C> <C> <C> <C>
Income before taxes $ 3,332 $ 2,780 $ 8,080 $ 2,443 $ 7,586
Fixed charges from below 4,861 6,757 12,956 6,581 13,174
Less: Interest capitalized (192) (163) (192) (355)
--------------- --------------- ---------------- --------------- ---------------
Total earnings (numerator) $ 8,193 $ 9,345 $ 20,873 $ 8,832 $ 20,405
Fixed charges:
Rent expense $ 964 $ 1,108 $ 2,127 $ 1,159 $ 2,271
--------------- --------------- ---------------- --------------- ---------------
Portion of rent considered interest $ 321 $ 369 $ 709 $ 386 $ 757
Interest expense 4,540 6,196 12,084 6,003 12,062
Interest capitalized 192 163 192 355
--------------- --------------- ---------------- --------------- ---------------
Total Fixed Charges $ 4,861 $ 6,757 $ 12,956 $ 6,581 $ 13,174
Ratio of earnings to fixed charges 1.7x 1.4x 1.6x 1.3x 1.5x
=============== =============== ================ =============== ===============
<PAGE>
EXHIBIT 12.1
COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES/ COVERAGE DEFICIENCY
SWEETHEART HOLDINGS INC.
</TABLE>
<TABLE>
<CAPTION>
Period from Period from
January 1 to August 30 to Fiscal year ended September 30,
August 29, September 30, -----------------------------------------------------------
1993 1993 1994 1995 1996 1997
------------------------------ ----------- -------------- -----------------------------
(predecessor) (Successor)
--------------- -------------- ----------- -------------- -----------------------------
<S> <C> <C> <C> <C> <C> <C>
(dollars in thousands)
Income (loss) before taxes $ (20,750) $ 333 $ 15,816 $ 9,723 $ 9,523 $ (76,218)
Fixed charges from below 46,602 3,640 41,982 43,453 44,594 47,982
Less: Interest capitalized (481) (659) (551) (585)
--------------- -------------- ----------- -------------- -----------------------------
Total earnings (numerator) $ 25,852 $ 3,973 $ 57,317 $ 52,517 $ 53,566 $ (28,821)
Fixed charges:
Rent expense $ 7,865 $ 940 $ 12,125 $ 12,417 $ 15,636 $ 16,756
--------------- -------------- ----------- -------------- -----------------------------
Portion of rent considered interest $ 2,621 $ 313 $ 4,041 $ 4,139 $ 5,211 $ 5,585
Interest expense 43,981 3,327 37,460 38,655 38,832 41,812
Interest capitalized 481 659 551 585
--------------- -------------- ----------- -------------- -----------------------------
Total Fixed Charges $ 46,602 $ 3,640 $ 41,982 $ 43,453 $ 44,594 $ 47,982
Ratio of earnings to fixed charges 1.1x 1.4x 1.2x 1.2x
============== =========== ============== ===============
Coverage deficiency $ 20,750 $ 76,803
=============== ==============
<CAPTION>
Three months ended
December 31, Pro Forma results
---------------------------- -------------------------------------------------
1996 1997 Six months Twelve months
---------------------------- Year ended ended ended
July 27,1997 January 25, 1998 January 25, 1998
---------------------------- --------------- ----------------- ----------------
(dollars in thousands)
<S> <C> <C> <C> <C> <C>
Income (loss) before taxes $ (23,119) $ (12,706) $ (62,608) $ (43,234) $ (51,988)
Fixed charges from below 11,479 12,270 46,044 24,769 47,238
Less: Interest capitalized (238) (585) (82) (347)
---------------------------- --------------- ---------------- ---------------
Total earnings (numerator) $ (11,878) $ (436) $ (17,149) $ (18,547) $ (5,097)
Fixed charges:
Rent expense $ 3,868 $ 3,432 $ 10,942 $ 7,808 $ 11,717
---------------------------- --------------- ---------------- ---------------
Portion of rent considered interest $ 1,289 $ 1,144 $ 3,647 $ 2,603 $ 3,906
Interest expense 9,952 11,126 41,812 22,084 42,985
Interest capitalized 238 0 585 82 347
---------------------------- --------------- ---------------- ---------------
Total Fixed Charges $ 11,479 $ 12,270 $ 46,044 $ 24,769 $ 47,238
Ratio of earnings to fixed charges
Coverage deficiency $ 23,357 $ 12,706 $ 63,193 $ 43,316 $ 52,335
============================ =============== ================ ===============
</TABLE>
<PAGE>
EXHIBIT 12.1
PRO FORMA COMPUTATION OF EARNINGS TO FIXED CHARGES COVERAGE
DEFICIENCY SF HOLDINGS, INC.
<TABLE>
<CAPTION>
Six months Twelve months
Year ended ended ended
July 27,1997 January 25, 1998 January 25, 1998
---------------- ------------------ -----------------
(dollars in thousands)
<S> <C> <C> <C>
Loss before taxes and minority interest $(66,041) $(46,399) $(55,672)
Fixed charges from below 69,581 36,641 70,993
Less: Interest capitalized (748) (274) (702)
-------- -------- --------
Total earnings (numerator) $ 2,792 $(10,032) $ 14,619
Fixed charges:
Rent expense $ 13,069 $ 8,967 $ 13,988
-------- -------- --------
Portion of rent considered interest $ 4,356 $ 2,989 $ 4,663
Interest expense 64,477 33,378 65,628
Interest capitalized 748 274 702
-------- -------- --------
Total Fixed Charges $ 69,581 $ 36,641 $ 70,993
======== ======== ========
Coverage deficiency $ 66,789 $ 46,673 $ 56,374
======== ======== ========
</TABLE>
<PAGE>
SUBSIDIARIES OF THE REGISTRANT
Subsidiary
- ----------
The Fonda Group, Inc.
Sweetheart Holdings Inc.
Sweetheart Cup Company Inc
Lily-Canada Holding Corporation
Lily Cups Inc.
<PAGE>
EXHIBIT 23.1
INDEPENDENT AUDITORS' CONSENT AND REPORT ON SCHEDULE
Board of Directors
The Fonda Group, Inc.
We consent to the use in this Registration Statement of SF Holdings
Group, Inc. on Form S-4 of our report dated September 25, 1997 (March 24, 1998
as to Note 16) on the financial statements of The Fonda Group, Inc., appearing
in the Prospectus, which is part of the Registration Statement, and to the
references to us under the headings "Selected Historical Financial Data of
Fonda" and "Experts" in such Prospectus.
Our audits of the financial statements referred to in our aforementioned
report also included the financial statement schedule of The Fonda Group, Inc.
listed in Item 21(b). This financial statement schedule is the responsibility
of the management of The Fonda Group, Inc. Our responsibility is to express
an opinion on this financial statement schedule based on our audits. In our
opinion, such financial statement schedule, when considered in relation to the
basic financial statements taken as a whole, presents fairly, in all material
respects, the information set forth therein.
DELOITTE & TOUCHE LLP
Stamford, Connecticut
April 21, 1998
<PAGE>
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the use of
our report and to all references to our Firm included in or made a part of
SF Holdings Group, Inc.'s registration statement on Form S-4.
ARTHUR ANDERSEN LLP
Baltimore, Maryland
April 21, 1998
<PAGE>
=============================================
FORM T-1
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
STATEMENT OF ELIGIBILITY
UNDER THE TRUST INDENTURE ACT OF 1939 OF A
CORPORATION DESIGNATED TO ACT AS TRUSTEE
CHECK IF AN APPLICATION TO DETERMINE
ELIGIBILITY OF A TRUSTEE PURSUANT TO
SECTION 305(b)(2) |__|
----------------------
THE BANK OF NEW YORK
(Exact name of trustee as specified in its charter)
New York 13-5160382
(State of incorporation if not (I.R.S. employer
a U.S. national bank) identification no.)
48 Wall Street, New York, N.Y. 10286
(Address of principal executive offices) (Zip code)
----------------------
SF Holdings Group, Inc.
(Exact name of obligor as specified in its charter)
Delaware 13-3990796
(State or other jurisdiction of (I.R.S. employer
incorporation or organization) identification no.)
115 Stevens Avenue, Valhalla, N.Y. 10595-1252
(Address of principal executive offices) (Zip code)
----------------------
12 3/4% Series B Senior Secured Discount Notes due 2008
(Title of the indenture securities)
=============================================
<PAGE>
1. GENERAL INFORMATION. FURNISH THE FOLLOWING INFORMATION AS TO THE TRUSTEE:
(A) NAME AND ADDRESS OF EACH EXAMINING OR SUPERVISING AUTHORITY TO WHICH
IT IS SUBJECT.
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------
Name Address
- -------------------------------------------------------------------------------
<S> <C>
Superintendent of Banks of the State 2 Rector Street, New York,
of New York N.Y. 10006, and Albany, N.Y. 12203
Federal Reserve Bank of New York 33 Liberty Plaza,
New York, N.Y. 10045
Federal Deposit Insurance Corporation Washington, D.C. 20429
New York Clearing House Association New York, New York 10005
</TABLE>
(B) WHETHER IT IS AUTHORIZED TO EXERCISE CORPORATE TRUST POWERS.
Yes.
2. AFFILIATIONS WITH OBLIGOR.
IF THE OBLIGOR IS AN AFFILIATE OF THE TRUSTEE, DESCRIBE EACH SUCH
AFFILIATION.
None.
16. LIST OF EXHIBITS.
EXHIBITS IDENTIFIED IN PARENTHESES BELOW, ON FILE WITH THE COMMISSION,
ARE INCORPORATED HEREIN BY REFERENCE AS AN EXHIBIT HERETO, PURSUANT TO
RULE 7A-29 UNDER THE TRUST INDENTURE ACT OF 1939 (THE "ACT") AND RULE
24 OF THE COMMISSION'S RULES OF PRACTICE.
1. A copy of the Organization Certificate of The Bank of New
York (formerly Irving Trust Company) as now in effect, which
contains the authority to commence business and a grant of
powers to exercise corporate trust powers. (Exhibit 1 to
Amendment No. 1 to Form T-1 filed with Registration Statement
No. 33-6215, Exhibits 1a and 1b to Form T-1 filed with
Registration Statement No. 33-21672 and Exhibit 1 to Form T-1
filed with Registration Statement No.
33-29637.)
<PAGE>
4. A copy of the existing By-laws of the Trustee. (Exhibit 4 to
Form T-1 filed with Registration Statement No. 33-31019.)
6. The consent of the Trustee required by Section 321(b) of the Act.
(Exhibit 6 to Form T-1 filed with Registration Statement
No. 33-44051.)
7. A copy of the latest report of condition of the Trustee published
pursuant to law or to the requirements of its supervising or
examining authority.
<PAGE>
SIGNATURE
Pursuant to the requirements of the Act, the Trustee, The Bank of New
York, a corporation organized and existing under the laws of the State of New
York, has duly caused this statement of eligibility to be signed on its behalf
by the undersigned, thereunto duly authorized, all in The City of New York, and
State of New York, on the day of April, 1998.
THE BANK OF NEW YORK
By:
---------------------------
Name:
Title:
