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AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON MAY 1, 1998
REGISTRATION NO. 333-
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM S-4
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
SF HOLDINGS GROUP, INC.
(Exact name of registrant as specified in its charter)
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<CAPTION>
<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)
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)
</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. [ ]
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 SHARE OFFERING PRICE REGISTRATION FEE
<S> <C> <C> <C> <C>
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13 3/4% Series B
Exchangeable Preferred
Stock due 2009............. 3,000 $9,000 $27,000,000(1) $7,965.00
- --------------------------------------------------------------------------------------------
</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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INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY
OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT
BECOMES EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR
THE SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE
SECURITIES IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE
UNLAWFUL PRIOR TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF
ANY SUCH STATE.
PRELIMINARY PROSPECTUS SUBJECT TO COMPLETION, DATED MAY 1, 1998
SF HOLDINGS GROUP, INC.
OFFER TO EXCHANGE 3,000 SHARES OF
13 3/4% SERIES B EXCHANGEABLE PREFERRED STOCK DUE 2009
WHICH HAVE BEEN REGISTERED UNDER THE SECURITIES ACT FOR
ANY AND ALL OF ITS OUTSTANDING
13 3/4% SERIES A EXCHANGEABLE PREFERRED STOCK DUE 2009
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 3,000 Shares of 13 3/4%
Series B Exchangeable Preferred Stock due 2009 (the "New Shares") for an
identical number of the outstanding 133/4% Series A Exchangeable Preferred
Stock due 2009 (the "Old Shares" and, with the New Shares, the "Shares" or
the "Preferred Shares"). The terms of the New Shares are identical in all
material respects to the terms of the Old Shares except that the registration
and other rights relating to the exchange of Old Shares for New Shares and
the restrictions on transfer set forth on the Old Shares will not appear on
the New Shares. See "The Exchange Offer." The New Shares are being offered
hereunder in order to satisfy certain obligations of the Company under a
Registration Rights Agreement dated as of March 20, 1998 (the "Registration
Rights Agreement") among the Company, American Industrial Partners Management
Company, Inc. ("AIPM") and Bear, Stearns & Co. Inc. (the "Initial
Purchaser"). 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 Shares issued pursuant to the
Exchange Offer in exchange for Old Shares 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 Shares 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 Shares.
Each New Share has a liquidation preference of $10,000 per share (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. Dividends on the New Shares 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, at an annual
rate equal to 13-3/4% and will be cumulative.
Until March 15, 2003, dividends on the New Shares may be paid, at the
Company's option, on any Dividend Payment Date, either in cash or by the
issuance of additional shares of Old Shares with an aggregate Liquidation
Amount equal to the amount of such dividends. Thereafter, dividends will be
payable in cash, except to the extent that covenants applicable to
indebtedness of the Company prohibit such cash payments or the covenants
applicable to securities and/or indebtedness of the Company's subsidiaries
prohibit such subsidiaries from distributing the necessary cash to the
Company. See "Risk Factors--Holding Company Structure and Related
Considerations."
On March 15, 2009, to the extent that the Company shall have funds legally
available for such payment, the Company will be required to redeem any shares
of New Shares outstanding 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. The New Shares will be redeemable, at the option of the Company,
in whole or in part, at any time on or after March 15, 2003, at the
redemption prices set forth herein plus an amount of cash equal to the
dividends, whether or not earned or declared, accrued and unpaid thereon to
the date of redemption. In addition, prior to March 15, 2001, the Company
may, at its option, redeem up to one-half of the aggregate Liquidation Amount
of New Shares at a redemption price equal to 113-3/4% 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 herein); provided, that
at least one-half of the aggregate Liquidation Amount of New Shares remains
outstanding immediately after the occurrence of such redemption (excluding
New Shares held by the Company and its subsidiaries); and provided, further,
that any such redemption occurs within 60 days of the date of the closing of
such Equity Offering. Upon the occurrence of a Change of Control (as defined
herein), the Company will be required to make an offer to each holder of New
Shares to repurchase such holder's New Shares (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. In the event of a Change of Control, there
can be no assurance that the Company will have, or will have access to,
sufficient funds to repurchase the Preferred Stock. See "Risk
Factors--Holding Company Structure and Related Considerations" and "--Change
of Control Provisions."
(Continued on the following page)
SEE "RISK FACTORS" BEGINNING ON PAGE 23 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>
(Continued from the previous page)
The Company may, at its option, on any Dividend Payment Date, redeem all,
but not less than all, of the then outstanding shares of New Shares in
exchange for the Company's 133/4% Subordinated Notes due March 15, 2009 (the
"Subordinated Notes"), provided, that on such date no condition exists that
would constitute an event of default under the indenture governing the
Subordinated Notes (the "Indenture"). The Subordinated Notes will accrue
interest at the rate of 13-3/4% per annum, payable semi-annually in arrears
on March 15 and September 15 of each year (each an "Interest Payment Date"),
commencing on the first such date to occur after the date of exchange and
will be cumulative. Interest on the Subordinated Notes payable on or prior to
March 15, 2003, may be paid in the form of additional Subordinated Notes.
The New Shares will rank senior to all Junior Stock (as defined herein) of
the Company and junior to right of payment to all of the indebtedness of the
Company. The Subordinated Notes will be unsecured, subordinated obligations
of the Company that will be subordinated to all existing and future
indebtedness of the Company. The New Shares and the Subordinated Notes will
be effectively subordinated 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), the
Company and its subsidiaries would have had $767.7 million of indebtedness
and other liabilities and commitments. In addition, after giving pro forma
effect to the Transactions, earnings for the Company and its subsidiaries
were not sufficient to cover combined fixed charges and New Share dividends
for Fiscal 1997, the six months ended January 25, 1998 and the twelve months
ended January 25, 1998 by $74.1 million, $50.3 million and $63.7 million,
respectively. See "Description of New Shares--Ranking."
The Company will accept for exchange from an Eligible Holder any and all
Old Shares 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 Shares that remain Transfer
Restricted Securities, as reflected on the records of The Bank of New York,
as registrar for the Old Shares (in such capacity, the "Registrar"), or any
person whose Old Shares are held of record by the depository of the Old
Shares. Tenders of Old Shares 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 Share until
the earliest to occur of (i) the date on which such Old Share 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 Share 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 Share 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
Shares, it will promptly return the Old Shares to the holders thereof. See
"The Exchange Offer."
Each broker-dealer that receives New Shares 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 Shares. 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
Shares were acquired by such broker-dealer as a result of market-making
activities or other trading activities. Any broker-dealer that acquired Old
Shares 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 Shares
received in exchange for such Old Shares. 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
Shares. To the extent that Old Shares are tendered and accepted in the
Exchange Offer, a holder's ability to sell untendered Old Shares could be
adversely affected. If a market for the New Shares should develop, the New
Shares could trade at a discount from their principal amount. The Company
does not currently intend to list the New Shares 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 Shares
will develop.
The Exchange Agent for the Exchange Offer is The Bank of New York.
2
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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 Shares remain outstanding it will
furnish to the holders of the Shares, 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 Shares remain outstanding, the Company has agreed to make
available to any prospective purchaser of the Old Shares or beneficial owner
of the Old Shares 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 SHARES 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.
7
<PAGE>
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
8
<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 "--Issuance of the Old Shares" and
"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 SHARES
Share Units (the "Share Units") consisting of the Old Shares and 111,000
shares of Class C Common Stock of the Company (the "Common Shares") were sold
by the Sweetheart Stockholders to Bear, Stearns & Co. Inc. (the "Initial
Purchaser") on March 20, 1998 (the "Closing Date") pursuant to a Purchase
Agreement, dated as of March 11, 1998 (the "Purchase Agreement"), among the
Company, the Sweetheart Stockholders and the Initial Purchaser. The Initial
Purchaser subsequently resold the Share Units in reliance on Rule 144A under
the Securities Act and other available exemptions under the Securities Act on
or about March 20, 1998. The Company, the Sweetheart Stockholders and the
Initial Purchaser also entered into a Registration Rights Agreement, dated as
of March 20, 1998 (the "Registration Rights Agreement"), among the Company,
AIPM and the Initial Purchaser, pursuant to which the Company granted certain
registration rights for the benefit of the holders of the Old Shares. The
Exchange Offer is intended to satisfy certain of the Company's obligations
under the Registration Rights Agreement with respect to the Old Shares. See
"The Exchange Offer--Purpose and Effects."
The form and terms of the New Shares will be identical in all material
respects to the form and terms of the Old Shares except that (i) the New
Shares have been registered under the Securities Act and, therefore, will not
bear legends restricting the transfer thereof, (ii) holders of New Shares
will not be entitled to the liquidated damages otherwise payable under the
terms of the Registration Rights Agreement in respect of Old Shares
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 Shares will not be, and upon
the consummation of the Exchange Offer, Eligible Holders of Old Shares 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 of the same number of New Shares as the number of Old Shares
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 Shares--Registration Rights; Liquidated
Damages."
The Company did not receive any of the proceeds from the issuance and sale
of the Share Units. There will be no proceeds to the Company from any
exchange pursuant to the Exchange Offer.
9
<PAGE>
THE EXCHANGE OFFER
THE EXCHANGE OFFER ............ The Company is offering, upon the terms and
subject to the conditions set forth herein
and in the accompanying letter of
transmittal (the "Letter of Transmittal"),
to exchange its 133/4% Series B Exchangeable
Preferred Stock due 2009 (the "New Shares,"
and with the Old Shares, the "Shares" or
"Preferred Shares") for an identical number
of outstanding Old Shares (the "Exchange
Offer"). As of the date of this Prospectus,
3,000 Old Shares are outstanding. As of
, 1998, there was one registered
holder of the Old Shares, Cede & Co.
("Cede"), which held 3,000 of the Old
Shares. 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 Shares
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."
DIVIDENDS ON THE OLD SHARES ... Cumulative dividends at an annual rate equal
to 13-3/4% are payable quarterly in arrears
on March 15, June 15, September 15 and
December 15 of each year (each, a "Dividend
Payment Date"), commencing on June 15, 1998.
Until March 15, 2003, dividends on the Old
Shares may be paid, at the Company's option,
on any Dividend Payment Date, either in cash
or by the issuance of additional shares of
Old Shares with an aggregate Liquidation
Amount equal to the amount of such
dividends. Thereafter, dividends will be
payable in cash, except to the extent that
covenants applicable to indebtedness of the
Company prohibit such cash payments or the
covenants applicable to securities and/or
indebtedness of the Company's subsidiaries
prohibit such subsidiaries from distributing
the necessary cash to the Company. See "Risk
Factors--Holding Company Structure and
Related Considerations." Dividends accrue
and are cumulative from the date of original
issue of the Old Shares, 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
Company or any of its subsidiaries) and
whether or not there will be funds of the
Company legally available for the payment
thereof. All accrued and unpaid dividends
will be compounded on a quarterly basis.
PROCEDURES FOR TENDERING
OLD SHARES ................... Each holder of Old Shares wishing to accept
the Exchange Offer must complete, sign and
date the Letter of Transmittal, or a
facsimile thereof, in accordance with the
instructions con-
10
<PAGE>
tained herein and therein, and mail or
otherwise deliver such Letter of
Transmittal, or such facsimile, together
with the Old Shares and any other required
documentation to the exchange agent (the
"Exchange Agent") at the address set forth
herein. Certificates representing the Old
Shares may be physically delivered, but
physical delivery is not required if a
confirmation of a book-entry of such Old
Shares 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 Shares acquired pursuant to the Exchange
Offer are being obtained in the ordinary
course of business of the person receiving
such New Shares, 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
Shares 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 Shares for its own account
in exchange for Old Shares, where such Old
Shares 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 Shares. See "The Exchange
Offer--Procedures for Tendering" and "Plan
of Distribution."
GUARANTEED DELIVERY
PROCEDURES ................... Eligible Holders of Old Shares who wish to
tender their Old Shares and (i) whose Old
Shares are not immediately available or (ii)
who cannot deliver their Old Shares 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 Shares
according to the guaranteed delivery
procedures set forth in the Letter of
Transmittal. See "The Exchange
Offer--Guaranteed Delivery Procedures."
ACCEPTANCE OF OLD SHARES AND
DELIVERY OF NEW SHARES ....... Upon satisfaction or waiver of all
conditions of the Exchange Offer, the
Company will accept any and all Old Shares
that are properly tendered in the Exchange
Offer prior to 5:00 p.m., New York City
time, on the Expiration Date. The New Shares
issued pursuant to the Exchange Offer will
be delivered promptly after acceptance of
the Old Shares. See "The Exchange
Offer--Procedures for Tendering."
WITHDRAWAL RIGHTS ............. Tenders of Old Shares 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."
11
<PAGE>
THE EXCHANGE AGENT ............ The Bank of New York is the exchange agent
(in such capacity, the "Exchange Agent").
The address and telephone number of the
Exchange Agent are set forth in "The
Exchange Offer--The Exchange Agent."
FEES AND EXPENSES ............. All expenses incident to the Company's
consummation of the Exchange Offer and
compliance with the Registration Rights
Agreement will be borne by the Company. The
Company will also pay certain transfer taxes
applicable to the Exchange Offer. See "The
Exchange Offer--Fees and Expenses."
RESALES OF THE NEW SHARES ..... Based on interpretations by the staff of the
Commission set forth in no-action letters
issued to third parties, the Company
believes that New Shares issued pursuant to
the Exchange Offer to an Eligible Holder in
exchange for Old Shares may be offered for
resale, resold and otherwise transferred by
such Eligible Holder (other than (i) a
broker-dealer who purchased the Old Shares
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 Shares 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 Shares. Each broker-dealer that
receives New Shares for its own account in
exchange for Old Shares, where such Old
Shares 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 Shares. See "The Exchange
Offer--Purposes and Effects" and "Plan of
Distribution."
12
<PAGE>
DESCRIPTION OF NEW SHARES
The Exchange Offer applies to 3,000 shares of 13 3/4% Series A
Exchangeable Preferred Stock due 2009. The terms of the New Shares are
identical in all material respects to the Old Shares, except for certain
transfer restrictions and registration and other rights relating to the
exchange of the Old Shares for New Shares. See "Description of New Shares."
SECURITIES OFFERED ............ 3,000 shares of 13 3/4% Series B
Exchangeable Preferred Stock due 2009.
DIVIDENDS ..................... Cumulative dividends at an annual rate equal
to 13-3/4% are payable quarterly in arrears
on March 15, June 15, September 15 and
December 15 of each year (each, a "Dividend
Payment Date"), commencing on June 15, 1998.
Until March 15, 2003, dividends on the New
Shares may be paid, at the Company's option,
on any Dividend Payment Date, either in cash
or by the issuance of additional shares of
Old Shares with an aggregate Liquidation
Amount equal to the amount of such
dividends. Thereafter, dividends will be
payable in cash, except to the extent that
covenants applicable to indebtedness of the
Company prohibit such cash payments or the
covenants applicable to securities and/or
indebtedness of the Company's subsidiaries
prohibit such subsidiaries from distributing
the necessary cash to the Company. See "Risk
Factors--Holding Company Structure and
Related Considerations." Dividends accrue
and are cumulative from the date of original
issue of the New Shares, 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
Company or any of its subsidiaries) and
whether or not there will be funds of the
Company legally available for the payment
thereof. All accrued and unpaid dividends
will be compounded on a quarterly basis.
RANKING ....................... The New Shares will rank senior to all
classes of Common Stock of the Company and,
except as provided in the following proviso,
to each other class or series of capital
stock issued by the Company now or hereafter
created (collectively, the "Junior Stock");
provided, however, that the Board of
Directors of the Company may authorize a
class or series of preferred stock on a
parity in powers, preferences and rights to
the New Shares (collectively, the "Parity
Stock") or senior in powers, preferences and
rights to the New Shares (collectively, the
"Senior Stock") if approved by the holders
of a majority of the shares of New Shares.
The New Shares will rank junior to right of
payment to all of the indebtedness of the
Company. The New Shares will be effectively
subordinated to all indebtedness and other
liabilities and commitments of the Company's
subsidiaries. As of January 25, 1998, after
giving pro forma effect to the Transactions,
the Company and its subsidiaries would have
had $767.7 million of indebtedness and other
liabilities and commitments.
13
<PAGE>
MANDATORY REDEMPTION .......... Subject to the legal availability of funds,
the New Shares will be mandatorily
redeemable on March 15, 2009, 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.
OPTIONAL REDEMPTION ........... The New Shares will be redeemable at any
time on or after March 15, 2003, at the
option of the Company, in whole or in part,
at the redemption prices set forth herein,
plus an amount of cash equal to the
dividends, whether or not earned or
declared, accrued and unpaid thereon to the
date of redemption.
In addition, prior to March 15, 2001, the
Company may, at its option, redeem up to
one-half of the aggregate Liquidation Amount
of New Shares at a redemption price equal to
113-3/4% 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; provided, that at least
one-half of the aggregate Liquidation Amount
of New Shares remains outstanding
immediately after the occurrence of such
redemption (excluding New Shares held by the
Company and its subsidiaries); and provided,
further, that any such redemption occurs
within 60 days of the date of the closing of
such Equity Offering.
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 Shares to
repurchase such holder's New Shares (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 Company will 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
Company, or if a third party makes a
Repurchase Offer in the manner, at the times
and otherwise in compliance with the
requirements set forth in the Restated
Certificate of Incorporation, as filed on
March 11, 1998, of the Company (the
"Restated Certificate of Incorporation") and
purchases all shares of New Shares validly
tendered and not withdrawn under such
Repurchase Offer. In particular, the terms
of the Company's 12-3/4% Senior Secured
Discount Notes due 2008 (the "Discount
Notes") may prohibit the Company from
repurchasing the New Shares upon a Change of
Control. As a result of the foregoing, there
can be no assurance that the Company will
have the financial resources to repurchase
the New Shares upon a Change of Control. See
"Risk Factors--Holding Company Structure and
Related Considerations" and "--Change of
Control Provisions."
14
<PAGE>
VOTING RIGHTS ................. Holders of the New Shares have no voting
rights, except as described below or as
otherwise required by applicable law. In the
event that the Company fails to (i) pay
dividends for six or more quarters (whether
or not consecutive), (ii) satisfy any
mandatory redemption obligation with respect
to the New Shares (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 (as
defined herein) (regardless of whether such
offer is prohibited by the terms of any
indebtedness of the Company) or (iv) comply
with certain informational obligations
contained in the Restated Certificate of
Incorporation or with the covenants
contained in "--Covenants" below for a
period of 30 days after the receipt of
notice of such failure from the registered
holders of not less than 25% of the shares
of New Shares then outstanding, then the
Board of Directors of the Company shall be
increased by two members and the holders of
a majority of the outstanding shares of New
Shares, voting as a separate class, will be
entitled to elect two members to the Board
of Directors of the Company.
In addition, the approval of the holders of
a majority of the outstanding shares of New
Shares, voting as a separate class, will
also be required for (i) the authorization
by the Company of any series of preferred
stock ranked senior or on a parity in
powers, preferences and rights to the New
Shares (including any additional shares of
New Shares), (ii) the amendment or
modification of any provisions of the
Restated Certificate of Incorporation in any
manner that would adversely affect the
voting powers, designations, preferences and
rights of the New Shares 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 shares of New Shares upon
consummation of such merger, consolidation
or sale. Notwithstanding the foregoing, upon
a refinancing of the Discount Notes, the
Restated Certificate of Incorporation may be
amended or modified without any approval of
the holders of the New Shares to reflect
covenants in the new notes which are more
favorable to the Company than those
contained in the Discount Notes.
EXCHANGE ...................... The Company may, at its option, on any
Dividend Payment Date, exchange all, but not
less than all, of the shares of New Shares
then outstanding for the Company's 13-3/4%
Subordinated Notes due March 15, 2009 (the
"Subordinated Notes"), provided, that on
such date no condition exists that would
constitute an event of default under the
Indenture.
COVENANTS ..................... The Restated Certificate of Incorporation
contains certain covenants that, among other
things, limit the ability of SF Holdings and
its Restricted Subsidiaries to incur
additional indebtedness, pay dividends or
make other distributions, repur-
15
<PAGE>
chase 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. In
addition, the ability of the Restricted
Subsidiaries to issue additional
Exchangeable Preferred Stock is also
limited. The only consequences of a
violation of these covenants will be those
set forth in the first paragraph under
''--Voting Rights" above. See "Description
of New Shares--Certain Covenants."
USE OF PROCEEDS ............... There will be no proceeds to the Company
from any exchange pursuant to the Exchange
Offer. The Company did not receive any net
proceeds from the issuance of the Shares
Units. See "Use of Proceeds."
ABSENCE OF A PUBLIC MARKET
FOR THE NEW SHARES ........... The New Shares are a new issue of securities
with no established market, and the Company
does not expect that an active trading
market in the Shares will develop.
Accordingly, there can be no assurance as to
the development or liquidity of any market
for the New Shares. The Initial Purchaser
has advised the Company that it currently
makes a market in the Old Shares. The
Company does not currently intend to apply
for listing of the New Shares 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.
16
<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 (the "Units") consisting of the Company's Discount
Notes and 288,000 shares of Class C Common Stock (the "Discount Note Shares")
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)
17
<PAGE>
- ------------
(a) Cash interest expense consists of interest expense, excluding interest
on the Discount 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.
18
<PAGE>
SUMMARY HISTORICAL FINANCIAL DATA OF THE FONDA GROUP, INC. (1)
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
FISCAL YEAR ENDED JULY (2)
-------------------------------------------------------
1993 1994 1995 1996 1997
--------- --------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C>
STATEMENT OF INCOME DATA:
Net sales ..................... $61,079 $61,839 $ 97,074 $204,903 $252,513
Cost of goods sold ............ 49,776 51,643 76,252 161,304 196,333
--------- --------- ---------- ---------- ----------
Gross profit .................. 11,303 10,196 20,822 43,599 56,180
Selling, general and
administrative expenses ..... 8,686 8,438 14,112 29,735 37,168
Other income, net ............. -- -- -- -- (1,608)
--------- --------- ---------- ---------- ----------
Income from operations ........ 2,617 1,758 6,710 13,864 20,620
Interest expense, net ......... 1,201 1,268 2,943 7,934 9,017
--------- --------- ---------- ---------- ----------
Income before taxes and
extraordinary loss ........... 1,416 490 3,767 5,930 11,603
Income taxes .................. 478 239 1,585 2,500 4,872
--------- --------- ---------- ---------- ----------
Income before extraordinary
loss ......................... 938 251 2,182 3,430 6,731
Extraordinary loss, net (3) .. -- -- -- -- 3,495
--------- --------- ---------- ---------- ----------
Net income .................... $ 938 $ 251 $ 2,182 $ 3,430 $ 3,236
========= ========= ========== ========== ==========
OTHER GAAP FINANCIAL DATA:
Net cash provided by (used in)
operating activities(4) ..... $ 2,797 $ 140 $ (4,774) $ 17,673 $ 8,273
Net cash (used in) investment
activities ................... (1,027) (1,272) (29,593) (46,532) (36,006)
Net cash provided by (used in)
financing activities ......... (1,742) 992 34,262 30,206 32,174
Cash interest expense (5) .... 1,201 1,268 2,383 6,748 8,309
Capital expenditures (6) ..... 1,027 1,272 1,608 1,314 10,363
Depreciation and amortization . 1,248 1,246 1,669 3,450 4,440
Ratio of earnings to fixed
charges (7) .................. 1.9x 1.3x 2.1x 1.7x 2.1x
OTHER NON-GAAP FINANCIAL DATA:
EBITDA(8) ..................... $ 3,865 $ 3,004 $ 8,379 $ 17,314 $ 23,942
Ratio of EBITDA to cash
interest expense (8)(5) ..... 3.2x 2.4x 3.5x 2.6x 2.9x
</TABLE>
<PAGE>
(RESTUBBED TABLE CONTINUED FROM ABOVE)
<TABLE>
<CAPTION>
SIX MONTHS
ENDED JANUARY (2)
----------------------
1997 1998
---------- ----------
<S> <C> <C>
STATEMENT OF INCOME DATA:
Net sales ..................... $124,379 $136,674
Cost of goods sold ............ 96,987 108,077
---------- ----------
Gross profit .................. 27,392 28,597
Selling, general and
administrative expenses ..... 19,520 19,814
Other income, net ............. -- --
---------- ----------
Income from operations ........ 7,872 8,783
Interest expense, net ......... 4,540 6,003
---------- ----------
Income before taxes and
extraordinary loss ........... 3,332 2,780
Income taxes .................. 1,400 1,168
---------- ----------
Income before extraordinary
loss ......................... 1,932 1,612
Extraordinary loss, net (3) .. -- --
---------- ----------
Net income .................... $ 1,932 $ 1,612
========== ==========
OTHER GAAP FINANCIAL DATA:
Net cash provided by (used in)
operating activities(4) ..... $ 4,783 $ 9,324
Net cash (used in) investment
activities ................... (2,074) (10,641)
Net cash provided by (used in)
financing activities ......... (3,849) (4,067)
Cash interest expense (5) .... 4,000 5,924
Capital expenditures (6) ..... 2,074 4,408
Depreciation and amortization . 2,859 2,694
Ratio of earnings to fixed
charges (7) .................. 1.7x 1.4x
OTHER NON-GAAP FINANCIAL DATA:
EBITDA(8) ..................... $ 10,731 $ 11,670
Ratio of EBITDA to cash
interest expense (8)(5) ..... 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)
19
<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.
20
<PAGE>
SUMMARY HISTORICAL FINANCIAL DATA OF SWEETHEART HOLDINGS INC.
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
PERIOD FROM PERDIO 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
</TABLE>
<PAGE>
(RESTUBBED TABLE CONTINUED FROM ABOVE)
<TABLE>
<CAPTION>
THREE MONTHS
ENDEDDECEMBER 31,
-----------------------
1996 1997
----------- ----------
<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)
21
<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.
22
<PAGE>
RISK FACTORS
Holders of the Old Shares should carefully consider the following matters,
as well as the other information contained in this Prospectus, before
deciding to tender their Old Shares 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. Moreover, the indenture governing
the Discount Notes and the Restated Certificate of Incorporation impose, and
the Indenture will impose, restrictions on the ability of the Company to
incur additional indebtedness or pay dividends on or redeem or repurchase the
New Shares. These covenants could also limit SF Holdings' ability to meet its
obligations with respect to the New Shares, the Discount Notes and the
Subordinated Notes. See "Description of Certain Indebtedness."
Any right of the Company and its stockholders, including holders of the
Shares, 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 Shares and the
Subordinated Notes will be effectively subordinated to all liabilities,
including trade payables, of the subsidiaries of the Company.
Under Delaware law, the Company is permitted to pay dividends on its
capital stock including the Shares, only out of its surplus or, in the event
that it has no surplus, out of its net profits for the year in which a
dividend is declared or for the immediately preceding fiscal year. In order
to pay dividends in cash, the Company must have surplus or net profits equal
to the full amount of the cash dividend at the time such dividend is
declared. In determining the Company's ability to pay dividends, Delaware law
permits the board of directors of the Company to revalue the Company's assets
and liabilities from time to time to their fair market values in order to
create surplus. The Company cannot predict what the value of its assets or
the amount of its liabilities will be in the future and, accordingly, there
can be no assurance that the Company will be able to pay dividends on the New
Shares.
SUBSTANTIAL LEVERAGE; ABILITY TO SERVICE INDEBTEDNESS; LIQUIDITY
Since the issuance of the Share 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 Discount 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 Discount 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
Shares, 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, the Restated Certificates of
Incorporation and the indenture governing the Discount Notes 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
23
<PAGE>
its indebtedness, including pursuant to the indenture governing the Discount
Notes, 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. 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.
RANKING OF NEW SHARES AND SUBORDINATED NOTES
The New Shares will, with respect to dividend rights and rights on
liquidation, winding-up and dissolution, rank senior to all Junior Stock of
the Company and junior to right of payment to all of the indebtedness of the
Company. The Subordinated Notes will be unsecured, subordinated obligations
of the Company that will be subordinated to all existing and future
indebtedness of the Company. The New Shares and the Subordinated Notes will
be effectively subordinated to all indebtedness and other liabilities and
commitments of the Company's subsidiaries. In the event of the insolvency,
liquidation, reorganization, dissolution or other winding-up of the Company,
holders of the New Shares and the Subordinated Notes will rank junior to the
claims of the holders of any indebtedness of the Company and all other
creditors of the Company and to all indebtedness and other liabilities and
commitments of the Company's subsidiaries. Future agreements of the Company
may restrict or prohibit the Company from redeeming the New Shares or the
Subordinated Notes.
INDENTURE AND CREDIT FACILITY RESTRICTIONS
The Subsidiary Debt Instruments and the indenture governing the Discount
Notes contain 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
governing the Discount Notes, 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 and the indenture
governing the Discount Notes limit 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 Shares" 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 Shares at a 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 or each holder's Subordinated Notes at a purchase price equal to
101% of the aggregate principal amount thereof, plus accrued and unpaid
interest to the date of repurchase, as applicable. The indenture governing
the Discount Notes and the Subsidiary Debt Instruments contain similar change
of control
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provisions. 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 Shares, the Subordinated Notes, if issued, or the Discount
Notes upon a Change of Control will be dependent on the Company's ability to
issue additional equity or refinance the indebtedness under the Subordinated
Notes, if issued, the Discount Notes or the Subsidiary Debt Instruments. If
the Company is unable to issue additional equity or refinance the
indebtedness under the Subordinated Notes, if issued, the Discount Notes or
the Subsidiary Debt Instruments, the Company will likely not have the
financial resources to repurchase the New Shares upon the occurrence of a
Change of Control. In addition, the requirement to repurchase the New Shares,
the Subordinated Notes, if issued, and the Discount 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 Shares--Repurchase at the Option
of Holders--Change of Control" and "Description of Certain Indebtedness."
Furthermore, pursuant to the Restated Certificate of Incorporation or the
Indenture, as applicable, the Company will 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 agreements governing indebtedness of the
Company.
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
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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
indenture governing the Discount Notes and 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 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 indenture governing
the Discount Notes and 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
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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."
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
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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.
ABSENCE OF PUBLIC MARKET
Prior to this Prospectus, there has been no public market for the New
Shares, and there can be no assurance that such a market will develop. In
addition, the New Shares will not be listed on any national securities
exchange. Although the New Shares are eligible for trading in the Private
Offerings, Resales and Trading through Automatic Linkages ("PORTAL") market,
the New Shares 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 Purchaser has made a
market in the Old Shares as permitted by applicable law and regulation;
however, the Initial Purchaser is 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
Shares 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 Shares may be
subordinated to existing or future indebtedness of the Company or found not
to be enforceable in accordance with their terms. Under such statutes, if a
court were to find that, at the time the Shares were issued the Company was
insolvent, or was rendered insolvent by the issuance of the Shares 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 Shares or subordinate the Shares to all
other indebtedness of the Company. In such event, there can be no assurance
that any repayment of the Shares could ever be recovered by holders of the
Shares.
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 Shares
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 Shares 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 Shares
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,
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without limitation, those statements made in conjunction with the
forward-looking statements included under "Risk Factors" and otherwise
herein. All written forward looking statements attributable to the Company
are expressly qualified in their entirety by the Cautionary Statements.
CONSEQUENCES OF FAILURE TO EXCHANGE
Holders of Old Shares who do not exchange their Old Shares for New Shares
pursuant to the Exchange Offer will continue to be subject to the
restrictions on transfer of such Old Shares as set forth in the legend
thereon as a consequence of the issuance of the Old Shares 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 Shares 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 Shares
under the Securities Act. New Shares issued pursuant to the Exchange Offer in
exchange for Old Shares 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 Shares 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 Shares. Each broker-dealer that receives New Shares 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 Shares. 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 Shares received in exchange for Old Shares
where such Old Shares 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 Shares 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 Shares are tendered and accepted
in the Exchange Offer, the trading market for untendered and tendered but
unaccepted Old Shares will be adversely affected.
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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.
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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, 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.
USE OF PROCEEDS
There will be no proceeds to the Company from the exchange pursuant to the
Exchange Offer. The Company did not receive any of the proceeds from the sale
and issuance of the Share Units.
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THE EXCHANGE OFFER
PURPOSE AND EFFECTS
The Share Units, comprised of the Old Shares and the Common Shares, were
sold by the Sweetheart Stockholders on March 20, 1998 to the Initial
Purchaser, 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 Shares, the Company, AIPM and the
Initial Purchaser entered into a Registration Rights Agreement dated as of
March 20, 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 Shares for New Shares within 45 days following the closing date of
the issuance of the Old Shares. 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 Shares 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 Shares that remain Transfer Restricted Securities, as
reflected on the records of The Bank of New York as registrar for the Old
Shares (in such capacity, the "Registrar"), or any person whose Old Shares
are held of record by the depository of the Old Shares. The Company is not
required to include any securities other than the New Shares in the Exchange
Offer Registration Statement. Holders of Old Shares who do not tender their
Old Shares or whose Old Shares 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 Shares.
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 Shares issued pursuant to the Exchange Offer in
exchange for Old Shares may be offered for resale, resold and otherwise
transferred by any holder of such New Shares (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 Shares 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 Shares.
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 Shares for its own
account in exchange for Old Shares, where such Old Shares 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 Shares. See "Plan of Distribution."
The Exchange Offer is not being made to, nor will the Company accept
surrenders for exchange from, holders of Old Shares 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 Shares 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 Shares.
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 Shares validly tendered prior to 5:00 p.m.,
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New York City time, on the Expiration Date (as defined below). The Company
will issue up to 3,000 New Shares in exchange for a like amount of
outstanding Old Shares 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 Shares which are so tendered.
Holders may tender some or all of their Old Shares pursuant to the Exchange
Offer. See "Description of New Shares."
The form and terms of the New Shares will be the same in all material
respects as the form and terms of the Old Shares, except that (i) the New
Shares will be registered under the Securities Act and hence will not bear
legends restricting the transfer thereof, (ii) because the New Shares will be
registered, holders of the New Shares will not be entitled to Liquidated
Damages which would have been payable under the terms of the Registration
Rights Agreement in respect of Old Shares constituting Transfer Restricted
Securities held by such holders during any period in which a Registration
Default was continuing and (iii) because the New Shares will be registered,
holders of New Shares will not be, and upon the consummation of the Exchange
Offer, Eligible Holders of Old Shares will no longer be, entitled to certain
rights under the Registration Rights Agreement intended for the holders of
unregistered securities.
Holders of Old Shares do not have any appraisal or dissenters' rights
under the General Corporation Law of the State of Delaware or the Restated
Certificate of Incorporation 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 Shares 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 Restated
Certificate of Incorporation, 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 Shares
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 Shares from
the Company.
If any tendered Old Shares 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 Shares will be returned,
without expense, to the tendering holder thereof as promptly as practicable
after the Expiration Date.
Eligible Holders who tender Old Shares 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 Shares 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
Shares for any New Shares or to extend or terminate the Exchange Offer and
not accept for exchange any Old Shares for any New Shares 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
33
<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 Shares 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 Shares, 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
Shares are entitled to receive Liquidated Damages in an amount equal to 50
basis points per annum of the Liquidation Amount (as defined herein) of Old
Shares, or the aggregate outstanding principal amount of Subordinated Notes,
as applicable, 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 Liquidation Amount of the New Shares, or
the aggregate outstanding principal amount of Subordinated Notes, as
applicable. 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 Shares 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 Shares will not be and, upon consummation of the Exchange
Offer, Eligible Holders of Old Shares 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 of the same number
of New Shares as the number of Old Shares that are tendered by holders
thereof pursuant to the Exchange Offer.
PROCEDURES FOR TENDERING
Only an Eligible Holder of Old Shares may tender such Old Shares 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 Shares (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
Shares by causing the Depositary to transfer such Old Shares into the
Exchange Agent's account in accordance with the Depositary's procedure for
such transfer. Although delivery of Old Shares 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.
34
<PAGE>
The tender by an Eligible Holder of Old Shares 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 Shares 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 Shares 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 Shares 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 Shares 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 Shares 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 Shares not properly tendered or any Old Shares 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 Shares. 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 Shares 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 Shares, neither the Company, the Exchange
Agent nor any other person shall incur any liability for failure to give such
notification. Tenders of Old Shares will not be deemed to have been made
until such defects or irregularities have been cured or waived. Any Old
Shares 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 Shares that remain outstanding subsequent to the
Expiration Date and (ii) to the extent permitted by applicable law, to
purchase Old Shares 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 Shares acquired pursuant to the Exchange Offer
are being obtained in the ordinary course of business by the person receiving
such New Shares, 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
Shares 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
35
<PAGE>
a broker-dealer that will receive New Shares for its own account in exchange
for Old Shares 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 Shares.
GUARANTEED DELIVERY PROCEDURES
Eligible Holders who wish to tender their Old Shares and (i) whose Old
Shares are not immediately available, or (ii) who cannot deliver their Old
Shares 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 and the
certificate number(s) of such Old Shares (if available) 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 Shares 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 Shares 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 Shares in proper
form for transfer (or confirmation of a book-entry transfer into the
Exchange Agent's account at the Depositary of Old Shares 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 Shares according to
the guaranteed delivery procedures set forth above.
WITHDRAWAL OF TENDERS
Except as otherwise provided herein, tenders of Old Shares 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 Shares 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 Shares to be withdrawn (the "Depositor"),
(ii) identify the Old Shares to be withdrawn (including the certificate
number or numbers), (iii) be signed by the Depositor in the same manner as
the original signature on the Letter of Transmittal by which such Old Shares
were tendered (including any required signature guarantees) or be accompanied
by documents of transfer sufficient to have the Transfer Agent with respect
to the Old Shares register the transfer of such Old Shares into the name of
the person withdrawing the tender, and (iv) specify the name in which any
such Old Shares 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 Shares so withdrawn will be deemed not to have been validly
tendered for purposes of the Exchange Offer, and no New Shares will be issued
with respect thereto unless the Old Shares so withdrawn are validly
re-tendered. Any Old Shares 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 Shares may be re-tendered by following one of the procedures described
above under "Procedures for Tendering" at any time prior to the Expiration
Date.
36
<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 Shares tendered
for any New Shares and may terminate or amend the Exchange Offer as provided
herein before the acceptance of such Old Shares, 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 Shares 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.
37
<PAGE>
The Company will pay all transfer taxes, if any, applicable to the
exchange of Old Shares pursuant to the Exchange Offer. If, however,
certificates representing New Shares or Old Shares 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 Shares
tendered, or if tendered Old Shares 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 Shares 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 Shares for the New Shares 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 Share; (ii) the holding period of the New Share should
include the holding period of the Old Share exchanged therefor and (iii) the
adjusted tax basis of the New Share should be the same as the adjusted tax
basis of the Old Share exchanged therefor immediately before the exchange.
Even if the exchange of an Old Share for a New Share were treated as an
exchange, however, such an exchange should constitute a tax-free
recapitalization for federal income tax purposes. Accordingly, a New Share
should have the same issue price as an Old Share and a U.S. Holder should
have the same adjusted basis and holding period in the New Share as it had in
an Old Share 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 SHARES
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 Shares for New Shares pursuant to the Exchange Offer may
offer such New Shares for resale, resell such New Shares, and otherwise
transfer such New Shares without compliance with the registration and
prospectus delivery provisions of the Securities Act, provided such New
Shares 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 Shares. Each broker-dealer that receives New Shares for its own
account in exchange for Old Shares, where such Old Shares 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 Shares. 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 Shares prior to offering or selling such
New Shares. Upon request by Eligible Holders prior to the Exchange Offer, the
Company will register or qualify the New Shares in certain jurisdictions
subject to the conditions in the Registration Rights Agreement. If an
Eligible Holder does not exchange such Old Shares for New Shares pursuant to
the Exchange Offer, such Old Shares 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 Shares 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 Shares are tendered and accepted in
the Exchange Offer, a holder's ability to sell untendered Old Shares 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
Shares. Holders of Old Shares are urged to consult their financial and tax
advisors in making their own decisions on what action to take.
38
<PAGE>
ACCOUNTING TREATMENT
The New Shares will be recorded at the same carrying value as the Old
Shares, 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 Shares.
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>
<CAPTION>
<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.
39
<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
HISTORICAL PRO FORMA HISTORICAL
------------ ----------- -----------------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
Cash and cash equivalents ........ $ 524 $ 8,745(1) $ 28,407(2)
============ =========== =================
Long-term debt, including current
portion:
Credit facilities ............... $ 6,029 -- $ 97,258
Sweetheart Secured Notes ........ -- -- 190,000
Sweetheart Subordinated Notes .. -- -- 110,000
Fonda Notes ..................... 120,000 $120,000 --
The Discount Notes ..............
Other ........................... 2,680 2,680 9,216
------------ ----------- -----------------
Total long-term debt ............ 128,709 122,680 406,474
Exchangeable Preferred Stock .... -- -- --
Minority interest in Sweetheart . -- -- --
Redeemable common stock .......... 2,108 2,108 --
Stockholders' equity ............. 6,802 13,183(6) 65,056
------------ ----------- -----------------
Total capitalization ............. $137,619 $137,971 $471,530
============ =========== =================
</TABLE>
(RESTUBBED TABLE CONTINUED FROM ABOVE)
<TABLE>
<CAPTION>
PRO FORMA
ADJUSTMENTS COMBINED
------------- -----------
<S> <C> <C>
Cash and cash equivalents ........ $ 37,152
===========
Long-term debt, including current
portion:
Credit facilities ............... $ 97,258
Sweetheart Secured Notes ........ 190,000
Sweetheart Subordinated Notes .. 110,000
Fonda Notes ..................... 120,000
The Discount Notes .............. $ 75,038 (3) 75,038
Other ........................... 11,896
------------- -----------
Total long-term debt ............ 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
Stockholders' equity ............. 15,000 (7) 31,633
(65,056) (8)
2,500 (3)
950 (4)
------------- -----------
Total capitalization ............. $ 71,372 $680,873
============= ===========
</TABLE>
<PAGE>
- ------------
(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 Discount Note 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.
40
<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.
41
<PAGE>
UNAUDITED PRO FORMA COMBINED CONDENSED BALANCE SHEET
(Dollars in thousands)
<TABLE>
<CAPTION>
FONDA
JANUARY 25, NATURAL DAM
1998 MILL PRO FORMA
HISTORICAL DISPOSITION (A) FONDA
------------- --------------- -----------
<S> <C> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents......... $ 524 $ 15,221 $ 15,745
Cash in escrow ...................
Accounts receivable .............. 31,725 (1,845) 29,880
Inventories....................... 39,434 (1,265) 38,169
Other current assets.............. 11,139 11,139
------------- --------------- -----------
TOTAL CURRENT ASSETS ............ 82,822 12,111 94,933
Property, plant and equipment,
net................................ 61,354 (12,799) 48,555
Goodwill, net...................... 22,459 22,459
Other assets, net ................. 14,202 3,750 17,952
------------- --------------- -----------
TOTAL ASSETS ...................... $180,837 $ 3,062 $183,899
============= =============== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable ................. $ 10,389 $ (1,910) $ 8,479
Accrued expenses ................. 24,038 4,620 28,658
Current portion of long-term debt 537 537
------------- --------------- -----------
TOTAL CURRENT LIABILITIES ...... 34,964 2,710 37,674
Credit facilities ................. 6,029 (6,029)
Other long-term debt .............. 122,143 122,143
Other long-term liabilities ...... 8,791 8,791
------------- --------------- -----------
TOTAL LIABILITIES ............... 171,927 (3,319) 168,608
Exchangeable Preferred Stock .....
Minority interest in Sweetheart ..
Redeemable common stock ........... 2,108 2,108
Stockholders' equity .............. 6,802 6,381 13,183
------------- --------------- -----------
TOTAL LIABILITIES AND
STOCKHOLDERS' EQUITY .............. $180,837 $ 3,062 $183,899
============= =============== ===========
</TABLE>
<PAGE>
(RESTUBBED TABLE CONTINUED FROM ABOVE)
<TABLE>
<CAPTION>
SWEETHEART
DECEMBER 31,
1997 PRO FORMA
HISTORICAL ADJUSTMENTS COMBINED
-------------- ------------- -----------
<S> <C> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents......... $ 4,687 $ (7,000) (c)$ 13,432
Cash in escrow ................... 23,720 23,720
Accounts receivable .............. 72,417 102,297
Inventories....................... 140,941 3,883 (b) 182,993
Other current assets.............. 22,003 33,142
-------------- ------------- -----------
TOTAL CURRENT ASSETS ............ 263,768 (3,117) 355,584
Property, plant and equipment,
net................................ 372,718 12,000 (b) 433,273
Goodwill, net...................... -- 39,842 (b) 62,301
Other assets, net ................. 36,565 9,226 (b) 68,281
4,538 (c)
-------------- ------------- -----------
TOTAL ASSETS ...................... $673,051 $ 62,489 $919,439
============== ============= ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable ................. $ 50,870 $ 59,349
Accrued expenses ................. 81,589 $ 7,000 (b) 117,247
Current portion of long-term debt 5,516 6,053
-------------- ------------- -----------
TOTAL CURRENT LIABILITIES ...... 137,975 7,000 182,649
Credit facilities ................. 97,258 97,258
Other long-term debt .............. 303,700 75,038 (c) 500,881
Other long-term liabilities ...... 69,062 (15,883) (b) 61,970
-------------- ------------- -----------
TOTAL LIABILITIES ............... 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
Stockholders' equity .............. 65,056 (65,056) (b) 31,633
18,450 (c)
-------------- ------------- -----------
TOTAL LIABILITIES AND
STOCKHOLDERS' EQUITY .............. $673,051 $ 62,489 $919,439
============== ============= ===========
</TABLE>
See Notes to Unaudited Pro Forma Combined Condensed Balance Sheet.
42
<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>
<CAPTION>
<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>
<CAPTION>
<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>
43
<PAGE>
(c) Reflects the financing, including related financing costs, of the
Sweetheart Investment, as follows:
<TABLE>
<CAPTION>
<S> <C>
Cash purchase price of Management Services Agreement ............. $ 7,000
Long-term debt--the Discount Notes, net of fair value of the
Discount Note Shares ............................................. 75,038
Fair value of the Discount Note Shares issued in connection with
the Discount Notes ............................................... 2,500
Deferred financing costs .......................................... (4,538)
Exchangeable Preferred Stock, net of fair value of the Common
Shares issued in connection with the Exchangeable Preferred
Stock............................................................. 29,050
Fair value of the Common Shares issued in connection with the
Exchangeable Preferred Stock ..................................... 950
Capital contribution .............................................. 15,000
---------
$125,000
=========
</TABLE>
44
<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.
45
<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.
46
<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.
47
<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
Discount 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 Discount Note 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
originally issued to the Sweetheart Stockholders and amortization of
discount resulting from an allocation of fair value to the Common Shares.
<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 Common Shares 95 47 95
--------------- ---------------- ----------------
$4,220 $2,110 $4,220
=============== ================ ================
</TABLE>
48
<PAGE>
(h) Cash interest expense consists of interest expense, excluding interest on
the Discount 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.
49
<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>
FISCAL YEAR ENDED JULY (2)
-------------------------------------------------------
1993 1994 1995 1996 1997
--------- --------- ---------- ---------- ----------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
STATEMENT OF INCOME DATA:
Net sales .......................... $61,079 $61,839 $ 97,074 $204,903 $252,513
Cost of goods sold ................. 49,776 51,643 76,252 161,304 196,333
--------- --------- ---------- ---------- ----------
Gross profit ....................... 11,303 10,196 20,822 43,599 56,180
Selling, general and administrative
expenses .......................... 8,686 8,438 14,112 29,735 37,168
Other income, net .................. -- -- -- -- (1,608)
--------- --------- ---------- ---------- ----------
Income from operations ............. 2,617 1,758 6,710 13,864 20,620
Interest expense, net .............. 1,201 1,268 2,943 7,934 9,017
--------- --------- ---------- ---------- ----------
Income before taxes and
extraordinary loss ................ 1,416 490 3,767 5,930 11,603
Income taxes ....................... 478 239 1,585 2,500 4,872
--------- --------- ---------- ---------- ----------
Income before extraordinary loss .. 938 251 2,182 3,430 6,731
Extraordinary loss, net (3) ....... -- -- -- -- 3,495
--------- --------- ---------- ---------- ----------
Net income ......................... $ 938 $ 251 $ 2,182 $ 3,430 $ 3,236
========= ========= ========== ========== ==========
OTHER GAAP FINANCIAL DATA:
Net cash provided by (used in)
operating activities (4) .......... $ 2,797 $ 140 $ (4,774) $ 17,673 $ 8,273
Net cash (used in) investment
activities ........................ (1,027) (1,272) (29,593) (46,532) (36,006)
Net cash provided by (used in)
financing activities .............. (1,742) 992 34,262 30,206 32,174
Capital expenditures (5) ........... 1,027 1,272 1,608 1,314 10,363
Depreciation and amortization ..... 1,248 1,246 1,669 3,450 4,440
Ratio of earnings to fixed
charges (6) ....................... 1.9x 1.3x 2.1x 1.7x 2.1x
OTHER NON-GAAP FINANCIAL DATA:
EBITDA (7) ......................... $ 3,865 $ 3,004 $ 8,379 $ 17,314 $ 23,942
Ratio of EBITDA to cash interest
expense (7)(8)..................... 3.2x 2.4x 3.5x 2.6x 2.9x
</TABLE>
<PAGE>
(RESTUBBED TABLE CONTINUED FROM ABOVE)
<TABLE>
<CAPTION>
SIX MONTHS
ENDED JANUARY (2)
----------------------
1997 1998
---------- ----------
<S> <C> <C>
STATEMENT OF INCOME DATA:
Net sales .......................... $124,379 $136,674
Cost of goods sold ................. 96,987 108,077
---------- ----------
Gross profit ....................... 27,392 28,597
Selling, general and administrative
expenses .......................... 19,520 19,814
Other income, net .................. -- --
---------- ----------
Income from operations ............. 7,872 8,783
Interest expense, net .............. 4,540 6,003
---------- ----------
Income before taxes and
extraordinary loss ................ 3,332 2,780
Income taxes ....................... 1,400 1,168
---------- ----------
Income before extraordinary loss .. 1,932 1,612
Extraordinary loss, net (3) ....... -- --
---------- ----------
Net income ......................... $ 1,932 $ 1,612
========== ==========
OTHER GAAP FINANCIAL DATA:
Net cash provided by (used in)
operating activities (4) .......... $ 4,783 $ 9,324
Net cash (used in) investment
activities ........................ (2,074) (10,641)
Net cash provided by (used in)
financing activities .............. (3,849) (4,067)
Capital expenditures (5) ........... 2,074 4,408
Depreciation and amortization ..... 2,859 2,694
Ratio of earnings to fixed
charges (6) ....................... 1.7x 1.4x
OTHER NON-GAAP FINANCIAL DATA:
EBITDA (7) ......................... $ 10,731 $ 11,670
Ratio of EBITDA to cash interest
expense (7)(8)..................... 2.7x 2.0x
</TABLE>
(Footnotes on next page)
50
<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.
51
<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)
=============== ========== ========== ========== ===========
</TABLE>
<PAGE>
(RESTUBBED TABLE CONTINUED FROM ABOVE)
<TABLE>
<CAPTION>
THREE MONTHS
ENDED DECEMBER 31,
-----------------------
1996 1997
----------- ----------
<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)
52
<PAGE>
</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)
------------- ------------------------------------------------------------
(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
</TABLE>
<PAGE>
(RESTUBBED TABLE CONTINUED FROM ABOVE)
<TABLE>
<CAPTION>
THREE MONTHS
ENDED DECEMBER 31,
---------------------
1996 1997
---------- ---------
<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
<FN>
- ------------
(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.
</TABLE>
53
<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
54
<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 Units consisting of Discount Notes
and Discount Note Shares. Until March 15, 2003, no interest will accrue on
the Discount Notes, but the Accreted Value (as defined herein) will increase
between the date of original issuance and March 15, 2003. Beginning on March
15, 2003, interest on the Discount 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 Discount
Notes will mature on March 15, 2008. As used herein, "Accreted Value" means,
as of any date of determination prior to March 15, 2003, with respect to any
Discount Note, the sum of (a) the initial offering price to investors of such
Discount Note and (b) the portion of the excess of the principal amount of
such 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
Discount Note, compounded semi-annually on each March 15 and September 15
from the date of issuance of the Discount Notes through the date of
determination, computed on the basis of a 360-day year of twelve 30-day
months.
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
55
<PAGE>
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.
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%
</TABLE>
(RESTUBBED TABLE CONTINUED FROM ABOVE)
<TABLE>
<CAPTION>
SIX MONTHS ENDED JANUARY
---------------------------------------------
1997 1998
---------------------- ----------------------
PERCENT OF PERCENT OF
AMOUNT NET SALES AMOUNT NET SALES
-------- ------------ -------- ------------
<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.
56
<PAGE>
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 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,
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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.
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.
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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 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.
59
<PAGE>
SWEETHEART RESULTS OF OPERATIONS
<TABLE>
<CAPTION>
FISCAL YEAR ENDED SEPTEMBER THREE MONTHS ENDED DECEMBER
------------------------------------------------------------------- ---------------------------------------------
1995 1996 1997 1996 1997
--------------------- --------------------- ----------------------- ---------------------- ----------------------
PERCENT OF PERCENT OF PERCENT OF PERCENT OF PERCENT OF
AMOUNT NET SALES AMOUNT NET SALES AMOUNT NET SALES AMOUNT NET SALES AMOUNT NET SALES
-------- ------------ -------- ------------ ---------- ------------ --------- ------------ --------- ------------
(DOLLARS IN MILLIONS)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Net sales ... $986.6 100.0% $959.8 100.0% $886.0 100.0% $202.1 100.0% $201.9 100.0%
Cost of goods
sold ....... 779.5 79.0 748.0 77.9 722.5 81.5 176.9 87.5 164.3 81.4
-------- ------------ -------- ------------ ---------- ------------ --------- ------------ --------- ------------
Gross income 207.1 21.0 211.8 22.1 163.5 18.5 25.2 12.5 37.6 18.6
Transportation 95.1 9.6 98.7 10.3 98.5 11.1 22.5 11.1 23.7 11.7
Selling,
general and
admin.
expenses ... 66.1 6.7 61.8 6.4 66.8 7.5 16.2 8.0 19.1 9.5
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)% $(13.4) (6.6)% $ (5.2) (2.6)%
======== ============ ======== ============ ========== ============ ========= ============ ========= ============
EBITDA ...... $ 82.6 8.4% $ 88.2 9.2% $ 44.0 5.0% $ (2.6) 1.3% $ 5.7 2.8%
</TABLE>
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.
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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.
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
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<PAGE>
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.
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
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<PAGE>
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.
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.
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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.
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,
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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.
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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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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.
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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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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."
76
<PAGE>
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."
77
<PAGE>
DESCRIPTION OF NEW SHARES
GENERAL
The terms of the New Shares are stated in the Restated Certificate of
Incorporation. The New Shares are subject to all such terms, and holders of
New Shares are referred to the Restated Certificate of Incorporation for a
statement thereof. The following summary of the material provisions of the
Restated Certificate of Incorporation with respect to the Shares does not
purport to be complete and is qualified in its entirety by reference to such
document, including the definitions therein of certain terms used below.
Copies of the Restated Certificate of Incorporatioin 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 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 Shares 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 Shares 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 $767.7 million
of outstanding Indebtedness. See "Risk Factors--Holding Company Structure and
Related Considerations."
RANKING
The New Shares will, with respect to dividend distributions and
distributions upon the liquidation, winding up or dissolution of the Company,
rank senior to all classes of Common Stock of the Company and, except as
provided in the following proviso, to each other class or series of capital
stock issued by the Company 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 New Shares (collectively, "Parity Stock") or senior in powers,
preferences and rights to the New Shares (collectively, "Senior Stock") if
approved by the holders of a majority of the shares of New Shares. The New
Shares will rank junior to right of payment to all indebtedness of the
Company.
DIVIDENDS
The holders of New Shares will be entitled to receive, when, as and if
declared by the Board of Directors out of funds of the Company legally
available therefor, cumulative dividends at an annual rate equal to 13-3/4%.
Until March 15, 2003, dividends on the New Shares 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 Company, (ii) by issuing Old Shares with an aggregate
Liquidation Amount (as defined below) equal to the amount of such dividends.
From and after such time, dividends on the New Shares will be payable
quarterly in arrears in cash except to the extent that the covenants
applicable to Indebtedness of the Company prohibit such cash payments or the
covenants applicable to securities and/or Indebtedness of the Company's
subsidiaries prohibit such subsidiaries from distributing the necessary cash
to the Company. Dividends in arrears on the New Shares 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 New Shares,
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 Company or any of its subsidiaries) and
whether or not there will be funds of the Company legally available for the
payment thereof. Dividends accruing and not
78
<PAGE>
declared until March 15, 2003 will, when declared, be payable in cash or
additional Old Shares 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 will be cumulative from and
after March 15, 2003.
No dividend or other distribution (payable other than in shares of Junior
Stock) will be paid to the holders of Junior Stock, and no shares of Junior
Stock will be purchased, redeemed or otherwise acquired by the Company or any
of its subsidiaries (except by conversion into or in exchange for Junior
Stock), nor will 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 New Shares that will have accrued
through any prior Dividend Payment Date will have been paid or declared and
funds set apart for payment thereof; (ii) the Company will not be in default
on any of its obligations to purchase or redeem the New Shares pursuant to
the provisions described below under the captions "--Optional Redemption,"
"--Mandatory Redemption," and "--Repurchase at the Option of Holders--Change
of Control;" and (iii) the Company will not be in default on any of the
covenants described below under the caption "--Certain Covenants." When
dividends are not paid in full upon the New Shares and any Parity Stock, all
dividends declared upon the New Shares and all Parity Stock will be declared
pro rata so that the amount of dividends declared per share of New Shares and
all such Parity Stock will in all cases bear to each other the same ratio
that accrued dividends per share on the New Shares and all such Parity Stock
bear to each other.
LIQUIDATION RIGHTS
In the event of any liquidation, dissolution or winding up of the Company,
whether voluntary or involuntary, no payment or distribution of assets will
be made to or set apart for the holders of Junior Stock unless the holders of
New Shares will have received, out of assets legally available therefor, Ten
Thousand Dollars ($10,000.00) per share of New Shares (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 Company the amount
which would be distributed to the holders of the outstanding New Shares would
be less than this amount, then such lesser amount will be distributed pro
rata to the holders of then outstanding shares of New Shares and to the
holders of then outstanding shares of Parity Stock, and no distribution will
be made to the holders of Junior Stock. None of the consolidation or the
merger of the Company, or the sale, lease or transfer by the Company of all
or any part of its assets, will be deemed to be a liquidation, dissolution or
winding up of the Company for purposes of this paragraph.
MANDATORY REDEMPTION
The Company will redeem the New Shares 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. New Shares so redeemed will be cancelled and will not
be reissued.
OPTIONAL REDEMPTION
Except as provided in the next paragraph, the New Shares will not be
redeemable at the Company's option prior to March 15, 2003. From and after
March 15, 2003, the Company may, at its option, redeem the New Shares, 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:
79
<PAGE>
<TABLE>
<CAPTION>
YEAR PERCENTAGE
<S> <C>
2003 ................ 106.875%
2004 ................ 104.583%
2005 ................ 102.293%
2006 and thereafter 100.000%
</TABLE>
Prior to March 15, 2001, the Company may, at its option, redeem up to
one-half of the aggregate Liquidation Amount of New Shares at a redemption
price of 113 3/4% 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;
provided, however, that at least one-half of the aggregate Liquidation Amount
of New Shares remains outstanding immediately after the occurrence of such
redemption (excluding New Shares held by the Company and its Subsidiaries);
and provided, further, that any such redemption will occur within 60 days of
the date of the closing of such Equity Offering.
SELECTION AND NOTICE
If less than all outstanding New Shares are to be redeemed, the shares to
be redeemed will 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 New Shares. Notice of such redemption will 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 Company. Each such redemption notice will state: (i) the
redemption date; (ii) the number of New Shares 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 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 New Shares so to be redeemed
will surrender the certificate or certificates evidencing the New Shares held
by such holder to the Company at its principal office (or such other office
or agency of the Company as the Company may designate in such notice), in
exchange for payment to its order or that of its nominee, as such holder will
request, in an aggregate amount equal to the aggregate redemption amount of
the shares of New Shares so redeemed. The Company will reissue to each such
holder a certificate for any New Shares surrendered but not redeemed. All New
Shares so redeemed will be cancelled and will not be reissued.
REPURCHASE AT THE OPTION OF HOLDERS
CHANGE OF CONTROL
In the event of a Change of Control, the Company will be required to make
an offer to each holder of New Shares to repurchase such holder's New Shares
(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"). Within ten days following any Change of Control, the
Company will mail a notice to each holder of New Shares describing the
transaction or transactions that constitute the Change of Control. Such
notice will state: (i) the date of repurchase, which date will 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 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 Shares as a result of
a Change of Control.
On the Change of Control Payment Date, the Company will, to the extent
lawful, (i) accept for payment all New Shares 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 New Shares so
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tendered. The Paying Agent will promptly mail to each holder of New Shares so
tendered the Change of Control Payment for such New Shares. All New Shares
which are so repurchased will be cancelled and will not be reissued. The
Company will 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.
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; Ability to Service Indebtedness;
Liquidity" and "Risk Factors--Holding Company Structure and Related
Considerations."
The Change of Control provisions described above will be applicable
whether or not any other provisions of the Restated Certificate of
Incorporation are applicable. Except as described above with respect to a
Change of Control, the Restated Certificate of Incorporation does not contain
provisions that permit the holders of the New Shares to require that the
Company repurchase or redeem the New Shares in the event of a takeover,
recapitalization or similar transaction.
Notwithstanding the foregoing, the Company will 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 Company, or if a third party makes the Repurchase Offer in the manner,
at the times and otherwise in compliance with the requirements set forth
herein applicable to a Repurchase Offer made by the Company and purchases all
New Shares validly tendered and not withdrawn under such Repurchase Offer.
ASSET SALES
So long as any New Shares are outstanding, 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) 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) 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), will 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
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
will 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 will be required to make an offer to each holder of New
Shares (an "Asset Sale Offer") to repurchase the maximum number of such
holder's New Shares 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 above under the
caption "--Change of Control;" provided, however, that such offer will not be
required if the application of such Excess Proceeds to repurchase New Shares
would cause an
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Event of Default under any of the agreements governing Indebtedness of the
Company. If the aggregate purchase price of the New Shares tendered into such
Asset Sale Offer surrendered by the holders thereof is less than the amount
of Excess Proceeds, the Company may use such Excess Proceeds for general
corporate purposes (subject to the provisions of the Restated Certificate of
Incorporation). If the aggregate purchase price of the shares of New Shares
tendered into such Asset Sale Offer surrendered by the holders thereof
exceeds the amount of Excess Proceeds, the Company will select the New Shares
to be purchased on a pro rata basis. Upon completion of such Asset Sale
Offer, the amount of Excess Proceeds will be reset at zero.
EXCHANGE AT OPTION OF COMPANY
The Company may, at its option, on any Dividend Payment Date with respect
to the New Shares, redeem all, but not less than all, of the then outstanding
New Shares in exchange for the Company's 13-3/4% Subordinated Notes due March
15, 2009 (the "Subordinated Notes") to be issued pursuant to an indenture
between the Company and a trustee and having substantially the terms assigned
to the New Shares as set forth in the Restated Certificate of Incorporation
(the "Indenture"), 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 will have occurred and be continuing).
Cash dividends on any New Shares exchanged for Subordinated Notes which
have accrued but have not been paid as of the date of exchange will be paid,
at the option of the Company, in cash or in additional Subordinated Notes in
an equivalent principal amount of such accrued and unpaid dividends. In no
event will the Company 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 will 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.
In the event the Company will exchange New Shares, notice of such exchange
will 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 New Shares to be exchanged at such holder's address
as the same appears on the stock register of the Company. Each such exchange
notice will 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 New Shares are to be
exchanged for notes evidencing the Subordinated Notes to be received by the
exchanging holder; and (D) that dividends on the New Shares to be exchanged
will cease to accrue on such exchange date. On the date so specified, each
holder of then outstanding New Shares will surrender the certificate or
certificates evidencing the New Shares held by such holder to the Company at
its principal office (or such other office or agency of the Company as the
Company may designate in such notice), in exchange for the Subordinated Notes
to which such holder is entitled, registered in such holder's name or that of
its nominee or payable to its order or that of its nominee, as such holder
will request, and in such denominations as such holder will request. All New
Shares so exchanged will be cancelled and will not be reissued.
Prior to giving notice of intention to exchange, the Company will execute
and deliver with a bank or trust company selected by the Company the
Indenture. The Company 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
the Indenture from the exchange date.
The Company will not give notice of its intention to exchange unless it
will 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 Company) to the effect that (i) the
Indenture has been duly authorized, executed and delivered by the Company,
has been duly qualified under the Trust Indenture Act of 1939 (or that such
qualification is not necessary) and constitutes a valid and binding
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instrument enforceable against the Company 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 New Shares,
will constitute valid and binding obligations of the Company 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 Company 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 Company and
such subsidiaries or any of their properties, and (iv) the Subordinated Notes
have been duly registered for such exchange with the Commission under a
registration statement that has become effective under the Securities Act or
that the exchange of the Subordinated Notes for the shares of New Shares is
exempt from registration under the Securities Act.
The exchange will 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 New Shares will have been surrendered, and the person in
whose name or names the Subordinated Notes will be issuable upon such
exchange will be deemed to have become the holder of record of the
Subordinated Notes represented thereby at such time on such Dividend Payment
Date.
Prior to the delivery of any securities which the Company will be
obligated to deliver upon exchange of the New Shares, the Company will comply
with all applicable federal and state laws and regulations that require
action to be taken by the Company. The Company 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 New Shares pursuant hereto; provided that the Company will 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 New Shares to be exchanged and no
such issue or delivery will be made unless and until the person requesting
such issue or delivery has paid to the Company the amount of any such tax or
has established, to the satisfaction of the Company, that such tax has been
paid.
VOTING RIGHTS
The holders of New Shares will not be 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
(whether or not consecutive), (ii) satisfy any mandatory redemption
obligation with respect to the New Shares (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 (regardless of whether such offer is prohibited by the terms of any
Indebtedness of the Company) or (iv) comply with any of the covenants
described below under the caption "--Certain Covenants" 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 New Shares then
outstanding, the Board of Directors of the Company will be increased by two
members and the holders of a majority of the outstanding New Shares, voting
as a separate class, will be entitled to elect two members to the Board of
Directors of the Company. The foregoing voting rights will cease, and the
term of office of any directors elected pursuant to the exercise of the
foregoing voting rights will terminate, if and when the failure by the
Company 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 New Shares, 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 will have vested, and if such right will not
already have been exercised by written consent, a proper officer of the
Company may call, and, upon the written request, addressed to the
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Secretary of the Company, of the record holders of shares representing
twenty-five percent (25%) of the voting power of the shares then outstanding
of the New Shares, will call a special meeting of the holders of the New
Shares. Such meeting will 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 Company, or, if none, at a place
designated by the Board of Directors. Notwithstanding the foregoing, no such
special meeting will 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
New Shares will 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 New Shares
having such right will be required and will be sufficient to constitute a
quorum of such class for the election of directors by such class. Any
director elected by holders of New Shares pursuant to such voting rights will
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 will be filled only by vote of the remaining director so
elected or, if there be no such remaining director, by the holders of New
Shares 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.
The approval of the holders of a majority of the outstanding New Shares,
voting as a separate class, will also be required for (i) the authorization
by the Company of any series of preferred stock ranked senior or on a parity
in powers, preferences and rights to the New Shares (including any additional
shares of New Shares), (ii) the amendment or modification of any provisions
of the Certificate of Incorporation of the Company in any manner that would
adversely affect the voting powers, designations, preferences and rights of
the New Shares 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 New
Shares upon consummation of such merger, consolidation or sale.
Notwithstanding the foregoing, upon a refinancing of the Company's Discount
Notes, the Certificate of Incorporation of the Company may be amended or
modified without any approval of the holders of the New Shares to reflect
covenants in the new notes which are more favorable to the Company than those
contained in the Discount Notes.
CERTAIN COVENANTS
REPORTS
Whether or not required by the rules and regulations of the Commission, so
long as any New Shares are outstanding, the Company will furnish to the
holders of record of shares of New Shares (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 specified in the Commission's rules and
regulations. In addition, following the consummation of the exchange offer
contemplated by the Discount Note Registration Rights Agreement, 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. The Company will also furnish to the holders of New
Shares and to securities analysts and prospective investors, upon their
request, the information required to be delivered pursuant to Rule 144A under
the Securities Act.
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RESTRICTED PAYMENTS
So long as any New Shares are outstanding, 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), other than a dividend on the Shares, 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 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 will 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 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 Company
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
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 March 12, 1998 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 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 will not prohibit (i) the payments and
applications of the proceeds to be received by the Company from 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 covenant; (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 will 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
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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 will 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 will 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 will not exceed $1.0 million
in any twelve-month period plus the aggregate cash proceeds received by the
Company (or any of its Restricted Subsidiaries) during any such twelve-month
period from any issuance of Equity Interests by the Company (or any of its
Restricted Subsidiaries) to members of management of the Company (or any of
its Restricted Subsidiaries) (provided that such proceeds are excluded from
clause (c) of the preceding paragraph; and provided, further, that such
repurchase, redemption or other acquisition or retirement may not include any
Equity Interests owned, directly or indirectly, by the Principals.
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) will 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 will 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.
DIVIDEND AND OTHER PAYMENT RESTRICTIONS AFFECTING RESTRICTED SUBSIDIARIES
So long as any New Shares are outstanding, 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 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 governing the Discount Notes and the
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 encum-
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brance 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 covenant below under the caption
"--Incurrence of Indebtedness and Issuance of Preferred Stock," (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 the covenant described
below under the caption "--Liens" that limits the right of the debtor to
dispose of the assets securing such Indebtedness.
INCURRENCE OF INDEBTEDNESS AND ISSUANCE OF PREFERRED STOCK
So long as any New Shares are outstanding, the Company will not, and will
not permit any of its Restricted Subsidiaries to, directly or indirectly,
create, incur, issue, assume, guarantee or otherwise become directly or
indirectly liable, contingently or otherwise, with respect to (collectively,
"incur") any Indebtedness (including Acquired Debt) 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 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 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 Restated Certificate of
Incorporation, 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
Discount Notes and the indenture governing the Discount Notes;
(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
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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 to be incurred under the first
paragraph hereof or clauses (ii), (iii), (iv) or (v) of this covenant;
(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, 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 will 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 the indenture governing the Discount Notes 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 will, 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.
TRANSACTIONS WITH AFFILIATES
So long as any New Shares are outstanding, 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) (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 will 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 will 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 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 thereunder; (2) any
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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 $1.00 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 Restated Certificate
of Incorporation 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
So long as any New Shares are outstanding, 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 paragraph (f) hereof, 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.
PAYMENTS FOR CONSENT
So long as any New Shares are outstanding, 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 New Shares for or as an inducement to any amendment or modification
of any of the terms or provisions of the Restated Certificate of
Incorporation unless such consideration is offered to be paid or is paid to
all holders of New Shares 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.
MERGER, CONSOLIDATION OR SALE OF ASSETS
So long as any New Shares are outstanding, 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
will 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)
immediately after such transaction no Default or Event of Default exists; and
(iii) 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 will 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."
LIENS
So long as any New Shares are outstanding, 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.
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BUSINESS ACTIVITIES
So long as any New Shares are outstanding, 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.
CORPORATE STANDING
So long as any New Shares are outstanding, the Company will 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 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 will 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 Company will 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 New Shares.
The preceding covenants described under the caption "--Certain Covenants"
will in no way limit the power and authority of the Company to take any of
the actions restricted thereby. Rather, a violation of any such paragraphs
will have the consequences set forth above in the first paragraph under the
caption "--Voting Rights," and only such consequences.
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 Shares or for any claim based on, in respect of, or by reason
of, such obligations or their creation. Each Holder of New Shares by
accepting a New Share waives and releases all such liability. The waiver and
release are part of the consideration for issuance of the New Shares. 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.
TRANSFER AND EXCHANGE
The Registrar and the Transfer Agent 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. The
Company is not required to transfer or exchange any New Share selected for
redemption. Also, the Company is not required to transfer or exchange any New
Share for a period of 15 days before a selection of New Shares to be
redeemed.
The registered holder of a New Share will be treated as the owner of it
for all purposes.
AMENDMENT, SUPPLEMENT AND WAIVER
Except as specified under the caption "--Voting Rights," the Restated
Certificate of Incorporation or the New Shares may be amended with the
consent of the holders of at least a majority in interest of the voting
Common Stock then outstanding (including, without limitation, consents
obtained in connection with a purchase of, or tender offer or exchange offer
for, New Shares).
CONCERNING THE TRANSFER AGENT
There exist certain limitations on the rights of the Transfer Agent,
should the Transfer Agent 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 Transfer Agent 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.
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The holders of a majority in interest of the then outstanding New Shares
will have the right to direct the time, method and place of conducting any
proceeding for exercising any remedy available to the Transfer Agent, subject
to certain exceptions. In case an Event of Default shall occur (which shall
not be cured), the Transfer Agent 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. The Transfer Agent will be under no obligation to exercise any of
its rights or powers at the request of any holder of New Shares, unless such
holder shall have offered to the Transfer Agent security and indemnity
satisfactory to it against any loss, liability or expense.
ADDITIONAL INFORMATION
Anyone who receives this Prospectus may obtain a copy of the Restated
Certificate of Incorporation 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, AIPM and the Initial Purchaser entered into the Registration
Rights Agreement dated as of March 20, 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 Shares. 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 Shares. If the Company does not meet its obligations under
the Registration Rights Agreement, it may be required to pay to each holder
of the New Shares Liquidated Damages in an amount equal to 50 basis points
per annum of the Liquidation Amount of New Shares, or the aggregate
outstanding principal amount of Subordinated Notes, as applicable, 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 Liquidation Amount of the New Shares, or the
aggregate outstanding principal amount of Subordinated Notes, as applicable.
Holders of New Shares are not entitled to any registration rights with
respect to the New Shares. 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 Shares. 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 Shares will not retain any rights under
the Registration Rights Agreement.
CERTAIN DEFINITIONS
Set forth below are certain defined terms used in the Restated Certificate
of Incorporation. Reference is made to the Restated Certificate of
Incorporation for a full disclosure of all such terms, as well as any other
capitalized terms used herein for which no definition is provided.
"Acquired Debt" means, with respect to any specified Person, (i)
Indebtedness of any other Person existing at the time such other Person is
merged with or into or 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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"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 the
provisions 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 Shares elected to exercise their rights under the Restated
Certificate of Incorporation 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
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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 Shares
to require the Company to repurchase such Shares 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.
"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 Restricted Subsidiary
of that Net Income is not at the date of determination permitted without any
prior
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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 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 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.
"Discount Note Registration Rights Agreement" means the Registration
Rights Agreement, dated as of March 12, 1998, 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.
"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, 1998; 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).
"Event of Default" is ascribed the meaning set forth in Section 6.01 of
the indenture governing the Discount Notes, as more fully described in that
Registration Statement on Form S-4, Registration Number 333-50683 dated April
22, 1998.
"Existing Indebtedness" means Indebtedness of the Company and its
Restricted Subsidiaries in existence on March 12, 1998, including
Indebtedness represented by the Demand Note, until such amounts are repaid.
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"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 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 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.
"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.
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"Holder" means a Person in whose name a Discount Note is registered.
"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.
"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
"Certain Covenants--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.
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"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 Discount Notes) of the Company or any of its Restricted
Subsidiaries to declare a default on such other Indebtedness or cause the
payment thereof to be accelerated or payable prior to its stated maturity;
and (iii) as to which the lenders have been notified in writing that they
will not have any recourse to the stock or assets of the Company or any of
its Restricted Subsidiaries.
"Obligations" means any principal, interest, penalties, fees,
indemnifications, reimbursements, damages and other liabilities payable under
the documentation governing any Indebtedness.
"Offering" means the offering of the Units by the Company.
"Offering Memorandum" means the Offering Memorandum, dated March 5, 1998,
governing the Offering of the Units by the Company.
"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 were engaged in on
March 12, 1998, 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 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 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 March 12, 1998 as such loan may be amended or refinanced in a manner
not adverse to Fonda, the Company or the Holders of the 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 the Restated
Certificate of Incorporation 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 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
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
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impair the use thereof in the operation of business by the Company or such
Restricted Subsidiary; (x) Liens in favor of the holders of 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
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 Discount Notes on terms at least as favorable to the Holders
of 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.
"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 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 the indenture governing the Discount
Notes.
"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
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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 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 Shares will be issued in registered and
global form. New Shares will be issued at the closing of the Exchange Offer
(the "Closing") only against payment in immediately available funds.
The New Shares initially will be issued in the form of one global share
(the "Global Share"). The Global Shares will be deposited upon issuance with
the Transfer Agent 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.
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Except as set forth below, the Global Share 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 Share 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 Share will not be entitled to receive
physical delivery of Certificated Securities (as defined below).
Initially, the Transfer Agent will act as Paying Agent and Registrar with
respect to the New Shares. The New Shares may be presented for registration
of transfer and exchange at the offices of the Registrar.
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 Purchaser), 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 Share, DTC will credit the accounts of
Participants designated by the Initial Purchaser with portions of the
principal amount of the Global Share and (ii) ownership of the New Shares
evidenced by the Global Share 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 Share 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 Share 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 Share 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 Shares, see "--Exchange of
Book-Entry Securities for Certificated Securities."
Except as described below, owners of interests in the Global Share will
not have New Shares registered in their names, will not receive physical
delivery of New Shares in certificated form and will not be considered the
registered owners or "holders" thereof for any purpose.
Payments in respect of the dividends, if any, and Liquidated Damages, if
any, on any New Shares registered in the name of DTC or its nominee will be
payable by the Trustee to DTC in its capacity as the registered holder. The
Company and the Trustee will treat the persons in whose names the New Shares
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
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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 Shares, 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 Shares 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 Shares, is to credit the accounts of the relevant Participants
with the payment on the payment date, in amounts proportionate to their
respective holdings 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 Shares 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 Shares, 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 Share 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 Share 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 Shares only at the direction of one or more
Participants to whose account DTC has credited the interests in the Global
Share and only in respect of such portion of the aggregate principal amount
of the New Shares as to which such Participant or Participants has or have
given such direction. However, if there is an Event of Default with respect
to the New Shares, DTC reserves the right to exchange the Global Share 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 Share 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 Share is exchangeable for New Shares
in the form of registered certificated securities if (i) DTC (x) notifies the
Company that it is unwilling or unable to continue as
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depositary for the Global Share 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
Transfer Agent 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 Shares. In addition,
beneficial interests in the Global Share may be exchanged for New Shares in
the form of Certificated Securities upon request but only upon prior written
notice given to the Transfer Agent by or on behalf of DTC. In all cases,
Certificated Securities delivered in exchange for any Global Share or
beneficial interests therein will be registered in the names, and issued in
any 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
Payments in respect of the New Shares represented by the Global Share
(including dividends and Liquidated Damages, if any) shall be made by wire
transfer of immediately available funds to the accounts specified by the
Global Share holder. With respect to Certificated Securities, the Company
will make all dividend payments, if any, and Liquidated Damages payments, 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 Shares
represented by the Global Shares 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
Shares 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 Share 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 Share 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. See "Description of New Shares" for a more
detailed discussion of the terms of the 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 Discount 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.
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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.
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 Restated Certificate of Incorporation 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 Restated
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. See "--Description of the New Shares."
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
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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.
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 Common Shares will be entitled to require the Company to effect one
registration (a "Demand Registration") under the Securities Act of the Common
Shares, subject to certain limitations. Upon a demand, the Company will (a)
notify the holders of all of the Common 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 Common 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
Common 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 Common Shares.
Holders of Common Shares will also have the right to include the Common
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 Common 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 Common Shares requested to be
included therein is subject to a reduction (a "Cut Back") to the extent that
the Company is advised
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by the managing underwriter, if any, therefor that the total number or type
of the Common 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 Common 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 Common 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 Common Shares, upon request of the lead
managing underwriter with respect to such underwritten public offering, will
be required to not sell or otherwise dispose of any of the Common 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 Common 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 Shares."
See "The Sweetheart Investment" for registration rights granted to the
Sweetheart Stockholders.
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CERTAIN FEDERAL INCOME TAX CONSEQUENCES
The following discussion summarizes the material United States federal
income tax consequences generally applicable to the purchase, ownership and
disposition of New Shares and Subordinated Notes to a holder who purchases
New Shares pursuant to the Exchange Offer (a "holder"). This summary is based
on the United States federal income tax laws, regulations, rulings and
decisions now in effect, all of which are subject to change, possibly on a
retroactive basis. This summary does not address the tax consequences
applicable to investors that may be subject to special tax rules, such as
banks, thrifts, real estate investment trusts, regulated investment
companies, insurance companies, dealers in securities or currencies,
tax-exempt investors or persons that will hold New Shares or Subordinated
Notes as a position in a "straddle," as part of a "synthetic security" or
"hedge," as part of a "conversion transaction" or other integrated
investment. This summary also does not address the tax consequences to
persons that have a functional currency other than the U.S. dollar or the tax
consequences to shareholders, partners or beneficiaries of a holder of New
Shares or Subordinated Notes. Further, it does not include any description of
any alternative minimum tax consequences, estate tax consequences or the tax
laws of any state or local government or of any foreign government that may
be applicable to the New Shares or Subordinated Notes. The discussion assumes
that the New Shares and Subordinated Notes will be held as capital assets
within the meaning of section 1221 of the Internal Revenue Code of 1986, as
amended (the "Code"). Certain proposed tax legislation, if enacted in
substantially the same form as proposed, may affect some of the federal
income tax consequences discussed herein. See "--Proposed Legislation."
For purposes of this discussion, a "U.S. Holder" means a citizen or
resident of the United States, a corporation, partnership or other entity
(other than a trust) created or organized in the United States or under the
laws of the United States or any political subdivision thereof, an estate
whose income is includible in gross income for United States federal income
tax purposes regardless of its source or, in general, a trust, if a U.S.
court is able to exercise primary supervision over the administration of the
trust and one or more U.S. persons have the authority to control all
substantial decisions of the trust. A "Non-U.S. Holder" means a holder who is
not a U.S. Holder.
PROSPECTIVE INVESTORS SHOULD CONSULT THEIR OWN TAX ADVISORS WITH REGARD TO
THE APPLICATION OF THE TAX CONSIDERATIONS DISCUSSED BELOW TO THEIR PARTICULAR
SITUATIONS AS WELL AS THE APPLICATION OF ANY STATE, LOCAL, FOREIGN OR OTHER
TAX LAWS.
ALLOCATION OF BASIS
Each holder of New Shares will have a tax basis in the New Shares equal to
the amount of cash paid by the holder for Share Units, reduced by the portion
of such cash allocable to the Common Shares represented by such Share Units,
which allocation will be based on the relative fair market values of the Old
Shares and the Common Shares at the time the Share Units were acquired.
CLASSIFICATION OF PREFERRED STOCK
Although the characterization of an instrument as debt or equity is a
facts and circumstances determination that cannot be predicted with
certainty, the Company intends to treat the New Shares as stock for federal
income tax purposes, and the remainder of this discussion assumes that such
treatment will be respected.
TAX CONSEQUENCES TO U.S. HOLDERS
DISTRIBUTIONS ON THE NEW SHARES
Distributions to U.S. Holders on the New Shares, whether paid in cash or
with shares of Old Shares, will be taxable as ordinary income to the extent
that the amount thereof does not exceed the Company's current or accumulated
earnings and profits (as determined for federal income tax purposes). To the
extent that the amount of distributions paid on the New Shares exceeds such
current or accumulated
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earnings and profits, such distributions will be treated first as a return of
capital, thus reducing the holder's adjusted tax basis in the New Shares, and
then as gain from the sale or exchange of such stock, which will be taxed as
capital gain, and will be long-term capital gain if the holder's holding
period for the New Shares exceeds one year. The most favorable tax rate on
long-term capital gains of individual holders (generally 20%) will not be
available unless the holding period exceeds 18 months. For purposes of the
remainder of this discussion, the term "dividend" refers to a distribution
taxed as ordinary income as described above, unless the context indicates
otherwise.
Dividends received by corporate U.S. Holders will be eligible for the 70%
dividends-received deduction under section 243 of the Code, subject to
certain limitations. Under section 246(c) of the Code, the 70%
dividends-received deduction will not be available with respect to New Shares
which are held for 45 days or less (90 days in the case of a dividend on New
Shares attributable to a period or periods aggregating more than 366 days
("Preference Dividends")), including the day of disposition but excluding the
day of acquisition, during the 90 day period (180 day period for Preference
Dividends) beginning 45 days (or 90 days for Preference Dividends) before the
date on which the New Shares become ex-dividend. The length of time that a
shareholder is deemed to have held stock for these purposes is reduced for
periods during which the shareholder's risk of loss with respect to the stock
is diminished by reason of the existence of certain options, contracts to
sell, short sales or other similar transactions. Section 246(c) of the Code
also denies the dividends-received deduction to the extent that a corporate
taxpayer is under an obligation, with respect to substantially similar or
related property, to make payments corresponding to the dividend received.
Under section 246(b) of the Code, the aggregate dividends-received deductions
allowed may not exceed 70% of the taxable income (with certain adjustments)
of the corporate shareholder. Moreover, under section 246A of the Code, the
dividends-received deduction is proportionately reduced to the extent that a
corporate shareholder incurs indebtedness "directly attributable" to an
investment in the New Shares. Special rules may apply to corporate U.S.
Holders upon the receipt of any "extraordinary dividends" with respect to the
New Shares.
REDEMPTION PREMIUM
If the redemption price of redeemable preferred stock exceeds its issue
price by more than a de minimis amount (the product of (i) 1/4 of 1% of the
redemption price and (ii) the number of complete years to maturity), such
excess (the redemption premium) will likely be treated as a constructive
distribution on such preferred stock, over the term of the preferred stock,
using a constant yield method similar to that described below for accruing
original issue discount. See "--Original Issue Discount." It is not clear how
the issue price of the New Shares is to be determined for these purposes.
Since the offering of the Share Units occurred in close proximity to the
original issuance of the Old Shares, it is likely that the issue price is
equal to the portion of the purchase price of the Share Units allocable to
the Old Shares. However, it is also possible that the issue price is equal to
the fair market value of the Old Shares assigned by the Company upon original
issuance to the Company stockholders. In either case the Old Shares were
issued with more than a de minimis amount of redemption premium, though the
amount of the premium is less if the latter approach is adopted. HOLDERS OF
NEW SHARES SHOULD CONSULT THEIR TAX ADVISORS CONCERNING THE APPLICATION
OF THE RULES REGARDING REDEMPTION PREMIUM.
Pursuant to regulations (the "section 305(c) Regulations"), constructive
distributions on the New Shares may also arise due to its optional redemption
provisions if, based on all of the facts and circumstances as of the date the
Old Shares were issued, an optional redemption was more likely than not to
occur. Even if redemption were more likely than not to occur, however,
constructive distribution treatment would not result if the redemption
premium were solely in the nature of a penalty for premature redemption. For
this purpose, a penalty for premature redemption is a premium paid as a
result of changes in economic or market condition over which neither the
issuer nor the holder has control, such as changes in prevailing dividend
rates. The section 305(c) Regulations provide a safe harbor pursuant to which
constructive distribution treatment will not result from an issuer call right
if the issuer and the holder are unrelated, there are no arrangements that
effectively require the issuer to redeem the stock and exercise of the option
to redeem would not reduce the yield of the stock. Although the Company
believes that the optional redemption provisions with respect to the New
Shares would not be treated as more likely than not to be exercised under
these rules, that the redemption premium is in the
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nature of a penalty for premature redemption and that the safe harbor would
apply, this determination cannot be made with certainty at this time.
Moreover, the right to require a redemption upon the occurrence of a
contingency (such as a Change of Control) could under certain circumstances
result in constructive distributions, although the Company does not believe
that such result should apply to the New Shares. No assurance can be given as
to the treatment of the optional redemption premium or Change of Control
premium with respect to the New Shares under the section 305(c) Regulations.
REDEMPTION, SALE OR EXCHANGE OF THE NEW SHARES
A redemption of New Shares for cash or in exchange for Subordinated Notes,
or a sale of New Shares that does not qualify for nonrecognition treatment
pursuant to the Code, will be a taxable event to U.S. Holders. A redemption
of New Shares for cash will be treated as a dividend distribution, which will
be taxable as a dividend to the extent of the Company's current or
accumulated earnings and profits (as discussed above), unless the redemption
(i) results in a "complete termination" of the shareholder's stock interest
in the Company under section 302(b)(3) of the Code, (ii) is "substantially
disproportionate" with respect to the shareholder under section 302(b)(92) of
the Code or (iii) is "not essentially equivalent to a dividend" with respect
to the shareholder under section 302(b)(1) of the Code, in each case taking
into account both actual and constructive ownership. A distribution to a
shareholder will be "not essentially equivalent to a dividend" if it results
in a "meaningful reduction" in the shareholder's stock interest in the
Company. If, as a result of a redemption for cash of the New Shares, a
shareholder of the Company whose relative stock interest in the Company is
minimal and who exercises no control over corporate affairs suffers a
reduction in his proportionate interest in the Company (including any
ownership of Exchangeable Preferred Stock, Class C Common Stock and any
shares constructively owned), that shareholder should be regarded as having
suffered a meaningful reduction in his interest in the Company.
If the redemption is not treated as a distribution taxable as a dividend,
the redemption of the New Shares for cash would result in taxable gain or
loss equal to the difference between the amount of cash received and the
holder's adjusted tax basis in the New Shares redeemed. Such gain or loss
would be capital gain or loss and would be long-term capital gain or loss if
the holding period for the New Shares exceeded one year. The most favorable
tax rate on long-term capital gains of individual holders (generally 20%)
will not be available unless the holding period exceeds 18 months.
A redemption of New Shares by exchange for Subordinated Notes will be
subject to the same general rules as a redemption for cash, except that U.S.
Holder's capital gain or loss would be equal to the difference between the
issue price of the Subordinated Notes and the holder's adjusted tax basis in
the New Shares. The "issue price" of the Subordinated Notes would be
determined in the manner described below for purposes of computing original
issue discount (if any) on the Subordinated Notes. See "--Original Issue
Discount."
If a redemption of New Shares is treated as a distribution that is taxable
as a dividend, the holder's adjusted tax basis in the redeemed New Shares
will be transferred to any remaining stock holdings in the Company. To the
extent a redemption of New Shares constitutes a dividend, it may constitute
an "extraordinary dividend" to a corporate holder to which special rules will
apply. See "--Distributions on the New Shares."
ORIGINAL ISSUE DISCOUNT OF SUBORDINATED NOTES
If the stated redemption price at maturity of Subordinated Notes issued in
exchange for New Shares exceeds their issue price by more than a de minimis
amount, the Subordinated Notes will be treated as having original issue
discount ("OID") equal to the entire amount of such excess. OID will
generally be considered de minimis as long as it is less than 1/4 of 1% of
the stated redemption price at maturity of the Subordinated Notes multiplied
by the number of complete years to maturity. If the Subordinated Notes are
deemed to be traded on an established securities market on or at any time
during the 60-day period ending 30 days after their issue date, the issue
price of the Subordinated Notes will be their fair market value as determined
as of the issue date. Similarly, if the New Shares, but not the Subordinated
Notes issued in exchange therefor, is deemed to be traded on an established
securities market at the time of the
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exchange, then the issue price of each Subordinated Notes should be the fair
market value of the New Shares exchanged therefor at the time of the
exchange. Subject to certain limitations described in Treasury regulations,
the Subordinated Notes or the New Shares generally will be deemed to be
traded on an established securities market if, among other things, price
quotations are readily available from dealers, brokers or traders or the
security appears on a system of general circulation that provides a
reasonable basis to determine fair market value based either on recent price
quotations or recent sales transactions. In the event that neither the New
Shares nor the Subordinated Notes are deemed to be traded on an established
securities market, the issue price of the Subordinated Notes will be their
stated principal amount or, in the event the Subordinated Notes do not bear
"adequate stated interest" within the meaning of section 1274 of the Code,
their "imputed principal amount," which is generally the sum of the present
values of all payments due under the Subordinated Notes, discounted from the
date of payment to their issue date at the appropriate "applicable federal
rate."
The stated redemption price at maturity of the Subordinated Notes would
equal the total of all payments required to be made thereon, other than
payments of qualified stated interest. Qualified stated interest generally is
stated interest that is unconditionally payable in cash or other property
(other than debt instruments of the issuer) at least annually at a single
fixed rate. Therefore, Subordinated Notes that are issued when the Company
has the option to pay interest in additional Subordinated Notes thereon
should be treated as having been issued without any qualified stated
interest. In such case, the sum of all interest payable pursuant to the
stated interest rate on such Subordinated Notes over the entire term should
be treated as OID and accrued into income under a constant yield method
regardless of the holder's regular accounting method, and the holder should
not treat the receipt of stated interest or additional Subordinated Notes as
interest for federal income tax purposes.
A portion of the adjusted issue price of a holder's Subordinated Notes
must be allocated to additional Subordinated Notes issued in payment of
interest thereon in proportion to their respective principal amounts. That
is, the initial Subordinated Notes and the additional Subordinated Notes will
have the same adjusted issue price and inherent amount of OID per dollar of
principal amount and will be treated as having the same yield to maturity.
Similar treatment will be applied when further additional Subordinated Notes
are issued.
Each U.S. Holder of a Subordinated Note will be required to include in
gross income an amount equal to the sum of the "daily portions" of the OID
for all days during the taxable year in which such holder holds the
Subordinated Note. The daily portions of OID required to be included in a
holder's gross income in a taxable year will be determined under a
constant-yield method by allocating to each day during the taxable year in
which the holder holds the Subordinated Notes a pro rata portion of the OID
thereon which is attributable to the "accrual period" in which such day is
included. The amount of the OID attributable to each accrual period will be
the product of the "adjusted issue price" of the Subordinated Note at the
beginning of such accrual period multiplied by the "yield to maturity" of the
Subordinated Note (properly adjusted for the length of the accrual period).
The adjusted issue price of a Subordinated Note at the beginning of an
accrual period is the original issue price of the Subordinated Note increased
by the aggregate amount of OID that has accrued in all prior accrual periods
and reduced by any cash payments previously made on the Subordinated Note.
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 under the
Subordinated Note, produces an amount equal to the issue price of the
Subordinated Note. An "accrual period" may be of any length and may vary in
length over the term of the debt instrument, provided that each accrual
period is no longer than one year and each scheduled payment of principal or
interest occurs on either the final day or the first day of an accrual
period.
In the event the Subordinated Notes are not issued with OID, because they
are issued at a time when the Company does not have the option to defer
paying interest thereon and the redemption price of the Subordinated Notes
does not exceed their issue price by more than a de minimis amount, stated
interest should be included in income by a U.S. Holder in accordance with its
regular method of accounting.
BOND PREMIUM ON SUBORDINATED NOTES
If the New Shares are exchanged for Subordinated Notes and the issue price
of the Subordinated Notes (as determined above) exceeds the amount payable at
the maturity date (or earlier call date, if
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appropriate) of the Subordinated Notes, such excess will be deductible by the
U.S. Holder of the Subordinated Notes as amortizable bond premium over the
term of the Subordinated Notes (taking into account earlier call dates, as
appropriate), under a yield-to-maturity formula, only if an election by the
holder under section 171 of the Code is made or is already in effect. An
election under section 171 is available only if the Subordinated Notes are
held as capital assets. This election is revocable only with the consent of
the Internal Revenue Service (the "IRS") and applies to all obligations owned
or subsequently acquired by the holder. To the extentthe excess is deducted
as amortizable bond premium, the U.S. Holder's adjusted tax basis in the
Subordinated Notes will be reduced.
REDEMPTION OR SALE OF SUBORDINATED NOTES
Generally, any redemption or sale of Subordinated Notes by a U.S. Holder
would result in taxable gain or loss equal to the difference between the
amount of cash received (except to the extent that cash received is
attributable to accrued interest) and the U.S. Holder's tax basis in the
Subordinated Notes. The tax basis of a U.S. Holder who received a
Subordinated Note in exchange for New Shares will generally be equal to the
issue price of the Subordinated Note on the date the Subordinated Note is
issued, increased by any OID on the Subordinated Note included in the
holder's income prior to sale or redemption of the Subordinated Note, and
reduced by any amortizable bond premium applied against the holder's income
prior to sale or redemption of the Subordinated Note. Such gain or loss would
be capital gain or loss and would be long-term capital gain or loss if the
holding period exceeded one year. Special rules may apply to U.S. Holders who
acquired their Subordinated Notes at a discount (i.e., market discount) in
the secondary market. Such U.S. Holders are urged to consult their tax
advisors regarding the consequences to them of a redemption or sale of (and
of holding) Subordinated Notes.
APPLICABLE HIGH YIELD DISCOUNT OBLIGATIONS
Pursuant to section 163 of the Code, the "disqualified portion" of the OID
accruing on certain debt instruments may be treated as a dividend eligible
for the dividends-received deduction by corporate U.S. Holders. The
corporation issuing such debt instrument would not be entitled to deduct this
"disqualified portion" of the OID accruing on such debt instrument and would
be allowed to deduct the remainder of the OID only when paid.
This treatment would apply to "applicable high yield discount obligations"
("AHYDO"), which generally are debt instruments that have a term of more than
five years, have a yield to maturity that equals or exceeds five percentage
points over the "applicable federal rate" and have "significant" OID. A debt
instrument is treated as having "significant" OID if the aggregate amount
that would be includible in gross income with respect to such debt instrument
for periods before the close of any accrual period ending five years or more
after the date of issue exceeds the sum of (i) the aggregate amount of
interest to be paid in cash under the debt instrument before the close of
such accrual period and (ii) the product of the initial issue price of such
debt instrument and its yield to maturity. For purposes of determining
whether a Subordinated Note is an AHYDO, U.S. Holders are bound by the
Company's determination of the appropriate accrual period. It is impossible
to determine at the present time whether a Subordinated Note will be treated
as an AHYDO.
If a Subordinated Note is treated as an AHYDO, a corporate U.S. Holder
would be treated as receiving dividend income (to the extent of the Company's
current or accumulated earnings and profits), solely for purposes of the
dividends-received deduction, in an amount equal to the "dividend equivalent
portion" of the disqualified portion" of the OID of such AHYDO. The
"disqualified portion" of the OID is equal to the lesser of (i) the amount of
the OID or (ii) the portion of the "total return" on such obligation (the
excess of all payments to be made with respect to such obligation over its
issue price) that bears the same ratio to the obligation's total return as
the "disqualified yield" (the extent to which the yield exceeds the
applicable federal rate plus 6%) bears to the obligation's yield to maturity.
The dividend equivalent portion of the disqualified portion is the amount
thereof that would be treated as a dividend if distributed by the issuer with
respect to its stock.
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PROPOSED LEGISLATION
On February 2, 1998, the Clinton Administration released a budget proposal
(the "1998 Budget Proposal"). The 1998 Budget Proposal contains certain
revenue-raising items in the form of proposed tax law changes. Among these
proposed tax law changes are several items that, if enacted into law
substantially as proposed, would affect the tax treatment of corporate
holders of New Shares. U.S. Holders are urged to consult their own tax
advisors regarding the possible effects of this proposed legislation.
TAX CONSEQUENCES TO NON-U.S. HOLDERS
DIVIDENDS ON THE NEW SHARES
Dividends paid to a Non-U.S. Holder of New Shares that are not effectively
connected with the conduct by the Non-U.S. Holder of a trade or business
within the United States will be subject to United States federal income tax,
which generally will be withheld at a rate of 30% of the gross amount of the
dividends unless the rate is reduced by an applicable income tax treaty.
Under currently applicable Treasury regulations, dividends paid to an address
in a country other than the United States are presumed to be paid to a
resident of such country for purposes of the withholding discussed above
(unless the payor has knowledge to the contrary) and, under the current
interpretation of Treasury regulations, for purposes of determining the
applicability of a tax treaty rate. However, under the New Withholding
Regulations (defined below), a Non-U.S. Holder of New Shares who wishes to
claim the benefit of an applicable treaty rate would be required to satisfy
certain certification and other requirements. In addition, under the New
Withholding Regulations, the Company may elect to withhold only on the
portion of dividend distributions paid out of accumulated and reasonably
estimated current earnings and profits of the Company.
Dividends paid to a Non-U.S. Holder of New Shares that are effectively
connected with a United States trade or business conducted by such Non-U.S.
Holder are taxed at the graduated rates applicable to United States citizens,
resident aliens and domestic corporations, and are 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 dividend payment. In addition to the
graduated tax described above, effectively connected dividends 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 ON THE SUBORDINATED NOTES
Interest and previously accrued OID paid by the Company to a Non-U.S.
Holderwill 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
Subordinated 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 are 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 interest 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).
GAIN ON DISPOSITION OF THE NEW SHARES AND SUBORDINATED 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
Subordinated Note unless (i) the gain is
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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, such holder is present in the United
States for 183 or more days in the taxable year and certain other
requirements are met.
A Non-U.S. Holder generally will not be subject to United States federal
income tax or withholding on gain recognized upon the sale or other
disposition of New Shares 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, (ii) in the case of a Non-U.S. Holder who is a nonresident alien
individual, such holder is present in the United States for 183 or more days
in the taxable year and certain other conditions are met, or (iii) the New
Shares constitute a United States real property interest by reason of the
Company's status as a "United States real property holding corporation"
("USRPHC") for federal income tax purposes at any time within the shorter of
the five-year period preceding such disposition of such Non-U.S. Holder's
holding period for such New Shares. The Company does not believe that it is
or it will become a USRPHC for federal income tax purposes.
If a Non-U.S. Holder falls under clause (i) in the two preceding
paragraphs or clause (iii) 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 two preceding paragraphs, 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 Subordinated Notes is exempt from withholding of United
States federal income tax under the rules described above, the Subordinated
Notes will not be included in the estate of a deceased Non-U.S. Holder for
United States federal estate tax purposes. An individual Non-U.S. Holder who
owns, or is treated as owning, New Shares at the time of his or her death or
has made certain lifetime transfers of an interest in New Shares will be
required to include the value of such New Shares in his or her gross estate
for United States federal income tax purposes, unless an applicable estate
tax treaty provides otherwise.
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 U.S. Holders of New Shares
and Subordinated Notes and to the IRS the amount of any interest (including
OID) paid on the Subordinated Notes and the amount of dividends paid on New
Shares in each calendar year and the amounts of tax withheld, if any, with
respect to such payments.
A U.S. Holder of New Shares or Subordinated Notes may be subject to backup
withholding at a rate of 31% with respect to dividends paid on New Shares,
interest on Subordinated Notes and gross proceeds upon sale or retirement of
the New Shares, unless such holder: (i) is a corporation or other exempt
recipient and, when required, demonstrates that fact; or (ii) provides a
correct taxpayer identification
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number, certifies, when required, that such holder is not subject to backup
withholding and otherwise complies with applicable requirements of the backup
withholding rules. Backup withholding is not an additional tax; any amounts
so withheld are creditable against the holder's federal income tax, provided
the required information is provided to the IRS.
A Non-U.S. Holder of New Shares or Subordinated 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.
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
Shares issued pursuant to the Exchange Offer to an Eligible Holder in
exchange for Old Shares may be offered for resale, resold and otherwise
transferred by such Eligible Holder (other than (i) a broker-dealer who
purchased the Old Shares 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 Shares 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
Shares.
Each broker-dealer that holds Old Shares which were acquired for its own
account as a result of market-making activities or other trading activities
(other than Old Shares acquired directly from the Company or an affiliate of
the Company), may exchange the Old Shares for New Shares 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 Shares 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 Shares
by broker-dealers. New Shares 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 Shares 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
Shares. Any broker-dealer that resells New Shares 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 Shares may be deemed to be an
"underwriter' within the meaning of the Securities Act and any profit on any
such resale of New Shares 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 Shares 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 Shares, 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 Shares until
such broker-dealer or holder (i) receives copies of a supplemental prospectus
or (ii)
118
<PAGE>
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 Shares that was current at the time of receipt of such Notice.
LEGAL MATTERS
The legality of the New Shares being offered hereby will be passed upon
for the Company by Kramer, Levin, Naftalis & Frankel, New York, New York.
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.
119
<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 RECLASSIFICATIONS SWEETHEART
SWEETHEART DISPOSITION (A) ADJUSTMENTS (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 DAM
FONDA MILL ACQUISITIONS OTHER FONDA PRO
HISTORICAL DISPOSITION (A) HISTORICAL (B) ADJUSTMENTS 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>
<CAPTION>
<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> <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
F-30
<PAGE>
SEPTEMBER 30, SEPTEMBER 30, DECEMBER 31,
1996 1997 1997
--------------- --------------- --------------
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 CANADIAN OPERATING
LOAN 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 ..................... 3
Prospectus Summary ........................ 5
Risk Factors .............................. 23
The Sweetheart Investment ................. 30
Use of Proceeds ........................... 31
The Exchange Offer......................... 32
Capitalization............................. 40
Unaudited Pro Forma Financial Information 41
Unaudited Pro Forma Combined Condensed
Balance Sheet............................. 42
Unaudited Pro Forma Combined Condensed
Statements of Income...................... 45
Selected Historical Financial Data of
Fonda..................................... 50
Selected Historical Consolidated Financial
Data of Sweetheart........................ 52
Management's Discussion and Analysis
of Financial Condition and Results
of Operations............................. 54
Business................................... 65
Management................................. 74
Principal Stockholders..................... 76
Certain Relationships and Related
Transactions.............................. 77
Description of New Shares.................. 78
Description of Certain Indebtedness ....... 103
Description of Capital Stock............... 107
Certain Federal Income Tax Consequences ... 111
Plan of Distribution....................... 118
Legal Matters.............................. 119
Experts.................................... 119
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 3,000 SHARES OF
13 3/4% SERIES B
EXCHANGEABLE PREFERRED STOCK
DUE 2009
WHICH HAVE BEEN REGISTERED
UNDER THE SECURITIES ACT
FOR ANY AND ALL OF ITS
OUTSTANDING
13 3/4% SERIES A
EXCHANGEABLE PREFERRED STOCK
DUE 2009
PROSPECTUS
, 1998
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 20. INDEMNIFICATION OF DIRECTORS AND OFFICERS
The Restated 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 Restated
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 Restated 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").
4.4** Registration Rights Agreement, dated as of March 20, 1998, between the Company, American Industrial
Partners Management Company, Inc. ("AIPM") and Bear, Stearns & Co., Inc.
4.5** Form of Certificate of Exchangeable Preferred Stock.
4.6** Form of Indenture between the Company and The Bank of New York governing the 13 3/4% Subordinated
Notes due March 15, 2009.
4.7* Paragraph A of Article Fourth of the Restated Certificate of Incorporation of the Company (incorporated
by reference to Exhibit 3.1).
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"), 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.
10.9** Stockholders Agreement, dated as of March 20, 1998, between the Company and Bear, Stearns & Co.,
Inc.
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).
99.1*** Form of Letter of Transmittal.
99.2*** Form of Notice of Guaranteed Delivery.
99.3*** Form of Exchange Agent Agreement.
</TABLE>
- ------------
* Incorporated by reference to Registrant's Form S-4, Registration Number
333-50683, dated April 22, 1998.
** 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 May 1, 1998.
SF HOLDINGS GROUP, INC.
By: /s/ Dennis Mehiel
-------------------------------
Dennis Mehiel
Chairman and Chief Executive
Officer
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears
below constitutes and appoints each of Harvey L. Friedman, Michael S. Nelson
and Shari Krouner his true and lawful attorney-in-fact and agent, each acting
alone, with full powers of substitution and resubstitution, for him and in
his name, place and stead, in any and all capacities, to sign any or all
amendments to this registration statement and to file the same, with all
exhibits thereto, and other documents in connection therewith, with the
Securities and Exchange Commission, granting unto said attorneys-in-fact and
agents, each acting alone, full power and authority to do and perform each
and every act and thing requisite and necessary to be done in and about the
premises, as fully for all intents and purposes as he might or could do in
person, hereby ratifying and confirming all that said attorneys-in-fact and
agents, each acting alone, or his substitute or substitutes, may lawfully do
or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, this
registration statement or amendment has been signed by the following persons
in the capacities and on the date indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- ---------------------------- ------------------------------------------ --------------
<S> <C> <C>
/s/ Dennis Mehiel Chairman and Chief Executive Officer May 1, 1998
- -----------------------------
Dennis Mehiel
/s/ Thomas Uleau
- ----------------------------- President, Chief Operating Officer and May 1, 1998
Thomas Uleau Director
/s/ Hans Heinsen Senior Vice President, Chief Financial May 1, 1998
- ----------------------------- Officer and Treasurer
Hans Heinsen
/s/ Alfred DelBello Vice Chairman May 1, 1998
- -----------------------------
Alfred DelBello
/s/ James Armenakis Director May 1, 1998
- -----------------------------
James Armenakis
/s/ W. Richard Bingham Director May 1, 1998
- -----------------------------
W. Richard Bingham
/s/ Gail Blanke
- ----------------------------- Director May 1, 1998
Gail Blanke
/s/ John A. Catsimatidis Director May 1, 1998
- -----------------------------
John A. Catsimatidis
II-4
<PAGE>
SIGNATURE TITLE DATE
- ---------------------------- ------------------------------------------ --------------
/s/ Chris Mehiel Director May 1, 1998
- -----------------------------
Chris Mehiel
/s/ Jerome T. Muldowney
- ----------------------------- Director May 1, 1998
Jerome T. Muldowney
/s/ G. William Seawright Director May 1, 1998
- -----------------------------
G. William Seawright
/s/ Lowell P. Weicker, Jr.
- ----------------------------- Director May 1, 1998
Lowell P. Weicker, Jr.
</TABLE>
II-5
<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 respects 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 30, 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").
4.4** Registration Rights Agreement, dated as of March 20, 1998, between the Company, American Industrial
Partners Management Company, Inc. ("AIPM") and Bear, Stearns & Co., Inc.
4.5** Form of Certificate of Exchangeable Preferred Stock.
4.6** Form of Indenture between the Company and The Bank of New York governing the 13 3/4% Subordinated
Notes due March 15, 2009.
4.7* Paragraph A of Article Fourth of the Restated Certificate of Incorporation of the Company (incorporated
by reference to Exhibit 3.1).
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"), 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.
10.9** Stockholders Agreement, dated as of March 20, 1998, between the Company and Bear, Stearns & Co.,
Inc.
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).
99.1*** Form of Letter of Transmittal.
99.2*** Form of Notice of Guaranteed Delivery.
99.3*** Form of Exchange Agent Agreement.
</TABLE>
- ------------
* Incorporated by reference to Registrant's Form S-4, Registration Number
333-50683, dated April 22, 1998.
** Filed herewith.
*** To be filed by amendment.
<PAGE>
EXECUTION COPY
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
SF HOLDINGS GROUP, INC.
AMERICAN INDUSTRIAL PARTNERS MANAGEMENT COMPANY, INC.
$30,000,000
3,000 UNITS CONSISTING OF
13 3/4% EXCHANGEABLE PREFERRED STOCK DUE 2009 AND
111,000 SHARES OF CLASS C COMMON STOCK
REGISTRATION RIGHTS AGREEMENT
March 20, 1998
BEAR, STEARNS & CO. INC.
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
<PAGE>
This Registration Rights Agreement (this "Agreement") is made and
entered into as of March 20, 1998, by and between SF Holdings Group, Inc., a
Delaware corporation (the "Company"), American Industrial Partners Management
Company, Inc., the general partner of American Industrial Partners, L.P., which
is the general partner one of the Selling Stockholders referred to below
("AIPM"), and Bear, Stearns & Co., Inc. (the "Initial Purchaser"), who has
agreed to purchase the Company's Share Units (the "Units"), consisting of 3,000
shares of 13 3/4% Exchangeable Preferred Stock due 2009 (the "Preferred Stock")
and 111,000 shares of Class C Common Stock, par value $.001 per share, of the
Company pursuant to the Purchase Agreement (as defined below).
Pursuant to the terms of the Company's Restated Certificate of
Incorporation (the "Restated Certificate of Incorporation") filed with the
Secretary of State of the State of Delaware, the Company may, at its option,
exchange the Preferred Stock for the Company's 13 3/4% Subordinated Notes due
2009 (the "Exchange Notes") issued pursuant to an indenture (the "Exchange
Indenture").
This Agreement is made pursuant to the Purchase Agreement, dated
March 11, 1998 (the "Purchase Agreement"), by and among the Company, the
stockholders of the Company set forth on Schedule I hereto (the "Selling
Stockholders") and the Initial Purchaser. In order to induce the Initial
Purchaser 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 Purchaser 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 principal office of the Transfer Agent,
on which banks are authorized to close.
Certificated Securities: As defined in the Stockholders Agreement.
Closing Date: The date of this Agreement.
Commission: The Securities and Exchange Commission.
Company: As defined in the preamble hereto.
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 New Preferred Stock, or if the Preferred Stock has been
exchanged for Exchange Notes, the New Exchange 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
<PAGE>
(iii) the delivery by the Company to the Transfer Agent of shares of New
Preferred Stock with the same aggregate Liquidation Amount as the aggregate
Liquidation Amount of the shares of Preferred Stock that were tendered by
Holders thereof pursuant to the Exchange Offer, or, if the Preferred Stock has
been exchanged for Exchange Notes, the delivery by the Company to the Exchange
Note Trustee in the same aggregate principal amount as the aggregate principal
amount of Exchange Notes that were tendered by Holders thereof pursuant to the
Exchange Offer.
Damages Payment Date: Each Dividend Payment Date or Interest Payment
Date, as the case may be.
Dividend Payment Date: As defined in the Restated Certificate of
Incorporation with respect to the Preferred Stock.
Effectiveness Deadline: As defined in Section 3(a) hereof.
Exchange Act: The Securities Exchange Act of 1934, as amended.
Exchange Indenture: As defined in the preamble hereto.
Exchange Note Trustee: The trustee under the Exchange Indenture.
Exchange Offer: The registration by the Company under the Act of the
New Preferred Stock or, if the Preferred Stock has been exchanged for Exchange
Notes, the New Exchange Notes pursuant to the Exchange Offer 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 for New Preferred Stock with the
same aggregate Liquidation Amount as the Preferred Stock tendered in such
exchange by such Holders, or New Exchange Notes in an aggregate principal
amount equal to the aggregate principal amount of the Exchange Notes tendered
in such exchange offer by such Holders, as the case may be.
Exchange Offer Registration Statement: The Registration Statement
relating to the Exchange Offer, including the related Prospectus.
Exempt Resales: The transactions in which the Initial Purchaser
propose to sell the Units to certain "qualified institutional buyers," as such
term is defined in Rule 144A under the Act, to certain institutional
"accredited investors," as such term is defined in Rule 501(a)(1), (2), (3) and
(7) of Regulation D under the Act, and to certain persons permitted to purchase
the Units in offshore transactions in reliance upon Regulation S under the Act.
Filing Deadline: As defined in Section 3(a) hereof.
Global Securities: As defined in the Stockholders Agreement.
Holders: As defined in Section 2(b) hereof.
Indemnified Holder: As defined in Section 8(a) hereof.
indemnified party: As defined in Section 8(c) hereof.
2
<PAGE>
indemnifying party: As defined in Section 8(c) hereof.
Initial Purchaser: As defined in the preamble hereto.
Interest Payment Date: As defined in the Exchange Indenture and the
Exchange Notes.
Liquidated Damages: As defined in Section 5 hereof.
Liquidation Amount: As defined in the Restated Certificate of
Incorporation with respect to the Preferred Stock.
NASD: National Association of Securities Dealers, Inc.
New Exchange Notes: The Company's 13 3/4% Subordinated Notes due
2009 to be issued pursuant to the Exchange Indenture (i) in the Exchange Offer
or (ii) upon the request of any Holder of Exchange Notes covered by a Shelf
Registration Statement in exchange for such Exchange Notes.
New Preferred Stock: The Company's 13 3/4% Exchangeable Preferred
Stock due 2009 to be issued pursuant to the Restated Certificate of Designation
(i) in the Exchange Offer or (ii) upon the request of any Holder of Preferred
Stock covered by a Shelf Registration Statement in exchange for such Preferred
Stock.
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.
Preferred Stock: As defined in the preamble hereto.
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.
Purchase Agreement: As defined in the preamble hereto.
Recommencement Date: As defined in the last paragraph of Section 6
hereof.
Registration Default: As defined in Section 5 hereof.
Registration Statement: Any registration statement of the Company
relating to (a) an offering of New Preferred Stock or New Exchange Notes, as
applicable, 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.
3
<PAGE>
Restated Certificate of Incorporation: As defined in the preamble
hereto.
Rule 144: Rule 144 promulgated under the Act.
Senior Secured Discount Notes: The Company's 12 3/4% Senior Secured
Discount Notes due 2008.
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.
Stockholders Agreement: The Stockholders Agreement, dated as of
March 20, 1998, between the Company and the Initial Purchaser.
Suspension Notice: As defined in the last paragraph of Section 6
hereof.
TIA: The Trust Indenture Act of 1939 (15 U.S.C. Section
77aaa-77bbbb) as in effect on the date of the Exchange Indenture.
Transfer Agent: The transfer agent with respect to the Preferred
Stock.
Transfer Restricted Securities: Each share of Preferred Stock or
each Exchange Note until the earliest to occur of (a) the date on which such
Preferred Stock or Exchange Note, as applicable, 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 Preferred Stock or Exchange Note, as applicable, has been
effectively registered under the Act and disposed of in accordance with a Shelf
Registration Statement, (c) the date on which such Preferred Stock or Exchange
Note, as applicable, 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 Preferred Stock or Exchange Note, as applicable, is distributed to
the public pursuant to Rule 144 under the Act.
Underwritten Registration or Underwritten Offering: A registration
in which securities of the Company are sold to an underwriter for reoffering to
the public.
Units: As defined in the preamble hereto.
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. The
4
<PAGE>
term Holder shall not include any of the Selling Stockholders unless a Selling
Stockholder acquires Transfer Restricted Securities subsequent to the closing
under the Purchase Agreement.
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 New Preferred Stock or the New Exchange Notes, as applicable,
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 New Preferred Stock or the New Exchange Notes, as
applicable, 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
New Preferred Stock or the New Exchange Notes, as applicable, to be offered in
exchange for the Preferred Stock or the Exchange Notes, as applicable, that are
Transfer Restricted Securities and to permit resales of New Preferred Stock or
the New Exchange Notes, as applicable, by Broker-Dealers that tendered into the
Exchange Offer for Preferred Stock or Exchange Notes, as applicable, that such
Broker-Dealer acquired for its own account as a result of market-making
activities or other trading activities (other than Preferred Stock or Exchange
Notes, as applicable, 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 Purchaser, no
securities other than the Preferred Stock or the Exchange Notes, as applicable,
shall be included in the Exchange Offer Registration Statement. The Company
shall use its best efforts to cause the Exchange Offer to be Consummated on the
earliest practicable date after the Exchange Offer Registration Statement has
become effective, but in no event later than 30 Business Days thereafter.
(c) The Company shall 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 Preferred Stock or Exchange
Notes, as applicable, 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
5
<PAGE>
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 New Preferred Stock or New Exchange
Notes, as applicable, 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 New Preferred Stock or New Exchange
Notes, as applicable, 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
New Preferred Stock or the New Exchange Notes, as applicable, 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 Preferred Stock or Exchange Notes, as
applicable, acquired directly from the Company or one of its Affiliates, then
the Company shall:
(x) cause to be filed a shelf registration statement pursuant
to Rule 415 under the Act, which may be an amendment to the Exchange
Offer Registration Statement (in either event, the "Shelf Registration
Statement") on or prior to the earliest to occur of (1) the 60th day
after the date on which the Company determines that it is not required to
file the Exchange Offer Registration Statement, (2) the 60th day after
the date on which the Company receives notice from a Holder of Transfer
Restricted Securities as contemplated by clause (ii) above, and (3) the
120th day after the Closing Date (such earliest date being the "Shelf
Filing Deadline"), which Shelf Registration Statement shall provide for
resales of all Transfer Restricted Securities the Holders of which shall
have provided the information required pursuant to Section 4(b) hereof;
and
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(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
(a) 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 ("Liquidated Damages") to each Holder of Transfer
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 Liquidation Amount of the
Preferred Stock or the aggregate outstanding principal amount of Exchange
Notes, as applicable, held by such Holder. The amount of the Liquidated Damages
will increase by an additional 50 basis points per annum of the Liquidation
Amount of the Preferred Stock or the aggregate outstanding principal amount of
Exchange Notes, as applicable, 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
Liquidation Amount of the Preferred Stock or the aggregate outstanding
principal amount of Exchange Notes, as applicable. All accrued
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Liquidated Damages shall be paid to the holders of beneficial interests in
Global Securities 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 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.
(b) Notwithstanding anything to the contrary in Section 5(a) hereof,
in the event a change in Commission policy with respect to the rules and
regulations of the Commission governing exchange offers occurs and solely as a
result thereof a Registration Default occurs, AIPM shall pay all Liquidated
Damages resulting therefrom in such manner as set forth in Section 5(a) and the
Company shall be relieved from its obligations to pay any such Liquidated
Damages.
(c) All obligations of the Company and AIPM set forth in this
Section 5 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 New Preferred Stock or
the New Exchange Notes, as applicable, to be issued in the Exchange
Offer, (C) it is acquiring the New Preferred Stock or the New Exchange
Notes, as applicable, in its ordinary course of business and (D) it is
not acting on behalf of any person who
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could not make the foregoing representations. In addition, all such
Holders of Transfer Restricted Securities shall otherwise cooperate in
the Company's preparations for the Exchange Offer. Each Holder hereby
acknowledges and agrees that any Broker-Dealer and any such Holder using
the Exchange Offer to participate in a distribution of the securities to
be acquired in the Exchange Offer (1) could not under Commission policy
as in effect on the date of this Agreement rely on the position of the
Commission enunciated in Morgan Stanley and Co., Inc. (available June 5,
1991) and Exxon Capital Holdings Corporation (available May 13, 1988), as
interpreted in the Commission's letter to Shearman & Sterling 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 New Preferred Stock or New Exchange Notes, as applicable,
obtained by such Holder in exchange for Preferred Stock or Exchange
Notes, as applicable, 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 New Preferred Stock or the New Exchange
Notes, as applicable, 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 New Preferred Stock
or the New Exchange Notes, as applicable, in its ordinary course of
business and has no arrangement or understanding with any Person to
participate in the distribution of the New Preferred Stock or the New
Exchange Notes, as applicable, 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), which documents will be
subject to the review of such Holders and underwriter(s), if any, for a
period of
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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
Liquidation Amount or the principal amount, as applicable, 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 Liquidation
Amount of Preferred Stock or aggregate principal amount of Exchange
Notes, as applicable, 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, including all documents incorporated by reference therein and
all exhibits (including exhibits incorporated therein by reference);
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(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 Purchaser 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 Purchaser, 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 9 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 (h) of
Section 9 of the Purchase Agreement and such other matters as
such parties may reasonably request, and in any event including
a statement to the effect that such counsel has participated in
conferences with officers and other representatives of the
Company, representatives of the independent public accountants
for the Company, 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 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
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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;
(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 Purchaser 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;
(xiii) upon the request of any Preferred Stock or Exchange
Notes, as applicable, covered by the Shelf Registration Statement
contemplated by this Agreement, issue New Preferred Stock having an
aggregate Liquidation Amount equal to the aggregate Liquidation Amount of
the Preferred Stock or New Exchange Notes having an aggregate principal
amount equal to the aggregate principal amount of the Exchange Notes, as
applicable, surrendered to the Company by such Holder in exchange
therefor or being sold by such Holder; such New Preferred Stock or New
Exchange Notes, as applicable, to be registered in the name of such
Holder or in the name of the purchaser(s) of such
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New Preferred Stock or New Exchange Notes, as applicable; in return, the
Preferred Stock or the Exchange Notes, as applicable, 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 Transfer Agent or the Exchange Note Trustee, as
applicable, 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 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
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investors customary "road show" material in a manner consistent with
other new issuances of other securities similar to the Transfer
Restricted Securities;
(xxi) if the Exchange Notes have been issued, cause the
Exchange 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 Exchange Note
Trustee and the Holders of Exchange Notes to effect such changes to the
Exchange Indenture as may be required for such Exchange Indenture to be
so qualified in accordance with the terms of the TIA; and execute and use
its best efforts to cause the Exchange Note 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
Exchange 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
Liquidation Amount of Preferred Stock or aggregate principal amount of
Exchange Notes, as applicable, 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, including without
limitation: (i) all registration and filing fees and expenses (including
filings made by any Initial Purchaser or Holder with the NASD (and, if
applicable, the fees and expenses of any "qualified independent underwriter"
and its counsel that may be required by the rules and regulations of the
NASD)); (ii) all fees and expenses of compliance with federal securities and
state Blue Sky or securities laws; (iii) all expenses of printing (including
printing certificates for the New Preferred Stock or the New Exchange Notes, as
applicable, to be issued in the Exchange Offer and printing of Prospectuses),
messenger and
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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 New Preferred Stock or the New Exchange Notes, as applicable, 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 Purchaser 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 may be
chosen by the Holders of a majority in Liquidation Amount or principal amount,
as applicable, 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 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 Purchaser 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
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<PAGE>
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
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
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<PAGE>
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 Preferred Stock or the Exchange Notes,
as applicable, 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 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.
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<PAGE>
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 Liquidation Amount or principal amount, as applicable, 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 with its obligations under Sections 3 and 4 hereof may result in
material irreparable injury to the Initial Purchaser 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 Purchaser 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.
(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 and holders of the Senior Secured
Discount Notes. The rights granted to the Holders hereunder do not in any way
conflict with and
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<PAGE>
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 Preferred Stock or the Exchange Notes.
The Company will not take any action, or permit any change to occur, with
respect to the Preferred Stock or the Exchange Notes, as applicable, 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 Liquidation Amount
or principal amount, as applicable, 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 Liquidation Amount or principal amount, as
applicable, 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 Transfer Agent or the Exchange Note Trustee, as the case may be; 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 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.
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<PAGE>
Copies of all such notices, demands or other communications shall be
concurrently delivered by the Person giving the same to the Transfer Agent or
the Exchange Note Trustee, as applicable, at the address specified in the
Restated Articles of Incorporation or the Exchange Indenture, as applicable.
(f) Successors and Assigns. This Agreement shall inure to the
benefit of and be binding upon the successors and assigns of each of the
parties, including without limitation and without the need for an express
assignment, subsequent Holders of Transfer Restricted Securities; provided,
however, that this Agreement shall not inure to the benefit of or be binding
upon a successor or assign of a Holder unless and to the extent such successor
or assign acquired Transfer Restricted Securities from such Holder.
(g) Counterparts. This Agreement may be executed in any number of
counterparts and by the parties hereto in separate counterparts, each of which
when so executed shall be deemed to be an original and all of which taken
together shall constitute one and the same agreement.
(h) Headings. The headings in this Agreement are for convenience of
reference only and shall not limit or otherwise affect the meaning hereof.
(i) Governing Law. THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED
IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK, WITHOUT REGARD TO THE
CONFLICT OF LAW RULES THEREOF.
(j) Severability. In the event that any one or more of the
provisions contained herein, or the application thereof in any circumstance, is
held invalid, illegal or unenforceable, the validity, legality and
enforceability of any such provision in every other respect and of the
remaining provisions contained herein shall not be affected or impaired
thereby.
(k) Entire Agreement. This Agreement together with the other
Operative Documents (as defined in the Purchase Agreement) is intended by the
parties as a final expression of their agreement and intended to be a complete
and exclusive statement of the agreement and understanding of the parties
hereto in respect of the subject matter contained herein. There are no
restrictions, promises, warranties or undertakings, other than those set forth
or referred to herein with respect to the registration rights granted by the
Company with respect to the Transfer Restricted Securities. This Agreement
supersedes all prior agreements and understandings between the parties with
respect to such subject matter.
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<PAGE>
IN WITNESS WHEREOF, the parties have executed this Agreement as of
the date first written above.
SF HOLDINGS GROUP, INC.
By: /s/ Hans Heinsen
--------------------------------
Name: Hans Heinsen
Title:
For purposes of Section 5 only,
AMERICAN INDUSTRIAL PARTNERS MANAGEMENT COMPANY, INC.
By: /s/ W. Richard Bingham
--------------------------------
Name: W. Richard Bingham
Title:
<PAGE>
BEAR, STEARNS & CO. INC.
By: /s/ James C. Deir
--------------------------------
Name: James C. Deir
Title:
<PAGE>
SCHEDULE I
American Industrial Partners Capital Fund, L.P.
Mellon Bank, N.A., as Trustee for First Plaza Group Trust
Leewsay & Co.
Donald W. Davis
Robert J. Klein
Thomas H. Barrett
Kenneth A. Pereira
Lawrence W. Ward, Jr.
William F. McLaughlin
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<PAGE>
INCORPORATED UNDER THE LAWS OF THE STATE OF DELAWARE
SF HOLDINGS GROUP, INC.
EXCHANGEABLE PREFERRED STOCK
PAR VALUE $.001 EACH
THE CORPORATION WILL FURNISH WITHOUT CHARGE TO ANY SHAREHOLDER WHO SO REQUESTS
THE POWERS, DESIGNATIONS, PREFERENCES AND RELATIVE, PARTICIPATING, OPTIONAL
OR OTHER SPECIAL RIGHTS OF EACH CLASS OF STOCK OR SERIES THEREOF AND THE
QUALIFICATIONS, LIMITATIONS OR RESTRICTIONS OF SUCH PREFERENCES AND/OR RIGHTS
This is to Certify that is the owner of
-------------------------------------
- --------------------------------------------------------------------------------
FULLY PAID AND NON-ASSESSABLE SHARES OF THE EXCHANGEABLE PREFERRED STOCK OF
SF HOLDINGS GROUP, INC.
transferable on the books of the Corporation by the holder hereof in person
or by duly authorized Attorney, upon surrender of this Certificate, properly
endorsed.
Witness, the seal of the Corporation and the signatures of its duly authorized
officers.
Date:
- -------------------------- -------------------------
SECRETARY/TREASURER PRESIDENT
<PAGE>
The following abbreviations, when used in the inscription on the face of this
certificate, shall be construed as though they were written out in full
according to applicable laws or regulations:
<TABLE>
<CAPTION>
<S> <C>
TEN COM --as tenants in common UNIF GIFT MIN ACT -- Custodian
TEN ENT --as tenants by the entireties -----------------------------
JT TEN --as joint tenants with right of (Cust) (Minor)
survivorship and not as tenants in common under Uniform Gifts to Minors
Act
--------------------------
(State)
Additional abbreviations may also be used though not in the above list.
</TABLE>
FOR VALUE RECEIVED _ HEREBY SELL, ASSIGN AND TRANSFER UNTO
PLEASE INSERT SOCIAL SECURITY OR OTHER
IDENTIFYING NUMBER OF ASSIGNEE
- ---------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
(PLEASE PRINT OR TYPEWRITE NAME AND ADDRESS INCLUDING POSTAL ZIP CODE OF
ASSIGNEE)
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -----------------------------------------------------------------------SHARES
REPRESENTED BY THE WITHIN CERTIFICATE, AND DO HEREBY IRREVOCABLY CONSTITUTE
AND APPOINT
- ---------------------------------------------------------------------ATTORNEY
TO TRANSFER THE SAID SHARES ON THE BOOKS OF THE WITHIN NAMED CORPORATION WITH
FULL POWER OF SUBSTITUTION IN THE PREMISES.
DATED 19
-------------- -----
IN PRESENCE OF
--------------------------------------------------------
- -----------------------
NOTICE: THE SIGNATURE TO THIS ASSIGNMENT MUST CORRESPOND WITH THE NAME
AS WRITTEN UPON THE FACE OF THE CERTIFICATE IN EVERY PARTICULAR WITHOUT
ALTERATION OR ENLARGEMENT OR ANY CHANGE WHATEVER.
<PAGE>
INDENTURE, dated as of , 199_, between SF Holdings Group,
Inc., a Delaware corporation (the "Company"), and , 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
13 3/4% Series A Subordinated Notes due 2009 (the "Series A Subordinated
Notes") and the 13 3/4% Series B Subordinated Notes due 2009 (the "Series B
Subordinated Notes" and, together with the Series A Notes, the "Subordinated
Notes"):
ARTICLE 1.
DEFINITIONS AND INCORPORATION BY REFERENCE
SECTION 1.01. DEFINITIONS.
"144A Global Note" means a global Subordinated 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 of the Subordinated Notes sold in reliance
on Rule 144A.
"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.
"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
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<PAGE>
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% 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
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"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
Subordinated Notes to require the Company to repurchase such Subordinated 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.
"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
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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 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 Company 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 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 Subordinated 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 Subordinated 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
Subordinated 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 Subordinated Notes
issuable or issued in whole or in part in global form, the Person specified in
Section 2.03 hereof as the Depositary with respect to the Subordinated Notes,
until a successor shall have been appointed and become such pursuant to the
applicable
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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).
"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 Subordinated 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
Subordinated Notes for Series A Subordinated 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 March 12, 1998, 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,
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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.
"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.
"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.
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"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 Subordinated Note is
registered.
"IAI Global Note" means the global Subordinated 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 of the Subordinated 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 Purchaser" means Bear, Stearns & Co. 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.
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"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 Subordinated Notes for
use by such Holders in connection with the Exchange Offer.
"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
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<PAGE>
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 Subordinated Notes or the Senior Secured Discount Notes) of the
Company or any of its Restricted Subsidiaries to declare a default on such
other Indebtedness or cause the payment thereof to be accelerated or payable
prior to its stated maturity; and (iii) as to which the lenders have been
notified in writing that they will not have any recourse to the stock or assets
of the Company or any of its Restricted Subsidiaries.
"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 Subordinated Notes in global form, or any successor entity thereto.
"Note Units" means the Units 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.
"Obligations" means any principal, interest, penalties, fees,
indemnifications, reimbursements, damages and other liabilities payable under
the documentation governing any Indebtedness.
"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
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are engaged in on March 12, 1998, 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 under the Senior
Secured Discount Notes Indenture 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 March 12, 1998 as such loan may be amended or refinanced in a manner
not adverse to Fonda, the Company or the Holders of the Subordinated 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 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 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 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 Subordinated Notes or 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
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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).
"Preferred Stock" means the Company's 13 3/4% Exchangeable
Preferred Stock due 2009.
"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.
"Private Placement Legend" means the legend set forth in
Section 2.06(g)(i) to be placed on all Subordinated 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 March 20, 1998, 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
Subordinated 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 of the Regulation S
Temporary Global Note upon expiration of the Restricted Period.
"Regulation S Temporary Global Note" means a temporary global
Subordinated 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 of the Subordinated Notes initially sold in
reliance on Rule 903 of Regulation S.
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"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.
"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.
"Senior Secured Discount Notes" shall mean the Company's
Series A and Series B 12 3/4% Senior Secured Discount Notes due 2008.
"Senior Secured Discount Notes Indenture" shall mean the
Indenture, dated as of March 12, 1998, between the Company and the Bank of New
York, as Trustee.
"Securities Act" means the Securities Act of 1933, as
amended.
"Separation Date" means the earliest to occur of (i) 90 days
from March 20, 1998; (ii) such earlier date as the Initial Purchaser 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.
"Subordinated Note Obligations" means all Obligations of the
Company with respect to the Subordinated Notes.
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"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.
"Sweetheart" means Sweetheart Holdings Inc. and its
Subsidiaries.
"TIA" means the Trust Indenture Act of 1939 (15 U.S.C. 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.
"Unrestricted Global Note" means a permanent global
Subordinated 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 Subordinated
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
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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 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
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"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:
"indenture securities" means the Subordinated Notes;
"indenture security holder" means a Holder of a Subordinated
Note;
"indenture to be qualified" means this Indenture;
"indenture trustee" or "institutional trustee" means the
Trustee;
"obligor" on the Subordinated Notes means the Company and any
successor obligor upon the Subordinated Notes.
All other terms used in this Indenture that are defined by
the TIA, defined by TIA reference to another statute or defined by SEC rule
under the TIA have the meanings so assigned to them.
SECTION 1.04. RULES OF CONSTRUCTION.
Unless the context otherwise requires:
(1) a term has the meaning assigned to it;
(2) an accounting term not otherwise defined has the meaning
assigned to it in accordance with GAAP;
(3) "or" is not exclusive;
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(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 SUBORDINATED NOTES
SECTION 2.01. FORM AND DATING.
(a) General. The Subordinated Notes and the Trustee's certificate of
authentication shall be substantially in the form of Exhibit A-1 hereto. The
Subordinated Notes may have notations, legends or endorsements required by law,
stock exchange rules or usage. Each Subordinated Note shall be dated the date
of its authentication. The Subordinated Notes shall be issued initially in
denominations of $1,000 and integral multiples thereof. In addition,
Subordinated Notes may be issued in such smaller denominations as is necessary
for the payment of interest on the Subordinated Notes by the issuance of
additional Subordinated Notes pursuant to the terms thereof.
The terms and provisions contained in the Subordinated Notes shall
constitute, and are hereby expressly made, a part of this Indenture and the
Company and the Trustee, by their execution and delivery of this Indenture,
expressly agree to such terms and provisions and to be bound thereby. However,
to the extent any provision of any Subordinated Note conflicts with the express
provisions of this Indenture, the provisions of this Indenture shall govern and
be controlling.
(b) Global Notes. Subordinated 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). Subordinated 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 Subordinated Notes as shall be specified
therein and each shall provide that it shall represent the aggregate principal
amount of outstanding Subordinated Notes from time to time endorsed thereon and
that the aggregate principal amount of outstanding Subordinated Notes
represented thereby may from time to time be reduced or increased, as
appropriate, to reflect issuances, 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 Subordinated Notes represented
thereby shall be made by the Trustee or the Subordinated 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. Subordinated 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 Subordinated 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,
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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.
SECTION 2.02. EXECUTION AND AUTHENTICATION.
One Officer shall sign the Subordinated Notes for the Company by
manual or facsimile signature. The Company's seal shall be reproduced on the
Subordinated Notes and may be in facsimile form.
If an Officer whose signature is on a Subordinated Note no longer
holds that office at the time a Subordinated Note is authenticated, the
Subordinated Note shall nevertheless be valid.
A Subordinated Note shall not be valid until authenticated by the
manual signature of the Trustee. The signature shall be conclusive evidence
that the Subordinated Note has been authenticated under this Indenture. The
form of the Trustee's certificate of authentication to be borne by the
Subordinated 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 Subordinated Notes for
original issue up to the aggregate principal amount stated in paragraph 4 of
the Subordinated Notes. The aggregate principal amount of Subordinated Notes
outstanding at any time may not exceed such amount except as provided in
Section 2.07 hereof.
The Trustee may appoint an authenticating agent acceptable to the
Company to authenticate Subordinated Notes. An authenticating agent may
authenticate Subordinated Notes whenever the Trustee may do so. Each reference
in this Indenture to authentication by the Trustee includes authentication by
such agent. An authenticating agent has the same rights as an Agent to deal
with Holders or an Affiliate of the Company.
SECTION 2.03. REGISTRAR AND PAYING AGENT.
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The Company shall maintain an office or agency where Subordinated
Notes may be presented for registration of transfer or for exchange
("Registrar") and an office or agency where Subordinated Notes may be presented
for payment ("Paying Agent"). The Registrar shall keep a register of the
Subordinated Notes, the names and addresses of the Holders and of their
transfer and exchange. The Company may appoint one or more co-registrars and
one or more additional paying agents. The term "Registrar" includes any
co-registrar and the term "Paying Agent" includes any additional paying agent.
The Company may change any Paying Agent or Registrar without notice to any
Holder. The Company shall notify the Trustee in writing of the name and address
of any Agent not a party to this Indenture. If the Company fails to appoint or
maintain another entity as Registrar or Paying Agent, the Trustee shall act as
such 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 Subordinated 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.
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 Subordinated 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 Subordinated Notes.
SECTION 2.05. HOLDER LISTS.
The Trustee shall preserve in as current a form as is reasonably
practicable the most recent list available to it of the names and addresses of
all Holders and shall otherwise comply with TIA 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
Subordinated Notes, including the aggregate principal amount of Subordinated
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
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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 Subordinated 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
Subordinated 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.
(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)
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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 Subordinated 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;
(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
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(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
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
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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 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;
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(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.
(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 Subordinated 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;
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(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
(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
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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 Subordinated 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 Subordinated 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
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
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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;
(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
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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 subparagraphs (B) and (C)
below, each Global Note and each Definitive Note (and all Subordinated Notes
issued in exchange therefor or substitution thereof) shall bear the legend in
substantially the following:
"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,
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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 AGGREGATE PRINCIPAL AMOUNT
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:
(I) 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 Subordinated Notes
issued in exchange therefor or substitution thereof) shall not bear the Private
Placement Legend;
(II) in connection with the original
issuance of the Subordinated Notes by the Company in exchange for shares of the
Preferred Stock, the Global Notes and/or Definitive Notes issued shall not bear
the Private Placement Legend if the certificates representing the shares of
Preferred Stock in respect of which such Global Notes and/or Definitive Notes
are issued do not bear a comparable private placement legend at such time; and
(III) in connection with the payment of
interest on the Subordinated Notes by the issuance of additional Subordinated
Notes pursuant to the terms thereof, any Global Note or Definitive Note issued
shall only bear the Private Placement Legend if the Global Note or Definitive
Note in respect of which such Global Note or Definitive Note is issued bears
the Private Placement Legend at such time.
(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
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
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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) Original Issue Discount Legend. Each Subordinated 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 $______ AGGREGATE PRINCIPAL AMOUNT
OF THIS SECURITY, THE ISSUE PRICE IS $______, THE AMOUNT OF ORIGINAL
ISSUE DISCOUNT IS $_______, THE ISSUE DATE IS _______ ___, 199__ AND
THE YIELD TO MATURITY IS 13 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 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 Subordinated Notes
represented by such Global Note shall be reduced accordingly and an endorsement
shall be made on such Global Note by the Trustee or 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
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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 Subordinated Note selected for redemption in whole
or in part, except the unredeemed portion of any Subordinated 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 Subordinated Notes during a period
beginning at the opening of business 15 days before the day of any selection of
Subordinated 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 Subordinated Note so selected for redemption in whole or in
part, except the unredeemed portion of any Subordinated Note being redeemed in
part or (C) to register the transfer of or to exchange a Subordinated 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 Subordinated Note, the Trustee, any Agent and the Company may
deem and treat the Person in whose name any Subordinated Note is registered as
the absolute owner of such Subordinated Note for the purpose of receiving
payment of principal of and interest on such Subordinated 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 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 SUBORDINATED NOTES.
If any mutilated Subordinated 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 Subordinated Note, the Company shall
issue and the Trustee, upon receipt of an Authentication Order, shall
authenticate a replacement Subordinated Note if the Trustee's requirements are
met. If required by the Trustee or the Company, an indemnity bond must be
supplied by the Holder that is sufficient in the judgment of the Trustee and
the Company to protect the Company, the Trustee, any Agent and any
authenticating agent from any loss that any of them may suffer if a
Subordinated Note is replaced. The Company may charge for its expenses in
replacing a Subordinated Note.
Every replacement Subordinated Note is an additional
obligation of the Company and shall be entitled to all of the benefits of this
Indenture equally and proportionately with all other Subordinated Notes duly
issued hereunder.
SECTION 2.08. OUTSTANDING SUBORDINATED NOTES.
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The Subordinated Notes outstanding at any time are all the
Subordinated 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 Subordinated Note does not cease to be outstanding
because the Company or an Affiliate of the Company holds the Subordinated Note.
If a Subordinated Note is replaced pursuant to Section 2.07
hereof, it ceases to be outstanding unless the Trustee receives proof
satisfactory to it that the replaced Subordinated Note is held by a bona fide
purchaser.
If the principal amount of any Subordinated Note is
considered paid under Section 4.01 hereof, it ceases to be outstanding and
interest on it ceases to accrue.
If the Paying Agent (other than the Company, a Subsidiary or
an Affiliate of any thereof) holds, on a redemption date or maturity date,
money sufficient to pay Subordinated Notes payable on that date, then on and
after that date such Subordinated Notes shall be deemed to be no longer
outstanding and shall cease to accrue interest.
Upon a "legal defeasance" pursuant to Article 8 hereof, the
Subordinated Notes shall be deemed to be outstanding to the extent provided in
the applicable section of Article 8 hereof.
SECTION 2.09. TREASURY SUBORDINATED NOTES.
In determining whether the Holders of the required principal
amount of Subordinated Notes have concurred in any direction, waiver or
consent, Subordinated Notes owned by the Company, or by any Affiliate of the
Company, shall be considered as though not outstanding, except that for the
purposes of determining whether the Trustee shall be protected in relying on
any such direction, waiver or consent, only Subordinated Notes that the Trustee
knows are so owned shall be so disregarded.
SECTION 2.10. TEMPORARY SUBORDINATED NOTES.
Until definitive Subordinated Notes are ready for delivery,
the Company may prepare and the Trustee, upon receipt of an Authentication
Order, shall authenticate temporary Subordinated Notes. Temporary Subordinated
Notes shall be substantially in the form of definitive Notes but may have
variations that the Company considers appropriate for temporary Subordinated
Notes and as shall be reasonably acceptable to the Trustee. Without
unreasonable delay, the Company shall prepare and the Trustee shall
authenticate definitive Subordinated Notes in exchange for temporary
Subordinated Notes.
Holders of temporary Subordinated Notes shall be entitled to
all of the benefits of this Indenture.
SECTION 2.11. CANCELLATION.
The Company at any time may deliver Subordinated Notes to the
Trustee for cancellation. The Registrar and Paying Agent shall forward to the
Trustee any Subordinated Notes surrendered to them for registration of
transfer, exchange or payment. The Trustee and no one else shall cancel all
Subordinated
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Notes surrendered for registration of transfer, exchange, payment, replacement
or cancellation and shall, upon written request, return such canceled
Subordinated Notes to the Company. The Company may not issue new Subordinated
Notes to replace Subordinated Notes that it has paid or that have been
delivered to the Trustee for cancellation.
SECTION 2.12. DEFAULTED INTEREST.
If the Company defaults in a payment of interest on the
Subordinated Notes, it shall pay the defaulted interest specified in Section
4.01 hereof in any lawful manner plus, to the extent lawful, interest payable
on the defaulted interest, to the Persons who are Holders on a subsequent
special record date, in each case at the rate provided in the Subordinated
Notes and in Section 4.01 hereof. The Company shall notify the Trustee in
writing of the amount of defaulted interest proposed to be paid on each
Subordinated Note and the date of the proposed payment. The Company shall fix
or cause to be fixed each such special record date and payment date, provided
that no such special record date shall be less than 10 days prior to the
related payment date for such defaulted interest. At least 15 days before the
special record date, the Company (or, upon the written request of the Company,
the Trustee in the name and at the expense of the Company) shall mail or cause
to be mailed to Holders a notice that states the special record date, the
related payment date and the amount of such interest to be paid.
ARTICLE 3.
REDEMPTION AND PREPAYMENT
SECTION 3.01. NOTICES TO TRUSTEE.
If the Company elects to redeem Subordinated 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 Indenture
pursuant to which the redemption shall occur, (ii) the redemption date, (iii)
the principal amount of Subordinated Notes to be redeemed and (iv) the
redemption price.
If the Company is required to make an offer to repurchase
Subordinated 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 Subordinated 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 SUBORDINATED NOTES TO BE REDEEMED.
If less than all of the Subordinated Notes are to be redeemed
at any time, selection of Subordinated Notes for redemption will be made by the
Trustee in compliance with the requirements of the principal national
securities exchange, if any, on which the Subordinated Notes are listed, or, if
the Subordinated Notes are not so listed, on a pro rata basis, by lot or by
such method as the Trustee shall deem fair and appropriate; provided that no
Subordinated Notes of $1,000 or less shall be redeemed in part. Notices of
redemption shall be mailed by first class mail at least 30 but not more than 60
days before the redemption date to each Holder of Subordinated Notes to be
redeemed at its registered address. If any
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Subordinated Note is to be redeemed in part only, the notice of redemption that
relates to such Subordinated Note shall state the portion of the principal
amount thereof to be redeemed. A new Subordinated Note in principal amount
equal to the unredeemed portion thereof will be issued in the name of the
Holder thereof upon cancellation of the original Subordinated Note. On and
after the redemption date, interest ceases to accrue on Subordinated 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 Subordinated Notes are to be
redeemed at its registered address.
The notice shall identify the Subordinated Notes to be
redeemed and shall state:
(a) the redemption date;
(b) the redemption price;
(c) if any Subordinated Note is being redeemed in part, the
portion of the principal amount of such Subordinated Note to be redeemed and
that, after the redemption date upon surrender of such Subordinated Note, a new
Subordinated Note or Subordinated Notes in aggregate principal amount equal to
the unredeemed portion shall be issued upon cancellation of the original
Subordinated Note;
(d) the name and address of the Paying Agent;
(e) that Subordinated Notes called for redemption must be
surrendered to the Paying Agent to collect the redemption price;
(f) that, unless the Company defaults in making such
redemption payment, interest on Subordinated Notes or portions thereof called
for redemption ceases to accrue on and after the redemption date;
(g) the paragraph of the Subordinated Notes and/or Section of
this Indenture pursuant to which the Subordinated Notes called for redemption
are being redeemed; and
(h) that no representation is made as to the correctness or
accuracy of the CUSIP number, if any, listed in such notice or printed on the
Subordinated 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, Subordinated Notes or portions thereof called for
redemption become irrevocably due and payable on the redemption date at the
redemption price. A notice of redemption may not be conditional.
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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 Subordinated Notes to be redeemed on that
date. The Trustee or the Paying Agent shall promptly return to the Company any
money deposited with the Trustee or the Paying Agent by the Company in excess
of the amounts necessary to pay the redemption price of, premiums, if any,
accrued interest on, and Liquidated Damages, if any, on all Subordinated Notes
to be redeemed.
If the Company complies with the provisions of the preceding
paragraph, on and after the redemption date, whether or not such Subordinated
Notes are presented for payment, interest shall cease to accrue on the
Subordinated Notes or the portions of Subordinated Notes called for redemption.
If a Subordinated Note is redeemed on or after an interest record date but on
or prior to the related interest payment date, then any accrued and unpaid
interest shall be paid to the Person in whose name such Subordinated Note was
registered at the close of business on such record date. If any Subordinated
Note called for redemption shall not be so paid upon surrender for redemption
because of the failure of the Company to comply with the preceding paragraph,
interest shall be paid on the unpaid principal, from the redemption date until
such principal is paid, and to the extent lawful on any interest not paid on
such unpaid principal, in each case at the rate provided in the Subordinated
Notes and in Section 4.01 hereof.
SECTION 3.06. SUBORDINATED NOTES REDEEMED IN PART.
Upon surrender of a Subordinated Note that is redeemed in
part, the Company shall issue and, upon the Company's written request, the
Trustee shall authenticate for the Holder at the expense of the Company a new
Subordinated Note equal in principal amount to the unredeemed portion of the
Subordinated Note surrendered.
SECTION 3.07. OPTIONAL REDEMPTION.
(a) Except as set forth in clause (b) of this Section 3.07,
the Subordinated Notes shall not be redeemable at the Company's option prior to
March 15, 2003. Thereafter, the Subordinated 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......................................106.875%
2004......................................104.583%
2005......................................102.293%
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-half of the aggregate
principal amount of Subordinated Notes at a redemption price equal to 113.75%
of the principal amount thereof, plus Liquidated Damages thereon, if any, with
the net cash proceeds of an Equity Offering; provided that at least one-half of
the original
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aggregate principal amount of the Subordinated Notes remains outstanding
immediately after the occurrence of such redemption (excluding Subordinated
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 Subordinated Notes.
SECTION 3.09. REPURCHASE OFFERS.
In the event that the Company shall be required to commence an offer
to all Holders to repurchase Subordinated 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.
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 of
Subordinated 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 Subordinated Notes tendered in response to the Repurchase
Offer. Payment for any Subordinated Notes so purchased shall be made in the
same manner as interest payments are made.
If the Purchase Date is on or after an interest record date and on or
before the related interest payment date, any accrued and unpaid interest shall
be paid to the Person in whose name a Subordinated Note is registered at the
close of business on such record date, and no additional interest shall be
payable to Holders who tender Subordinated Notes pursuant to the Repurchase
Offer.
Upon the commencement of a Repurchase Offer, the Company shall send,
by first class mail, a notice to the Trustee and each of the Holders, with a
copy to the Trustee. The notice shall contain all instructions and materials
necessary to enable such Holders to tender Subordinated Notes pursuant to such
Repurchase Offer. The Repurchase Offer shall be made to all Holders. The
notice, which shall govern the terms of the Repurchase Offer, shall describe
the transaction or transactions that constitute the Change of Control or Excess
Proceeds Offer Triggering Event, as the case may be and shall state:
(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;
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(c) that any Subordinated Note not tendered or accepted for
payment shall continue to accrete or accrue interest;
(d) that, unless the Company defaults in making such payment, any
Subordinated Note accepted for payment pursuant to the Repurchase Offer shall
cease to accrete or accrue interest after the Purchase Date;
(e) that Holders electing to have a Subordinated Note purchased
pursuant to a Repurchase Offer may elect to have all or any portion of such
Subordinated Note purchased;
(f) that Holders electing to have a Subordinated Note purchased
pursuant to any Repurchase Offer shall be required to surrender the
Subordinated Note, with the form entitled "Option of Holder to Elect Purchase"
on the reverse of the Subordinated Note, or such other customary documents of
surrender and transfer as the Company may reasonably request, duly completed,
or transfer by book-entry transfer, to the Company, the Depositary, or the
Paying Agent at the address specified in the notice at least three days before
the Purchase Date;
(g) that Holders shall be entitled to withdraw their election if the
Company, the Depositary or the Paying Agent, as the case may be, receives, not
later than the expiration of the Offer Period, a telegram, telex, facsimile
transmission or letter setting forth the name of the Holder, the principal
amount of the Subordinated Note the Holder delivered for purchase and a
statement that such Holder is withdrawing his election to have such
Subordinated Note purchased;
(h) that, if the aggregate principal amount of Subordinated Notes
surrendered by Holders exceeds the Offer Amount, the Company shall select the
Subordinated Notes to be purchased on a pro rata basis (with such adjustments
as may be deemed appropriate by the Company so that only Subordinated Notes in
denominations of $1,000, or integral multiples thereof, shall be purchased);
and
(i) that Holders whose Subordinated Notes were purchased only in part
shall be issued new Subordinated Notes equal in principal amount to the
unpurchased portion of the Subordinated Notes surrendered (or transferred by
book-entry transfer).
On (or at the Company's election, before) the Purchase Date, the
Company shall, to the extent lawful, accept for payment, on a pro rata basis to
the extent necessary, the Offer Amount of Subordinated Notes or portions
thereof tendered pursuant to the Repurchase Offer and not theretofore
withdrawn, or if less than the Offer Amount has been tendered, all Subordinated
Notes tendered, and shall deliver to the Trustee an Officers' Certificate
stating that such Subordinated Notes or portions thereof were accepted for
payment by the Company in accordance with the terms of this Section 3.09. The
Company, the Depositary or the Paying Agent, as the case may be, shall promptly
(but in any case not later than five days after the Purchase Date) mail or
deliver to each tendering Holder an amount equal to the purchase price of the
Subordinated Notes tendered by such Holder and accepted by the Company for
purchase, and the Company shall promptly issue a new Subordinated Note, and the
Trustee, upon written request from the Company shall authenticate and mail or
deliver such new Subordinated Note to such Holder, in a principal amount equal
to any unpurchased portion of the Subordinated Note surrendered. Any
Subordinated Note not so accepted shall be promptly mailed or delivered by the
Company to the Holder thereof. All Subordinated Notes or portions thereof
purchased pursuant to the Repurchase Offer will be canceled by the Trustee. The
Company shall publicly announce the results of the Repurchase Offer on or as
soon as
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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 SUBORDINATED NOTES.
The Company shall pay or cause to be paid the principal of, interest
and premium, if any, on the Subordinated Notes on the dates and in the manner
provided in the Subordinated Notes. Principal, premium, if any, and interest
shall be considered paid on the applicable date due if the Paying Agent, if
other than the Company or a Subsidiary thereof, holds as of 10:00 a.m. Eastern
Time on the due date money deposited by the Company in immediately available
funds and designated for and sufficient to pay all principal, premium, if any,
and interest then due. The Company shall pay all Liquidated Damages, if any, in
the same manner on the dates and in the amounts set forth in the Registration
Rights Agreement.
The Company shall pay interest (including post-petition interest in
any proceeding under any Bankruptcy Law) on overdue principal at the rate equal
to 2% per annum in excess of the then applicable interest rate on the
Subordinated Notes to the extent lawful; it shall pay interest (including
post-petition interest in any proceeding under any Bankruptcy Law) on overdue
installments of interest and Liquidated Damages 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
Subordinated Notes may be surrendered for registration of transfer or for
exchange and where notices and demands to or upon the Company in respect of the
Subordinated Notes and this Indenture may be served. The Company shall give
prompt written notice to the Trustee of the location, and any change in the
location, of such office or agency. If at any time the Company shall fail to
maintain any such required office or agency or shall fail to furnish the
Trustee with the address thereof, such presentations, surrenders, notices and
demands may be made or served at the Corporate Trust Office of the Trustee.
The Company may also from time to time designate one or more other
offices or agencies where the Subordinated Notes may be presented or
surrendered for any or all such purposes and may from time to time rescind such
designations; provided, however, that no such designation or rescission shall
in any manner relieve the Company of its obligation to maintain an office or
agency for such purposes. The Company shall give prompt written notice to the
Trustee of any such designation or rescission and of any change in the location
of any such other office or agency.
The Company hereby designates the Corporate Trust Office of the
Trustee as one such office or agency of the Company in accordance with Section
2.03.
SECTION 4.03. REPORTS.
(a) Whether or not required by the rules and regulations of the
Commission, so long as
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any Subordinated Notes are outstanding, the Company shall furnish to the
Holders of Subordinated Notes (i) all quarterly and annual financial
information that would be required to be contained in a filing with the
Commission on Forms 10-Q and 10-K if the Company were required to file such
Forms, including a "Management's Discussion and Analysis of Financial Condition
and Results of Operations" that describes the financial condition and results
of operations of the Company and its consolidated Subsidiaries (showing in
reasonable detail, either on the face of the financial statements or in the
footnotes thereto and in "Management's Discussion and Analysis of Financial
Condition and Results of Operations," the financial condition and results of
operations of the Company and its Restricted Subsidiaries separate from the
financial 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 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 Subordinated Notes remain outstanding, the
Company shall furnish to the Holders and to securities analysts and prospective
investors, upon their request, the information required to be delivered
pursuant to Rule 144A(d)(4) under the Securities Act.
SECTION 4.04. COMPLIANCE CERTIFICATE.
(a) The Company shall deliver to the Trustee, within 90 days after the
end of each fiscal year, an Officers' Certificate stating that a review of the
activities of the Company and its Subsidiaries during the preceding fiscal year
has been made under the supervision of the signing Officers with a view to
determining whether the Company has kept, observed, performed and fulfilled its
obligations under this Indenture, and further stating, as to each such Officer
signing such certificate, whether to the best of his or her knowledge the
Company has kept, observed, performed and fulfilled each and every covenant
contained in this Indenture and whether any Default or Event of Default shall
have occurred under this Indenture (and, if a Default or Event of Default shall
have occurred, describing all such Defaults or Events of Default of which he or
she may have knowledge and what action the Company is taking or proposes to
take with respect thereto) and that to the best of his or her knowledge no
event has occurred and remains in existence by reason of which payments on
account of the principal of, premiums, if any, interest, or Liquidated Damages,
if any, on the Subordinated Notes is prohibited or if such event has occurred,
a description of the event and what action the Company is taking or proposes to
take with respect thereto.
(b) So long as not contrary to the then current recommendations of the
American Institute of Certified Public Accountants, the year-end financial
statements delivered pursuant to Section 4.03(a) above shall be accompanied by
a written statement of the Company's independent public accountants (who shall
be a firm of established national reputation) that in making the examination
necessary for certification of such financial statements, nothing has come to
their attention that would lead them to believe that the Company has violated
any provisions of Article Four or Article Five hereof or, if any such violation
has occurred, specifying the nature and period of existence thereof, it being
understood that such accountants shall not be liable directly or indirectly to
any Person for any failure to obtain knowledge of any such violation.
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(c) The Company shall, so long as any of the Subordinated 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, 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 Subordinated 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
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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 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
Company 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
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 March 12, 1998 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 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 Company from the
issuance of the Note Units as described under the caption "Use of Proceeds" of
the Offering Memorandum governing the issuance of the Note 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 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.
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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 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 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) this Indenture, the Subordinated Notes, the Senior Secured
Discount Notes 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
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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 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 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, the Senior Secured Discount
Notes Indenture, the Subordinated Notes and this Indenture and the issuance of
additional Subordinated Notes in connection with the Company's interest payment
obligations under the Subordinated Notes;
(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
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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; 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) that are assumed by
the transferee of any such assets pursuant to a customary novation agreement
that releases the Company or such
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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 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 Subordinated Notes
(an "Asset Sale Offer") to purchase the maximum principal amount of
Subordinated Notes that may be purchased out of the Excess Proceeds, at an
offer price in cash in an amount equal to 100% of the aggregate principal
amount thereof, plus accrued and unpaid interest and Liquidated Damages
thereon, if any, to the date of purchase, 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 Subordinated Notes
would cause an Event of Default under any of the agreements governing
Indebtedness of the Company or its Subsidiaries. If the aggregate purchase
price of Subordinated 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 Subordinated Notes tendered
into such Asset Sale Offer by Holders thereof exceeds the amount of Excess
Proceeds, the Trustee shall select the Subordinated 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
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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.
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 Subordinated 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 Subordinated Notes to
repurchase all or any part (equal to $1,000 or an integral multiple thereof) of
such Holder's Subordinated 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 (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 Subordinated
Notes on the date specified in such notice, which date shall be no earlier than
30 days and no later than 60 days from the date such notice is mailed (the
"Change of Control Payment Date"), pursuant to the procedures required by this
Indenture and described in such notice. The
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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
Subordinated 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 Subordinated 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 Subordinated Notes or portions thereof so tendered and (3)
deliver or cause to be delivered to the Trustee the Subordinated Notes so
accepted together with an Officers' Certificate stating the aggregate principal
amount of Subordinated Notes or portions thereof being purchased by the
Company. The Paying Agent shall promptly mail to each Holder of Subordinated
Notes so tendered the Change of Control Payment for such Subordinated Notes,
and the Trustee shall promptly authenticate and mail (or cause to be
transferred by book entry) to each Holder a new Subordinated Note equal in
principal amount to any unpurchased portion of the Subordinated Notes
surrendered, if any; provided that each such new Subordinated Note shall be in
a principal amount 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 such
Change of Control Offer would cause an event of default under any of the
agreements governing Indebtedness of the Company or its Subsidiaries, or 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
Subordinated Notes validly tendered and not withdrawn under such Change of
Control Offer.
SECTION 4.16. LIMITATION 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. 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 Subordinated
Notes for or as an inducement to any consent, waiver or amendment of any of the
terms or provisions of this Indenture or the Subordinated Notes unless such
consideration is offered to be paid or is paid to all Holders of the
Subordinated 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.
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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
Subordinated Notes 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 Subordinated Notes
except in the case of a sale of all of the Company"s assets that meets the
requirements of Section 5.01 hereof.
ARTICLE 6.
DEFAULTS AND REMEDIES
SECTION 6.01. EVENTS OF DEFAULT.
Each of the following constitutes an "Event of Default":
(a) default for 30 days in the payment when due of interest
on the Subordinated Notes
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(whether or not prohibited by Article 10 hereof);
(b) default in payment when due of the principal of or
premium, or Liquidated Damages, if any, on the Subordinated Notes (whether or
not prohibited by Article 10 hereof);
(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 (whether or not prohibited by Article 10 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
or the Subordinated Notes;
(e) default under any mortgage, indenture or instrument under
which there may be issued or by which there may be secured or evidenced any
Indebtedness for money borrowed by the Company or any of its Restricted
Subsidiaries (or the payment of which is guaranteed by the Company or any of
its Restricted Subsidiaries) whether such Indebtedness or guarantee now exists,
or is created after March 12, 1998, 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) the Company or any of its Significant Subsidiaries or any
group of Subsidiaries that, taken as a whole, would constitute a Significant
Subsidiary pursuant to or within the meaning of Bankruptcy Law:
(i) commences a voluntary case,
(ii) consents to the entry of an order for relief
against it in an involuntary case,
(iii) consents to the appointment of a custodian of it
or for all or substantially all of its property,
(iv) makes a general assignment for the benefit of its
creditors, or
(v) generally is not paying its debts as they become
due; or
(i) a court of competent jurisdiction enters an order or
decree under any Bankruptcy Law that:
(h) 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,
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(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 of the then outstanding
Subordinated Notes may declare all the Subordinated Notes to be due and payable
immediately. Notwithstanding the foregoing, in the case of an Event of Default
arising from certain events of bankruptcy or insolvency, with respect to the
Company, any Significant Subsidiary or any group of Subsidiaries that, taken
together, would constitute a Significant Subsidiary, all outstanding
Subordinated Notes will become due and payable without further action or
notice. Upon any acceleration of maturity of the Subordinated Notes, all
principal of and accrued interest on and Liquidated Damages, if any, of the
Subordinated Notes shall be due and payable immediately. Holders of the
Subordinated Notes may not enforce this Indenture or the Subordinated Notes
except as provided in this Indenture. Subject to certain limitations, Holders
of a majority in principal amount of the then outstanding Subordinated Notes
may direct the Trustee in its exercise of any trust or power. The Trustee may
withhold from Holders of the Subordinated Notes notice of any continuing
Default or Event of Default (except a Default or Event of Default relating to
the payment of principal or interest) if it determines that withholding notice
is in their interest.
In the case of any Event of Default occurring by reason of
any willful action (or inaction) taken (or not taken) by or on behalf of the
Company with the intention of avoiding payment of the premium that the Company
would have had to pay if the Company then had elected to redeem the
Subordinated 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
Subordinated Notes. If an Event of Default occurs prior to March 12, 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 Subordinated Notes prior to March 12, 2003, then the premium specified
herein shall also become immediately due and payable to the extent permitted by
law upon the acceleration of the Subordinated Notes.
Year Percentage
---- ----------
1998......................................118.333%
1999......................................116.042%
2000..................................... 113.750%
2001......................................111.459%
2002......................................109.167%
SECTION 6.03 OTHER REMEDIES.
If an Event of Default occurs and is continuing, the Trustee may
pursue any available
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remedy to collect the payment of principal of, interest on, premiums, or
Liquidated Damages, if any, on the Subordinated Notes or to enforce the
performance of any provision of the Subordinated Notes or this Indenture.
The Trustee may maintain a proceeding even if it does not possess any
of the Subordinated Notes or does not produce any of them in the proceeding. A
delay or omission by the Trustee or any Holder of a Subordinated Note in
exercising any right or remedy accruing upon an Event of Default shall not
impair the right or remedy or constitute a waiver of or acquiescence in the
Event of Default. All remedies are cumulative to the extent permitted by law.
SECTION 6.04. WAIVER OF PAST DEFAULTS.
Holders of a majority in aggregate principal amount of the
Subordinated Notes then outstanding by notice to the Trustee (and without
notice to any other Holders) may on behalf of the Holders of all of the
Subordinated Notes waive an existing Default or Event of Default and its
consequences hereunder, except a continuing Default or Event of Default in the
payment of the principal of, premiums, if any, or interest on, the Subordinated
Notes (including in connection with an offer to purchase) (provided, however,
that the Holders of a majority in aggregate principal amount of the then
outstanding Subordinated Notes may rescind an acceleration and its
consequences, including any related payment default that resulted from such
acceleration). Upon any such waiver, such Default shall cease to exist, and any
Event of Default arising therefrom shall be deemed to have been cured for every
purpose of this Indenture; but no such waiver shall extend to any subsequent or
other Default or impair any right consequent thereon.
SECTION 6.05. CONTROL BY MAJORITY.
Holders of a majority in principal amount of the then outstanding
Subordinated 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 conflicts with law
or this Indenture that the Trustee determines may be unduly prejudicial to the
rights of other Holders of Subordinated Notes or that may involve the Trustee
in personal liability.
SECTION 6.06. LIMITATION ON SUITS.
A Holder of a Subordinated Note may pursue a remedy with respect to
this Indenture or the Subordinated Notes only if:
(a) the Holder of a Subordinated Note gives to the Trustee written
notice of a continuing Event of Default;
(b) the Holders of at least 25% in aggregate principal amount of the
then outstanding Subordinated Notes make a written request to the Trustee to
pursue the remedy;
(c) such Holder of a Subordinated Note or Holders of Subordinated
Notes offer and, if requested, provide to the Trustee indemnity satisfactory to
the Trustee against any loss, liability or expense;
(d) the Trustee does not comply with the request within 60 days after
receipt of the request and the offer and, if requested, the provision of
indemnity; and
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(e) during such 60-day period the Holders of a majority in aggregate
principal amount of the then outstanding Subordinated Notes do not give the
Trustee a direction inconsistent with the request.
A Holder of a Subordinated Note may not use this Indenture to
prejudice the rights of another Holder of a Subordinated Note or to obtain a
preference or priority over another Holder of a Subordinated Note.
SECTION 6.07. RIGHTS OF HOLDERS OF SUBORDINATED NOTES TO RECEIVE PAYMENT.
Notwithstanding any other provision of this Indenture, but subject to
the provisions of Sections 6.04 and 6.06, the right of any Holder of a
Subordinated Note to receive payment of principal, premium, if any, interest or
Liquidated Damages, if any, on the Subordinated Note, on or after the
respective due dates expressed in the Subordinated 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 Subordinated 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.
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 Subordinated Notes and to file such proof of claim and other
papers or documents as may be necessary or advisable in order to have the
claims of the Trustee (including any claim for the reasonable compensation,
expenses, disbursements and advances of the Trustee, its agents and counsel)
and the Holders of the Subordinated Notes allowed in such judicial proceedings
and (b) to collect, receive and distribute any money or other property payable
or deliverable on any such claims and any custodian in any such judicial
proceeding is hereby authorized by each Holder to make such payments to the
Trustee, and in the event that the Trustee shall consent to the making of such
payments directly to the Holders, to pay to the Trustee any amount due to it
for the reasonable compensation, expenses, disbursements and advances of the
Trustee, its agents and counsel, and any other amounts due the Trustee under
Section 7.07 hereof. To the extent that the payment of any such compensation,
expenses, disbursements and advances of the Trustee, its agents and counsel,
and any other amounts due the Trustee under Section 7.07 hereof out of the
estate in any such proceeding, shall be denied for any reason, payment of the
same shall be secured by a Lien on, and shall be paid out of, any and all
distributions, dividends, money, securities and other properties that the
Holders may be entitled to receive in such proceeding whether in liquidation or
under any plan of reorganization or arrangement or otherwise, prior to any
payment to such Holder. Nothing herein contained shall be deemed to authorize
the Trustee to authorize or consent to or accept or adopt on behalf of any
Holder any plan of reorganization, arrangement, adjustment or composition
affecting the Subordinated Notes or the rights of any Holder, or to authorize
the
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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 Subordinated Notes for amounts due and unpaid on
the Subordinated 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 Subordinated 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 Subordinated Notes pursuant to this Section 6.10.
SECTION 6.11. UNDERTAKING FOR COSTS.
In any suit for the enforcement of any right or remedy under this
Indenture or in any suit against the Trustee for any action taken or omitted by
it as a Trustee, a court in its discretion may require the filing by any party
litigant in the suit of an undertaking to pay the costs of the suit, and the
court in its discretion may assess reasonable costs, including reasonable
attorneys' fees, against any party litigant in the suit, having due regard to
the merits and good faith of the claims or defenses made by the party litigant.
This Section does not apply to a suit by the Trustee, a suit by a Holder of a
Subordinated Note pursuant to Section 6.07 hereof, or a suit by Holders of more
than 10% in principal amount of the then outstanding Subordinated Notes.
ARTICLE 7.
TRUSTEE
SECTION 7.01. DUTIES OF TRUSTEE.
(a) If an Event of Default has occurred and is continuing, the Trustee
shall exercise such of the rights and powers vested in it by this Indenture,
and use the same degree of care and skill in its exercise, as a prudent person
would exercise or use under the circumstances in the conduct of such person's
own affairs."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 Trustee need perform only those
duties that are specifically set forth in this Indenture and no others, and no
implied covenants or obligations shall be read into this Indenture against the
Trustee; and
(ii) in the absence of bad faith on its part, the Trustee may
conclusively rely, as to the
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truth of the statements and the correctness of the opinions expressed therein,
upon certificates or opinions furnished to the Trustee and conforming to the
requirements of this Indenture. However, the Trustee shall examine the
certificates and opinions to determine whether or not they conform to the
requirements of this Indenture.
(c) The Trustee may not be relieved from liabilities for its own
negligent action, its own negligent failure to act, or its own willful
misconduct, except that:
(i) this paragraph does not limit the effect of paragraph (b) of this
Section;
(ii) the Trustee shall not be liable for any error of judgment made in
good faith by a Responsible Officer, unless it is proved that the Trustee was
negligent in ascertaining the pertinent facts; and
(iii) the Trustee shall not be liable with respect to any action it
takes or omits to take in good faith in accordance with a direction received by
it pursuant to Section 6.05 hereof.
(d) Whether or not therein expressly so provided, every provision of
this Indenture that in any way relates to the Trustee is subject to paragraphs
(a), (b) and (c) of this Section 7.01.
(e) No provision of this Indenture shall require the Trustee to expend
or risk its own funds or incur any financial liability. The Trustee shall be
under no obligation to exercise any of its rights and powers under this
Indenture at the request of any Holders, unless such Holder shall have offered
to the Trustee security and indemnity satisfactory to it against any loss,
liability or expense.
(f) The Trustee shall not be liable for interest on any money received
by it except as the Trustee may agree in writing with the Company. Money held
in trust by the Trustee need not be segregated from other funds except to the
extent required by law.
SECTION 7.02. RIGHTS OF TRUSTEE.
(a) Subject to Section 7.01(b)(ii), the Trustee may conclusively rely
upon any document believed by it to be genuine and to have been signed or
presented by the proper Person. The Trustee need not investigate any fact or
matter stated in the document.
(b) Before the Trustee acts or refrains from acting, it may require an
Officers' Certificate or an Opinion of Counsel or both. The Trustee shall not
be liable for any action it takes or omits to take in good faith in reliance on
such Officers' Certificate or Opinion of Counsel. The Trustee may consult with
counsel 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.
(e) Unless otherwise specifically provided in this Indenture, any
demand, request,
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direction or notice from the Company shall be sufficient if signed by an
Officer of the Company.
(f) The Trustee shall be under no obligation to exercise any of the
rights or powers vested in it by this Indenture at the request or direction of
any of the Holders unless such Holders shall have 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.
SECTION 7.03. INDIVIDUAL RIGHTS OF TRUSTEE.
The Trustee in its individual or any other capacity may become the
owner or pledgee of Subordinated Notes and may otherwise deal with the Company
or any Affiliate of the Company with the same rights it would have if it were
not Trustee. However, in the event that the Trustee acquires any conflicting
interest it must eliminate such conflict within 90 days, apply to the SEC for
permission to continue as trustee or resign. Any Agent may do the same with
like rights and duties. The Trustee is also subject to Sections 7.10 and 7.11
hereof.
SECTION 7.04. TRUSTEE'S DISCLAIMER.
The Trustee shall not be responsible for and makes no representation
as to the validity or adequacy of this Indenture or the Subordinated Notes, it
shall not be accountable for the Company's use of the proceeds from the
Subordinated 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, 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 Subordinated Notes or any
registration statement for the Subordinated Notes (other than statements in any
Form T-1 filed with the SEC under the TIA) or in this Indenture other than its
certificate of authentication.
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 Subordinated Notes a
notice of the Default or Event of Default within 90 days after it occurs.
Except in the case of a Default or Event of Default in payment of principal of,
premium, if any, interest or Liquidated Damages, if any, on any Subordinated
Note, the Trustee may withhold the notice if and so long as a committee of its
Responsible Officers in good faith determines that withholding the notice is in
the interests of the Holders of the Subordinated Notes.
SECTION 7.06. REPORTS BY TRUSTEE TO HOLDERS OF THE SUBORDINATED NOTES.
Within 60 days after each July 31 beginning with the July 31 following
the date of this Indenture, and for so long as Subordinated Notes remain
outstanding, the Trustee shall mail to the Holders of the Subordinated 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
Subordinated Notes shall be mailed to the Company and filed with the SEC, if
accepted, and each stock exchange on which the Subordinated Notes are listed in
accordance with TIA ss. 313(d). The Company shall promptly notify the
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Trustee when the Subordinated Notes are listed on any stock exchange.
SECTION 7.07. COMPENSATION AND INDEMNITY.
The Company shall pay to the Trustee from time to time such
compensation for its acceptance of this Indenture and services in accordance
with any provision of this Indenture 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. Such expenses
shall include the reasonable compensation, disbursements and expenses of the
Trustee's agents and counsel.
The Company shall indemnify the Trustee against any and all losses,
liabilities or expenses incurred by it arising out of or in connection with the
acceptance or administration of its duties under this Indenture, including the
costs and expenses of enforcing this Indenture against the Company (including
this Section 7.07) and defending itself against any claim (whether asserted by
the Company or any Holder or any other person) or liability in connection with
the exercise or performance of any of its powers or duties hereunder, except to
the extent any such loss, liability or expense may be attributable to its
negligence or bad faith. The Trustee shall notify the Company promptly of any
claim for which it may seek indemnity. Failure by the Trustee to so notify the
Company shall not relieve the Company of its obligations hereunder. The Company
shall defend the claim and the Trustee shall cooperate in the defense. The
Trustee may have separate counsel and the Company shall pay the reasonable fees
and expenses of such counsel. The Company need not pay for any settlement made
without its consent, which consent shall not be unreasonably withheld.
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 Subordinated Notes on all money or
property held or collected by the Trustee, except that held in trust to pay
principal and interest on particular Subordinated Notes. Such Lien shall
survive the satisfaction and discharge of this Indenture.
When the Trustee incurs expenses or renders services after an Event of
Default specified in Section 6.01(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
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Holders of Subordinated Notes of a majority in principal amount of the then
outstanding Subordinated Notes may remove the Trustee by so notifying the
Trustee and the Company in writing. The Company may remove the Trustee if:
(a) the Trustee fails to comply with Section 7.10 hereof;
(b) the Trustee is adjudged a bankrupt or an insolvent or an order for
relief is entered with respect to the Trustee under any Bankruptcy Law;
(c) a custodian, receiver or public officer takes charge of the
Trustee or its property; or
(d) the Trustee otherwise becomes incapable of acting.
If the Trustee resigns or is removed or if a vacancy exists in the
office of Trustee for any reason, the Company shall promptly appoint a
successor Trustee. Within one year after the successor Trustee takes office,
the Holders of a majority in principal amount of the then outstanding
Subordinated Notes may appoint a successor Trustee to replace the successor
Trustee appointed by the Company.
If a successor Trustee does not take office within 60 days after the
retiring Trustee resigns or is removed, the retiring Trustee, the Company, or
the Holders of Subordinated Notes of at least 10% in principal amount of the
then outstanding Subordinated Notes may petition any court of competent
jurisdiction for the appointment of a successor Trustee.
If the Trustee, after written request by any Holder of a Subordinated
Note who has been a Holder of a Subordinated Note for at least six months,
fails to comply with Section 7.10, such Holder of a Subordinated Note may
petition any court of competent jurisdiction for the removal of the Trustee and
the appointment of a successor Trustee.
A successor Trustee shall deliver a written acceptance of its
appointment to the retiring Trustee and to the Company. Thereupon, the
resignation or removal of the retiring Trustee shall become effective, and the
successor Trustee shall have all the rights, powers and duties of the Trustee
under this Indenture. The successor Trustee shall mail a notice of its
succession to Holders of the Subordinated Notes. The retiring Trustee shall
promptly transfer all property held by it as Trustee to the successor Trustee;
provided that all sums owing to the Trustee hereunder have been paid and
subject to the Lien provided for in Section 7.07 hereof. Notwithstanding
replacement of the Trustee pursuant to this Section 7.08, the Company's
obligations under Section 7.07 hereof shall continue for the benefit of the
retiring Trustee.
SECTION 7.09. SUCCESSOR TRUSTEE BY MERGER, ETC.
If the Trustee consolidates, merges or converts into, or transfers all
or substantially all of its corporate trust business to, another corporation,
the successor corporation without any further act shall be the successor
Trustee.
SECTION 7.10. ELIGIBILITY; DISQUALIFICATION.
There shall at all times be a Trustee hereunder that is a corporation
organized and doing business under the laws of the United States of America or
of any state thereof that is authorized under such laws to exercise corporate
trustee power, that is subject to supervision or examination by federal or
state authorities and that has a combined capital and surplus of at least
$500.0 million as set forth in its most
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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.
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 Subordinated
Notes upon compliance with the conditions set forth below in this Article
Eight.
SECTION 8.02. LEGAL DEFEASANCE AND DISCHARGE.
Upon the Company's exercise under Section 8.01 hereof of the option
applicable to this Section 8.02, the Company 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 Subordinated
Notes 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 Subordinated Notes, which shall thereafter be deemed to be
"outstanding" only for the purposes of Section 8.05 hereof and the other
Sections of this Indenture referred to in (a) and (b) below, and to have
satisfied all its other obligations under such Subordinated Notes and this
Indenture (and the Trustee, on demand of and at the expense of the Company,
shall execute proper instruments acknowledging the same), except for the
following provisions which shall survive until otherwise terminated or
discharged hereunder: (a) the rights of Holders of outstanding Subordinated
Notes to receive payments in respect of the principal amount of, and premium,
if any, interest and Liquidated Damages, if any, on such Subordinated 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 Subordinated Notes concerning issuing temporary Subordinated
Notes, registration of Subordinated Notes, mutilated, destroyed, lost or stolen
Subordinated Notes and the maintenance of an office or agency for payment and
money for security payments held in trust, (c) the rights, powers, trusts,
duties and immunities of the Trustee, and the Company's obligations in
connection therewith and (d) this Article Eight. Subject to compliance with
this Article Eight, the Company may exercise its option under this Section 8.02
notwithstanding the prior exercise of its option under Section 8.03 hereof.
SECTION 8.03. COVENANT DEFEASANCE.
Upon the Company's exercise under Section 8.01 hereof of the option
applicable to this Section 8.03, the Company 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,
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4.13, 4.15, 4.16, 5.01 and 5.02 hereof with respect to the outstanding
Subordinated Notes on and after the date the conditions set forth below are
satisfied (hereinafter, "Covenant Defeasance"), and the Subordinated Notes
shall thereafter be deemed not "outstanding" for the purposes of any direction,
waiver, consent or declaration or act of Holders (and the consequences of any
thereof) in connection with such covenants, but shall continue to be deemed
"outstanding" for all other purposes hereunder (it being understood that such
Subordinated Notes shall not be deemed outstanding for accounting purposes).
For this purpose, Covenant Defeasance means that, with respect to the
outstanding Subordinated Notes, the Company may omit to comply with and shall
have no liability in respect of any term, condition or limitation set forth in
any such covenant, whether directly or indirectly, by reason of any reference
elsewhere herein to any such covenant or by reason of any reference in any such
covenant to any other provision herein or in any other document and such
omission to comply shall not constitute a Default or an Event of Default under
Section 6.01 hereof, but, except as specified above, the remainder of this
Indenture and such Subordinated Notes shall be unaffected thereby. In addition,
upon the Company's exercise under Section 8.01 hereof of the option applicable
to this Section 8.03 hereof, subject to the satisfaction of the conditions set
forth in Section 8.04 hereof and Sections 6.01(c) through 6.01(h) shall not
constitute Events of Default.
SECTION 8.04. CONDITIONS TO LEGAL OR COVENANT DEFEASANCE.
The following shall be the conditions to the application of either
Section 8.02 or 8.03 hereof to the outstanding Subordinated Notes:
In order to exercise either Legal Defeasance or Covenant Defeasance:
(i) the Company must irrevocably deposit with the Trustee, in trust,
for the benefit of the Holders of the Subordinated Notes, cash in U.S. dollars,
non-callable Government Securities, or a combination thereof, in such amounts
as will be sufficient, in the opinion of a nationally recognized firm of
independent public accountants, to pay the principal amount of premium, if any,
interest and Liquidated Damages, if any, on the outstanding Subordinated Notes
on the stated maturity or on the applicable redemption date, as the case may
be, and the Company must specify whether the Subordinated Notes are being
defeased to maturity or to a particular redemption date;
(ii) in the case of Legal Defeasance, the Company shall have delivered
to the Trustee an opinion of counsel in 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 March 12,
1998, 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 Subordinated Notes will not
recognize income, gain or loss for federal income tax purposes as a result of
such Legal Defeasance and will be subject to federal income tax on the same
amounts, in the same manner and at the same times as would have been the case
if such Legal Defeasance had not occurred;
(iii) in the case of Covenant Defeasance, the Company shall have
delivered to the Trustee an opinion of counsel in the United States reasonably
acceptable to the Trustee confirming that the Holders of the outstanding
Subordinated Notes will not recognize income, gain or loss for federal income
tax purposes as a result of such Covenant Defeasance and will be subject to
federal income tax on the same amounts, in the same manner and at the same
times as would have been the case if such Covenant Defeasance had not occurred;
(iv) no Default or Event of Default shall have occurred and be
continuing on the date of
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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;
(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 Subordinated Notes over the other creditors of the
Company with the intent of defeating, hindering, delaying or defrauding
creditors of the Company or others; and
(viii) the Company 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 Subordinated Notes shall be held in trust and applied by the
Trustee, in accordance with the provisions of such Subordinated Notes and this
Indenture, to the payment, either directly or through any Paying Agent
(including the Company acting as Paying Agent) as the Trustee may determine, to
the Holders of such Subordinated 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 Subordinated Notes.
Anything in this Article Eight to the contrary
notwithstanding, the Trustee shall deliver or pay to the Company from time to
time upon the request of the Company any money or non-callable Government
Securities held by it as provided in Section 8.04 hereof which, in the opinion
of a nationally recognized firm of independent public accountants expressed in
a written certification thereof delivered to the Trustee (which may be the
opinion delivered under Section 8.04(a) hereof), are in excess of the amount
thereof that would then be required to be deposited to effect an equivalent
Legal Defeasance or Covenant Defeasance.
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SECTION 8.06. REPAYMENT TO COMPANY.
Any money deposited with the Trustee or any Paying Agent, or
then held by the Company, in trust for the payment of the principal of,
premiums, if any, interest on, and Liquidated Damages on, if any, any
Subordinated 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
Subordinated 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; 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 Subordinated Notes shall be revived and reinstated as though
no deposit had occurred pursuant to Section 8.02 or 8.03 hereof until such time
as the Trustee or Paying Agent is permitted to apply all such money in
accordance with Section 8.02 or 8.03 hereof, as the case may be; provided,
however, that, if the Company makes any payment of principal of, premium, if
any, or interest on any Subordinated Note following the reinstatement of its
obligations, the Company shall be subrogated to the rights of the Holders of
such Subordinated Notes to receive such payment from the money held by the
Trustee or Paying Agent.
ARTICLE 9.
AMENDMENT, SUPPLEMENT AND WAIVER
SECTION 9.01. WITHOUT CONSENT OF HOLDERS OF SUBORDINATED NOTES.
Notwithstanding Section 9.02 hereof, the Company and the
Trustee may amend or supplement this Indenture or the Subordinated Notes
without the consent of any Holder of a Subordinated Note:
(a) to cure any ambiguity, defect or inconsistency,
(b) to provide for uncertificated Subordinated Notes in
addition to or in place of certificated Subordinated Notes,
(c) to provide for the assumption of the Company's
obligations to Holders of Subordinated Notes in the case of a merger or
consolidation or sale of all or substantially all of the Company's assets,
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(d) to make any change that would provide any additional
rights or benefits to the Holders of Subordinated Notes or that does not
adversely affect the legal rights under this Indenture of any such Holder, or
(e) to comply with requirements of the Commission in order to
effect or maintain the qualification of this Indenture under the Trust
Indenture Act.
Upon the request of the Company accompanied by a resolution
of its Board of Directors authorizing the execution of any such amended or
supplemental Indenture, and upon receipt by the Trustee of the documents
described in Section 9.06 hereof, the Trustee shall join with the Company in
the execution of any amended or supplemental Indenture authorized or permitted
by the terms of this Indenture and to make any further appropriate agreements
and stipulations that may be therein contained, but the Trustee shall not be
obligated to enter into such amended or supplemental Indenture that affects its
own rights, duties or immunities under this Indenture or otherwise.
SECTION 9.02. WITH CONSENT OF HOLDERS OF SUBORDINATED NOTES.
Except as provided below in this Section 9.02, the Company
and the Trustee may amend or supplement this Indenture and the Subordinated
Notes may be amended or supplemented with the consent of the Holders of at
least a majority in principal amount of the Subordinated Notes then outstanding
(including, without limitation, consents obtained in connection with a purchase
of, or tender offer or exchange offer for the Subordinated Notes), and, subject
to Sections 6.04 and 6.07 hereof, any existing Default or Event of Default
(other than a Default or Event of Default in the payment of the principal of,
premiums on, if any, interest on, or Liquidated Damages on, if any, the
Subordinated Notes, except a payment default resulting from an acceleration
that has been rescinded) or compliance with any provision of this Indenture or
the Subordinated Notes may be waived with the consent of the Holders of a
majority in principal amount of the then outstanding Subordinated Notes
(including, without limitation, consents obtained in connection with a purchase
of, or tender offer or exchange offer for the Subordinated Notes).
Upon the request of the Company accompanied by a resolution
of its Board of Directors authorizing the execution of any such amended or
supplemental Indenture, and upon the filing with the Trustee of evidence
satisfactory to the Trustee of the consent of the Holders of Subordinated Notes
as aforesaid, and upon receipt by the Trustee of the documents described in
Section 9.06 hereof, the Trustee shall join with the Company in the execution
of such amended or supplemental Indenture unless such amended or supplemental
Indenture affects the Trustee's own rights, duties or immunities under this
Indenture or otherwise, in which case the Trustee may in its discretion, but
shall not be obligated to, enter into such amended or supplemental Indenture.
It shall not be necessary for the consent of the Holders of
Subordinated Notes under this Section 9.02 to approve the particular form of
any proposed amendment or waiver, but it shall be sufficient if such consent
approves the substance thereof.
After an amendment, supplement or waiver under this Section
9.02 becomes effective, the Company shall mail to the Holders of Subordinated
Notes affected thereby a notice briefly describing the amendment, supplement or
waiver. Any failure of the Company to mail such notice, or any defect therein,
shall not, however, in any way impair or affect the validity of any such
amended or supplemental Indenture or waiver. Subject to Sections 6.04 and 6.07
hereof, the Holders of a majority in aggregate principal amount
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of the Subordinated Notes then outstanding may waive compliance in a particular
instance by the Company with any provision of this Indenture or the
Subordinated Notes. However, without the consent of each Holder affected, an
amendment or waiver may not (with respect to any Subordinated Notes held by a
non-consenting Holder):
(i) reduce the principal amount of Subordinated Notes whose
Holders must consent to an amendment, supplement or waiver,
(ii) reduce the principal amount of, change the fixed
maturity of, alter the provisions with respect to the redemption of the
Subordinated Notes (other than provisions relating to Sections 4.10 and 4.15
hereof),
(iii) reduce the rate of or change the time for payment of
interest on any Subordinated Note,
(iv) waive a Default or Event of Default in the payment of
principal of or premium, if any, or interest on the Subordinated Notes (except
a rescission of acceleration of the Subordinated Notes by the Holders of at
least a majority in aggregate principal amount of the Subordinated Notes and a
waiver of the payment default that resulted from such acceleration),
(v) make any Subordinated Note payable in money other than
that stated in the Subordinated Notes,
(vi) make any change in the provisions of this Indenture
relating to waivers of past Defaults or the rights of Holders of Subordinated
Notes to receive payments of principal of or premium, if any, or interest on
the Subordinated Notes,
(vii) waive a redemption or repurchase payment with respect
to any Subordinated 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 Subordinated 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 of
the Subordinated Notes then outstanding if such amendment would adversely
affect the rights of Holders of the Subordinated Notes.
SECTION 9.03. COMPLIANCE WITH TRUST INDENTURE ACT.
Every amendment or supplement to this Indenture or the
Subordinated Notes shall be set forth in an amended or supplemental Indenture
that complies with the TIA as then in effect.
SECTION 9.04. REVOCATION AND EFFECT OF CONSENTS.
Until an amendment, supplement or waiver becomes effective, a
consent to it by a Holder of a Subordinated Note is a continuing consent by the
Holder of a Subordinated Note and every subsequent Holder of a Subordinated
Note or portion of a Subordinated Note that evidences the same debt as the
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consenting Holder's Subordinated Note, even if notation of the consent is not
made on any Subordinated Note. However, any such Holder of a Subordinated Note
or subsequent Holder of a Subordinated Note may revoke the consent as to its
Subordinated Note if the Trustee receives written notice of revocation before
the date the waiver, supplement or amendment becomes effective. An amendment,
supplement or waiver becomes effective in accordance with its terms and
thereafter binds every Holder.
SECTION 9.05. NOTATION ON OR EXCHANGE OF SUBORDINATED NOTES.
The Trustee may place an appropriate notation about an
amendment, supplement or waiver on any Subordinated Note thereafter
authenticated. The Company in exchange for all Subordinated Notes may issue and
the Trustee shall authenticate new Subordinated Notes that reflect the
amendment, supplement or waiver.
Failure to make the appropriate notation or issue a new
Subordinated Note shall not affect the validity and effect of such amendment,
supplement or waiver.
SECTION 9.06. TRUSTEE TO SIGN AMENDMENTS, ETC.
The Trustee shall sign any amended or supplemental Indenture
authorized pursuant to this Article Nine if the amendment or supplement does
not adversely affect the rights, duties, liabilities or immunities of the
Trustee. The Company may not sign an amendment or supplemental Indenture until
the Board of Directors approves it. In executing any amended or supplemental
indenture, the Trustee shall be entitled to receive and (subject to Section
7.01) shall be fully protected in relying upon, an Officer's Certificate and an
Opinion of Counsel stating that the execution of such amended or supplemental
indenture is authorized or permitted by this Indenture.
ARTICLE 10
SUBORDINATION
SECTION 10.01. AGREEMENT TO SUBORDINATE.
The Company agrees, and each Holder by accepting Subordinated
Notes agrees, that the Subordinated Note Obligations shall be subordinated in
right of payment, to the extent and in the manner provided in this Article 10,
to the prior payment in full in cash or cash equivalents of all Indebtedness of
the Company, whether outstanding on the date hereof or thereafter incurred.
The provisions of this Article 10 shall constitute a
continuing offer to all Persons that, in reliance upon such provisions, become
holders or, or continue to hold Indebtedness of the Company; such provisions
are made for the benefit of holders of Indebtedness of the Company and they or
each of them may enforce the rights of holders of Indebtedness of the Company
hereunder, subject to the terms and provisions hereof.
SECTION 10.02. LIQUIDATION; DISSOLUTION; BANKRUPTCY.
Upon any distribution to creditors of the Company in a
liquidation or dissolution of the Company or in a bankruptcy, reorganization,
insolvency, receivership or similar proceeding relating to the Company or its
property, an assignment for the benefit of its creditors or any marshalling of
its Company's
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assets and liabilities:
(a) the holders of Indebtedness of the Company will be
entitled to receive payment in full in cash or cash equivalents of all
Obligations due in respect of such Indebtedness (including interest after the
commencement of any such proceeding at the rate specified in the applicable
Indebtedness) before the Holders of Subordinated Notes will be entitled to
receive any payment with respect to the Subordinated Note Obligations (except
that Holders of Subordinated Notes may receive (i) interest in additional
Subordinated Notes to the extent permitted by law, and (ii) payments made from
the trust created pursuant to Article 8 hereof); and
(b) until all Obligations with respect to Indebtedness of the
Company are paid in full in cash or cash equivalents, any distribution to which
the Holders of Subordinated Notes would be entitled shall be made to the
holders of Indebtedness of the Company (except that Holders of Subordinated
Notes may receive (i) interest in additional Subordinated Notes, and (ii)
payments made from the trust created pursuant to Article 8 hereof).
SECTION 10.03. DEFAULT ON INDEBTEDNESS.
The Company may not make any payment upon or in respect of
the Subordinated Notes, (except that Holders of Subordinated Notes may receive
(i) interest in additional Subordinated Notes, to the extent permitted by law,
and (ii) payments made from the trust created pursuant to Article 8 hereof) if:
(i) a default in the payment of the principal of or
interest or premium, if any, on any Indebtedness of
the Company (a "payment default") occurs and is
continuing beyond any applicable period of grace; or
(ii) any other default occurs and is continuing with
respect to Indebtedness of the Company that permits
holders of the Indebtedness as to which such other
default relates to accelerate its maturity and the
Trustee receives a notice of such default (a "Payment
Blockage Notice") from the Company or a Representative
with respect to such Indebtedness. Payments on the
Subordinated Notes may and shall be resumed (a) in the
case of a payment default, upon the date on which such
default is cured or waived and (b) in case of any
other default, the earlier of the date on which such
other default is cured or waived or 179 days after the
date on which the applicable Payment Blockage Notice
is received, unless the maturity of any such
Indebtedness has been accelerated. No new period of
payment blockage may be commenced unless and until 360
days have elapsed since the first day of the
effectiveness of the immediately prior Payment
Blockage Notice. No nonpayment default that existed or
was continuing on the date of delivery of any Payment
Blockage Notice to the Trustee shall be, or be made,
the basis for a subsequent Payment Blockage Notice
unless such default shall have been cured or waived
for a period of not less than 90 days.
The Company may and shall resume payments on the Subordinated Notes:
(a) in the case of payment default described in clause (i)
above, upon the date on which such default is cured or
waived, and
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(b) in case of a default described in clause (ii) above,
the earlier of the date on which such default is cured
or waived or 179 days after the date on which the
applicable Payment Blockage Notice is received, unless
the maturity of any Indebtedness has been accelerated.
SECTION 10.04. ACCELERATION OF SUBORDINATED NOTES.
The Company shall provide the names of the Representatives of
the Indebtedness of the Company to the Trustee; provided, however, that the
failure to provide such notice shall not prejudice any of the rights hereunder
of the holders of Indebtedness.
SECTION 10.05. WHEN DISTRIBUTION MUST BE PAID OVER.
In the event that the Trustee receives any payment of any
Obligations with respect to the Subordinated Note Obligations at a time when
the Trustee has received written notice at least two Business Days prior to
such payment is prohibited by Section 10.02 or 10.03 hereof, such payment shall
be held by the Trustee, for the benefit of, and shall be paid forthwith over
and delivered, upon written request to, the holders of Indebtedness of the
Company as their interest may appear or their Representative under the
indenture or other agreement (if any) pursuant to which such Indebtedness may
have been issued, as their interest may appear, for application to the payment
of all Obligations with respect to such Indebtedness remaining unpaid to the
extent necessary to pay such Obligations in full in accordance with their
terms, after giving effect to any concurrent payment or distribution to or for
the holders of such Indebtedness.
In the event that any Holder receives any payment of any
Obligations with respect to the Subordinated Note Obligations at a time when
such payment is prohibited by Section 10.02 or 10.03 hereof, such payment shall
be held by such Holder, in trust for the benefit of, and shall be paid
forthwith over and delivered, upon written request to, the holders of
Indebtedness of the Company as their interest may appear or their
Representative under the indenture or other agreement (if any) pursuant to
which such Indebtedness may have been issued, as their interest may appear, for
application to the payment of all Obligations with respect to such Indebtedness
remaining unpaid to the extent necessary to pay such Obligations in full in
accordance with their terms, after giving effect to any concurrent payment or
distribution to or for the holders of such Indebtedness.
With respect to the holders of Indebtedness of the Company,
the Trustee undertakes to perform only such obligations on the part of the
Trustee as are specifically set forth in this Article 10, and no implied
covenants or obligations with respect to the holders of such Indebtedness shall
be read into this Indenture against the Trustee. The Trustee shall not be
deemed to owe any fiduciary duty to the holders of such Indebtedness, and shall
not be liable to any such holders if the Trustee shall pay over or distribute
to or on behalf of Holders or the Company or any other Person money or assets
to which any holders of such Indebtedness shall be entitled by virtue of this
Article 10, except if such payment is made as a result of the negligence, bad
faith or willful misconduct of the Trustee.
SECTION 10.06. NOTICE BY COMPANY.
The Company shall promptly notify the Trustee and the Paying
Agent of any facts known to the Company that would cause a payment of any
Obligations with respect to the Subordinated Note Obligations to violate this
Article 10, but failure to give such notice shall not affect the subordination
of the Subordinated Note Obligations to the Indebtedness of the Company as
provided in this Article 10.
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SECTION 10.07. SUBROGATION.
After all Indebtedness of the Company is paid in full in cash
or cash equivalents and until the Subordinated Notes are paid in full, Holders
shall be subrogated (equally and ratably with all other Indebtedness pari passu
with the Subordinated Notes) to the rights of holders of such Indebtedness to
receive distributions applicable to such Indebtedness to the extent that
distributions otherwise payable to the Holders have been applied to the payment
of such Indebtedness. A distribution made under this Article 10 to holders of
Indebtedness of the Company that otherwise would have been made to Holders is
not, as between the Company and Holders, a payment by the Company on such
Indebtedness.
SECTION 10.08. RELATIVE RIGHTS.
This Article 10 defines the relative rights of the Holders
and holders of Indebtedness of the Company. Nothing in this Indenture shall:
(i) impair, as between the Company and the Holders, the
obligation of the Company, which is absolute and
unconditional, to pay principal of, interest,
premium, if any, and Liquidated Damages, if any, on
the Subordinated Notes in accordance with their
terms;
(ii) affect the relative rights of Holders and creditors
of the Company other than their rights in relation to
holders of Indebtedness of the Company; or
(iii) prevent the Trustee or any Holder from exercising its
available remedies upon a Default or an Event of
Default, subject to the rights of holders and owners
of Indebtedness of the Company to receive
distributions and payments otherwise payable to
Holders.
If the Company fails because of this Article 10 to pay
principal, interest, premium, if any, or Liquidated Damages, if any, on a
Subordinated Note on the due date (subject to grace periods provided in Section
6.01), the failure is nevertheless a Default or an Event of Default.
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SECTION 10.09. SUBORDINATION MAY NOT BE IMPAIRED BY COMPANY.
No right of any holder of Indebtedness of the Company to
enforce the subordination of the Subordinated Notes Obligations shall be
prejudiced or impaired by any act or failure to act by the Company or any
Holder or by the failure of the Company or any Holder to comply with this
Indenture.
SECTION 10.10. DISTRIBUTION OR NOTICE TO REPRESENTATIVE.
Whenever a distribution is to be made or a notice given to
holders of Indebtedness of the Company, the distribution may be made and the
notice given to their Representative.
Upon any payment or distribution of assets of the Company
referred to in this Article 10, the Trustee and the Holders shall be entitled
to rely upon any order or decree made by any court of competent jurisdiction or
upon any certificate of such Representative or of the liquidating trustee or
agent or other Person making any distribution to the Trustee or to the Holders
for the purpose of ascertaining the Persons entitled to participate in such
distribution, the holders of the Indebtedness of the Company, the amount
thereof or payable thereon, the amount or amounts paid or distributed thereon
and all other facts pertinent thereto or to this Article 10.
SECTION 10.11. RIGHTS OF TRUSTEE AND PAYING AGENT.
Notwithstanding the provisions of this Article 10 or any
other provision of this Indenture, the Trustee shall not be charged with
knowledge of the existence of any facts that would prohibit the making of any
payment or distribution by the Trustee, and the Trustee and the Paying Agent
may continue to make payments on the Notes, unless the Trustee shall have
received at its Corporate Trust Office at least two Business Days prior to the
date of such payment written notice that the payment of any Obligations with
respect to the Notes would violate this Article 10, provided, however, that
this Section 10.11 shall not limit or modify the rights of holders of
Indebtedness of the Company to recover any such payments from the Holders of
the Notes pursuant to Sections 10.02, 10.03 and/or 10.05. Only the Company or a
Representative may give such notice. Nothing in this Article 10 shall impair
the claims of, or payments to, the Trustee under or pursuant to Section 7.07
hereof.
The Trustee in its individual or any other capacity may hold
Indebtedness of the Company with the same rights it would have if it were not
Trustee. Any Agent may do the same with like rights.
SECTION 10.12. AUTHORIZATION TO EFFECT SUBORDINATION.
Each Holder of a Subordinated Note by the Holder's acceptance
thereof authorizes and directs the Trustee on the Holder's behalf to take such
action as may be necessary or appropriate to effectuate the subordination as
provided in this Article 10, and appoints the Trustee to act as the Holder's
attorney-in-fact for any and all such purposes. If the Trustee does not file a
proper proof of claim or proof of debt in the form required in any proceeding
referred to in Section 6.01(h) and (i) and Section 6.09 hereof at least 30 days
before the expiration of the time to file such claim, each Representative of
Indebtedness of the Company is hereby authorized to file an appropriate claim
for and on behalf of the Holders of the Subordinated Notes.
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SECTION 10.13. AMENDMENTS.
Any amendment to the provisions of this Article 10 shall
require the written consent of 100% of Subordinated Notes then outstanding.
SECTION 10.14. NO WAIVER OF SUBORDINATION PROVISIONS.
(a) No right of any present or future holder of any
Indebtedness of the Company to enforce subordination as herein provided shall
at any time in any way be prejudiced or impaired by any act or failure to act,
in good faith, by any such holder.
(b) Without in any way limiting the generality of paragraph
(a) of this Section, the holders of Indebtedness of the Company may, at any
time and from time to time, without the consent of or notice to the Trustee or
the Holders, without incurring responsibility to the Holders of the
Subordinated Notes and without impairing or releasing the subordination
provided in this Article or the obligations hereunder of the Holders to the
holders of such Indebtedness, do any one or more of the following: (1) change
the manner, place or terms of payment or extend the time of payment of, or
renew or alter, any such Indebtedness or any instrument evidencing the same or
any agreement under which such Indebtedness is outstanding; (2) sell, exchange,
release or otherwise deal with any property pledged, mortgaged or otherwise
securing such Indebtedness; (3) release any Person liable in any manner for the
collection of such Indebtedness; and (4) exercise or refrain from exercising
any rights against the Company and any other Person.
SECTION 10.15. CERTAIN DEFINITIONS.
For purposes of this Section 10, the terms "distribution" and
"payment" include payments, distributions and other transfers of assets by or
on behalf of the Company (including redemptions, repurchases or other
acquisitions of the Subordinated Notes) from any source, of any kind or
character, whether direct or indirect, by set-off or otherwise, whether in
cash, property or securities.
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.
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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 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 SUBORDINATED NOTES WITH OTHER
HOLDERS OF SUBORDINATED NOTES.
Holders may communicate pursuant to TIA ss. 312(b) with other
Holders with respect to their rights under this Indenture or the Subordinated
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.
69
<PAGE>
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:
(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 Subordinated Notes, this Indenture or for any claim based on,
in respect of, or by reason of, such obligations or their creation. Each Holder
of Subordinated Notes by accepting a Subordinated Note waives and releases all
such liability. The waiver and release are part of the consideration for
issuance of the Subordinated Notes. Such waiver may not be effective to waive
liabilities under the federal securities laws and it is the view of the
Commission that such a waiver is against public policy
SECTION 11.08. GOVERNING LAW.
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THE INTERNAL LAW OF THE STATE OF NEW YORK SHALL GOVERN AND BE
USED TO CONSTRUE THIS INDENTURE AND THE SUBORDINATED NOTES.
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
Subordinated Notes shall bind their respective successors. All agreements of
the Trustee in this Indenture shall bind its successors.
SECTION 11.11. SEVERABILITY.
In case any provision in this Indenture or in the
Subordinated Notes shall be invalid, illegal or unenforceable, the validity,
legality and enforceability of the remaining provisions shall not in any way be
affected or impaired thereby.
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]
71
<PAGE>
SIGNATURES
Dated as of March 12, 1998
SF HOLDINGS GROUP, INC.
By:
---------------------------
Name:
Title:
Attest:
- --------------------------------------
Name:
Title:
By:
---------------------------
Name:
Title:
<PAGE>
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 $ AGGREGATE PRINCIPAL AMOUNT OF THIS SECURITY, THE
ISSUE PRICE IS $ , THE AMOUNT OF ORIGINAL ISSUE DISCOUNT IS $ , THE
ISSUE DATE IS , 199 AND THE YIELD TO MATURITY IS 13 3/4% PER ANNUM.]
13 3/4% Series A Subordinated Notes due 2009
CUSIP No.
No. 1 $
SF HOLDINGS GROUP, INC.
promises to pay to
or registered assigns,
the principal sum of
Dollars on March 13, 2009.
Interest Payment Dates: March 15 and September 15.
Record Dates: March 1 and September 1.
Dated: , 199
SF Holdings Group, Inc.
By:
Name:
Title:
(SEAL)
This is one of the Global
Notes referred to in the
within-mentioned Indenture:
as Trustee
By:
Dated:
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<PAGE>
(Back of Note)
13 3/4% Subordinated Notes due 2009
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 AGGREGATE PRINCIPAL AMOUNT 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 (IV) THIS GLOBAL
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<PAGE>
NOTE MAY BE TRANSFERRED TO A SUCCESSOR DEPOSITARY WITH THE PRIOR WRITTEN
CONSENT OF THE COMPANY.
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
Subordinated Note at 13 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 on the Subordinated
Notes will accrue from the most recent date to which interest has been paid or,
if no interest has been paid, from , 1998. 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"). 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
Subordinated Notes (except defaulted interest) and Liquidated Damages, if any,
to the Persons who are registered Holders of Subordinated Notes at the close of
business on the March 1, June 1, September 1 or December 1 next preceding the
Interest Payment Date, even if such Subordinated Notes are canceled after such
record date and on or before such Interest Payment Date, except as provided in
Section 2.12 of the Indenture with respect to defaulted interest. Until March
15, 2003, interest on the Subordinated Notes shall be payable, at the option of
the Company, in cash or by the issuance of additional Subordinated Notes with
an aggregate principal amount equal to the amount of interest due. Thereafter,
interest on the Subordinated Notes shall be payable in cash. The Subordinated
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
Subordinated 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 Trustee under the Indenture, will act as Paying Agent
and Registrar. The Company may change any Paying Agent or Registrar without
notice to any Holder. The Company or any of its Subsidiaries may act in any
such capacity.
4. INDENTURE. The Company issued the Subordinated Notes under
an Indenture dated as of , 1999 ("Indenture") between the Company and
the Trustee. The terms of the Subordinated Notes include those stated in the
Indenture and those made part of the Indenture by reference to the Trust
Indenture Act of 1939, as amended (15 U.S. Code ss. ss. 77aaa-77bbbb). The
Subordinated Notes
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<PAGE>
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
Subordinated Note conflicts with the express provisions of the Indenture, the
provisions of the Indenture shall govern and be controlling. The Subordinated
Notes are an obligation of the Company limited to $ million in aggregate
principal amount plus such additional principal amount as may be required by
the Company to pay interest pursuant to Paragraph 2, hereof.
5. OPTIONAL REDEMPTION.
(a) Except as set forth in subparagraph (b) of this Paragraph
5, the Subordinated Notes shall not be redeemable at the Company's option prior
to March 15, 2003. Thereafter, the Subordinated 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......................................106.875%
2004......................................104.583%
2005......................................102.293%
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-half of the aggregate principal amount of Subordinated
Notes at a redemption price equal to 113.75% of the principal amount thereof,
plus Liquidated Damages thereon, if any, with the net cash proceeds of an
Equity Offering; provided that at least one-half of the original aggregate
principal amount of the Subordinated Notes remains outstanding immediately
after the occurrence of such redemption (excluding Subordinated 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 Subordinated 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 Subordinated Notes to repurchase
all or any part (equal to $1,000 or an integral multiple thereof) of such
Holder's Subordinated 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 (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 Subordinated Notes (an
"Asset Sale Offer") pursuant to Section
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<PAGE>
3.09 of the Indenture to purchase the maximum principal amount of Subordinated
Notes that may be purchased out of the Excess Proceeds, at an offer price in
cash in an amount equal to 100% of the aggregate principal amount thereof, plus
accrued and unpaid interest and Liquidated Damages thereon, if any, to the date
of purchase, 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 Subordinated Notes would cause an Event of
Default under any of the agreements governing Indebtedness of the Company. If
the aggregate purchase price of Subordinated 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 Subordinated
Notes tendered into such Asset Sale Offer by Holders thereof exceeds the amount
of Excess Proceeds, the Trustee shall select the Subordinated 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 Subordinated 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
Subordinated Notes purchased by completing the form entitled "Option of Holder
to Elect Purchase" on the reverse of the Subordinated 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 Subordinated Notes are to be redeemed at its registered address.
Subordinated Notes in denominations larger than $1,000 may be redeemed in part
but only in whole multiples of $1,000, unless all of the Subordinated Notes
held by a Holder are to be redeemed. On and after the redemption date interest
ceases to accrue on Subordinated Notes or portions thereof called for
redemption.
9. DENOMINATIONS, TRANSFER, EXCHANGE. The Subordinated Notes are in
registered form without coupons in denominations of $1,000 and integral
multiples of $1,000, except that Subordinated Notes may be issued in such
smaller denominations as is necessary for the payment of interest by the
issuance of additional Subordinated Notes pursuant to Paragraph 2 hereof. The
transfer of Subordinated Notes may be registered and Subordinated Notes may be
exchanged as provided in the Indenture. The Registrar and the Trustee may
require a Holder, among other things, to furnish appropriate endorsements and
transfer documents and the Company may require a Holder to pay any taxes and
fees required by law or permitted by the Indenture. The Company need not
exchange or register the transfer of any Subordinated Note or portion of a
Subordinated Note selected for redemption, except for the unredeemed portion of
any Subordinated Note being redeemed in part. Also, the Company need not
exchange or register the transfer of any Subordinated Notes for a period of 15
days before a selection of Subordinated Notes to be redeemed or during the
period between a record date and the corresponding Interest Payment Date.
10. PERSONS DEEMED OWNERS. The registered Holder of a Subordinated
Note may be treated as its owner for all purposes.
11. AMENDMENT, SUPPLEMENT AND WAIVER. Subject to certain exceptions,
the Indenture or the Subordinated Notes may be amended or supplemented with the
consent of the Holders of at least a majority in principal amount of the
Subordinated Notes then outstanding (including, without limitation, consents
obtained in connection with a purchase of, or tender offer or exchange offer
for, Subordinated 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 Subordinated Notes, except a
payment default resulting from an acceleration that has been rescinded) or
compliance with any provision of the Indenture or the Subordinated Notes may be
waived with the consent of the Holders of a majority in principal amount of the
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<PAGE>
then outstanding Subordinated Notes voting as a single class. Without the
consent of any Holder of Subordinated Notes, the Indenture or the Subordinated
Notes may be amended or supplemented by the Company and the Trustee to cure any
ambiguity, defect or inconsistency, to provide for uncertificated Subordinated
Notes in addition to or in place of certificated Subordinated Notes, to provide
for the assumption of the Company's obligations to Holders of the Subordinated
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 Subordinated Notes or that
does not adversely affect the legal rights under the Indenture of any such
Holder or to comply with the requirements of the 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 Subordinated Notes (whether
or not prohibited by Article 10 of the Indenture); (ii) default in payment when
due of the principal of or premium, or Liquidated Damages, if any, on the
Subordinated Notes when the same becomes due and payable at maturity, upon
redemption (including in connection with an offer to purchase) or otherwise
(whether or not prohibited by Article 10 of the Indenture); (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 (whether or not prohibited by Article 10
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 or the Subordinated Notes; (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 of the then outstanding Subordinated Notes may declare all the
Subordinated Notes to be due and payable immediately. Notwithstanding the
foregoing, in the case of an Event of Default arising from certain events of
bankruptcy or insolvency, with respect to the Company, any Significant
Subsidiary or any group of Subsidiaries that, taken together, would constitute
a Significant Subsidiary, all outstanding Subordinated Notes will become due
and payable without further action or notice. Upon any acceleration of maturity
of the Subordinated Notes, all principal of and accrued interest on and
Liquidated Damages, if any, of the Subordinated Notes shall be due and payable
immediately. Holders may not enforce the Indenture or the Subordinated Notes
except as provided in the Indenture. Subject to certain limitations, Holders of
a majority in principal amount of the then outstanding Subordinated Notes may
direct the Trustee in its exercise of any trust or power. The Trustee may
withhold from Holders of the Subordinated Notes notice of any continuing
Default or Event of Default (except a Default or Event of Default relating to
the payment of principal or interest) if it determines that withholding notice
is in their interest. The Holders of a majority in aggregate principal amount
of the Subordinated 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
Subordinated 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 Subordinated Notes (including in connection with an offer to purchase)
(provided, however, that Holders of a majority in aggregate principal amount of
the then outstanding Subordinated Notes may rescind an acceleration and its
consequences, including any related payment default that resulted from such
acceleration). The Company is required to deliver to the Trustee annually a
statement regarding compliance with the Indenture, and the Company is required
upon becoming aware of any Default or Event of Default, to deliver to the
Trustee a statement specifying such Default or Event of Default.
13. TRUSTEE DEALINGS WITH COMPANY. The Trustee, in its individual or
any other capacity, may make loans to, accept deposits from, and perform
services for the Company or its Affiliates,
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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 Subordinated Notes or the
Indenture or for any claim based on, in respect of, or by reason of, such
obligations or their creation. Each Holder of Subordinated Notes by accepting a
Subordinated Note waives and releases all such liability. The waiver and
release are part of the consideration for the issuance of the Subordinated
Notes. Such waiver may not be effective to waive liabilities under the federal
securities laws and it is the view of the Commission that such waiver is
against public policy.
15. AUTHENTICATION. This Subordinated Note shall not be valid until
authenticated by the manual signature of the Trustee or an authenticating
agent.
16. ABBREVIATIONS. Customary abbreviations may be used in the name of
a Holder or an assignee, such as: TEN COM (= tenants in common), TEN ENT (=
tenants by the entireties), JT TEN (= joint tenants with right of survivorship
and not as tenants in common), CUST (= Custodian), and U/G/M/A (= Uniform Gifts
to Minors Act).
17. ADDITIONAL RIGHTS OF HOLDERS OF RESTRICTED GLOBAL NOTES AND
RESTRICTED DEFINITIVE NOTES. In addition to the rights provided to Holders of
Subordinated 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 , 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 Subordinated Notes and the Trustee may use
CUSIP numbers in notices of redemption as a convenience to Holders. No
representation is made as to the accuracy of such numbers either as printed on
the Subordinated Notes or as contained in any notice of redemption and reliance
may be placed only on the other identification numbers placed thereon.
The Company will furnish to any Holder upon written request and
without charge a copy of the Indenture and/or the Registration Rights
Agreement. Requests may be made to:
SF Holdings Group, Inc.
115 Stevens Avenue
Valhalla, New York 10595
Attention: General Counsel
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ASSIGNMENT FORM
To assign this Subordinated Note, fill in the form below: (I) or (we) assign
and transfer this Subordinated Note to
- -----------------------------------------------------------------------------
(Insert assignee's soc. sec. or tax I.D. no.)
- -----------------------------------------------------------------------------
- -----------------------------------------------------------------------------
- -----------------------------------------------------------------------------
(Print or type assignee's name, address and zip code)
and irrevocably appoint
-----------------------------------------------------
to transfer this Subordinated Note on the books of the Company. The agent may
substitute another to act for him.
Date:
----------------------------
Your Signature:
------------------------
(Sign exactly as your name appears on
the face of this Subordinated 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.
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<PAGE>
OPTION OF HOLDER TO ELECT PURCHASE
If you want to elect to have this Subordinated 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 Subordinated 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 Subordinated 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.
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<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 of Signature of
Principal Amount Principal Amount this Global Note authorized officer
of 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>
A1-10
<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 $ AGGREGATE PRINCIPAL AMOUNT OF THIS SECURITY, THE
ISSUE PRICE IS $ THE AMOUNT OF ORIGINAL ISSUE DISCOUNT IS $
THE ISSUE DATE IS , 199 AND THE YIELD TO MATURITY IS 13 3/4% PER
ANNUM.]
13 3/4% Senior Subordinated Notes due 2009
CUSIP NO.
CINS NO.
No. 1 $
SF HOLDINGS GROUP, INC.
promises to pay to
---------------------------------
or registered assigns,
the principal sum of
---------------------------------
Dollars on March 13, 2009
Interest Payment Dates: March 15 and September 15.
Record Dates: March 1 and September 1.
Dated: , 199
SF Holdings Group, Inc.
By:
-------------------------------
Name:
Title:
This is one of the Global
Notes referred to in the [(SEAL)]
within-mentioned Indenture:
- ---------------------------------------
as Trustee
By:
---------------------------------------
Dated:
---------------------------------------
A2-1
<PAGE>
(Back of Regulation S Temporary Global Note)
13 3/4% Subordinated Notes due 2009
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.
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
Subordinated Note at 13 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 on the Subordinated
Notes will accrue from the most recent date to which interest has been paid or,
if no interest has been paid, from , 1998. 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"). The Company shall
pay interest (including post-petition interest in any proceeding under
A2-2
<PAGE>
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.
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 Subordinated Notes under the Indenture.
2. METHOD OF PAYMENT. The Company will pay interest on the
Subordinated Notes (except defaulted interest) and Liquidated Damages, if any,
to the Persons who are registered Holders of Subordinated Notes at the close of
business on the March 1 and September 1 next preceding the Interest Payment
Date, even if such Subordinated Notes are canceled after such record date and
on or before such Interest Payment Date, except as provided in Section 2.12 of
the Indenture with respect to defaulted interest. Until March 15, 2003,
interest on the Subordinated Notes shall be payable, at the option of the
Company, in cash or by the issuance of additional Subordinated Notes with an
aggregate principal amount equal to the amount of interest due. Thereafter,
interest on the Subordinated Notes shall be payable in cash. The Subordinated
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
Subordinated 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 Trustee under the Indenture, will act as Paying Agent and Registrar. The
Company may change any Paying Agent or Registrar without notice to any Holder.
The Company or any of its Subsidiaries may act in any such capacity.
4. INDENTURE. The Company issued the Subordinated Notes under
an Indenture dated as of , 199 ("Indenture") between the Company and
the Trustee. The terms of the Subordinated Notes include those stated in the
Indenture and those made part of the Indenture by reference to the Trust
Indenture Act of 1939, as amended (15 U.S. Code ss. ss. 77aaa-77bbbb). The
Subordinated 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 Subordinated Note conflicts with the express provisions of
the Indenture, the provisions of the Indenture shall govern and be controlling.
The Subordinated Notes are an obligation of the Company limited to $
million in aggregate principal amount plus such additional principal amount as
may be required by the Company to pay interest pursuant to Paragraph 2 hereof.
5. OPTIONAL REDEMPTION.
(a) Except as set forth in subparagraph (b) of this Paragraph
5, the Subordinated Notes shall not be redeemable at the Company's option prior
to March 15, 2003. Thereafter, the Subordinated
A2-3
<PAGE>
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.......................................106.875%
2004.......................................104.583%
2005.......................................102.293%
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-half of the aggregate principal amount of Subordinated
Notes at a redemption price equal to 113.75% of the principal amount thereof,
plus Liquidated Damages thereon, if any, with the net cash proceeds of an
Equity Offering; provided that at least one-half of the original aggregate
principal amount of the Subordinated Notes remains outstanding immediately
after the occurrence of such redemption (excluding Subordinated 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 Subordinated 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 Subordinated Notes to
repurchase all or any part (equal to $1,000 or an integral multiple thereof) of
such Holder's Subordinated 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 (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 Subordinated
Notes (an "Asset Sale Offer") pursuant to Section 3.09 of the Indenture to
purchase the maximum principal amount of Subordinated Notes that may be
purchased out of the Excess Proceeds, at an offer price in cash in an amount
equal to 100% of the aggregate principal amount thereof, plus accrued and
unpaid interest and Liquidated Damages thereon, if any, to the date of
purchase, 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 Subordinated Notes would cause an Event of
Default under any of the agreements governing Indebtedness of the Company. If
the aggregate purchase price of Subordinated 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 Subordinated
Notes tendered into such Asset Sale Offer by Holders thereof exceeds the amount
of Excess Proceeds, the Trustee
A2-4
<PAGE>
shall select the Subordinated 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 Subordinated 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 Subordinated Notes purchased
by completing the form entitled "Option of Holder to Elect Purchase" on the
reverse of the Subordinated Notes.
9. DENOMINATIONS, TRANSFER, EXCHANGE. The Subordinated Notes are in
registered form without coupons in denominations of $1,000 and integral
multiples of $1,000, except that Subordinated Notes may be issued in such
smaller denominations as is necessary for the payment of interest by the
issuance of additional Subordinated Notes pursuant to Paragraph 2 hereof. The
transfer of Subordinated Notes may be registered and Subordinated Notes may be
exchanged as provided in the Indenture. The Registrar and the Trustee may
require a Holder, among other things, to furnish appropriate endorsements and
transfer documents and the Company may require a Holder to pay any taxes and
fees required by law or permitted by the Indenture. The Company need not
exchange or register the transfer of any Subordinated Note or portion of a
Subordinated Note selected for redemption, except for the unredeemed portion of
any Subordinated Note being redeemed in part. Also, the Company need not
exchange or register the transfer of any Subordinated Notes for a period of 15
days before a selection of Subordinated Notes to be redeemed or during the
period between a record date and the corresponding Interest Payment Date.
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 Subordinated
Note may be treated as its owner for all purposes.
11. AMENDMENT, SUPPLEMENT AND WAIVER. Subject to certain exceptions,
the Indenture or the Subordinated Notes may be amended or supplemented with the
consent of the Holders of at least a majority in principal amount of the
Subordinated Notes then outstanding (including, without limitation, consents
obtained in connection with a purchase of, or tender offer or exchange offer
for, Subordinated 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 Subordinated Notes, except a
payment default resulting from an acceleration that has been rescinded) or
compliance with any provision of the Indenture or the Subordinated Notes may be
waived with the consent of the Holders of a majority in principal amount of the
then outstanding Subordinated Notes voting as a single class. Without the
consent of any Holder of Subordinated Notes, the Indenture or the Subordinated
Notes may be amended or supplemented by the Company and the Trustee to cure any
ambiguity, defect or inconsistency, to provide for uncertificated Subordinated
Notes in addition to or in place of certificated Subordinated Notes, to provide
for the assumption of the Company's obligations to Holders of the Subordinated
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 Subordinated Notes or that
does not adversely affect the legal rights under the Indenture of any such
Holder or to comply with the requirements of the 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
A2-5
<PAGE>
payment when due of interest on the Subordinated Notes (whether or not
prohibited by Article 10 of the Indenture); (ii) default in payment when due of
the principal of or premium, or Liquidated Damages, if any, on the Subordinated
Notes when the same becomes due and payable at maturity, upon redemption
(including in connection with an offer to purchase) or otherwise (whether or
not prohibited by Article 10 of the Indenture); (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 (whether or not prohibited by Article 10 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 or the Subordinated
Notes; (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 of the then
outstanding Subordinated Notes may declare all the Subordinated Notes to be due
and payable immediately. Notwithstanding the foregoing, in the case of an Event
of Default arising from certain events of bankruptcy or insolvency, with
respect to the Company, any Significant Subsidiary or any group of Subsidiaries
that, taken together, would constitute a Significant Subsidiary, all
outstanding Subordinated Notes will become due and payable without further
action or notice. Upon any acceleration of maturity of the Subordinated Notes,
all principal of and accrued interest on and Liquidated Damages, of the
Subordinated Notes shall be due and payable immediately. Holders may not
enforce the Indenture or the Subordinated Notes except as provided in the
Indenture. Subject to certain limitations, Holders of a majority in principal
amount of the then outstanding Subordinated Notes may direct the Trustee in its
exercise of any trust or power. The Trustee may withhold from Holders of the
Subordinated Notes notice of any continuing Default or Event of Default (except
a Default or Event of Default relating to the payment of principal or interest)
if it determines that withholding notice is in their interest. The Holders of a
majority in aggregate principal amount of the Subordinated 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 Subordinated 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 Subordinated Notes (including in
connection with an offer to purchase) (provided, however, that Holders of a
majority in aggregate principal amount of the then outstanding Subordinated
Notes may rescind an acceleration and its consequences, including any related
payment default that resulted from such acceleration). The Company is required
to deliver to the Trustee annually a statement regarding compliance with the
Indenture, and the Company is required upon becoming aware of any Default or
Event of Default, to deliver to the Trustee a statement specifying such Default
or Event of Default.
13. TRUSTEE DEALINGS WITH COMPANY. The Trustee, in its individual or
any other capacity, may make loans to, accept deposits from, and perform
services for the Company or its Affiliates, and may otherwise deal with the
Company or its Affiliates, as if it were not the Trustee.
14. NO RECOURSE AGAINST OTHERS. No director, officer, employee,
incorporator or stockholder, of the Company, as such, shall have any liability
for any obligations of the Company under the Subordinated Notes or the
Indenture or for any claim based on, in respect of, or by reason of, such
obligations or their creation. Each Holder of Subordinated Notes by accepting a
Subordinated Note waives and releases all such liability. The waiver and
release are part of the consideration for the issuance of the Subordinated
Notes. Such waiver may not be effective to waive liabilities under the federal
securities laws and it is the view of the Commission that such waiver is
against public policy.
15. AUTHENTICATION. This Subordinated Note shall not be valid until
authenticated by
A2-6
<PAGE>
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
Subordinated 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 , 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 Subordinated Notes and the Trustee may use
CUSIP numbers in notices of redemption as a convenience to Holders. No
representation is made as to the accuracy of such numbers either as printed on
the Subordinated Notes or as contained in any notice of redemption and reliance
may be placed only on the other identification numbers placed thereon.
A2-7
<PAGE>
The Company will furnish to any Holder upon written request and without charge
a copy of the Indenture and/or the Registration Rights Agreement. Requests may
be made to:
SF Holdings Group, Inc.
115 Stevens Avenue
Valhalla, New York 10595
Attention: General Counsel
A2-8
<PAGE>
To assign this Subordinated Note, fill in the form below: (I) or (we) assign
and transfer this Subordinated Note to
- ------------------------------------------------------------------------------
(Insert assignee's soc. sec. or tax I.D. no.)
- ------------------------------------------------------------------------------
- ------------------------------------------------------------------------------
- ------------------------------------------------------------------------------
(Print or type assignee"s name, address and zip code)
and irrevocably appoint
-------------------------------------------------------
to transfer this Subordinated Note on the books of the Company. The agent may
substitute another to act for him.
Date:
---------------------------------------
Your Signature:
---------------------------------
(Sign exactly as your name appears
on the face of this Subordinated
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.
A2-9
<PAGE>
OPTION OF HOLDER TO ELECT PURCHASE
If you want to elect to have this Subordinated 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 Subordinated 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 Subordinated
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.
A2-10
<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>
Principal Amount
Amount of decrease in Amount of increase in of Signature of
Principal Amount Principal Amount this Global Note authorized officer
of 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>
A2-11
<PAGE>
EXHIBIT B
FORM OF CERTIFICATE OF TRANSFER
SF Holdings Group, Inc.
115 Stevens Avenue
Valhalla, New York 10595
[Trustee]
Re: Subordinated Notes due 2009
Reference is hereby made to the Indenture, dated as of
, 199__ (the "Indenture"), between SF Holdings Group, Inc., as
issuer (the "Company"), and 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 Subordinated Note[s] or interest in such Subordinated Note[s]
specified in Annex A hereto, in the principal amount of $ in such
Subordinated 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 Rule 903(b) or Rule 904(b) of Regulation S under
B-1
<PAGE>
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 Subordinated 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.
[ ]
(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
B-2
<PAGE>
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
[Trustee]
Re: Subordinated 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 , 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
Subordinated Note[s] or interest in such Subordinated Note[s] specified herein,
in the principal amount of $____________ in such Subordinated 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) 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
C-1
<PAGE>
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.
[ ]
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-2
<PAGE>
EXHIBIT D
FORM OF CERTIFICATE FROM
ACQUIRING INSTITUTIONAL ACCREDITED INVESTOR
SF Holdings Group, Inc.
115 Stevens Avenue
Valhalla, New York 10595
[Trustee]
Re: Subordinated Notes due 2009
Reference is hereby made to the Indenture, dated as of , 1998
(the "Indenture"), between SF Holdings Group, Inc., as
issuer (the "Company"), and , 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 Subordinated
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 Subordinated 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 Subordinated Notes
have not been registered under the Securities Act, and that the Subordinated
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 Subordinated 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 Subordinated 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,
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
D-1
<PAGE>
advising such purchaser that resales thereof are restricted as stated herein.
3. We understand that, on any proposed resale of the Subordinated
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
Subordinated Notes purchased by us will bear a legend to the foregoing effect.
We further understand that any subsequent transfer by us of the Subordinated
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
Subordinated 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 Subordinated 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>
- -------------------------------------------------------------------------------
SF HOLDINGS GROUP, INC.
SERIES A AND SERIES B
13 3/4% SUBORDINATED NOTES DUE 2009
INDENTURE
-------------------------
Dated as of , 199
------------------------
------------------------
Trustee
E-1
<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>
<CAPTION>
TABLE OF CONTENTS
<S> <C> <C>
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. 15
SECTION 1.04....................................RULES OF CONSTRUCTION. 16
ARTICLE 2.
THE SUBORDINATED NOTES.......................................................... 16
SECTION 2.01. FORM AND DATING....................................................16
SECTION 2.03...............................REGISTRAR AND PAYING AGENT. 18
SECTION 2.04......................PAYING AGENT TO HOLD MONEY IN TRUST. 18
SECTION 2.05.............................................HOLDER LISTS. 19
SECTION 2.06....................................TRANSFER AND EXCHANGE. 19
SECTION 2.07...........................REPLACEMENT SUBORDINATED NOTES. 31
SECTION 2.08...........................OUTSTANDING SUBORDINATED NOTES. 31
SECTION 2.09..............................TREASURY SUBORDINATED NOTES. 32
SECTION 2.10.............................TEMPORARY SUBORDINATED NOTES. 32
SECTION 2.11.............................................CANCELLATION. 32
SECTION 2.12.......................................DEFAULTED INTEREST. 33
ARTICLE 3.
REDEMPTION AND PREPAYMENT........................................................33
SECTION 3.01. NOTICES TO TRUSTEE.................................................33
SECTION 3.02...........SELECTION OF SUBORDINATED NOTES TO BE REDEEMED. 33
SECTION 3.03.....................................NOTICE OF REDEMPTION. 34
SECTION 3.04...........................EFFECT OF NOTICE OF REDEMPTION. 34
SECTION 3.05..............................DEPOSIT OF REDEMPTION PRICE. 35
SECTION 3.06......................SUBORDINATED NOTES REDEEMED IN PART. 35
SECTION 3.07......................................OPTIONAL REDEMPTION. 35
SECTION 3.08.....................................MANDATORY REDEMPTION. 36
SECTION 3.09........................................REPURCHASE OFFERS. 36
ARTICLE 4.
COVENANTS........................................................................38
SECTION 4.01. PAYMENT OF SUBORDINATED NOTES......................................38
SECTION 4.02..........................MAINTENANCE OF OFFICE OR AGENCY. 38
SECTION 4.03..................................................REPORTS. 39
SECTION 4.04...................................COMPLIANCE CERTIFICATE. 39
Section 4.05. Taxes............................................................. 40
SECTION 4.06...........................STAY, EXTENSION AND USURY LAWS. 40
SECTION 4.07......................................RESTRICTED PAYMENTS. 40
i
<PAGE>
SECTION 4.08..DIVIDEND AND OTHER PAYMENT RESTRICTIONS AFFECTING SUBSIDIARIES. 42
SECTION 4.09. ....INCURRENCE OF INDEBTEDNESS AND ISSUANCE OF PREFERRED STOCK. 43
SECTION 4.10..................................ASSET SALES AND EVENTS OF LOSS. 45
SECTION 4.11....................................TRANSACTIONS WITH AFFILIATES. 46
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. 47
SECTION 4.16.LIMITATION ON ISSUANCES AND SALES OF CAPITAL STOCK IN WHOLLY
OWNED RESTRICTED SUBSIDIARIES................................. 47
SECTION 4.17............................................PAYMENTS FOR CONSENT. 48
ARTICLE 5.
SUCCESSORS............................................................................. 48
SECTION 5.01........................MERGER, CONSOLIDATION, OR SALE OF ASSETS. 48
SECTION 5.02...............................SUCCESSOR CORPORATION SUBSTITUTED. 49
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. 52
SECTION 6.06.............................................LIMITATION ON SUITS. 52
SECTION 6.07......RIGHTS OF HOLDERS OF SUBORDINATED 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. 54
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 SUBORDINATED 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.
ii
<PAGE>
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
ARTICLE 9.
AMENDMENT, SUPPLEMENT AND WAIVER ...................................................... 62
SECTION 9.01...............WITHOUT CONSENT OF HOLDERS OF SUBORDINATED NOTES. 62
SECTION 9.02..................WITH CONSENT OF HOLDERS OF SUBORDINATED 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 SUBORDINATED NOTES. 65
SECTION 9.06...............................TRUSTEE TO SIGN AMENDMENTS, ETC. 65
ARTICLE 10
SUBORDINATION...................................................................................... 65
SECTION 10.01. ...........................................AGREEMENT TO SUBORDINATE. 65
SECTION 10.02. ...............................LIQUIDATION; DISSOLUTION; BANKRUPTCY. 65
SECTION 10.03. ............................................DEFAULT ON INDEBTEDNESS. 66
SECTION 10.04. .................................ACCELERATION OF SUBORDINATED NOTES. 67
SECTION 10.05. ................................WHEN DISTRIBUTION MUST BE PAID OVER. 67
SECTION 10.06. ..................................................NOTICE BY COMPANY. 68
SECTION 10.07. ........................................................SUBROGATION. 68
SECTION 10.08. ....................................................RELATIVE RIGHTS. 68
SECTION 10.09. .......................SUBORDINATION MAY NOT BE IMPAIRED BY COMPANY. 68
SECTION 10.10. ...........................DISTRIBUTION OR NOTICE TO REPRESENTATIVE. 69
SECTION 10.11. .................................RIGHTS OF TRUSTEE AND PAYING AGENT. 69
SECTION 10.12. ..............................AUTHORIZATION TO EFFECT SUBORDINATION. 69
SECTION 10.13. .........................................................AMENDMENTS. 69
SECTION 10.14. ..............................NO WAIVER OF SUBORDINATION PROVISIONS. 70
SECTION 10.15. ................................................CERTAIN DEFINITIONS. 70
ARTICLE 11.
MISCELLANEOUS.......................................................................................70
SECTION 11.01. .......................................TRUST INDENTURE ACT CONTROLS. 70
SECTION 11.02. ............................................................NOTICES. 70
SECTION 11.03. COMMUNICATION BY HOLDERS OF SUBORDINATED NOTES WITH OTHER HOLDERS
OF SUBORDINATED NOTES............................................. 71
SECTION 11.04. .................CERTIFICATE AND OPINION AS TO CONDITIONS PRECEDENT. 71
SECTION 11.05. ......................STATEMENTS REQUIRED IN CERTIFICATE OR OPINION. 72
SECTION 11.06. ........................................RULES BY TRUSTEE AND AGENTS. 72
iii
<PAGE>
SECTION 11.07. NO PERSONAL LIABILITY OF DIRECTORS, OFFICERS, EMPLOYEES AND
...............................................STOCKHOLDERS. 72
SECTION 11.08. ....................................................GOVERNING LAW. 72
SECTION 11.09. ....................NO ADVERSE INTERPRETATION OF OTHER AGREEMENTS. 73
SECTION 11.10. .......................................................SUCCESSORS. 73
SECTION 11.11. .....................................................SEVERABILITY. 73
SECTION 11.12. ............................................COUNTERPART ORIGINALS. 73
SECTION 11.13. .................................TABLE OF CONTENTS, HEADINGS, ETC. 73
iv
</TABLE>
<PAGE>
EXECUTION COPY
STOCKHOLDERS AGREEMENT
THIS STOCKHOLDERS AGREEMENT is made as of March 20, 1998, by
and between SF Holdings Group, Inc., a Delaware corporation (the "Company"),
and Bear, Stearns & Co. Inc. (the "Initial Purchaser"), on behalf of the
holders of the Securities (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, the stockholders of the Company set forth on
Schedule I hereto (the "Selling Stockholders") and the Initial Purchaser
entered into a Purchase Agreement dated March 11, 1998 (the "Purchase
Agreement") pursuant to which the Selling Stockholders have agreed to sell to
the Initial Purchaser the Share Units (the "Units"), consisting of 3,000 shares
of 13 3/4% Exchangeable Preferred Stock due 2009 (the "Preferred Stock") and
111,000 shares (the "Shares") of Class C Common Stock, par value $.001 per
share (the "Class C Common Stock"), of the Company.
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).
Exchange Notes. The Company's 13 3/4% Subordinated Notes
due 2009 to be issued, if at all, in exchange for the Preferred Stock.
Initiating Holder. As defined in Section 2.2(a).
New Notes. The Company's 13 3/4% Subordinated Notes due
2009 to be issued, if at all, in exchange for the Exchange Notes pursuant to
the Registration Rights Agreement.
New Preferred Stock. The Company's 13 3/4% Exchangeable
Preferred Stock due 2009 to be issued, if at all, in exchange for the Preferred
Stock pursuant to the Registration Rights Agreement.
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.
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Registration Rights Agreement. The Registration Rights
Agreement, dated as of March 20, 1998, by and between the Company and the
Initial Purchaser.
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.
Securities. The Units, the Preferred Stock, the New
Preferred Stock, the Exchange Notes, the New Notes and the Shares.
Stockholder. As defined in the preamble to this Agreement.
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
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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
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.
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(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 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
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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 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
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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 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
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(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 (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
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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 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
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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, 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.
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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, 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.
SECTION 3.11. ISSUANCE OF CERTIFICATED SECURITIES. Each of the Securities will
be issued in global
11
<PAGE>
form (the "Global Securities"), registered in the name of Cede & Co., as
nominee of the Depository Trust Company, having an aggregate amount or
liquidation preference, as applicable, corresponding to the aggregate amount or
liquidation preference, as applicable, on the date of issuance. Any holder of a
beneficial interest in a Global Security may, upon request, exchange such
beneficial interest for a Security in certificated form (a "Certificated
Security").
12
<PAGE>
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:
BEAR, STEARNS & CO. INC.
By: /s/ James C. Deir
---------------------------------
Name: James C. Deir
Title:
13
<PAGE>
SCHEDULE I
American Industrial Partners Capital Fund, L.P.
Mellon Bank, N.A., as Trustee for First Plaza Group Trust
Leewsay & Co.
Donald W. Davis
Robert J. Klein
Thomas H. Barrett
Kenneth A. Pereira
Lawrence W. Ward, Jr.
William F. McLaughlin
14
<PAGE>
EXHIBIT 12.1
PRO FORMA COMPUTATION OF EARNINGS TO COMBINED FIXED CHARGES AND
PREFERRED STOCK DIVIDENDS COVERAGE DEFICIENCY FOR 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)
Combined Fixed charges and Preferred
dividends from below 76,857 40,279 78,269
Less: Interest capitalized (748) (274) (702)
Less: Preferred dividends (7,276) (3,638) (7,276)
-------- -------- --------
Total earnings (numerator) $ 2,792 $(10,032) $ 14,619
Fixed charges and preferred stock dividends:
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
Preferred Stock dividends- 4,220 2,110 4,220
-------- -------- --------
Adjusted to pre-tax amount 7,276 3,638 7,276
-------- -------- --------
Combined fix charges and
preferred stock dividends $ 76,857 $ 40,279 $ 78,269
======== ======== ========
Coverage deficiency $ 74,065 $ 50,311 $ 63,650
======== ======== ========
</TABLE>
<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 30, 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 30, 1998
