As filed with the Securities and Exchange Commission
on _______, 1999
REGISTRATION NO. 333 --
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
----------------------
FORM S-4
REGISTRATION STATEMENT UNDER
THE SECURITIES ACT OF 1933
------------------------
MIDDLE AMERICAN TISSUE INC.
(Exact name of registrant as specified in its charter)
Delaware 2621 52-2181338
(State or other (Primary S.I.C. (I.R.S. Employer
jurisdiction of Code Number) Identification No.)
Incorporation or
organization)
135 Engineers Road
Hauppauge, New York 11788
(516) 435-9000
(Address, including zip code, and telephone number, including area code,
of registrant's principal executive offices)
------------------------
Edward I. Stein
Executive Vice President
and Chief Financial Officer
135 Engineers Road
Hauppauge, New York 11788
(516) 435-9000
(Name, address, including zip code, and telephone number,
including area code, of agent for service)
------------------------
copies to:
Nicholas J. Kaiser, Esq.
Mandel & Resnik P.C.
220 East 42nd Street
New York, New York 10017
(212) 573-0093
------------------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon
as practicable after this Registration Statement becomes effective.
<PAGE>
If the securities being registered on this form are being offered in connection
with the formation of a holding company and there is compliance with General
Instruction G, check the following box: [ ]
If this form is filed to register additional securities for an offering pursuant
to Rule 462(b) under the Securities Act, please check the following box and list
the Securities Act Registration Statement number of the earlier effective
registration statement for the same offering: [ ]
If this form is a post-effective amendment filed pursuant to Rule 462(d) under
the Securities Act, check the following box and list the Securities Act
Registration Statement number of the earlier effective registration statement
for the same offering: [ ]
CALCULATION OF REGISTRATION FEE
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MAXIMUM MAXIMUM PROPOSED
TITLE OF EACH CLASS OF OFFERING AGGREGATE AMOUNT OF
SECURITIES TO BE AMOUNT TO BE PRICE OFFERING REGISTRATION
REGISTERED REGISTERED PER UNIT PRICE(*) FEE
---------------------- ----------- -------- --------- ------------
15% Series B Senior
Secured Discount
Notes due 2007 $16,716,712.25 $447.48 $16,716,712.25 $4,647.25
================================================================================
(*) Estimated solely for the purpose of calculating the registration fee in
accordance with Rule 457(f)(2) based upon the book value of the securities
as of October 26, 1999.
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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 this registration statement shall become
effective on such date as the Commission, acting pursuant to said section 8(a),
may determine.
<PAGE>
SUBJECT TO COMPLETION, DATED , 1999
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Prospectus
______, 1999
Middle American Tissue Inc.
Offer for all outstanding 15% Series A Senior Secured Discount Notes due 2007 in
exchange for 15% Series B Senior Secured Discount Notes Due 2007
The exchange offer will expire at 5:00 p.m., New York City time on
unless extended.
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We will not receive any proceeds from the exchange of these notes.
The Company:
o We are a leading integrated manufacturer of tissue products in North
America, with a comprehensive product line that includes jumbo tissue rolls
for converting and converted tissue products for end-use.
o Middle American Tissue Inc.
135 Engineers Road
Hauppauge, New York 11788
(516) 435-9000
The Exchange Offer:
o Offer for $35,755,788 face amount of outstanding 15% Series A Senior
Secured Discount Notes due 2007 in exchange for the same face amount of
Series B Senior Secured Discount Notes due 2007
o The terms of the exchange notes are identical in all material respects to
the terms of the outstanding old notes, except for certain transfer
restrictions and registration rights pertaining to the old notes.
o This exchange offer will expire at 5:00 p.m., New York City time on ,
unless extended.
Proposed Trading Format:
o The PORTAL MARKET or directly with qualified buyers.
Terms of the Exchange Notes:
o Maturity: July 15, 2007.
o Accreted Interest:
o Annual rate of 15% (compounded semi-annually).
o Accretes interest from July 9, 1999 until July 15, 2003.
o Cash Interest:
o Fixed annual rate of 15%,
o Accrues from July 15, 2003 until maturity, unless exchange notes are
sooner redeemed or repurchased.
o Paid every six months in cash on January 15 and July 15, commencing on
July 15, 2004.
Redemption:
o We can redeem the exchange notes at any time from July 9, 2000 through July
9, 2001 and on or after July 15, 2003.
o Prior to July 15, 2003, we can redeem up to 35% of the exchange notes with
the net proceeds from certain sales of our common stock.
o We may be required to redeem the exchange notes if one of the initial
purchasers of the old notes exercises its option to require us to
repurchase certain common stock purchase warrants we issued to such initial
purchasers together with the old notes.
o Holders of the exchange notes may also require us to redeem all or part of
such holders' exchange notes if we experience certain change of control
events or if we sell certain of our assets.
Security:
These exchange notes will be secured by a first priority lien on all of the
common stock of our subsidiary, American Tissue Inc. Ranking:
o These exchange notes rank effectively ahead of all of our current and
future senior unsecured indebtedness to the extent of the assets securing
the exchange notes.
o The exchange notes are structurally subordinated to indebtedness of our
subsidiaries and assets of our subsidiaries securing such indebtedness.
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THIS INVESTMENT INVOLVES RISK. SEE "RISK FACTORS" BEGINNING ON PAGE 15
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Neither the Securities and Exchange Commission nor any state securities
commission has approved or disapproved of the exchange notes or determined if
this prospectus is truthful or complete. Any representation to the contrary is a
criminal offense.
THE INFORMATION IN THIS PROSPECTUS IS NOT COMPLETE AND MAY BE CHANGED. WE MAY
NOT SELL THESE SECURITIES UNTIL THE REGISTRATION STATEMENT FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION IS EFFECTIVE. THIS PROSPECTUS IS NOT AN OFFER
TO SELL THESE SECURITIES AND IS NOT SOLICITING AN OFFER TO BUY THESE SECURITIES
IN ANY STATE WHERE THE OFFER OR SALE IS NOT PERMITTED.
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<PAGE>
THIS PROSPECTUS INCORPORATES BY REFERENCE DOCUMENTS THAT ARE NOT CONTAINED IN OR
DELIVERED WITH THIS PROSPECTUS. THESE DOCUMENTS ARE AVAILABLE WITHOUT CHARGE
FROM EDWARD I. STEIN, EXECUTIVE VICE PRESIDENT AND CHIEF FINANCIAL OFFICER, AT
MIDDLE AMERICAN TISSUE INC., 135 ENGINEERS ROAD, HAUPPAUGE, NEW YORK 11788,
TELEPHONE NUMBER (516) 435-9000. TO ENSURE TIMELY DELIVERY OF DOCUMENTS, ANY
REQUEST SHOULD BE MADE BY .
TABLE OF CONTENTS
Page
----
Prospectus Summary...................................................... 1
Risk Factors............................................................ 15
The Exchange Offer...................................................... 25
Use of Proceeds......................................................... 33
Capitalization.......................................................... 33
Unaudited Pro Forma Consolidated Financial Data......................... 36
Selected Historical Financial Data...................................... 44
Management's Discussion and Analysis of Financial....................... 47
Condition and Results of Operations..................................... 47
Industry Overview....................................................... 58
Business................................................................ 61
Management.............................................................. 71
Principal Stockholders.................................................. 73
Certain Related Party Transactions...................................... 75
Description of Certain Indebtedness..................................... 77
Description of Exchange Notes........................................... 80
Certain United States Income Tax Considerations......................... 115
Plan of Distribution.................................................... 117
Legal Matters........................................................... 118
Experts................................................................. 119
Independent Auditors.................................................... 119
Change in Certifying Accountants........................................ 119
Available Information................................................... 119
Index to Financial Statements........................................... F-1
MARKET AND INDUSTRY DATA
Market data and certain industry forecasts used throughout this prospectus
were obtained from internal surveys, market research, publicly available
information and industry publications. Industry publications generally state
that the information contained therein has been obtained from sources believed
to be reliable, but that the accuracy and completeness of such information is
not guaranteed. Similarly, internal surveys, industry forecasts and market
research, while believed to be reliable, have not been independently verified,
and we make no representations as to the accuracy of such information.
DISCLOSURE REGARDING FORWARD-LOOKING STATEMENTS
Some of the statements made in this prospectus are forward-looking in
nature. The occurrence of the events described, and the achievement of the
intended results, are subject to the future occurrence of many events, some or
all of which are not predictable or within our control. Therefore, actual
results may differ materially from those anticipated in any forward-looking
statements. Many risks and uncertainties are inherent in the paper industry;
others are more specific to our business. Many of the significant risks related
to our business are described in this prospectus, including risks associated
with the cyclical nature of the industry, fluctuation with supply and cost of
raw materials, the highly competitive industry and stringent environmental
regulations.
i
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PROSPECTUS SUMMARY
The following is a summary of the more detailed information appearing
elsewhere in this prospectus. This prospectus includes specific terms of the
exchange offer and the exchange notes we are offering, as well as information
regarding our business and detailed financial data. You should read the entire
prospectus, including "Risk Factors" and the financial statements (including all
the notes thereto) included herein.
Unless the context otherwise requires, "we," "our," or "us," as well as
"Middle American Tissue," refer to Middle American Tissue Inc. and all of our
consolidated subsidiaries and "American Tissue" refers to our subsidiary,
American Tissue Inc. References to a "fiscal" year are to our fiscal year, which
ends on September 30 (e.g., "fiscal 1998" means our fiscal year ended September
30, 1998). The "LTM Period" refers to the 12 months ended March 31, 1999. The
"Transactions" refers to the repayment of certain of our debt, our acquisition
of the Berlin-Gorham Mills and to the financing thereof pursuant to private
offerings of our 15% Series A senior secured discount notes and the 12 1/2%
Series A senior secured notes of American Tissue, borrowings under American
Tissue's New Credit Facility and an equity contribution from our direct parent.
References (a) to the "old notes," are to our outstanding 15% Series A senior
secured discount notes, (b) to the "exchange notes," are to our 15% Series B
senior secured discount notes offered hereby, (c) to the "Notes," are to the old
notes and the exchange notes, collectively, and (d) to the "American Tissue
notes," are to the 12 1/2% series A senior secured notes of American Tissue.
THE OLD NOTE OFFERING
Old Notes ........... We sold the old notes in a private offering on July 9,
1999.
Registration Rights
Agreement ........... We and the initial purchasers of the old notes entered
into a registration rights agreement on July 9, 1999.
This agreement grants exchange and registration rights to
holders of the old notes. This exchange offer is intended
to satisfy these rights, which terminate upon the
consummation of the exchange offer.
THE EXCHANGE OFFER
Securities Offered .. Up to $35,755,788 face amount of 15% Series B senior
secured discount notes due 2007. The terms of the
exchange notes are substantially identical to the old
notes, except that certain transfer restrictions and
registration rights relating to the old notes do not
apply to the exchange notes.
The Exchange Offer .. We are offering to exchange the exchange notes for the
old notes. You may tender your old notes by following the
procedures described in this prospectus under the heading
"The Exchange Offer."
Expiration Date ..... Our exchange offer will expire at 5:00 p.m., New York
City time, on , unless we extend it.
Withdrawal
Rights .............. You may withdraw your tender of old notes at any time
prior to the expiration date. Any old notes not accepted
by us for exchange for any reason will be returned to you
without expense as promptly as possible.
Conditions of the
Exchange Offer ...... The exchange offer is subject to customary conditions,
which we may waive. Please read "The Exchange Offer --
Conditions to the Exchange Offer" section of this
prospectus for more information regarding conditions of
the exchange offer.
Procedures for
Tendering Old Notes . Each holder of old notes wishing to accept our exchange
offer must either:
(a) complete, sign and date the accompanying letter of
transmittal, or a facsimile thereof, and mail or
otherwise deliver the letter of transmittal (or a
facsimile), together with your old notes and any
other required
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documents, to the exchange agent at the
address shown under "The Exchange Offer --
Exchange Agent;" or
(b) in connection with a book-entry transfer of old
notes, arrange for The Depository Trust Company to
transmit the required information to our exchange
agent.
By tendering your old notes in this manner, you will be
representing, among other things, that:
o the exchange notes being acquired by you in the
exchange offer are being acquired in the ordinary
course of your business;
o you are not participating, do not intend to
participate, and have no arrangement or
understanding with any person to participate, in
the distribution of the exchange notes issued to
you in our exchange offer; and
o you are not our "affiliate."
Federal Income Tax
Consequences ........ Your exchange of old notes for exchange notes in
accordance with the exchange offer should not result in
any gain or loss to you for federal income tax purposes.
See the "Certain United States Income Tax Considerations"
section of this prospectus.
Consequences of
Failure
to Exchange ......... Old notes that are not tendered or that are tendered, but
not accepted, will be subject to the existing transfer
restrictions on the old notes after the exchange offer.
We will have no further obligation, subject to certain
exceptions, to register the old notes. If you do not
participate in our exchange offer, the liquidity of your
old notes could be adversely affected.
Procedures for
Beneficial Owners ... If you are a beneficial owner of old notes registered in
the name of a broker, dealer or other nominee and you
wish to tender your old notes, you should contact the
person in whose name your old notes are registered and
promptly instruct the person to tender those old notes on
your behalf.
Guaranteed
Delivery Procedures . If you wish to tender your old notes and time will not
permit your required documents to reach our exchange
agent by the expiration date, or the procedure for
book-entry transfer cannot be completed on time, you may
tender your old notes according to the guaranteed
delivery procedures. See "The Exchange Offer --
Guaranteed Delivery Procedures."
Acceptance of
Old Notes;
Delivery of
Exchange Notes ...... Subject to certain conditions, we will accept old notes
which are properly tendered in our exchange offer and are
not withdrawn before the expiration date of our exchange
offer. The exchange notes will be delivered as promptly
as practicable following the expiration date.
Use of Proceeds ..... We will not receive any proceeds from the exchange offer.
Exchange Agent ...... The Chase Manhattan Bank is the exchange agent for our
exchange offer.
EXCHANGE NOTES
The terms of the exchange notes are identical in all material respects to
the terms of the old notes, except that the old notes differed with respect to
their transfer restrictions and registration rights.
Issuer .............. Middle American Tissue
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Total Amount of
Exchange Notes ...... Up to $35,755,788 face amount of our 15% Series B senior
secured discount notes due 2007.
Maturity Date ....... July 15, 2007.
Interest ............ The exchange notes will accrete interest at the rate of
15% per annum (compounded semi-annually) from July 9,
1999 until July 15, 2003 and will accrue cash interest at
the rate of 15% per annum from July 15, 2003, payable
every six months in cash on January 15 and July 15,
commencing January 15, 2004.
Original Issue
Discount ............ For U.S. federal income tax purposes, the exchange notes
will be treated as having been issued with "original
issue discount" equal to the excess of the principal
amount of the old notes at July 15, 2003 and the issue
price of the old notes. See "Certain United States Tax
Consideration."
Optional Redemption . We may redeem the exchange notes:
o in whole but not in part, on or after July 9, 2000
through July 9, 2001 at 105.0% of their Accreted
Value (as defined under "Description of Notes --
Certain Definitions") as of the redemption date;
o in whole or in part, on or after July 15, 2003, at
the redemption prices set forth in the
"Description of Exchange Notes -- Optional
Redemption" section of this prospectus, plus
accrued and unpaid interest to the applicable
redemption date.
In addition, before July 15, 2002, we may redeem up to
35% of the exchange notes and the old notes at 115.0% of
their Accreted Value as of the redemption date, with the
net cash proceeds of certain sales of our common stock.
If less than 65% of the exchange notes and the old notes
will remain outstanding immediately after such
redemption, we may not effect the redemption. As a
condition of effecting such redemption, we must effect
the redemption no later than 90 days after the
consummation of any such equity offering. See
"Description of Exchange Notes -- Optional Redemption."
Repurchase
Obligations ......... If we sell certain of our assets or certain change of
control events occur, each holder of the exchange notes
may require us to repurchase all or a portion of its
exchange notes at 101% (100% in the case of an asset
sale) of their Accreted Value as of the redemption date
or the oustanding principal amount thereof (depending on
when the repurchase occurs), plus accrued and unpaid
interest if any. See "Description of Exchange Notes --
Certain Covenants -- Asset Sales" and "-- Change of
Control."
Mandatory
Redemption .......... We may be required to redeem all of the exchange notes at
105.0% of their Accreted Value as of the redemption date
if prior to July 9, 2001, one of the initial purchasers
of the old notes exercises its option under the
stockholders agreement among us, our direct parent, the
stockholders of our direct parent and the initial
purchasers of the old notes to require us to repurchase
certain common stock purchase warrants sold to such
initial purchasers in connection with their purchase of
the old notes and such option is not withdrawn as
permitted by the stockholders agreement.
Collateral .......... The exchange notes will be secured by a first priority
lien on all of the common stock of our subsidiary,
American Tissue. See "Risk Factors -- The Value Of Your
Security Interest In The Collateral Is Uncertain" and
"Description of Exchange Notes -- Ranking and Security."
Ranking ............. The exchange notes will be senior secured obligations as
to us and will be structurally subordinated to
indebtedness of our subsidiaries and any assets of
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our subsidiaries securing such indebtedness (as are the
old notes). The exchange notes rank:
o effectively ahead of all of our existing and
future senior unsecured debt and junior debt to
the extent of the assets securing the exchange
notes;
o equal, in right of payment, with all of our
existing and future unsubordinated debt; and
o ahead, in right of payment, of any of our debt
that is subordinated to the exchange notes.
As of June 30, 1999, giving effect to the Transactions
described below under "--The Transactions," our total
consolidated debt, other than the old notes, would have
been approximately $192.3 million, including $9.9 million
under American Tissue's New Credit Facility (excluding
unused commitments of approximately $90.1 million),
approximately $159.5 million under the American Tissue
notes and approximately $22.9 million of certain mortgage
and other debt.
Certain Covenants ... The indenture governing the exchange notes contains
covenants that, among other things, will limit our
ability and the ability of certain of our subsidiaries
to:
o pay dividends on, redeem or repurchase our capital
stock;
o make investments;
o incur additional indebtedness;
o permit payment or dividend restrictions on certain
of our subsidiaries;
o sell assets;
o create certain liens;
o engage in certain transactions with affiliates;
and
o consolidate, merge or sell all or substantially
all of our assets and the assets of our
subsidiaries.
Transfer Restrictions The exchange notes are new securities, and there is
currently no established market for them. We do not
intend to list the exchange notes on any securities
exchange.
Use of Proceeds ..... We will not receive any proceeds from our exchange offer.
The net proceeds we received from the sale of the old
notes, together with the proceeds of the sale of the
American Tissue notes, the proceeds of borrowing under
American Tissue's New Credit Facility and the proceeds of
an equity contribution by our direct parent, were used
to:
o acquire the Berlin-Gorham Mills;
o repay certain of our existing indebtedness; and
o pay certain fees and expenses incurred in
connection with the Transactions.
AN INVESTMENT IN THE EXCHANGE NOTES INVOLVES A HIGH DEGREE OF RISK. FOR A
DISCUSSION OF CERTAIN MATTERS THAT YOU SHOULD CONSIDER IN CONNECTION WITH THE
EXCHANGE OFFER, PLEASE READ "RISK FACTORS."
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MIDDLE AMERICAN TISSUE
We are a leading integrated manufacturer of tissue products in North
America, with a comprehensive product line that includes jumbo tissue rolls for
converting and converted tissue products for end-use. Since our inception in
1981, we have grown primarily through the opportunistic acquisition and
integration of underperforming paper mills and converting assets. We currently
operate a pulp mill, six paper mills (including five tissue mills), seven
converting facilities and two printing/packaging facilities. During the LTM
Period, we derived approximately 72.5% of our net sales from sales of converted
tissue products, approximately 26.2% from sales of jumbo rolls and the remainder
from sales of equipment. Our converting facilities transform jumbo rolls into a
wide range of finished tissue products, such as bath tissue, paper towels,
napkins and facial tissue. We believe that our flexible manufacturing
capabilities allow us to offer a range of products that is broader than that
offered by any other North American tissue producer. In addition to selling
tissue products, we use our internal engineering expertise to recondition and
sell used tissue converting equipment which, in turn, supports our jumbo roll
sales business. With the acquisition of the Berlin-Gorham Mills, we became
effectively 100% vertically integrated with respect to virgin pulp, increased
our toweling capacity by approximately 17.7% and extended our product offering
in the commercial market with uncoated freesheet papers. For the LTM Period, on
a pro forma basis, giving effect to the Transactions, we would have generated
net sales of approximately $409.4 million and Adjusted EBITDA of approximately
$57.2 million.
The U.S. tissue industry has among the highest profit margins and most
stable growth rates in the paper industry, according to industry sources. From
1984 to 1998, total annual shipments for the U.S. tissue industry increased from
approximately 4.9 million tons to approximately 6.7 million tons, a compound
annual growth rate of approximately 2.2%. In the last 15 years, total annual
shipments have declined only once.
Our principal tissue products and markets are:
o Away-from-home converted products (approximately 41.0% of LTM Period
net sales). We manufacture and market a broad line of converted tissue
products for the estimated $4.0 billion U.S. commercial
("away-from-home") market. We sell our away-from-home products
principally to mid-sized paper, foodservice and janitorial supply
distributors, who resell these products to hotels, restaurants,
offices, factories, hospitals, schools and government facilities.
Since we entered the away-from-home market in 1992, we have built our
away-from-home product line to include 141 product categories and 299
SKUs, ranging from economy and value grades to premium grades. This
has enabled us to provide our customers with what we believe to be the
broadest product offering in the North American tissue industry, an
increasingly critical selling point with customers seeking "one-stop
shopping." During the LTM Period, approximately 76.7% of our
away-from-home products were sold under our brand names, with private
label products (under distributor label) and products manufactured for
particular national accounts (under corporate label) constituting the
remainder. Our net sales in the away-from-home market have grown from
approximately $53.0 million in fiscal 1995 to approximately $96.8
million in the LTM Period, a compound annual growth rate of
approximately 18.8%. This growth was due to, among other things,
acquiring assets, expanding product lines and increasing market share
in certain segments.
o At-home converted products (approximately 31.5% of LTM Period net
sales). We manufacture and market a broad line of converted tissue
products for the estimated $7.0 billion U.S. consumer ("at-home")
market. Our at-home product strategy targets the estimated $1.1
billion private label segment of this market, for which we manufacture
products that range from economy to premium quality grades. As a
private label manufacturer, we generally seek to avoid direct
competition with larger branded consumer product companies, such as
Procter & Gamble and Kimberly-Clark. During the LTM Period,
approximately 82.1% of our at-home products were manufactured for
specific retailers for sale under private labels, with the remainder
manufactured for sale under our own brand names. Over the past several
years, the at-home private label market has expanded from economy
products to include an assortment of quality grades, and we have
responded by expanding the range and variety of printing, coloring and
embossing applied to our at-home products. We currently estimate
private label penetration to be only approximately 16.0% of the
at-home market and industry sources estimate that the growth of this
segment was approximately 4.0% in 1998, as retailers continue to
extend their lines of tissue products from economy and value grades to
premium grades. We believe that this growth will continue. Our net
sales in the at-home market have grown from approximately $61.3
million in fiscal 1995 to approximately $74.5 million in the LTM
Period, a compound annual growth rate of approximately 5.7%.
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o Jumbo rolls (approximately 26.2% of LTM Period net sales). We
manufacture and sell standard and specialty grades of jumbo rolls
directly to converters of finished tissue products, such as
Kimberly-Clark, Georgia-Pacific and Fort James. The jumbo rolls we
sell are generally used by our domestic customers to manufacture
non-competing finished tissue products, such as branded at-home and
niche tissue products, including disposable diapers, feminine sanitary
napkins and disposable medical products. Our strategy is to emphasize
stable customer relationships to sustain a long-term market for our
premium quality and specialty grade jumbo rolls, which often sell at a
higher price per ton than commodity converted tissue products. Our net
sales of jumbo rolls have grown from approximately $24.7 million in
fiscal 1995 to approximately $61.8 million in the LTM Period, a
compound annual growth rate of approximately 30.0%, reflecting our
strategy of emphasizing jumbo roll sales.
Business Strategy and Competitive Advantages
Our business strategy and competitive advantages include the following:
o Opportunistic Acquisitions of Underperforming Assets. We benefit from
a senior management team experienced in acquiring underperforming
paper mills and converting assets at a substantial discount to
replacement costs, implementing strict cost reduction programs and
selectively making capital expenditures to increase capacity and
improve operating efficiency.
o Capitalize on Flexible, Efficient Manufacturing Capability. We
maintain a diverse array of manufacturing, converting and packaging
equipment and a skilled workforce, which we believe enable us to
respond to changes in market conditions and customer requirements more
rapidly than our competitors.
o Capitalize on Competitor Consolidation. We believe the continuing
trend of competitor consolidation has created marketing opportunities
for us. To capitalize on this trend and strengthen our position as an
alternative supplier in certain product areas, we have built a
comprehensive product line of premium, value and economy grades in
each product category and have increased our away-from-home
salesforce.
o Strategically Locate Our Manufacturing Facilities. We believe that our
tissue mills, converting facilities and distribution centers are
strategically located across North America. Since our inception, we
have had a strong presence in the Northeast, and more recently, we
have expanded our business westward. Our Mexicali, Mexico converting
facility and our Calexico, California converting facility enable us to
take advantage of the geographic diversity of our tissue mill
operations in Neenah, Wisconsin and St. Helens, Oregon. We believe
that the geographic diversity of our locations allows us to service
both national and regional accounts economically and efficiently.
o Continue To Expand Our Diverse and Broad Product Line. We believe that
our diverse product line, with over 200 product categories and over
780 SKUs, is the broadest in North America and represents a key
competitive advantage. Our broad line of converted tissue products and
our ability to respond quickly to customer requirements for
multiple-product orders, allow us to offer "one-stop shopping" to our
customers. This is particularly important given the trend toward
supplier consolidation. Our strategy is to continue to expand our
product line through the introduction of new or enhanced products.
o Diverse Customer Base. Our customer base is broadly diversified across
industries and geographic locations, greatly reducing our dependence
on any single customer or market.
o Grow Jumbo Roll Sales by Leveraging Equipment Sales Business. We
intend to leverage our expertise in buying, reconditioning and selling
used tissue converting equipment to increase our sales of jumbo rolls.
For example, we generally sell our tissue converting equipment to
tissue products manufacturers who sign multi-year jumbo roll purchase
contracts with us.
o Favorable Supply and Service Agreements. We have entered into supply
and service agreements which we believe are favorable to us. Our
supply agreement with Boise Cascade permits us to purchase slush pulp
from the integrated Boise Cascade pulp and paper mill in St. Helens,
Oregon that houses a tissue machine we acquired from Boise Cascade, at
a price which is substantially below the market price for baled virgin
pulp. In connection with our acquisition of the Berlin-Gorham Mills,
we entered into an agreement with Crown Paper Co., a subsidiary of
Crown Vantage, Inc., under which Crown Paper will purchase from us
annually 40,000 tons of pulp produced at the Berlin-Gorham Mills. We
have also agreed to outsource the sales and marketing of certain
grades of our uncoated freesheet papers to Crown
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Paper, which we believe will afford us substantial savings over the
Berlin-Gorham Mills historical selling expense.
Acquisition of the Berlin-Gorham Mills
On July 9, 1999, we purchased from Crown Paper the fully integrated pulp
and paper mills located in Berlin and Gorham, New Hampshire and certain related
assets, with the exception of certain short-term assets. As consideration for
this purchase, we paid $47.1 million in cash, subject to adjustment, and assumed
certain ongoing contractual liabilities related to the assets we acquired.
The Berlin-Gorham Mills include the pulp mill at Berlin, New Hampshire and
the paper mill at Gorham, New Hampshire. The pulp mill has an annual capacity of
approximately 350,000 tons of northern bleached hardwood and softwood pulp and
produced approximately 280,000 tons in the LTM Period. The paper mill has four
paper machines and a toweling machine. The four paper machines have a total
annual capacity of approximately 179,000 tons of various grades of uncoated
freesheet papers and produced approximately 150,000 tons in the LTM Period. The
toweling machine has an annual capacity of approximately 39,000 tons of
commercial toweling and produced approximately 28,000 tons in the LTM Period.
The Berlin-Gorham Mills include electric generating facilities and a solid waste
landfill. In 1998, the electric generating facilities produced an average of 31
megawatt hours of electricity, representing approximately 82% of the
Berlin-Gorham Mills' requirements, at approximately 31% of the cost of purchased
electricity.
We believe that the acquisition affords us the following strategic
benefits:
o The Berlin-Gorham Mills enhance our vertical integration by giving us
control over a stable source of high quality pulp that we may either
use in our operations or selectively sell to third parties depending
on our internal requirements and market conditions. A stable source of
consistent, high quality pulp will enable us to optimize production
and insulate us from the effect of pulp market price fluctuations.
o The four paper machines at the Berlin-Gorham Mills allow us to further
diversify our product line by supplying our existing customers in the
away-from-home market with branded and private label value-added
uncoated freesheet paper products, such as colored reprographic and
bond papers for resale to the small office/home office market and
disposable foodservice papers for sale to the fast-food industry.
o The toweling machine at the Berlin-Gorham Mills enables us to increase
our tissue capacity from approximately 220,000 tons to approximately
259,000 tons, an increase of approximately 17.7%.
In connection with the acquisition, we have entered into certain agreements
intended to facilitate our entrance into the uncoated freesheet paper business,
facilitate the integration of the pulp and paper making operations of the
Berlin-Gorham Mills with our existing operations and give us sufficient time to
establish our own marketing capability in the uncoated freesheet market. Under
these agreements, Crown Paper will for three years: (1) continue to purchase at
least 40,000 tons annually of virgin pulp from the Berlin-Gorham Mills, at a
contractually determined, market-based price; and (2) bear all marketing costs
and selling responsibility for an annual minimum of 150,000 tons of certain
grades of uncoated freesheet papers produced by the Berlin-Gorham Mills at
market prices, in return for specified discounts or commissions. In addition,
Crown Paper has agreed not to compete with us, for three years following July 9,
1999, in the manufacturing and marketing of tissue, toweling and certain limited
product categories of uncoated freesheet papers.
Cost Saving Initiatives at the Berlin-Gorham Mills
We believe substantial opportunities for costs savings and synergies exist
at the Berlin-Gorham Mills. Described below are certain cost saving initiatives,
some recently completed by Crown Paper and others that we are executing. We
cannot assure you that any of these initiatives will produce the desired cost
benefits. See "Risk Factors -- We May Not Successfully Integrate The Operations
Of The Berlin-Gorham Mills With Our Existing Operations Or Realize Expected Cost
Benefits" and "Unaudited Pro Forma Consolidated Financial Data."
Pre-Acquisition Initiatives. In September 1998, Crown Paper replaced key
management personnel, including the resident manager of the Berlin-Gorham Mills,
and began the process of reducing personnel at the Berlin-Gorham Mills. The new
mill management team improved operating performance, increased production and
reduced fixed costs in the six month period from October 1998 to March 1999.
Over this six month period, fixed costs decreased
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7
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approximately $5.5 million, or approximately 14.5%, while paper production
increased approximately 9,483 tons, or approximately 11.2%, as compared to same
period in the prior year. The severance of 95 employees during the LTM Period,
in addition to the 13 employees who left in the first quarter of 1998, is
estimated to result in approximately $3.0 million of annual savings.
Approximately $2.5 million of compensation costs associated with the severed
employees was recorded in the LTM Period and has been reflected in Adjusted
EBITDA for the LTM Period. Associated with the reduction in personnel was a
non-recurring severance charge of approximately $1.9 million in the LTM Period.
In addition, in February 1999, the City of Berlin, New Hampshire settled its
longstanding property tax dispute regarding the Berlin pulp mill. Based upon the
revised property assessment value and the current property tax rate, we believe
that we will realize approximately $2.0 million in savings for each of the next
three years as a result of this settlement, of which $0.6 million is reflected
in Adjusted EBITDA for the LTM Period. Also reflected in the results of the LTM
Period is a non-cash write-down in the value of the assets at the Berlin-Gorham
Mills of approximately $159.8 million, $16.2 million of which resulted from
Crown Paper selling these assets to us at below book value.
Post-Acquisition Initiatives. In addition to the strategic advantages of
the acquisition, we intend to capitalize on a number of potential synergies and
cost savings which we expect to result primarily from:
o Reduction in Personnel Costs. We further reduced personnel by
approximately 6.8% at the Berlin-Gorham Mills by eliminating
approximately 53 hourly and salaried positions, which we believe will
result in annual savings of approximately $3.5 million. We expect to
realize additional annual savings of approximately $0.5 million by
conforming the compensation and benefits policies at the Berlin-Gorham
Mills to our existing policies.
o Elimination of Allocated Administrative Costs. Prior to the
acquisition, Crown Paper had allocated a substantial portion of its
corporate overhead expense to the Berlin-Gorham Mills and provided
certain administrative services to the Berlin-Gorham Mills, such as
legal and accounting services. For the LTM Period, these charges
totaled approximately $8.1 million. We believe that we can provide a
similar level of administrative services for approximately $1.7
million annually, which, on a pro forma basis, would have reduced
costs by approximately $6.4 million during the LTM Period.
o Substitution of Lower Cost Raw Materials. We are using our expertise
in tissue manufacturing to lower the cost of manufacturing toweling at
the Berlin-Gorham Mills by using lower cost paper manufacturing
by-products and double lined kraft (i.e., recycled corrugated
containers) in place of the significantly higher cost, internally
produced bleached virgin pulp historically used by Crown Paper. We
believe that these lower cost raw materials, which we use at certain
of our other facilities, produce toweling which is comparable in
quality to that produced using bleached virgin pulp. We estimate that
these substitutions would have lowered costs by approximately $6.8
million over the LTM Period. In addition, as a result of recycling
such paper manufacturing by-products, we will avoid the cost which was
previously paid by the Berlin-Gorham Mills for transporting these
by-products to our landfill, which we estimate would have lowered
costs by approximately $0.9 million over the LTM Period.
o Increase of Wet Lap Pulp Production Capacity. Prior to the
acquisition, Crown Paper, at our request, returned an existing wet lap
pulp machine to operation at the Berlin pulp mill. Wet lap pulp has a
high moisture content, making it uneconomical to transport over long
distances. While wet lap pulp could not be economically used by Crown
Paper because of its lack of nearby paper mills (other than the Gorham
mill, which uses slush pulp rather than wet lap pulp), we are
currently transporting the wet lap pulp produced at the Berlin-Gorham
Mills to our nearby tissue mills in Winchester, New Hampshire and
Greenwich, New York. We believe we would have realized savings of
approximately $3.7 million over the LTM Period as a result of the
difference between the cash cost to produce wet lap pulp and the
purchase price that our Winchester and Greenwich mills have
historically paid for virgin pulp over the same time period.
o Integration of the Acquisition with Existing Operations. We are
supplying our Neenah, Wisconsin tissue mill with virgin pulp from
excess pulp production at the Berlin-Gorham Mills. Previously, our
Neenah mill purchased its virgin pulp requirements in the spot market.
By supplying our Neenah mill's virgin pulp requirements from internal
sources, we believe that we would have increased our operating profit
by approximately $2.4 million in the LTM Period, based on the
difference between the lower realized market price for pulp that the
Berlin-Gorham Mills received during the LTM Period and the spot prices
paid by our Neenah mill.
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8
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o Execution of Favorable Market Pulp Sales Contracts with Crown Paper.
We entered into a three-year contract to supply certain of Crown
Paper's paper mills with a minimum of 40,000 tons per year of virgin
pulp from excess pulp capacity at the Berlin-Gorham Mills. The supply
contract is set at verifiable market pricing for similar quality
virgin pulp. We believe this contract would have increased our
operating profit by approximately $1.7 million during the LTM Period,
representing the difference between the implied higher market pricing
had the pulp purchase contract been in place compared to the net
realized pricing at the Berlin-Gorham Mills for spot market sales of
market pulp.
o Execution of Favorable Marketing Agreements. We entered into
three-year marketing agreements with Crown Paper. Under these
agreements, Crown Paper will bear all marketing costs and selling
responsibility for at least 150,000 tons of certain grades of uncoated
freesheet papers which we will produce at the Berlin-Gorham Mills.
These uncoated freesheet papers will be sold by Crown Paper at market
prices, less specified discounts or commissions. If these agreements
had been in place over the LTM Period, we believe we would have
realized savings of approximately $2.0 million in the LTM Period,
based on the difference between the amount of discounts and
commissions that would have been paid to Crown Paper and the
historical selling and commission expenses of the Berlin-Gorham Mills
during the LTM Period.
THE TRANSACTIONS
The Transactions consisted of:
o the repayment of certain of our debt;
o our acquisition of the Berlin-Gorham Mills;
o the closing of a $100.0 million New Credit Facility with LaSalle Bank
National Association;
o a $5.0 million equity contribution from our direct parent;
o the closing of the issuance of the old notes; and
o the closing of the issuance of the American Tissue notes.
The following table illustrates the sources and uses of funds in connection with
the Transactions:
Amount
Sources of Funds: (in millions)
----------------- -------------
Old notes and warrants .................................. $ 20.0
American Tissue notes ................................... 159.5
New Credit Facility ..................................... 9.9
Equity contribution ..................................... 5.0
------
Total sources ...................................... $194.4
======
Use of Proceeds:
----------------
Repayment of debt ....................................... $138.5
Payment of the acquisition consideration ................ 47.1
Fees and expenses ....................................... 8.8
------
Total uses ......................................... $194.4
======
With respect to the foregoing table:
o We received proceeds of $20.0 million from our sale of the old notes
and common stock purchase warrants to the initial purchasers of old
notes.
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o American Tissue received proceeds of approximately $159.5 million from
the sale of its senior secured notes to the initial purchaser of such
notes (an affiliate of the initial purchasers of the old notes). See
"Description of Certain Indebtedness -- American Tissue Notes."
o The New Credit Facility consists of a five year $100.0 million
revolving credit facility. See "Description of Certain Indebtedness --
New Credit Facility."
o The equity contribution consisted of $5.0 million contributed to us by
Super American Tissue Inc., our direct parent, as common equity.
o Repayment of debt consisted of the payment of:
o approximately $32.3 million outstanding under a term loan
facility;
o approximately $6.9 million outstanding under certain other notes
and term loans;
o approximately $67.2 million outstanding under a revolving credit
facility; and
o approximately $29.7 million outstanding under capital lease
obligations and approximately $2.4 million of related buyout
costs.
o Payment of the acquisition consideration consisted of the payment of:
o the $45.0 million cash consideration for the acquisition of the
Berlin-Gorham Mills;
o $1.6 million of certain mill costs; and
o $0.3 million of costs for the restoration of a wet lap pulp
machine and $0.2 million of other repairs which Crown Paper
caused to be made on our behalf in advance of the acquisition.
The cash consideration for the acquisition of the Berlin-Gorham
Mills will be reduced based on closing date inventory levels.
However, the amount of the reduction has not yet been agreed to
and is subject to negotiation. See "Business -- Berlin-Gorham
Mills Acquisition."
SUMMARY UNAUDITED PRO FORMA CONSOLIDATED FINANCIAL DATA
(dollars in thousands)
The following table sets forth for Middle American Tissue and the
Berlin-Gorham Mills:
o summary unaudited pro forma consolidated balance sheet data at June
30, 1999;
o summary unaudited pro forma consolidated operating data for:
o the fiscal year ended September 30, 1998;
o the nine months ended June 30, 1998 and 1999, respectively; and
o the 12 months ended March 31, 1999.
The pro forma consolidated balance sheet data at June 30, 1999 gives effect
to the Transactions as if they had occurred on June 30, 1999. The pro forma
consolidated operating data for the following periods give effect to the
Transactions as if they had occurred on the first day of each of the respective
periods:
o fiscal year ended September 30, 1998;
o the nine months ended June 30, 1998 and 1999; and
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o the 12 months ended March 31, 1999
The following information should be read in conjunction with "Unaudited Pro
Forma Consolidated Financial Data," "Selected Historical Financial Data,"
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" and the consolidated financial statements and notes thereto of
Middle American Tissue and the financial statements and notes thereto of the
Berlin-Gorham Mills, included elsewhere herein.
Fiscal Year Nine Months Ended 12 Months
Ended June 30, Ended
September 30, ------------------ March 31,
1998(1) 1998(2) 1999(2) 1999(2)
------- ------- ------- -------
Statement of Operations Data:
Net sales ........................ $390,037 $289,710 $316,108 $409,425
Gross profit ..................... 71,399 48,980 62,092 74,802
Selling general and administrative 37,622 27,825 28,905 38,902
expenses
Operating income (loss) .......... 47,295 34,673 (117,663) (114,950)
Net income (loss) ................ 29,329 15,750 (72,708) (66,238)
Other Data:
EBITDA(3) ........................ 51,872 32,084 44,340 54,044
Adjusted EBITDA(4) ............... 57,039 36,530 44,991 57,155
Cash interest expense(5) ......... 22,906 17,145 17,177 22,525
Depreciation and amortization .... 12,482 9,441 10,253 12,629
Capital expenditures(6) .......... 37,419 24,026 17,526 34,982
Adjusted EBITDA/cash interest .... -- -- -- 2.5x
expense
Total debt/Adjusted EBITDA ....... -- -- -- 3.4x
As of June 30, 1999
-------------------
Actual Pro Forma
------ ---------
Balance Sheet Data:
Total assets .............................. $369,702 $357,894
Total debt ................................ 217,768 $208,429
Stockholder's equity ...................... 47,493 72,424
- ----------
(1) The summary unaudited pro forma statement of operations data for the fiscal
year ended September 30, 1998 includes the fiscal year ended September 27,
1998 of Middle American Tissue and the 52 weeks ended September 27, 1998
of the Berlin-Gorham Mills.
(2) For the Berlin-Gorham Mills, the 39 weeks ended June 28, 1998 and June 27,
1999 and the 52 weeks ended March 28, 1999, as applicable.
(3) EBITDA is defined as operating income plus depreciation and amortization,
adjusted for the following non-cash and income items: with respect to
Middle American Tissue, income items include rental income and income from
insurance claims; and with respect to the Berlin-Gorham Mills, non-cash
items exclude the asset impairment and net realizable value charges, the
property tax accrual reversal and the corporate overhead allocation, and
income items exclude the severance charge and the gain on timberlands sale.
Information regarding EBITDA is presented because management believes that
certain investors use EBITDA as one measure of an issuer's ability to
service its debt. EBITDA should not be considered an alternative to, or
more meaningful than, operating income, net income or cash flow as defined
by generally accepted accounting principles or as an indicator of an
issuer's operating performance. Furthermore, caution should be used in
comparing EBITDA to similarly titled measures of other companies as the
definitions of these measures may vary. See "Unaudited Pro Forma
Consolidated Financial Data" and the consolidated financial statements and
notes thereto of American Tissue and the financial statements and notes
thereto of the Berlin-Gorham Mills, included elsewhere herein.
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(4) Pro forma Adjusted EBITDA represents pro forma EBITDA adjusted as follows:
Fiscal Year
Ended Nine Months Ended 12 Months
September June 30, Ended
30, ------------------- March 31,
1998 1998 1999 1999
-------- -------- -------- ----------
Pro forma EBITDA ................. $ 51,872 $ 32,084 $ 44,340 $ 54,044
Non-continuing employee
compensation expense ............. 2,489 2,215 738 2,537
Property tax savings ............. 2,678 2,231 (87) 574
-------- -------- -------- --------
Adjusted EBITDA .................. $ 57,039 $ 36,530 $ 44,991 $ 57,155
======== ======== ======== ========
(5) Cash interest expense represents total interest expense, less amortization
of deferred financing costs and amortization of debt discount, on a pro
forma basis giving effect to the offering of the old notes, the offering of
the American Tissue notes, borrowings of $9.9 million under the New Credit
Facility and the application of the net proceeds therefrom.
(6) Capital expenditures exclude portions attributable to capital leases of
Middle American Tissue.
SUMMARY HISTORICAL FINANCIAL DATA
(dollars in thousands)
Set forth below are summary historical consolidated financial data for
Middle American Tissue and the Berlin-Gorham Mills. The results for the interim
periods set forth below are not necessarily indicative of the results to be
expected for the full year or any other future period.
The summary historical operating data of Middle American Tissue for:
(a) the fiscal years ended September 30, 1994 and 1995, the nine months
ended June 30, 1998 and portions of the 12 months ended March 31, 1999 prior to
October 1, 1998 reflect the unaudited operating results of our subsidiaries
prior to the formation of American Tissue;
(b) the fiscal years ended September 30, 1996, 1997 and 1998 reflect the
audited operating results of our subsidiaries prior to our formation; and
(c) the nine months ended June 30, 1999 and the 12 months ended March 31,
1999, respectfully, reflect our unaudited consolidated operating results for
such periods.
The summary historical operating data of the Berlin-Gorham Mills for:
(a) the 52 weeks ended December 25, 1994 and December 31, 1995, the 26
weeks ended June 28, 1998 and June 27, 1999 and the 52 weeks ended March 28,
1999 reflect the unaudited operating results of the Berlin-Gorham Mills for each
such period; and
(b) the 52 weeks ended December 29, 1996, December 28, 1997 and December
27, 1998 reflect the audited operating results of the Berlin-Gorham Mills for
such periods.
You should read this information in conjunction with "Unaudited Pro Forma
Consolidated Financial Data," "Selected Historical Financial Data,"
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" and the consolidated financial statements and notes thereto of
Middle American Tissue and the financial statements and notes thereto of the
Berlin-Gorham Mills included elsewhere herein.
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<PAGE>
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<TABLE>
<CAPTION>
12
Nine Months Months
MIDDLE AMERICAN Ended Ended
TISSUE Fiscal Year Ended September 30, June 30, March 31,
- -------------------------- ------------------------------------------------------ ----------------------- -----------
1994 1995 1996 1997 1998 1998 1999 1999
----------- ----------- -------- -------- -------- ----------- ----------- -----------
Statement of Operations Data: (unaudited) (unaudited) (unaudited) (unaudited) (unaudited)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Net sales ................... $112,378 $138,933 $152,722 $197,596 $213,988 $152,681 $182,557 $236,214
Gross profit ................ 22,026 22,527 30,449 45,026 38,905 27,814 40,019 45,242
Operating income ............ 8,704 6,593 13,268 18,073 9,517 6,564 18,053 14,966
Other Data:
EBITDA(1) ................... $ 13,839 $ 9,281 $ 27,950 $ 27,427 $ 23,783 $ 16,070 $ 27,967 $ 29,876
Adjusted EBITDA ............. 13,839 9,281 27,950 27,427 23,783 16,070 27,967 29,876
Depreciation and amortization 3,993 4,092 5,593 8,282 10,585 8,018 8,830 11,327
Capital expenditures(2) ..... 4,463 24,192 40,933 29,172 27,566 19,178 12,607 25,805
</TABLE>
As of As of
September June
30, 1998 30, 1999
(unaudited) (unaudited)
----------- -----------
Balance Sheet Data:
Cash and cash equivalents............... $ 1,480 $ 597
Working capital......................... (48,748) (44,275)
Total assets............................ 270,819 288,422
Total debt ............................. 188,861 188,015
Stockholder's equity.................... 33,644 42,850
BERLIN-GORHAM MILLS
<TABLE>
<CAPTION>
26 Weeks 52 Weeks
Ended Ended
52 Weeks Ended December (3) June (4) March 30,
------------------------------------------------------------ ------------------------ -----------
1994 1995 1996 1997 1998 1998 1999 1999
---- ---- ---- ---- ---- ---- ---- ----
Statement of Operations
Data: (unaudited) (unaudited) (unaudited) (unaudited) (unaudited)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Net sales ............. $ 164,733 $ 236,311 $ 177,916 $ 183,398 $ 174,423 $ 87,439 $ 86,372 $ 171,482
Gross profit (loss) ... (15,263) 36,895 (11,257) 3,750 (13,329) (12,853) 3,104 (7,674)
Operating income (loss) (23,701) 28,177 (20,367) 5,000 (173,880) (21,331) (12,590) (175,499)
Other Data:
EBITDA(1) ............. $ 3,901 $ 56,877 $ 9,106 $ 21,387 $ 3,414 $ (3,974) $ 1,087 $ 4,411
21,387
Adjusted EBITDA(5) .... 8,566 62,328 15,025 27,788 7,696 (1,161) 2,054 7,522
Depreciation and
Amortization .......... 24,517 24,820 24,061 24,179 23,966 12,083 2,676 19,041
Capital expenditures .. 16,524 13,165 10,872 13,084 9,146 2,812 3,211 9,177
</TABLE>
As of As of
December June
27, 1998 27, 1999
----------- -----------
Balance Sheet Data: (unaudited) (unaudited)
Cash and cash equivalents.............. $ 1,753 $ 1,675
Working capital........................ 7,684 14,236
Total assets........................... 101,042 81,280
Total debt ............................ 30,255 30,255
- ----------
(1) See definition of EBITDA in note (3) of "Summary of Unaudited Pro Forma
Consolidated Financial Data."
(2) Excludes portions attributable to capital leases.
(3) The Berlin-Gorham Mills' fiscal year ends on the last Sunday of the month
of December (i.e., December 25, 1994, December 31, 1995, December 29, 1996,
December 28, 1997 and December 27, 1998).
(4) The Berlin-Gorham Mills' first fiscal quarter ends on the last Sunday of
the month of June (i.e., June 28, 1998 and June 27, 1999).
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(5) Adjusted EBITDA for the Berlin-Gorham Mills represents EBITDA adjusted as
follows:
<TABLE>
<CAPTION>
26 Weeks
Ended 52 Weeks
Fiscal Year Ended December(1) June(2) Ended
----------------------------------------------- ------------------ March 30,
1994 1995 1996 1997 1998 1998 1999 1999
------- ------- ------- ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
EBITDA ................ $ 3,901 $56,877 $ 9,106 $21,387 $ 3,414 $(3,974) $ 1,087 $ 4,411
Non-continuing employee
compensation expense .. 2,953 2,953 2,953 2,953 2,953 1,477 601 2,537
Property tax savings .. 1,712 2,498 2,966 3,448 1,329 1,336 366 574
------- ------- ------- ------- ------- ------- ------- -------
Adjusted EBITDA ....... $ 8,566 $62,328 $15,025 $27,788 $ 7,696 $(1,161) $ 2,054 $ 7,522
======= ======= ======= ======= ======= ======= ======= =======
</TABLE>
- ----------
(1) The Berlin-Gorham Mills' fiscal year ends on the last Sunday of the month
of December (i.e., December 25, 1994, December 31, 1995, December 29, 1996,
December 28, 1997 and December 27, 1998).
(2) The Berlin- Gorham Mills' first fiscal quarter ends on the last Sunday of
the month of June (i.e., June 28, 1998 and June 27, 1999).
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14
<PAGE>
RISK FACTORS
Before you invest in the exchange notes, you should carefully consider the
following factors, in addition to the other information contained in this
prospectus.
You Will Be Subject To Certain Adverse Consequences If You Do Not Exchange Your
Old Notes
If you do not exchange your old notes for the exchange notes pursuant to
the exchange offer, you will continue to be subject to the restrictions on
transfer of your old notes described in the legend on your old notes. The
restrictions on transfer of your old notes arise because we issued the old notes
pursuant to exemptions from, or in transactions not subject to, the registration
requirements of the Securities Act of 1933 and applicable state securities laws.
In general, you may only offer or sell your old notes if they are registered
under the Securities Act and applicable state securities laws, or offered and
sold pursuant to an exemption from such requirements. We do not intend to
register the old notes under the Securities Act. In addition, if you exchange
your old notes in the exchange offer for the purpose of participating in a
distribution of the exchange notes, you may be deemed to have received
restricted securities. If so, you will be required to comply with the
registration and prospectus delivery requirements of the Securities Act in
connection with any resale transaction. To the extent the old notes are tendered
and accepted in the exchange offer, the trading market, if any, for the old
notes would be adversely affected. If you are still holding any old notes after
the expiration date of the exchange offer and the exchange offer has been
consummated, subject to certain exceptions, you will not be entitled to any
rights to have such old notes registered under the Securities Act pursuant to
the registration rights agreement. See "The Exchange Offer -- Consequences of
Exchanging or Failing to Exchange Old Notes."
You Will Be Responsible For Compliance With Exchange Offer Procedures
We will issue the exchange notes in exchange for your old notes pursuant to
this exchange offer only after we have timely received your old notes, along
with a properly completed and duly executed letter of transmittal and all other
required documents. Therefore, if you want to tender your old notes in exchange
for exchange notes, you should allow sufficient time to ensure timely delivery.
We are not under any duty to give notification of defects or irregularities with
respect to the tender of the old notes for exchange. The exchange offer will
expire at 5:00 p.m., New York City time, on , or on a later extended date and
time as we may decide. Old notes that are not tendered, or are tendered but not
accepted by us for exchange, will, following the expiration date of the exchange
offer and the consummation of the exchange offer, continue to be subject to the
existing restrictions upon the transfer thereof.
You May Be Subject To Certain Restrictions On Transfer Of The Exchange Notes
Based on interpretations by staff of the Securities and Exchange
Commission, as set forth in no-action letters issued to third parties, we
believe that you may offer for resale, resell and otherwise transfer the
exchange notes without compliance with the registration and prospectus delivery
provisions of the Securities Act, subject to certain limitations. These
limitations include that:
o you are not an "affiliate" of ours within the meaning of Rule 405
under the Securities Act;
o you acquire your exchange notes in the ordinary course of your
business; and
o you have no arrangement with any person to participate in the
distribution of such exchange notes.
However, we have not submitted a no-action letter to the Securities and Exchange
Commission regarding this exchange offer and we cannot assure you that the
Securities and Exchange Commission would make a similar determination with
respect to this exchange offer as in such other circumstances. If you are an
affiliate of ours, are engaged in or intend to engage in, or have any
arrangement or understanding with respect to, a distribution of the exchange
notes to be acquired pursuant to the exchange offer, you
o may not rely on the applicable interpretations of the staff of the
SEC; and
o must comply with the registration and prospectus delivery requirements
of the Securities Act in connection with any resale transaction.
15
<PAGE>
Each broker-dealer that receives exchange notes for its own account
pursuant to the exchange offer must acknowledge that it will deliver a
prospectus meeting the requirements under the Securities Act in connection with
any resale of such exchange notes. The letter of transmittal states that by so
acknowledging and 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 the exchange notes where the
old notes exchanged for such exchange notes were acquired by such broker-dealer
as a result of market-making activities or other trading activities. We have
agreed to use our reasonable best efforts to make this prospectus available to
any participating 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 exchange notes may not be offered or sold,
unless they have been registered or qualified for sale in such jurisdictions or
an exemption from registration or qualification is available.
We Are A Highly Leveraged Company
We have a high level of debt. As of March 31, 1999, adjusted to give effect
to the Transactions:
o we would have had approximately $208.3 million of indebtedness
outstanding (excluding unused commitments of $90.1 million under the
New Credit Facility); and
o after giving effect to the Transactions, for the LTM Period, our
earnings would have been insufficient to cover fixed charges by $160.5
million. However, the ratio of our earnings to fixed charges,
excluding asset impairment and net realizable value charges, the
property tax accrual reversal and the severance charge, would have
been 1.7 to 1. See "Unaudited Pro Forma Consolidated Financial Data."
Our significant indebtedness could have important consequences to you. For
example, it could:
o require us to dedicate a substantial portion of our cash flow from
operations to make payments of principal and interest on our
indebtedness. Our failure to generate sufficient cash flow to make
required payments could result in a default under such indebtedness
(including under the exchange notes);
o limit our ability to fund working capital, capital expenditures,
acquisitions and general corporate requirements;
o limit our flexibility to expand, fund capital expenditures and react
to changes in our business and the industry in which we operate;
o increase our vulnerability to general adverse economic and industry
conditions;
o place us at a competitive disadvantage to our competitors that have
less debt; and
o limit, among other things, our ability to borrow additional funds and
comply with the financial covenants relating to our existing
indebtedness. Our failure to comply with these covenants could result
in an event of default which, if not cured or waived, could have a
material adverse effect on us.
See "Description of Certain Indebtedness" and "Description of Exchange Notes."
Our ability to satisfy our obligations pursuant to such indebtedness
(including the exchange notes) will depend upon our future performance which, in
turn, will be subject to management, financial, business, regulatory and other
factors affecting our business and operations. Many of such factors are not
within our control. We believe, based on our current level of operations, that
we will have sufficient capital to carry on our business and to meet our
scheduled debt service requirements. We cannot assure you, however, that future
cash flow will be sufficient to meet our obligations and commitments. If we are
unable to generate sufficient cash flow to meet our debt obligations, we may be
required to reduce or delay capital expenditures, restructure or refinance all
or a portion of such indebtedness (including indebtedness under the exchange
notes and the New Credit Facility), or sell assets or obtain additional
financing. We may not be able to implement any of these strategies on
satisfactory terms or on a timely basis, if at all. If we cannot satisfy our
obligations related to such indebtedness, substantially all of our long-term
indebtedness could be in default and could be declared immediately due and
payable, with potentially adverse consequences to you. To avoid a default, we
may need waivers from third parties, which may not be granted. See "Management's
Discussion and Analysis of Financial Condition and Results of Operations."
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We May Incur Additional Indebtedness
We may need to incur additional indebtedness to finance capital
expenditures at the Berlin-Gorham Mills and at our other facilities and to
fulfill our long-term business strategies. The terms of the indentures governing
the exchange notes, the American Tissue notes and the terms of the New Credit
Facility will permit us and our subsidiaries to incur additional debt, subject
to certain limitations. If additional indebtedness is incurred, the risks
associated with our highly leveraged condition will increase. See
"Capitalization," "Unaudited Pro Forma Consolidated Financial Data," "Selected
Historical Financial Data," "Description of Certain Indebtedness" and
"Description of Exchange Notes."
Our Debt Agreements Contain Operating And Financial Restrictions
The operating and financial restrictions and covenants in our existing debt
agreements, the New Credit Facility, the indentures governing the exchange notes
and the American Tissue notes and any future financing agreements may adversely
affect our ability to finance future operations or working capital or to engage
in other business activities. Specifically, our debt agreements may require that
we and American Tissue maintain certain financial ratios and restrict our and
American Tissue's ability to, among other things:
o declare dividends or redeem or repurchase capital stock;
o make certain loans and investments;
o incur additional indebtedness;
o permit payment or dividend restrictions on certain of our
subsidiaries;
o sell assets;
o enter into sale and leaseback transactions;
o create certain liens;
o engage in certain transactions with affiliates;
o consolidate, merge or sell all or substantially all of our assets and
the assets of our subsidiaries; or
o prepay, redeem or purchase debt.
A breach of any of the restrictions or covenants in our debt agreements
could cause a default under the New Credit Facility, other debt, the exchange
notes or the American Tissue notes. As a result, a significant portion of our
indebtedness then may be declared immediately due and payable. We are not
certain whether we would have, or be able to obtain, sufficient funds to make
such accelerated payments, including payments on the exchange notes. See
"Description of Certain Indebtedness" and "Description of Exchange Notes."
On January 22, 1999, American Tissue entered into an agreement with General
Electric Capital Corporation (relating to its then existing credit facility with
such lender) that (1) waived certain defaults under covenants relating to
maintenance of certain financial ratios, the incurrence of debt and the timely
delivery of financial statements and certain reports and notices and (2) amended
certain financial covenants. American Tissue also obtained a waiver from LaSalle
National Bank of the default under the then existing revolving credit facility
with such lender triggered by the default under the credit facility with General
Electric Capital Corporation.
The Exchange Notes Will Be Structurally Subordinated To The Indebtedness And
Assets Of Our Subsidiaries.
We are a holding company and do not have any significant operations, other
than the ownership of the outstanding shares of common stock of American Tissue,
which is also a holding company. The only significant assets of American Tissue
are the shares of capital stock and membership interests of our other
subsidiaries. Our obligations under the exchange notes and the related indenture
have not been guaranteed by any of our subsidiaries and none of the assets of
our subsidiaries secure the payment or performance of such obligations.
Accordingly, you will not have any recourse to our subsidiaries or their assets
if an event of default occurs under the exchange notes and we do not have the
financial resources to pay the exchange notes or the trustee for the exchange
notes is not able to realize sufficient proceeds from the sale of the shares of
common stock of American Tissue which we pledged as collateral for the exchange
notes.
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We May Not Be Able To Pay Cash On The Exchange Notes When Due Or Repay The
Exchange Notes If We Are Required To Redeem Them.
The old notes were issued with warrants to purchase up to 12% of our common
stock at a nominal exercise price. The holders of the old notes and warrants
have entered into a stockholders agreement which contains various rights and
obligations of Middle American Tissue and the direct and beneficial holders of
our common stock. The stockholders agreement and the indenture relating to the
Notes contain provisions permitting the initial purchasers of the old notes (and
in some instances, their transferees) to require redemption of the Notes or the
warrants, or both, at various times prior to the maturity of the Notes. When we
are required to pay cash interest on the Notes, or if we are required by the
holders of the Notes or the warrants, or both, to redeem such securities, we may
be unable to make such payment. The restricted payment covenant of the American
Tissue notes does not contain any express provision permitting American Tissue
to pay dividends to us or to pay the interest on, or principal of, the Notes or
finance a redemption of the Notes. Accordingly, in such circumstances, unless we
are able to refinace the Notes, of which we can give you no assurance, we might
be required to seek the protection of federal bankruptcy law, which might delay
the trustee from liquidating the collateral securing the Notes and significantly
affect the amount you would be able to collect on any exchange notes you then
hold.
The Value Of Your Security Interest In The Collateral Is Uncertain
The significant indebtedness of our subsidiaries and the fact that
substantially all of their assets secure the payment of certain of such
indebtedness may negatively affect the value of the shares of American Tissue's
common stock securing the exchange notes, especially if American Tissue defaults
on the payment of its secured debt and the holders of such debt foreclose the
liens on the assets securing such debt. Accordingly, we cannot assure you that
the net proceeds of a sale of the shares of the common stock of American Tissue
securing the exchange notes would be sufficient to repay all of the exchange
notes following sale of such collateral. If the net proceeds received from the
sale of the collateral (after expenses relating to the sale thereof) are
insufficient to pay all amounts due with respect to the exchange notes, you
would, to the extent of such insufficiency, have only an unsecured claim against
our remaining assets, if any. Moreover, the ability of the trustee for the
exchange notes to sell the shares of the common stock of American Tissue
securing the exchange notes would be delayed if we were subject to proceedings
under applicable bankruptcy law.
We May Not Successfully Integrate The Operations Of The Berlin-Gorham Mills
With Our Existing Operations Or Realize Expected Cost Benefits
Prior to our acquisition of the Berlin-Gorham Mills, Crown Paper managed
and controlled the operations of such mills. As a result, the discussion under
"Prospectus Summary -- Cost Savings Initiatives at the Berlin-Gorham Mills" and
"Unaudited Pro Forma Consolidated Financial Data" of cost savings expected to be
realized as a result of the integration of the operations of the Berlin-Gorham
Mills with our existing operations and the implementation of our strategic plan
may not reflect our future financial position and operating results.
Our success will depend, in part, on our ability to integrate the acquired
operations of the Berlin-Gorham Mills and to fully implement our business and
operating strategies. We cannot assure you that we will be able to effectively
manage the operations of the Berlin-Gorham Mills or effectively integrate
operations of the Berlin-Gorham Mills with our existing operations. Moreover, we
cannot assure you that we will be successful in rationalizing certain functions
and implementing appropriate operational, financial and management systems and
controls to fully achieve the cost savings expected to result from the
acquisition. Our efforts to implement our strategy and to integrate the
operation of the Berlin-Gorham Mills could be affected by a number of factors
beyond our control, such as regulatory developments, general economic conditions
and increased competition. In addition, after gaining experience with the
operations of the Berlin-Gorham Mills, our management may decide to alter or
discontinue certain aspects of the business and operating strategy discussed
herein and may adopt alternative or additional strategies. Any failure to
integrate the operations of the Berlin-Gorham Mills or to effectively implement
our strategy could have a material adverse effect on our business, financial
condition and results of operations and on our ability to service our
indebtedness, including the exchange notes.
The estimated cost savings described under "Prospectus Summary -- Cost
Savings Initiatives at the Berlin-Gorham Mills," and "Unaudited Pro Forma
Consolidated Financial Data" represent the cost savings expected to result from
our acquisition of the Berlin-Gorham Mills and from the implementation of our
business and operating strategy, based on operating results in the LTM Period.
These estimated future cost reductions and savings are based upon a number of
assumptions, which may be inaccurate and relate only to estimated cost
reductions and savings on the items described. Accordingly, the expected cost
reductions and savings are not necessarily indicative of our pro forma or
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future financial results, including EBITDA and net income, which may be affected
by a number of other factors, including demand and pricing for our products and
other costs associated with our production, distribution and other operations.
In addition, we cannot assure you that we will be able to fully realize any or
all of the operating and economic benefits expected to result from our
acquisition of the Berlin-Gorham Mills.
We Are Subject To Cyclical Industry Conditions
Tissue and Paper Products. The markets for our tissue and uncoated
freesheet paper products are characterized by periods of supply and demand
imbalance, with supply being added in large blocks and demand fluctuating with:
o changes in industry capacity, economic conditions (including in the
case of our uncoated freesheet paper products);
o the overall level of domestic economic activity; and
o competitive conditions (including, in the case of our uncoated
freesheet paper products, intensified competition from overseas
producers responding to favorable exchange rate fluctuations and/or
unfavorable overseas market conditions).
All of such conditions are beyond our control. An imbalance of supply and demand
can have significant effects on our selling prices and, therefore, our
profitability. Certain other factors may increase the cyclical nature of our
industry. Such factors include the substantial capital investment and high fixed
costs required to manufacture tissue and other paper products and convert tissue
products and the significant costs associated with reductions in manufacturing
capacity. In addition, because of such high fixed costs, many manufacturers
strive to maintain high levels of usage of their manufacturing capacity (i.e.,
operating rates) to cover such fixed costs. Accordingly, relatively small
changes in operating rates due to changes in domestic demand, capacity, levels
of imports or other circumstances may significantly affect prices. We cannot
assure you that:
o the current price levels of our products will be maintained;
o any price increases that we may announce will be realized;
o the industry will not add new incremental capacity from new machines
or rebuilds of existing machines; or
o imports will not increase.
All of the foregoing would have a potentially negative effect on market
conditions. Such circumstances could have a material adverse effect on our
ability to maintain current sales and pricing levels. Prices for our products
may fluctuate substantially in the future. A significant downturn in such prices
could have a material adverse effect on our business, financial condition and
results of operations.
Tissue and Paper Manufacturing Raw Materials. Wood pulp, chemicals,
recycled paper pulp and waste paper are the principal raw materials used in the
manufacture of our tissue and uncoated freesheet paper products. Such materials
are purchased in highly competitive, price-sensitive markets. While we
anticipate that wood pulp produced by the pulp mill at the Berlin-Gorham Mills
should be sufficient to satisfy our requirements for wood pulp for our uncoated
freesheet paper operations (and a significant portion of our tissue operations),
the cost of recycled pulp and chemicals have historically exhibited price and
demand cyclicality similar to the cycles for paper products. In addition,
increased demand for paper and wood products has resulted in greater demand for
raw materials, which has recently translated into higher raw material prices for
the paper industry. Historically, price increases for our paper products have
lagged behind increases in raw material costs. We cannot assure you that the
prices of such materials will fluctuate in a similar cycle to paper products or
that all or part of any increased costs can be passed along to consumers of our
tissue or uncoated freesheet products directly or in a timely manner.
Pulp Manufacturing Raw Materials. Wood fiber is the principal raw material
used in the production of pulp at the Berlin-Gorham Mills. In connection with
our acquisition of the Berlin-Gorham Mills, we have effectively become a party
to certain long-term supply contracts with suppliers of wood fiber located in
close proximity to the Berlin-Gorham Mills. If for any reason such agreements
are determined not to have been assigned to us or are terminated by such
suppliers, we would also be subject to the cyclicality of the wood fiber market.
The supply and price of wood fiber is dependent upon a variety of factors,
including environmental and conservation regulations,
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natural disasters and weather, over which we have no control. We can not assure
you that we will not have difficulty obtaining wood fiber in economic proximity
to the Berlin-Gorham Mills. Moreover, there can be no assurance that all or part
of any increased costs can be passed along to consumers of pulp and paper
products directly or in a timely manner.
We Have No Experience In Manufacturing And Selling Uncoated Freesheet Paper
Products
Historically, the four freesheet paper machines at the Berlin-Gorham Mills
have been used by Crown Paper for the manufacture of uncoated freesheet paper
products, primarily for printing and publishing end-uses. We did not acquire
either assets or marketing and distribution organizations from Crown Paper to
permit us to market and distribute such paper products and we do not have the
knowledge, experience or organization to permit us to successfully market and
distribute such products. Consequently, we are, and during the three-year period
following the acquisition we will be, substantially dependent on Crown Paper,
pursuant to our paper purchase and marketing agreements with them, to market and
distribute uncoated freesheet paper products produced at the Berlin-Gorham
Mills. Crown Paper will receive certain discounts and commissions pursuant to
such agreements.
According to Crown Paper's Annual Report on Form 10-K for its fiscal year
ended December 27, 1998 and its Quarterly Report on Form 10-Q for its fiscal
quarter ended June 27, 1999, Crown Paper had a high level of debt, net losses
and declining operating cash flows. Accordingly, there is a risk that Crown
Paper may not have the financial resources to permit it to perform its
obligations under our paper purchase and marketing agreements. Moreover, in
order to conserve cash to satisfy its debt service requirements, Crown Paper may
be required to restructure its operations or reduce or eliminate funding for
certain marketing and distribution activities, all of which could materially
adversely affect Crown Paper's ability to perform its obligations under such
paper purchase and marketing agreements. Any failure by Crown Paper to perform
its obligations under our paper purchase and marketing agreements could have a
material adverse effect on our ability to profitably market and distribute such
products.
Crown Paper May Not Be Able To Perform Its Obligations Under the Acquisition
Agreement
Under the asset purchase agreement relating to the Berlin-Gorham Mills,
Crown Paper made certain representations and warranties which we believe are
typical in similar transactions, concerning its assets, liabilities, business
and affairs and agreed, subject to certain limitations, to indemnify and hold us
harmless from certain liabilities, losses or damages that we may suffer or incur
as a result of Crown Paper's breach of any such representation and warranty.
Crown Paper's financial situation may significantly impair its ability to meet
its indemnification obligations under the asset purchase agreement in the event
we assert a claim for indemnification. To the extent that we are unable to
recover from Crown Paper for any loss or damages that we may suffer or incur, we
will be required to bear such loss or damages, which could have a material
adverse effect on our ability to pay interest on the exchange notes and on our
business, financial condition and operating results.
We Could Be Affected By Year 2000 Issues
The Year 2000 issue concerns the potential exposures related to the
erroneous generation of business and financial information resulting from the
fact that certain computer systems and software programs use two digits, rather
than four, to define the applicable year of business transactions. These
programs do not properly recognize a year that begins with "20" instead of the
familiar "19." These programs may process data incorrectly or stop processing
data altogether on January 1, 2000. We rely upon our own and vendor-supplied
technology and recognize the potential business risk to our assets and systems
associated with the arrival of the Year 2000.
We have substantially completed the process of identifying and remediating
Year 2000 compliance issues associated with our computer systems and software
programs. To date, we have spent approximately $600,000 in connection with our
Year 2000 compliance program, and this program is substantially complete. We are
in the process of identifying Year 2000 compliance issues associated with our
suppliers' products, services and operations. Our customers and suppliers may
not have management information systems that are Year 2000 compliant and
required systems modifications may not be completed by the Year 2000. Failure of
our customers and suppliers to be Year 2000 compliant could have a material
adverse effect on our business, financial condition and results of operations.
We are completing the remediation of those computer systems and software
programs at the Berlin-Gorham Mills which were not remediated by Crown Paper as
of the consummation of the acquisition. Crown Paper has represented to us that
it had in operation programs designed to identify and remediate Year 2000 issues
and that it
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estimated that the total cost to complete its remediation program would not
exceed $1.25 million, of which, we estimate, $700,000 had not been expended as
of the consummation of the acquisition of the Berlin-Gorham Mills. However, we
cannot assure you that the cost of remediating such systems and programs will
not significantly exceed such amount.
We May Be Unable To Implement Our Development And Acquisition Strategy
Our ability to successfully implement our growth strategy is subject to a
variety of risks, including changes in the competitive climate in which we
operate and our ability to obtain financing in a timely manner at reasonable
costs and on terms and conditions acceptable to us. We cannot assure you that
any capital investment program will take place as planned or that our plan to
expand products and services will generate positive cash flows or result in
profits.
Our capital investment program involves strategic acquisitions of
underperforming and underutilized facilities. We cannot assure you that we will
be able to turn around any facilities that we may acquire.
Our ability to integrate acquired businesses may be affected by a number of
factors, including the ability of our existing management and systems
infrastructure to absorb the increased operations, the response of competition
and general economic conditions, many of which are not within our control. For
example, we cannot assure you that we will be able to integrate successfully the
operations of the Berlin-Gorham Mills with our existing operations. See "We May
Not Successfully Integrate The Berlin-Gorham Mills With Our Existing Operations
Or Realize Expected Cost Benefits." Acquisitions may also substantially increase
our indebtedness and obligations to make payments of interest and principal in
respect of such indebtedness. While growth through acquisitions is part of our
capital investment program, we cannot assure you that:
o suitable acquisitions will be available to us on acceptable terms;
o financing for future acquisitions will be available on acceptable
terms, or on any terms at all;
o future acquisitions will be advantageous to us; or
o the anticipated benefits of such acquisitions will occur.
We Operate In A Highly Competitive Industry
Tissue. The North American tissue industry is highly competitive. We
believe that competition is based principally on product quality, price and
customer service. Our competitors include Kimberly-Clark, Fort James, Procter &
Gamble, Georgia-Pacific, Wisconsin Tissue (a subsidiary of Chesapeake
Corporation), Potlatch, Marcal, Irving and Global Tissue (a subsidiary of
Kruger, Inc.). Some of our competitors are lower cost producers of tissue
products. Additionally, many of our competitors are large, vertically-integrated
companies that are more strongly capitalized than we are. Any of the foregoing
factors may enable such competitors to better withstand periods of declining
prices and adverse operating conditions in the tissue industry.
Uncoated Freesheet Papers. In the uncoated freesheet paper market, we
compete principally in North America, primarily with U.S. and Canadian paper
producers, but also with overseas producers. Similar to the tissue market, we
compete primarily on the basis of price, although quality and service are often
the determining factors in the choice of a supplier. In addition, we are
competing with integrated and non-integrated producers of paper products. We
believe we are a fully-integrated manufacturer. Fully-integrated manufacturers
(i.e., those whose requirements for pulp or other fiber are met fully from their
internal sources) may have certain competitive advantages relative to those that
are not fully-integrated manufacturers in periods of relatively high prices for
raw materials, in that the former are able to ensure a steady source of such raw
materials at costs that may be lower than prices in the prevailing market.
However, certain competitors which are less integrated than we are may have
certain cost advantages in periods of relatively low pulp prices in that they
may be able to purchase pulp at prices lower than our production costs.
Moreover, certain of our competitors are lower-cost producers than we are and
certain of our competitors have greater financial resources than we have. In
addition, many end-users of printing/writing/publishing products in recent years
have responded to changing economic conditions and paper prices by substituting
less expensive paper grades for use in their products, and this tendency may
benefit certain of our competitors which produce lower priced paper products.
We cannot assure you that we will be able to successfully compete in the
tissue or uncoated freesheet papers industry or that increased competition will
not have a material adverse effect on our business, financial condition and
results of operations.
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We Are Controlled By A Few Of Our Parent's Stockholders
Mr. Nourollah Elghanayan, our Chairman of the Board, and members of Mr.
Elghanayan's family, and Mr. Mehdi Gabayzadeh, our President and Chief Executive
Officer, and trusts for the benefit of certain members of Mr. Gabayzadeh's
family, collectively, indirectly beneficially own 100% of the outstanding shares
of our common stock, without giving effect to any warrants to purchase our
common stock. As a result, Messrs. Elghanayan and Gabayzadeh and their
respective family members control, and are expected to continue to control, our
management, policies and financing decisions and, collectively, have the power
to elect a majority of the members of our board of directors and control the
vote on any matter requiring the approval of our stockholders, including the
adoption of certain amendments to our certificate of incorporation and approval
of mergers or the sale of all or a substantial part of our assets. As a result,
circumstances could arise in which the interests of these stockholders could
conflict with your interests as holders of the exchange notes. In addition,
these stockholders may have an interest in pursuing acquisitions, divestitures
or other transactions that, in their judgment, could enhance their equity
investment, even though such transactions might involve risks to you, as holders
of the exchange notes.
The old notes were issued with warrants to purchase up to 12% of our common
stock at a nominal exercise price. We, the holders of our old notes and
warrants, Super American Tissue and the stockholders of Super American Tissue
have executed a stockholders agreement which contains various rights and
obligations of Middle American Tissue and the beneficial owners of our common
stock. As long as the initial purchasers of the old notes collectively own a
majority of the Notes or warrants, they will have the right to appoint one
member of our board of directors.
We Are Subject To Certain Labor Agreements
We have a collective bargaining agreement with the Paper,
Allied-Industrial, Chemical and Energy Workers Union covering most of our
employees at our mill in Neenah, Wisconsin, which expires in May 2002. Our
tissue-making operation in St. Helens, Oregon, which is operated for us by Boise
Cascade, is staffed with Boise Cascade employees, most of whom are represented
by the Association of Western Pulp and Paper Workers. The collective bargaining
agreement between Boise Cascade and such union expires in March 2005. Moreover,
at the Berlin-Gorham Mills, the hourly production employees are represented by
the Paper, Allied-Industrial, Chemical and Energy Workers Union and hourly staff
employees are represented by the Office and Professional Employees International
Union. The agreements governing such employees at the Berlin-Gorham Mills expire
in June and July 2002, respectively.
We cannot assure you that we will be successful in renegotiating the
agreements relating to unionized employees at any of our facilities, or that
Boise Cascade will be successful in renegotiating its agreement with the
Association of Western Pulp and Paper Workers upon its expiration. In addition,
we cannot assure you that we will not incur increased costs as a result of any
such negotiations.
An interruption of operations at any of our facilities could have a
material adverse effect on our ability to pay interest on the American Tissue
notes (which interest, if not timely paid, could constitute an event of default
under the exchange notes), and, commencing in July 2004, could have a material
adverse effect on our ability to pay interest on the exchange notes, as well as
on our business, financial condition and results of operation.
We Are Dependent On The Continuing Operations Of Our Manufacturing Facilities
Our revenues depend on the continuing operations of our paper mills and
converting facilities. The operations of such facilities involve many risks,
including:
o the breakdown, failure or substandard performance of equipment;
o power outages;
o the improper installation or operation of equipment;
o natural disasters; and
o the need to comply with directives of governmental agencies.
The occurrence of material operational problems could have a material
adverse effect on our business, financial condition and results of operations.
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Additionally, under our agreement with Boise Cascade, they operate, for our
account, a tissue machine we purchased from them, which is located on property
that we lease from Boise Cascade at their mill facility in St. Helens, Oregon.
Under such agreement, Boise Cascade makes available to us for purchase, wood
pulp produced at their adjacent pulp mill and uses such pulp in their operation
of our tissue machine. This agreement expires on December 31, 2022. A default by
Boise Cascade or the early termination of the agreement with Boise Cascade could
have a material adverse effect on our business, financial condition and results
of operations.
Our Operations Are Subject To Comprehensive Environmental Regulation
Our operations are subject to comprehensive and frequently changing
federal, state and local environmental laws and regulations, including laws and
regulations governing emissions of air pollutants, discharges of waste water and
storm water, storage, treatment and disposal of materials and waste, remediation
of soil, surface water and ground water contamination and liability for damages
to natural resources. Compliance with these laws and regulations is an
increasingly important factor in our business. We will continue to incur capital
and operating expenditures, which expenditures may be material in relation to
our cash flow from operations, to comply with applicable federal, state and
local environmental laws and regulations and to meet new regulatory
requirements.
We are subject to strict, and under certain circumstances joint and
several, liability for the investigation and remediation of environmental
contamination (including contamination caused by other parties) at properties
that we own or operate and at properties where we or our predecessors have
arranged for the disposal of regulated materials. As a result, we are involved
from time to time in administrative and judicial proceedings and inquiries
relating to environmental matters. We cannot assure you that we will not be
involved in additional proceedings in the future and that the total amount of
future costs and other environmental liabilities will not be material.
We 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 or enforcement of existing laws and regulations, could require us
to make additional expenditures, some or all of which could be material.
Our Compliance with U.S. Environmental Protection Agency "Cluster Rules"
Could Require Us to Make Significant Capital Expenditures In the Future
The U.S. Environmental Protection Agency has issued final rules known as
the "Cluster Rules" affecting pulp and paper industry discharges of wastewater
and gaseous emissions. The Cluster Rules apply to pulping from the initial
feedstock of wood and certain bleaching processes. The Cluster Rules require
changes in the pulping, bleaching and/or air emission and wastewater treatment
processes presently used in some U.S. pulp and paper mills, including the
Berlin-Gorham Mills. Based upon our understanding of the Cluster Rules, and
after consultation with independent environmental consultants, we estimate that
approximately $13 million of capital expenditures, within a range of plus or
minus approximately 25%, may be required to comply with the Cluster Rules, with
compliance dates beginning in 1999 and extending over the next two to five
years. There are risks and uncertainties associated with our estimate that could
cause total capital expenditures and timing of such expenditures to be
materially different from current estimates, including changes in technology,
interpretations of the Cluster Rules by government agencies that are
substantially different from our interpretations or other matters. The EPA has
also proposed additional requirements for the pulp and paper industry, which, if
and when adopted, may require additional material expenditures.
We May Be Required to Make Material Expenditures To Remediate Certain
Environmental Conditions at the Berlin-Gorham Mills
The Berlin-Gorham Mills have been in operation for many years and, over
such time, Crown Paper and other prior operators at the Berlin-Gorham Mills have
generated and disposed of wastes which are or may be considered hazardous. The
soil, groundwater and adjacent area remediation which is currently under
consideration with respect to the Berlin-Gorham Mills could, based upon
available information, cost up to $400,000 over the next two years. Included
among the waste materials generated by past operations are contaminants left in
the vicinity of a former chemical plant on the northern portion of the Berlin
pulp mill property, of which a small building known as the "Cell House" remains
standing. The procedures required to remove the Cell House building, to
encapsulate and seal off the affected areas and thereafter to monitor such areas
as required by current regulations are estimated to cost up to
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$2.3 million. In addition, certain maintenance and repairs to the wastewater
treatment plants at the Berlin-Gorham Mills have been identified and are
estimated to cost up to $2.1 million.
The discovery of previously unknown contamination of property underlying,
or in the vicinity of, the Berlin-Gorham Mills could require us to incur
material unforeseen expenses for which we may not have any recourse against
Crown Paper or other prior operators. Occurrences of any of these events could
have a material adverse effect on our financial condition.
We Are Dependent On Our Key Personnel
We are dependent on the retention of, and continued performance by, our
senior managers, including Mr. Mehdi Gabayzadeh, our President and Chief
Executive Officer, and Mr. Nicholas T. Galante, III, Executive Vice President of
American Tissue and President and Chief Executive Officer of our subsidiary,
Pulp & Paper of America LLC, which operates the Berlin-Gorham Mills. We believe
that the loss of the services of either Mr. Gabayzadeh or Mr. Galante could have
a material adverse effect on us. We do not have employment contracts with any of
our senior managers.
We Have Recently Made Changes In Our Financial And Accounting Department
In order to address certain deficiencies of our management information
systems and accounting systems, we have restructured our financial and
accounting department, including hiring a new chief financial officer, and
retained consultants who are working with us to install new management
information systems. We believe that such changes will be helpful in managing
our operations, including completing and delivering complete and accurate
financial statements in a more timely manner.
It is our intention to deliver financial statements and file reports with
the Securities and Exchange Commission within the required time periods of the
Commission and as required by the indenture governing the exchange notes and our
New Credit Facility. However, we can give you no assurance that we will be able
to effect such changes in our management information systems and accounting
systems in a timely manner or that any delay will not have a material adverse
effect on our business, financial condition and results of operations. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations."
Holders Of The Exchange Notes May Suffer Adverse Tax Consequences Because The
Old Notes Were Issued At A Discount From Their Principal Amount
Our old notes were issued at a substantial discount from their face amount.
Consequently, holders of the exchange notes should be aware, that although there
will be periodic payments of interest on the exchange notes on and after January
15, 2004, accreted amounts of original issue discount will be includible in
gross income for federal income tax purposes before the receipt of the cash
payments to which such income is attributable. See "Certain United States Income
Tax Considerations" for a more detailed discussion of the U.S. federal income
tax consequences to the holders of the exchange notes of the acquisition,
ownership and disposition of the exchange notes.
If a bankruptcy case is commenced by or against us under the U.S.
Bankruptcy Code after the issuance of the exchange notes, the claim of a holder
of the exchange notes with respect to the principal amount at maturity thereof
may be limited to an amount equal to the sum of the initial offering price of
the old notes and that portion of the original issue discount that is not deemed
to constitute "unmatured interest" for purposes of the U.S. Bankruptcy Code. Any
original issue discount that had not accreted as of any such bankruptcy filing
would constitute "unmatured interest." To the extent that the U.S. Bankruptcy
Code differs from the Internal Revenue Code in determining the method of
amortization of original issue discount, a holder of the exchange notes may
realize taxable gain or loss upon payment of such holder's claim in bankruptcy.
We May Not Be Able To Finance A Change Of Control Offer
Upon the occurrence of certain change of control events, the holders of the
exchange notes may require us to repurchase all of their outstanding exchange
notes. See "Description of Certain Indebtedness" and "Description of Exchange
Notes -- Certain Covenants -- Change of Control." However, it is possible that
we will not have sufficient funds at the time of such change of control or that
restrictions under the New Credit Facility or our other debt agreements will not
allow such repurchases. Moreover, under the New Credit Facility, certain change
of control events
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are events of default giving the lenders thereunder the right to accelerate the
maturity of borrowings thereunder. We cannot assure you that we will be able to
obtain the necessary consents from the lenders under the New Credit Facility to
permit us to repurchase the exchange notes pursuant to a change of control offer
or to repay or refinance all of the indebtedness under the New Credit Facility.
If we fail to make a change of control offer or pay the required repurchase
price when due, an event of default under the exchange notes will occur.
The Exchange Notes Have No Public Market And You Cannot Be Sure That An
Active Trading Market Will Develop
The exchange notes are a new issue of securities with no established
trading market and will not be listed on any securities exchange. We have been
informed by the initial purchaser that it intends to make a market in the
exchange notes following the completion of this offering of the exchange notes.
However, the initial purchaser is not obligated to do so, and may discontinue
its market-making activities with respect to the exchange notes at any time
without notice. In addition, the liquidity of the trading market in the exchange
notes, and the market price quoted for these exchange notes, may be adversely
affected by changes in the overall market for high yield securities and by
changes in our financial performance or prospects or in the prospects for
companies in our industry generally. As a result, you can not be sure that an
active trading market will develop for these exchange notes.
You Should Not Rely On Forward-Looking Statements Contained In This Prospectus
This prospectus includes "forward looking statements" within the meaning of
Section 27A of the Securities Act of 1933 and Section 21E of the Securities
Exchange Act of 1934, including, in particular, the statements about our plans,
strategies and prospects under the headings "Prospectus Summary," "Management's
Discussion and Analysis of Financial Condition and Results of Operations," and
"Business." Although we believe that our plans, intentions and expectations
reflected in or suggested by such forward-looking statements are reasonable, we
cannot assure you that we will achieve the plans, intentions or expectations.
Important factors that could cause actual results to differ materially from the
forward-looking statements we make in this prospectus are set forth below and
elsewhere in this prospectus. All forward-looking statements attributable to us
or persons acting on our behalf are expressly qualified in their entirety by the
cautionary statements contained in this "Risk Factors" section. As used in this
"Risk Factors" section, unless the context otherwise requires, the terms "Middle
American Tissue," "we," "our," "ours," and "us" refer to Middle American Tissue
Inc. and all of its subsidiaries.
THE EXCHANGE OFFER
Purpose and Effect of the Exchange Offer
We sold the old notes to the initial purchaser on July 9, 1999 in a private
placement. The old notes were not registered under the Securities Act of 1933.
The initial purchaser has informed us that it promptly resold the old notes to
"qualified institutional buyers" in reliance on Rule 144A under the Securities
Act of 1933. When we sold the old notes to the initial purchasers, we entered
into the registration rights agreement with them, which requires that we file a
registration statement under the Securities Act of 1933 with respect to the
exchange notes to be issued in the exchange offer and, upon the effectiveness of
the registration statement, offer to you and all other holders of the old notes
the opportunity to exchange your old notes for a like principal amount of
exchange notes. These exchange notes will be issued without a restrictive legend
and, except as set forth below, may be reoffered and resold without restrictions
or limitations under the Securities Act. After we complete the exchange offer,
our obligations with respect to the registration of the old notes will
terminate, except as provided in the last paragraph of this section.
Under existing interpretations of the staff of the Securities and Exchange
Commission contained in several no action letters to third parties, we believe
that the exchange notes to be issued in the exchange offer will be freely
transferable by a holder who receives them in exchange for the old notes,
without further registration under the Securities Act, provided that the holder
represents to us that:
(1) it is not an "affiliate" of Middle American Tissue (such as a director,
executive officer or controlling stockholder of American Tissue or our
parent company);
(2) it will be acquiring the exchange notes in the ordinary course of its
business; and
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(3) it has not engaged in, does not intend to engage in, and has no
arrangement or understanding with any other person to participate in, a
distribution of the exchange notes.
However, we have not sought a no-action letter from the Securities and
Exchange Commission with respect to this exchange offer and we cannot assure you
that the Securities and Exchange Commission's staff would make a similar
determination with respect to this exchange offer. Any holder of the old notes
who is an "affiliate" of our company or who intends to participate in the
exchange offer for the purpose of distributing the exchange notes:
(1) will not be able to validly tender old notes in the exchange offer;
(2) will not be able to rely on the interpretations of the staff of the
Securities and Exchange Commission; and
(3) must comply with the registration and prospectus delivery requirements
of the Securities Act in connection with any offer or sale of its the old
notes, unless such offer or sale is made pursuant to an exemption from
those requirements.
In addition, each broker-dealer that receives exchange notes for its own
account in the exchange offer must acknowledge that it will deliver a prospectus
in connection with any resale of those notes. The letter of transmittal
accompanying this prospectus states that, by so acknowledging and by delivering
a prospectus, a broker-dealer will not be deemed to admit that it is acting in
the capacity of an "underwriter" within the meaning of Section 2(11) 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 exchange
notes received in exchange for old notes acquired by that broker-dealer as a
result of market-making or other trading activities. Pursuant to the
registration rights agreement, we have agreed to make this prospectus available
to any broker-dealer for use in connection with any such resale.
If you are not eligible to participate in the exchange offer, you can
elect, by so indicating on the letter of transmittal and providing certain
additional necessary information, to have your old notes included within the
coverage of a shelf registration statement pursuant to Rule 415 under the
Securities Act. If we have to file a shelf registration statement, we will be
required to keep it effective for a period of two years or such shorter period
that will terminate when all of the old notes covered by that shelf registration
statement have been resold. Other than as set forth in this paragraph, holders
of the old notes will not have the right to require us to register their old
notes under the Securities Act.
Terms of the Exchange Offer
Upon satisfaction or waiver of the conditions of our exchange offer set
forth in this prospectus and in the accompanying letter of transmittal, we will
accept all the old notes that are validly tendered and not withdrawn prior to
5:00 p.m. New York City time, on the expiration date. After authentication of
the exchange notes by the trustee, we will issue and deliver $1,000 principal
amount of exchange notes in exchange for each $1,000 principal amount of
outstanding old notes accepted in the exchange offer. You may tender some or all
of your old notes pursuant to the exchange offer in denominations of $1,000 and
integral multiples thereof.
By tendering the old notes in exchange for exchange notes and by executing
the letter of transmittal, you will be required to represent that:
(1) you are not an "affiliate" of our company;
(2) any exchange notes that you receive in the exchange offer will be
acquired by you in the ordinary course of your business; and
(3) you have no intention to distribute, and have no arrangement or
understanding with any person to participate in the distribution of, the
exchange notes you acquire.
The form and terms of the exchange notes will be identical in all material
respects to the form and terms of the old notes, except that:
(1) the offering of the exchange notes has been registered under the
Securities Act;
(2) the exchange notes will not be subject to restrictions on resale; and
(3) certain provisions of the registration rights agreement relating to our
obligation to pay liquidated damages to holders of the old notes under
certain circumstances will become ineffective.
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The exchange notes will evidence the same debt as the old notes and will be
issued under and entitled to the benefits of, the same indenture as the old
notes.
As of the date of this Prospectus, approximately $35.8 million aggregate
face amount of old notes is outstanding. In connection with the issuance of the
old notes, we arranged for the old notes to be issued and transferable in
book-entry form through the facilities of The Depository Trust Company, acting
as a depositary. The exchange notes will also be issuable and transferable in
book-entry form through DTC.
Copies of this prospectus, together with the accompanying letter of
transmittal, are initially being sent to all registered holders of old notes as
of the close of business on , . The exchange offer is not
conditioned upon any minimum aggregate principal amount of the old notes being
tendered. However, the exchange offer is subject to certain customary conditions
which may be waived by us, and to the terms and provisions of the registration
rights agreement. See "-- Conditions to the Exchange Offer" for a detailed
description of those conditions.
We will be deemed to have accepted validly tendered old notes when, as and
if we have given oral or written notice thereof to the exchange agent. The
exchange agent will receive the exchange notes from us for authentication and
will deliver them to the tendering holders.
If we do not accept any tendered old notes for exchange because of an
invalid tender or because the conditions to the exchange offer have not been
met, certificates for any such unaccepted old notes will be returned, at our
cost, to the tendering holder thereof as promptly as practicable after the
expiration date of our exchange offer.
Holders who tender old notes in our 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 their old notes
pursuant to the exchange offer. We will pay all charges and expenses, other than
certain applicable taxes, in connection with our exchange offer.
Expiration Date; Extensions; Amendments
The term "expiration date," as used in this prospectus, means 5:00 p.m.,
New York City time, on , unless we, in our sole discretion, extend our exchange
offer. If we extend our exchange offer, the term "expiration date" will mean the
latest date to which our exchange offer is extended. We may extend our exchange
offer at any time and from time to time by giving oral or written notice to the
exchange agent and by timely public announcement.
We reserve the right, in our sole discretion:
(1) to delay accepting any old notes for exchange;
(2) to extend our exchange offer;
(3) to terminate our exchange offer if the conditions set forth below under
"-- Conditions to the Exchange Offer" have not been satisfied; and
(4) to amend the terms of our exchange offer in any manner.
We will notify the exchange agent of any delay, extension, termination or
amendment by oral or written notice. In addition, we will promptly notify each
registered holder of old notes of any amendment. We will give to the exchange
agent written confirmation of any oral notice.
We acknowledge and undertake to comply with the provisions of Rule 14e-l(c)
under the Securities Exchange Act of 1934, which requires us to pay the
consideration offered, or return the old notes surrendered for exchange,
promptly after the termination or withdrawal of the exchange offer.
Accreted Interest on the Exchange Notes
Interest on the exchange notes will accrete from July 9, 1999.
Procedures for Tendering Old Notes
To tender old notes in our exchange offer, you must complete, sign and date
the letter of transmittal, or a facsimile thereof, in accordance with the
instructions contained below. You must then mail or otherwise deliver the letter
of transmittal (or a facsimile), together with the old notes to be exchanged and
any other required documents, to
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the exchange agent, at its address set forth herein under "-- Exchange Agent"
and in the letter of transmittal. You may also effect a tender of old notes
pursuant to the procedures for book-entry transfer as provided for herein and in
the letter of transmittal.
We understand that, promptly after the date of this prospectus, the
exchange agent will make a request to establish accounts at DTC for the purpose
of facilitating the exchange offer. Subject to the establishment of those
accounts, any financial institution that is a participant in DTC's Book-Entry
Transfer Facility system may make book-entry delivery of its old notes by
causing DTC to transfer those old notes into the exchange agent's account in
accordance with DTC'S procedure for such transfer. Although delivery of old
notes may be effected through book-entry transfer into the exchange agent's
account at DTC, the letter of transmittal (or a facsimile thereof) with any
required signature guarantees and any other required documents, must, in any
case, be transmitted to, and received by, the exchange agent at its address set
forth herein (under "-- Exchange Agent") prior to 5:00 p.m., New York City time,
on the expiration date. DELIVERY OF DOCUMENTS TO DTC IN ACCORDANCE WITH ITS
PROCEDURES DOES NOT CONSTITUTE DELIVERY TO THE EXCHANGE AGENT.
The exchange agent and DTC have confirmed that our exchange offer is
eligible for DTC's Automated Tender Offer Program. Accordingly, DTC participants
may electronically transmit their acceptance of the exchange offer by causing
DTC to transfer old notes to the Depositary in accordance with DTC's Automated
Tender Offer Program procedures for transfer. DTC will then send an "agent's
message" to the exchange agent.
The term "agent's message" means a message transmitted by DTC, received by
the exchange agent and forming part of the confirmation of a book-entry
transfer, which states that:
(1) DTC has received an express acknowledgement from the DTC participant
that is tendering the old notes which are the subject of the book-entry
transfer;
(2) the DTC participant has received and agreed to be bound by the terms of
the letter of transmittal; and
(3) we may enforce the terms of the letter of transmittal against the DTC
participant.
In the case of an "agent's message" relating to guaranteed delivery, the
term means a message transmitted by DTC and received by the exchange agent,
which states that DTC has received an express acknowledgement from the DTC
participant tendering old notes that such participant has received and agrees to
be bound by the notice of guaranteed delivery.
Notwithstanding the foregoing, in order to validly tender in the exchange
offer with respect to old notes transferred through the Automated Tender Offer
Program, a DTC participant using the Automated Tender Offer Program must also
properly complete and duly execute the applicable letter of transmittal and
deliver it to the exchange agent.
By the authority granted by DTC, any DTC participant which has old notes
credited to its DTC account at any time (and held of record by DTC's nominee)
may directly provide a tender as though it were the registered holder by
completing, executing and delivering the applicable letter of transmittal to the
exchange agent. DELIVERY OF DOCUMENTS TO DTC DOES NOT CONSTITUTE DELIVERY TO THE
EXCHANGE AGENT.
The tender by a holder and the acceptance of the tender by us will
constitute an agreement between the holder and us upon the terms, and subject to
the conditions, set forth in this prospectus and in the letter of transmittal.
Trustees, executors, administrators, guardians, attorneys-in-fact, officers
of corporations or others acting in a fiduciary or representative capacity
should indicate their capacities when signing the letter of transmittal or any
old notes or bond powers. Evidence satisfactory to us of their authority to so
act must be submitted with the letter of transmittal.
Only a holder in whose name old notes are registered may tender those old
notes in the exchange offer. To tender in the exchange offer, a holder must:
(1) complete, sign and date the letter of transmittal or a facsimile
thereof;
(2) have the signatures thereon guaranteed, if required by the letter of
transmittal; and
(3) unless the tender is being effected pursuant to the procedure for
book-entry transfer, mail or otherwise deliver the letter of transmittal
(or a facsimile thereof), together with the old notes and other required
documents, to the exchange agent, prior to 5:00 p.m., New York City time,
on the expiration date.
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If less than all of your old notes are tendered, you should fill in the
principal amount of the old notes being tendered in the appropriate box on the
letter of transmittal. The entire principal amount of the old notes delivered to
the exchange agent will be deemed to have been tendered unless otherwise
indicated.
THE METHOD OF DELIVERY OF THE OLD NOTES AND THE LETTER OF TRANSMITTAL AND
ALL OTHER REQUIRED DOCUMENTS TO THE EXCHANGE AGENT IS AT THE ELECTION AND RISK
OF THE HOLDERS. INSTEAD OF DELIVERY BY MAIL, IT IS RECOMMENDED THAT HOLDERS USE
AN OVERNIGHT COURIER OR HAND DELIVERY SERVICE. IN ALL CASES, SUFFICIENT TIME
SHOULD BE ALLOWED TO ENSURE DELIVERY TO THE EXCHANGE AGENT PRIOR TO THE
EXPIRATION DATE. NO LETTER OF TRANSMITTAL OR OLD NOTES SHOULD BE SENT TO US. YOU
MAY REQUEST THAT YOUR BROKER, OR A COMMERCIAL BANK, TRUST COMPANY OR NOMINEE,
EFFECT THE TENDER ON YOUR BEHALF, AS SET FORTH IN THIS PROSPECTUS AND IN THE
LETTER OF TRANSMITTAL.
If your old notes are registered in the name of a broker, commercial bank,
trust company or other nominee and you wish to tender those old notes, you
should contact the registered holder promptly and instruct the registered holder
to tender on your behalf. If you wish to tender on your own behalf, prior to
completing and executing the letter of transmittal and delivering your old
notes, you must either make appropriate arrangements to register ownership of
the old notes in your own name or obtain a properly completed bond power from
the registered holder. The transfer of record ownership may take considerable
time.
Signatures on a letter of transmittal or a notice of withdrawal, as the
case may be, must be guaranteed by a firm or institution that is a member in
good standing of the Securities Transfer Association Medallion Program, the New
York Stock Exchange Inc. Medallion Program or the Stock Exchange Medallion
Program (each, an "Eligible Institution"), unless the old notes are tendered by:
(1) a registered holder who has not completed the box entitled "Special
Issuance Instructions" or "Special Delivery Instructions" of the letter of
transmittal; or
(2) for the account of a member firm of an Eligible Institution.
If the letter of transmittal is signed by a person other than the
registered holder listed therein, the old notes that are the subject of that
letter of transmittal must be endorsed or accompanied by appropriate bond powers
that authorize that person to tender the old notes on behalf of the registered
holder. The endorsement or bond powers must be signed in the name of the
registered holder as it appears on the old notes.
All questions as to the:
o validity;
o form;
o eligibility (including time of receipt);
o acceptance of the tendered old notes; and
o withdrawal of the tendered old notes,
will be determined by us in our sole discretion. Our determination will be final
and binding. We reserve the absolute right to reject any and all old notes which
would be unlawful if accepted, in the opinion of our counsel. We also reserve
the right, in our sole discretion, to waive any defects, irregularities or
conditions of tender as to particular old notes. Our 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.
We intend to notify holders of defects or irregularities with respect to
tenders of old notes. However, neither we, the exchange agent nor any other
person will incur any liability for failure to give such notification. Tenders
of old notes will not be deemed to have been made until such defects or
irregularities have been cured or waived.
Any old notes received by the exchange agent that we determine are not
properly tendered or as to which the defects or irregularities have not been
cured or waived, will be returned by the exchange agent to the tendering holder,
as soon as practicable following the expiration date.
In addition, we reserve the right, in our sole discretion:
(1) to purchase or make offers for any old notes that remain outstanding
subsequent to the expiration date; and
(2) to the extent permitted by applicable law, to purchase old notes in the
open market, in privately negotiated transactions or otherwise.
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The terms of any such purchases or offers may differ from the terms of the
exchange offer.
Guaranteed Delivery Procedures
Holders who wish to tender their old notes but who cannot, prior to the
expiration date:
(1) deliver their old notes, the letter of transmittal or any other
required documents to the exchange agent or
(2) complete the procedures for book-entry transfer,
may effect a tender if:
o they tender through an Eligible Institution;
o prior to the expiration date, the exchange agent receives from an
Eligible Institution a properly completed and duly executed notice of
guaranteed delivery (by facsimile transmission, mail or hand
delivery):
(A) setting forth the name and address of the holder, the certificate
number(s) of the old notes being tendered and the principal amount of those
old notes;
(B) stating that the tender is being made; and
(C) guaranteeing that, within five New York Stock Exchange trading days
after the expiration date, the letter of transmittal (or a facsimile
thereof), together with the certificate(s) representing those old notes (or
a confirmation of book-entry transfer of those old notes into the exchange
agent's account at DTC) and any other documents required by the letter of
transmittal, will be deposited by the member firm with the exchange agents,
and
o the exchange agent receives within five New York Stock Exchange
trading days after the expiration date:
(1) the properly completed and executed letter of transmittal (or a
facsimile thereof);
(2) the certificate(s) representing all tendered old notes in proper form
for transfer (or a confirmation of book-entry transfer of those old notes
into the exchange agent's account at DTC); and
(3) all other documents required by the letter of transmittal.
Upon request to the exchange agent, we will send a notice of guaranteed
delivery to holders who wish to tender their old notes according to the
guaranteed delivery procedures set forth above.
Withdrawal of Tenders
Except as otherwise provided in this prospectus, holders may withdraw
tenders of old notes at any time prior to 5:00 p.m., New York City time, on the
expiration date. To withdraw a tender of old notes in the exchange offer, the
exchange agent must receive, by a telegram, telex, letter or facsimile
transmission, notice of withdrawal at its address set forth in this prospectus
prior to 5:00 p.m., New York City time, on the expiration date. A notice of
withdrawal must:
(1) specify the name of the person that deposited the old notes to be
withdrawn;
(2) identify the old notes to be withdrawn (including the certificate
number(s) and principal amount of those old notes, or, in the case of old
notes transferred by book-entry transfer, the name and number of the
account at DTC to be credited);
(3) be signed by the holder of those old notes in the same manner as the
original signature on the letter of transmittal by which those old notes
were tendered (including any required signature guarantees) or be
accompanied by documents of transfer sufficient to have the trustee with
respect to the old notes register the transfer of those old notes into the
name of the person withdrawing the tender; and
(4) specify the name in which any of those old notes are to be registered,
if different from that of the person who deposited those old notes.
We will determine all questions as to the validity, form and eligibility,
including time of receipt, of notices of withdrawal. Our determination will be
final and binding on all parties. We will not deem old notes so withdrawn to
have been validly tendered for purposes of the exchange offer. We will not issue
exchange notes for withdrawn old
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notes, unless you validly retender the withdrawn old notes.We will return any
old notes which have been tendered but which are not accepted for exchange to
the holder of the old notes at our cost as soon as practicable after withdrawal,
rejection of tender or termination of the exchange offer.
You may retender properly withdrawn old notes by following one of the
procedures described above under the heading "Procedures for Tendering Old
Notes".
Conditions to The Exchange Offer
Notwithstanding any other term of the exchange offer, we will not be
required to accept any old notes for exchange, or to exchange any exchange notes
for any old notes, and we may terminate or amend the exchange offer before our
acceptance of tenders of the old notes if:
(1) any action or proceeding is instituted or threatened in any court or by
or before any governmental agency with respect to the exchange offer which,
in our sole judgment, might materially impair our ability to proceed with
the exchange offer; or
(2) any development has occurred in any existing action or proceeding which
may be harmful to us or any of our subsidiaries; or
(3) any law, statute, rule, regulation or interpretation by the staff of
the Securities and Exchange Commission is proposed, adopted or enacted,
which, in our sole judgment, might impair our ability to proceed with the
exchange offer or impair the contemplated benefits of the exchange offer to
us; or
(4) any governmental approval has not been obtained, which we believe, in
our sole discretion, is necessary for the consummation of the exchange
offer as outlined in this prospectus.
If we determine, in our sole discretion, that any of the foregoing
conditions are not satisfied, we may:
(1) refuse to accept any old notes and return to the holders any old notes
that have been tendered; or
(2) extend the exchange offer and retain all old notes tendered prior to
the original expiration date of the exchange offer, subject to the rights
of the holders of those notes to withdraw them; or
(3) waive the condition and accept all properly tendered old notes that
have not been withdrawn. The exchange offer is not conditioned on any
minimum aggregate principal amount of the old notes being tendered for
exchange.
Exchange Agent
The Chase Manhattan Bank, the trustee and collateral agent under the
indenture relating to the Notes, has been appointed as exchange agent for the
exchange offer. In that capacity, the exchange agent has no fiduciary duties and
will be acting solely on the basis of our directions. Completed and executed
letters of transmittal and requests for assistance and requests for additional
copies of this prospectus or of the letter of transmittal should be directed to
the exchange agent addressed as follows:
By registered or certified mail
or by overnight courier
or by hand delivery: The Chase Manhattan Bank
Corporate Trust Securities Window
Room 234, North Building
55 Water Street
New York, New York 10004
Facsimile transmission: (212) 638-7380 or (212) 638-7381
Information or confirmation
by telephone: Mr. Carlos Esteves, (212) 638-0828
or (212) 638-0454
Delivery to an address or facsimile number, other than those listed above, will
not constitute a valid delivery.
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Fees and Expenses
We will bear the expenses of soliciting tenders. We are mailing the
principal solicitation. However, our officers and regular employees and those of
our affiliates may make additional solicitation by telegraph, telecopy,
telephone or in person.
We have not retained any dealer-manager in connection with the exchange
offer. We will not make any payments to brokers, dealers or others soliciting
acceptances of the exchange offer. However, we will pay the exchange agent
reasonable and customary fees for its services and reimburse it for its
reasonable out-of-pocket expenses.
We will pay the cash expenses incurred in connection with the exchange
offer. These expenses include fees and expenses of the exchange agent and
trustee, accounting and legal fees and printing costs, among others.
Transfer Taxes
Holders who tender their old notes for exchange will not be obligated to
pay any transfer taxes in connection with the exchange. However, holders who
instruct us to register exchange notes in the name of, or returned to, a person
other than the registered tendering holder will be responsible for the payment
of any applicable transfer tax on that transfer.
Accounting Treatment
The exchange notes will be recorded at the same carrying value as the old
notes, as reflected in our accounting records on the date of the exchange.
Accordingly, no gain or loss for accounting purposes will be recognized by us as
a result of the consummation of the exchange offer. The expenses of the exchange
offer will be amortized by us over the remaining term of the exchange notes
issued in the exchange offer.
Consequences of Failure to Exchange
Holders of old notes who do not tender old notes in the exchange offer will
continue to hold those old notes and will be entitled to all the rights, and
subject to the limitations, applicable thereto under the indenture. All old
notes that are not tendered will continue to be subject to the restrictions on
resale set forth in the indenture. Accordingly, prior to the later of July 9,
2001 (two years from the date of original issue of the old notes) or two years
after those old notes were last sold by us or one of our affiliates, those old
notes may be offered and resold only:
(1) to us;
(2) pursuant to a registration statement that has been declared effective
under the Securities Act;
(3) in the United States to a "qualified institutional buyer" within the
meaning of Rule 144A in reliance upon the exemption from the registration
requirements of the Securities Act of 1933 provided by Rule 144A, based
upon an opinion of counsel;
(4) outside the United States to a foreign person in a transaction that
complied with the provisions of Regulation S under the Securities Act; or
(5) pursuant to another available exemption from the registration
requirements of the Securities Act, based upon an opinion of counsel, in
each case in accordance with applicable state securities laws.
To the extent that old notes are tendered and accepted in the exchange
offer, the liquidity of the trading market for untendered old notes will be
adversely affected.
Shelf Registration Statement
If either of the following occur:
(1) the exchange offer is not permitted by applicable law or policy of the
Securities and Exchange Commission; or
(2) a holder of old notes notifies us that:
32
<PAGE>
(A) the holder was prohibited by law or Securities Exchange
Commission policy from participating in the exchange offer;
(B) the holder cannot resell the exchange notes acquired by it in the
exchange offer to the public without delivering a prospectus and
this prospectus is not appropriate or available for such resales
by the holder; or
(C) the holder is a broker-dealer and holds old notes acquired
directly from us or any of our affiliates,
then, we will take the following actions:
(1) we will file a shelf registration statement under Rule 415 of the
Securities Act of 1933, relating to the old notes; and
(2) use our commercially reasonable best efforts to cause such shelf
registration statement to become effective on or prior to February 4, 2000.
USE OF PROCEEDS
We will not receive any proceeds from the exchange of the exchange notes
for your old notes. We used the net proceeds of the offering of the old notes,
together with a $5.0 million equity contribution from Super American Tissue
Inc., our direct parent, to make an equity contribution to our subsidiary,
American Tissue. American Tissue, in turn, used the proceeds of our equity
contribution, together with the proceeds from the sale of the American Tissue
notes and borrowings under the New Credit Facility, to repay certain
indebtedness (including accrued interest through the date of repayment), to
consummate the acquisition of the Berlin-Gorham Mills and to pay related fees
and expenses.
CAPITALIZATION
The following table sets forth our consolidated cash and capitalization as of
June 30, 1999 and our consolidated cash and capitalization as adjusted to give
effect to the Transactions. This table should be read in conjunction with
"Unaudited Pro Forma Consolidated Financial Data," "Selected Historical
Financial Data," "Management's Discussion and Analysis of Financial Condition
and Results of Operations" and our consolidated financial statements, including
the notes thereto, included elsewhere in this prospectus.
As of June 30, 1999
----------------------
Actual As Adjusted
--------- -----------
Cash and cash equivalents ...................... $ 0.6 $ 0.6
========= =========
Debt (including current portion):
Old notes(1) ................................... $ -- $ 16.2
American Tissue notes(2) ....................... -- 159.5
Revolving credit facilities(3) ................. 67.2 9.9
Related party debt(4) .......................... 27.9 --
Mortgage and other debt(5) ..................... 62.6 22.9
Capital lease obligations ...................... 29.7 --
--------- ---------
Total Debt .................................. 187.4 208.5
Common stock purchase warrants ................. -- 3.8
Stockholders' equity:
Common stock ................................... 1.6 1.6
Additional paid-in capital ..................... 8.3 39.4
Retained earnings .............................. 33.0 31.4
--------- ---------
Total stockholder's equity .................. 42.9 72.4
--------- ---------
Total capitalization ........................ $ 230.3 $ 284.7
========= =========
- ----------
(1) Represents the issue price of the old notes. The principal amount at
maturity will be approximately $35.8 million.
(2) Represents the issue price of the American Tissue notes. The principal
amount at maturity will be $165.0 million.
33
<PAGE>
(3) As part of the Transactions, American Tissue repaid all outstanding amounts
under our then existing revolving credit facility and entered into the New
Credit Facility. The New Credit Facility consists of a five year $100.0
million revolving credit facility with certain lenders, for which LaSalle
Bank National Association acts as agent. American Tissue borrowed $9.9
million under the New Credit Facility on July 9, 1999, the closing date of
the Transactions. See "Description of Certain Indebtedness."
(4) Related party debt consists of approximately $20.2 million of indebtedness
held by Mr. Nourollah Elghanayan and members of his family, approximately
$0.8 million held by Mr. Gabayzadeh, and approximately $6.9 million held by
affiliated entities, all of which has been assumed by our direct parent,
Super American Tissue Inc., and is held by Mr. Elghanayan, Mr. Gabayzadeh
and such affiliated entities, respectively.
(5) See notes (5) and (6)(d) and (e) to our consolidated financial statements
included elsewhere herein. The "as adjusted" amount outstanding consists of
a $0.7 million loan from Curtiss-Wright, approximately $0.4 million of
secured loans from Community Redevelopment Agency of Calexico, California
and the various other secured financing arrangements described under
"Description of Certain Indebtedness."
UNAUDITED PRO FORMA CONSOLIDATED FINANCIAL DATA
The unaudited pro forma consolidated financial data have been derived by
giving effect to the pro forma adjustments to our historical consolidated
financial statements and the historical financial statements of the
Berlin-Gorham Mills appearing elsewhere in this prospectus. The unaudited pro
forma consolidated balance sheet as of June 30, 1999 gives effect to the
Transactions as if they were consummated on June 30, 1999. The unaudited pro
forma consolidated statements of operations for:
o fiscal 1998;
o the nine months ended June 30, 1998 and June 30, 1999, respectively;
and
o the 12 months ended March 31, 1999,
give effect to the Transactions as if they were consummated at the beginning of
each such period.
The pro forma adjustments are described in the accompanying notes to the
unaudited pro forma statements and are based upon the available information and
upon certain assumptions that management believes are reasonable. The unaudited
pro forma consolidated financial data and accompanying notes should be read in
conjunction with the historical consolidated financial statements and related
notes, and other financial information pertaining to us and the historical
financial statements and related notes of the Berlin-Gorham Mills, including
"Capitalization" and "Management's Discussion and Analysis of Financial
Condition and Results of Operations" included elsewhere in this prospectus.
The following unaudited pro forma consolidated financial data and
accompanying notes are provided for informational purposes only and are not
necessarily indicative of the operating results that would have occurred had the
Transactions been consummated on the dates described above, nor are they
necessarily indicative of our future results of operations or financial
position.
34
<PAGE>
UNAUDITED PRO FORMA CONSOLIDATED BALANCE SHEET
<TABLE>
<CAPTION>
As of June 30, 1999
(dollars in thousands)
Historical Historical
Middle Berlin Adjustments Adjustments
American Gorham for the for the
Tissue Mills Acquisition(a) Offering(b) Pro Forma
---------- ---------- -------------- ------------ ----------
<S> <C> <C> <C> <C> <C>
ASSETS
Current Assets:
Cash and cash equivalents ................................ $ 597 $ 1,675 $ (1,673) $ -- $ 599
Accounts receivable, net ................................. 35,078 5,759 (5,759) -- 35,078
Inventories .............................................. 57,219 26,282 (4,696) -- 78,805
Equipment held for sale .................................. 3,322 -- -- -- 3,322
Prepaid expenses and deposits ............................ 3,860 386 (386) -- 3,860
---------- --------- --------- ----------- -----------
Total current assets ................................ 100,076 34,102 (12,514) 121,664
Property, plant and equipment, net ....................... 163,900 30,838 9,836 -- 204,574
Due from related parties ................................. 21,672 -- -- -- 21,672
Deferred costs, net ...................................... 2,589 -- -- 7,210 9,799
Other assets ............................................. 185 16,340 (16,340) -- 185
---------- --------- --------- ----------- -----------
Total assets ........................................ $ 288,422 $ 81,280 $ (19,018) $ 7,210 $ 357,894
========== ========= ========= =========== ===========
LIABILITIES AND STOCKHOLDER'S EQUITY
Current Liabilities:
Accounts payable and accrued
expenses ............................................ $ 58,059 $ 19,866 $ (13,784) $ -- $ 64,141
Revolving line of credit ................................. 67,193 -- -- (57,580) 9,613
Notes payable ............................................ 7,616 -- -- (7,616) --
Current portion of long-term
debt and mortgage loans ............................. 6,427 -- -- (5,752) 675
Current portion of capital
lease and financing
obligations ......................................... 5,055 -- -- (5,055) --
---------- --------- --------- ----------- ----------
Total current liabilities ........................... 144,350 19,866 (13,784) (76,003) 74,429
Senior secured notes ..................................... -- -- -- 159,446 159,446
Senior secured discount notes ............................ -- -- -- 16,219 16,219
Other long-term debt, less
current portion ..................................... 27,637 30,255 (30,255) (26,345) 1,292
Mortgage loans, less current
portion ............................................. 20,984 -- -- -- 20,984
Long-term capital lease and
financing obligations ............................... 24,689 -- -- (24,489) 200
Related party debt .................................. 27,912 -- -- (27,912) --
---------- --------- --------- ----------- ----------
Total long-term debt ................................ 101,222 30,255 (30,255) 96,919 198,141
Accrued post-retirement
benefits, other than pensions ....................... -- 24,337 (15,218) -- 9,119
Other long-term liabilities .............................. -- 2,179 (2,179) -- --
Total liabilities ................................... 245,572 76,637 (61,436) 20,916 281,689
Common stock purchase warrants ...................... -- -- -- 3,781 3,781
Stockholder's equity ................................ 42,850 4,643 (4,643) 29,574 72,424
---------- --------- --------- ----------- ----------
Total liabilities and
stockholder's equity .............................. $ 288,422 $ 81,280 $ (66,079) $ 54,271 $ 357,894
========== ========= ========= =========== ==========
</TABLE>
35
<PAGE>
NOTES TO UNAUDITED PRO FORMA CONSOLIDATED BALANCE SHEET
As of June 30, 1999
(dollars in thousands)
(a) Purchase accounting adjustments for the acquisition of certain assets and
assumptions of certain liabilities:
<TABLE>
<CAPTION>
Berlin-Gorham Net Assets Pro Forma
Historical to be Acquired Adjustments
---------- -------------- -----------
<S> <C> <C> <C>
Cash and cash equivalents...................................$ 1,675 $ 2 $ (1,673)
Accounts receivable......................................... 5,759 -- (5,759)
Inventories................................................. 26,282 21,586 (4,696)
Prepaid expenses and other current assets................... 386 -- (386)
Property, plant and equipment............................... 30,838 40,674 9,836
Other assets................................................ 16,340 -- (16,340)
-------- ------- ---------
Total assets........................................... 81,280 62,262 (19,018)
Accounts payable and accrued liabilities 19,866 6,082 (13,784)
Long-term debt.............................................. 30,255 -- (30,255)
Accrued post-retirement benefits, other than pensions....... 24,337 9,119 (15,218)
Other long-term liabilities................................. 2,179 -- (2,179)
-------- ------- ---------
Total liabilities...................................... 76,637 15,201 (61,436)
Net assets.............................................$ 4,643 $47,061 $ (42,418)
======== ======= =========
</TABLE>
- ----------
(b) Gives effect to the following unaudited pro forma adjustments:
(1) the issuance of approximately $35.8 million face amount of old notes, net
of a discount of approximately $17.7 million, and $165.0 million face
amount of American Tissue notes, net of a discount of approximately $5.5
million, borrowings of $9.9 million under the New Credit Facility, the
investment of additional equity in the amount of $5.0 million from Super
American Tissue Inc. (Middle American Tissue's parent), the repayment of
$138.5 million of certain existing indebtedness, the payment of
approximately $8.3 million of fees and expenses related to the Transactions
and the amortization of $1.6 million of deferred financing costs related to
certain indebtedness that was repaid in connection with the offering of the
old notes and the American Tissue notes; and
(2) the assumption of $27.9 million of related party debt by our direct parent,
Super American Tissue Inc.
36
<PAGE>
UNAUDITED PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS
12 Months Ended September 30, 1998
(dollars in thousands)
<TABLE>
<CAPTION>
Historical Historical
Middle Berlin Adjustments Adjustments
American Gorham for the for the
Tissue Mills Acquisition(a) Offering(b) Pro Forma
------ ----- -------------- ----------- ---------
<S> <C> <C> <C> <C> <C>
Statements of Operations Data:
Net sales ......................... $ 213,988 $ 174,182 $ 1,867(4) $ -- $ 390,037
Cost of sales ..................... 175,083 180,094 (38,471)(5) -- 316,706
Severance charge .................. -- 1,932 -- -- 1,932
--------- --------- --------- --------- ---------
Gross profit ...................... 38,905 (7,844) 40,338 -- 71,399
Gain on timberlands sale .......... -- 13,518 -- -- 13,518
Selling, general and administrative
expenses .......................... 29,388 8,739 (505)(6) -- 37,622
Corporate overhead allocation ..... -- 6,729 (6,729)(7) -- --
--------- --------- --------- --------- ---------
Operating income (loss) ........... 9,517 (9,794) 47,572 -- 47,295
Interest expense .................. 14,672 2,547 -- 9,250(8) 26,469
Other income, net
Rental income ................... 1,215 -- -- -- 1,215
Other income .................... -- 56 -- -- 56
Income from insurance claims .... 2,466 -- -- -- 2,466
--------- --------- --------- --------- ---------
3,681 56 -- -- 3,737
--------- --------- --------- --------- ---------
Income tax benefit ................ -- (4,766) -- -- (4,766)
--------- --------- --------- --------- ---------
Net income (loss) ................. $ (1,474) $ (7,519) $ 47,572 $ (9,250) $ 29,329
========= ========= ========= ========= =========
Other Financial Data:
EBITDA(2) ......................... $ 23,783 $ 8,986 $ 19,103 $ -- $ 51,872
Adjusted EBITDA(3) ................ 23,783 14,153 19,103 -- 57,039
Depreciation and amortization ..... 10,585 23,637 (21,740)(5) -- 12,482
Capital expenditures .............. 27,566 9,853 -- -- 37,419
</TABLE>
37
<PAGE>
UNAUDITED PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS
Nine Months Ended June 30, 1998
(dollars in thousands)
<TABLE>
<CAPTION>
Historical Historical
Middle Berlin Adjustments Adjustments for
American Gorham for the the
Statements of Operations Data: Tissue Mills Acquisition Offering Pro Forma
------ ----- ----------- -------- ---------
<S> <C> <C> <C> <C> <C>
Net sales.............................. $156,298 $ 131,746 $ 1,666(4) $ -- $ 289,710
Cost of sales ......................... 128,484 138,833 (28,860)(5) -- 238,798
Severance charge ...................... -- 2,273 -- -- 1,932
--------- --------- --------- --------- ---------
Gross profit (loss) ................... 27,814 (9,360) 30,526 -- 48,980
Gain on timberlands sale .............. -- (13,518) -- -- (13,518)
Selling, general and administrative
Expenses .............................. 21,250 6,284 291(6) -- 27,825
Corporate overhead allocation ......... -- 4,737 (4,737)(7) -- --
--------- --------- --------- --------- ---------
Operating income ...................... 6,564 (6,863) 34,972 -- 34,673
Interest expense ...................... 9,641 1,896 -- 8,280(8) 19,817
Rental income ......................... 661 -- -- -- 661
Other income .......................... -- 19 -- -- 19
Income from insurance claims .......... 827 -- -- -- 827
--------- --------- --------- --------- ---------
Income tax benefit .................... -- (3,391) -- -- (3,391)
--------- --------- --------- --------- ---------
Net income (loss)...................... (1,589) $ (5,349) $ 34,972 $ (8,280) $ 19,754
========= ========= ========= ========= =========
Other Financial Data:
EBITDA(2) ............................. $ 16,070 $ 3,978 $ 13,968 $ -- $ 32,084
Adjusted EBITDA(3) .................... 16,070 8,424 13,968 -- 36,530
Depreciation and amortization ......... 8,018 17,690 (16,267)(5) -- 9,441
Capital expenditures .................. 19,178 4,848 -- -- 24,026
</TABLE>
38
<PAGE>
UNAUDITED PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS
Nine Months Ended June 30, 1999
(dollars in thousands)
<TABLE>
<CAPTION>
Historical Historical
Middle Berlin Adjustments Adjustments
American Gorham for the for the
Tissue Mills Acquisition Offering Pro Forma
------ ----- ----------- -------- ---------
<S> <C> <C> <C> <C> <C>
Statements of Operations Data:
Net sales............................. $183,487 $130,920 $ 1,701(4) $ -- $316,108
Cost of sales......................... 143,468 129,809 (19,261)(5) -- 254,016
--------- --------- --------- ------- --------
Gross profit (loss)................... 40,019 1,111 20,962 -- 62,092
Adjustment to net realizable value.... -- 16,175 -- -- 16,175
Property tax reversal................. -- 8,957 -- -- 8,957
Asset impairment charge............... -- 143,632 -- -- 143,632
Selling, general and administrative
expenses.............................. 21,966 6,259 680(6) -- 28,905
Corporate overhead allocation......... -- 6,211 (6,211)(7) -- --
Operating income (loss)............... 18,053 (162,209) 26,493 -- (117,663)
Interest expense...................... 10,890 1,894 -- 7,065(8) 19,849
Other income, net.....................
Rental income....................... 900 -- -- -- 900
Other income........................ 184 50 -- -- 234
--------- --------- --------- ------- --------
1,084 50 -- -- 1,134
--------- --------- --------- ------- --------
Income tax benefit.................... -- (62,273) -- -- (62,273)
--------- --------- --------- ------- --------
Net income (loss)..................... $ 8,247 $(101,780) $ 26,493 $(7,065) $(74,104)
========= ========= ========= ======= ========
Other Financial Data:
EBITDA(2)............................. $ 27,783 $ 3,388 $ 13,169 $ -- $ 44,340
Adjusted EBITDA(3).................... 27,783 4,398 13,169 -- 44,991
Depreciation and amortization......... 8,830 8,536 (7,113)(5) -- 10,253
Capital expenditures.................. 12,607 4,919 -- -- 17,526
</TABLE>
39
<PAGE>
UNAUDITED PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS
12 Months Ended March 31, 1999
(dollars in thousands)
<TABLE>
<CAPTION>
Historical Historical
Middle Berlin Adjustments Adjustments
American Gorham for the for the
Tissue Mills Acquisition Offering Pro Forma
--------- --------- ------------ --------- ---------
<S> <C> <C> <C> <C> <C>
Statements of Operations Data:
Net sales ......................... $ 236,214 $ 171,482 $ 1,729(4) $ -- $ 409,425
Cost of sales ..................... 190,972 177,224 (35,505)(5) -- 332,691
Severance charge .................. -- 1,932 -- -- 1,932
--------- --------- --------- --------- ---------
Gross profit ...................... 45,242 (7,674) 37,234 -- 74,802
Adjustment to net realizable value -- 16,175 -- -- 16,175
Asset impairment charge ........... -- 143,632 -- -- 143,632
Property tax accrual reversal ..... -- (8,957) -- -- (8,957)
Selling, general and administrative 30,276 8,888 (262)(6) -- 38,902
Expenses
Corporate overhead allocation ..... -- 8,087 (8,087)(7) -- --
--------- --------- --------- --------- ---------
Operating income (loss) ........... 14,966 (175,499) 45,583 -- (114,950)
Interest expense .................. 15,346 2,547 -- 8,169(8) 26,062
Other income, net
Rental income ................... 1,417 -- -- -- 1,417
Other income .................... 185 87 -- -- 272
Income from insurance claims .... 2,166 -- -- -- 2,166
--------- --------- --------- --------- ---------
3,768 87 -- -- 3,855
--------- --------- --------- --------- ---------
Income tax benefit ................ -- (69,048) -- -- (69,048)
--------- --------- --------- --------- ---------
Net income (loss) ................. $ 3,388 $(108,911) $ 45,583 $ (8,169) $ (68,109)
========= ========= ========= ========= =========
Other Financial Data:
EBITDA(2) ......................... $ 29,876 $ 4,411 $ 19,757 $ -- $ 54,044
Adjusted EBITDA(2) ................ 29,876 7,522 19,757 -- 57,155
Depreciation and amortization ..... 11,327 19,041 (17,739)(5) -- 12,629
Capital expenditures .............. 25,805 9,177 -- -- 34,982
</TABLE>
NOTES TO UNAUDITED PRO FORMA CONSOLIDATED STATEMENTS OF OPERATIONS
12 Months Ended March 31, 1999 and September 30, 1998 and
Nine Months Ended June 30, 1998 and 1999
(dollars in thousands)
(1) The historical Berlin-Gorham Mills financial data represents their
unaudited results of operations for the 52 weeks ended September 27, 1998,
the 26 weeks ended March 29, 1998, the 26 weeks ended March 28, 1999 and
the 52 weeks ended March 28, 1999, as applicable.
(2) See definition of EBITDA in note (3) of "Summary Unaudited Pro Forma
Consolidated Financial Data."
(3) See definition of Adjusted EBITDA in note (4) of "Summary Unaudited Pro
Forma Consolidated Financial Data."
(4) Reflects the following pro forma net sales increase:
40
<PAGE>
<TABLE>
<CAPTION>
12 Months 12 Months
Ended Nine Months Ended Ended
September 30, June 30, March 31,
------------- ----------------------- ----------
1998 1998 1999 1999
------------- ------- ------- ----------
<S> <C> <C> <C> <C>
a. Increase in net sales resulting from pulp
purchase agreement between American Tissue
and Crown Paper as compared to Berlin-Gorham
Mills historical selling prices................ $1,867 $1,666 $1,701 $1,729
====== ====== ====== ======
(5) Reflects the following pro forma cost of sales savings
<CAPTION>
12 Months 12 Months
Ended Nine Months Ended Ended
September 30, June 30, March 31,
------------- ----------------------- ----------
1998 1998 1999 1999
------------- ------- ------- ----------
<S> <C> <C> <C> <C>
Cash adjustments:
a- Salary and fringe benefit savings:
o Manufacturing personnel reduction........... $ 3,450 $ 2,588 $ 2,588 $ 3,450
o Integration of existing American Tissue
compensation and benefit policies into
Berlin-Gorham Mills........................... 460 377 395 513
------- ------- ------- -------
Total pro forma salary and fringe benefit
Savings....................................... 3,910 2,965 2,983 3,963
------- ------- ------- -------
b- Substitution of lower cost raw materials,
using double lined kraft paper and paper
manufacturing by-products instead of
internally manufactured slush pulp from
the Berlin-Gorham Mills....................... 6,935 5,431 4,616 6,782
------- ------- ------- -------
c- Savings resulting from increased wet lap
pulp production capacity by the repairs of
an existing wet lap machine as required
by the asset purchase agreement............... 3,600 2,584 2,835 3,708
------- ------- ------- -------
d- Savings resulting from the purchase
of pulp from Berlin-Gorham Mills as
compared to third party suppliers............. 1,103 629 1,654 2,405
------- ------- ------- -------
e- Cost savings resulting from the termination
of sludge hauling contract ................... 1,183 984 60 908
------- ------- ------- -------
Subtotal of Cash Adjustments.................. 16,731 12,593 12,148 17,766
------- ------- ------- -------
Non-cash adjustments:
Savings resulting from decrease in
depreciation expense as a result of the
purchase price allocation to fixed assets of
the Berlin-Gorham Mills....................... 22,335 16,267 7,113 17,739
------- ------- ------- -------
Total......................................... $39,066 $28,860 $19,261 $35,505
======= ======= ======= =======
</TABLE>
41
<PAGE>
(6) Reflects the following pro forma selling, general and administrative cost
savings:
<TABLE>
<CAPTION>
12 Months
12 Months Nine Months Ended Ended
Ended June 30, March 31,
September 30, ------------------------ ----------
1998 1998 1999 1999
------------- ------- -------- -----------
<S> <C> <C> <C> <C>
a- Incremental corporateoverhead to
support the Berlin-Gorham Mills
operations .................................... $(1,700) $(1,275) $(1,275) $(1,700)
b- Marketing expense savings resulting from
paper brokerage agreement between
American Tissue and Crown Paper................ 2,205 984 595 1,962
-------- ------- ------- -------
Total $ 505 $ (291) $ (680) $ 262
======== ======= ======= =======
</TABLE>
<TABLE>
<CAPTION>
(7) Adjustments to reflect the interest on long-term debt as a result of the
issuance of the American Tissue notes as follows:
12 Months
12 Months Nine Months Ended Ended
Ended June 30, March 31,
September 30, --------------------------- ---------
1998 1998 1999 1999
------------- --------- --------- ---------
<S> <C> <C> <C> <C>
Interest on American Tissue notes $ 20,625 $ 15,469 $ 15,469 $ 20,625
Interest on New Credit Facility 820 615 615 820
Deferred financing costs 69 34 34 69
Amortization of warrants 157 118 118 157
Interest accretion 1,550 1,163 1,163 1,550
Amortization of debt costs (noncash) 1,258 943 943 1,258
Ammortization of debt discount (noncash) 523 392 392 523
Interest on borrowings repaid (15,757) (10,475) (11,691) (16,833)
-------- -------- --------- ---------
Net increase in interest $ 9,244 $ 8,258 $ 7,042 $ 8,169
======== ======== ========= =========
</TABLE>
(8) Cost savings resulting from the elimination of Crown Paper corporate
overhead allocation:
<TABLE>
<CAPTION>
12 Months
12 Months Nine Months Ended Ended
Ended June 30, March 31,
September 30, ------------------------ ----------
1998 1998 1999 1999
------------- ------- -------- ----------
<S> <C> <C> <C> <C>
Interest on the American Tissue notes issued ....... $6,729 $4,737 $6,211 $8,087
</TABLE>
42
<PAGE>
SELECTED HISTORICAL FINANCIAL DATA
(dollars in thousands)
MIDDLE AMERICAN TISSUE
Set forth below are selected historical financial data for Middle American
Tissue for the five fiscal years ended September 30, 1998, the 12 months ended
March 31, 1999 and the six months ended June 30, 1998 and 1999. The data as of
and for:
o the fiscal years ended September 30, 1997 and 1998 are derived from,
and should be read in conjunction with, our consolidated financial
statements audited by Arthur Andersen LLP, independent auditors, whose
report with respect to such financial statements, as well as such
financial statements, are included elsewhere herein;
o the fiscal year ended September 30, 1996 are derived from, and should
be read in conjunction with, our consolidated financial statements
audited by Holtz Rubenstein & Co., LLP, independent auditors, whose
report with respect thereto, as well as such financial statements, are
included elsewhere herein; and
o the fiscal years ended September 30, 1994 and 1995, the nine months
ended June 30, 1998 and 1999 and the 12 month period ended March 31,
1999 are derived from our unaudited consolidated financial statements.
The financial statements as of September 30, 1994, 1995 and 1996 and for the 12
months ended March 31, 1999 are not included in this prospectus.
In the opinion of our management, such unaudited financial statements
include all adjustments (consisting of only normal recurring adjustments)
necessary for a fair presentation of the information set forth therein. Results
for the interim periods are not necessarily indicative of the results to be
expected for the full year or any other future period. See "Management's
Discussion and Analysis of Financial Condition and Results of Operations" and
our consolidated financial statements, and the related notes, included elsewhere
in this prospectus.
<TABLE>
<CAPTION>
Nine Months 12 Months
Ended Ended
Fiscal Year Ended September 30, June 30, March 31,
---------------------------------------------------------- ---------------------- ---------
1994 1995 1996 1997 1998 1998 1999 1999
--------- --------- --------- --------- --------- --------- --------- ---------
(unaudited) (unaudited) (unaudited) (unaudited)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Statement of Operations Data:
Net sales ....................... $ 112,378 $ 138,933 $ 152,722 $ 197,596 $ 213,988 $ 156,298 $ 183,487 $ 236,214
Cost of sales ................... 90,352 116,406 122,273 152,570 175,083 128,484 143,468 190,972
Gross profit .................... 22,026 22,527 30,449 45,026 38,905 27,814 40,019 45,242
Selling, general and
administrative expenses ......... 13,322 15,934 17,181 26,953 29,388 21,250 21,966 30,276
Operating income ................ 8,704 6,593 13,268 18,073 9,517 6,564 18,053 14,966
Interest expense and
other income, net ............... 3,803 8,326 86 11,200 10,991 8,153 9,816 11,578
--------- --------- --------- --------- --------- --------- --------- ---------
Net income (loss) ............... $ 4,901 (1,733) $ 13,182 $ 6,873 (1,474) (1,589) $ 8,237 $ 3,388
========= ========= ========= ========= ========= ========= ========= =========
Other Data:
EBITDA(1) ....................... $ 13,839 $ 9,281 $ 27,950 $ 27,427 $ 23,783 $ 16,070 $ 27,967 $ 29,876
Adjusted EBITDA ................. 13,839 9,281 27,950 27,427 23,783 16,070 27,967 29,876
Interest expense ................ 4,945 6,922 9,175 12,272 14,672 9,641 10,890 15,346
Depreciation and
amortization .................... 3,993 4,092 5,593 8,282 10,585 8,018 8,830 11,327
Capital expenditures(2) ......... 4,463 24,192 40,933 29,172 27,566 19,178 12,067 25,805
Ratio of earnings to
fixed charges(3) ................ 1.9x 0.8x 2.4x 1.5x 0.9x 0.8x 1.7x 1.2x
</TABLE>
43
<PAGE>
<TABLE>
<CAPTION>
Fiscal Year Ended September 30, As of
--------------------------------------------------------------------- June 30,
1994 1995 1996 1997 1998 1999
--------- --------- --------- --------- --------- ---------
Balance Sheet Data: (unaudited) (unaudited) (unaudited)
<S> <C> <C> <C> <C> <C> <C>
Cash and cash equivalents ................ $ 745 $ 1,017 $ 152 $ 870 $ 1,480 $ 597
Working capital (deficiency) ............. (3,671) (18,183) (18,413) (20,892) (48,748) (44,275)
Total assets ............................. 85,335 136,166 199,201 230,517 270,819 288,422
Total debt ............................... 54,834 93,300 123,376 143,690 176,394 188,013
Stockholder's equity ..................... 16,461 14,010 26,984 33,858 33,644 42,850
</TABLE>
(1) EBITDA is defined as operating income plus depreciation and amortization,
adjusted for the following non-cash and income items:
o with respect to Middle American Tissue, income items include rental
income and income from insurance claims; and
o with respect to the Berlin-Gorham Mills, non-cash items exclude:
o the asset impairment and net realizable value charges;
o the property tax accrual reversal;
o the corporate overhead allocation; and
o income items exclude the severance charge and the gain on
timberlands sale.
Information regarding EBITDA is presented because management believes that
certain investors use EBITDA as one measure of an issuer's ability to
service its debt. EBITDA should not be considered an alternative to, or
more meaningful than, operating income, net income or cash flow as defined
by generally accepted accounting principles or as an indicator of an
issuer's operating performance. Furthermore, caution should be used in
comparing EBITDA to similarly titled measures of other companies as the
definitions of these measures may vary. See "Unaudited Pro Forma
Consolidated Financial Data" and the consolidated financial statements and
notes thereto of American Tissue and the financial statements and notes
thereto of the Berlin-Gorham Mills, included elsewhere herein.
(2) Excludes portions attributable to capital leases.
(3) The ratio of earnings to fixed charges has been calculated by dividing:
(a) income before income taxes plus fixed charges, by
(b) fixed charges. "Fixed charges" are defined as interest expense
plus the estimated interest portion of rent expense.
BERLIN-GORHAM MILLS
Set forth below are selected historical financial data of the Berlin-Gorham
Mills for the five 52-week fiscal periods ended December 27, 1998. The operating
data and the other financial data for:
o the 52 weeks ended December 29, 1996, December 28, 1997 and December
27, 1998 are derived from, and should be read in conjunction with, the
financial statements for the Berlin-Gorham Mills audited by Ernst &
Young LLP, independent auditors, whose report with respect to such
financial statements, as well as such financial statements, are
included elsewhere herein; and
o the 52 weeks ended December 25, 1994 and December 31, 1995 and for the
26 weeks ended June 28, 1998 and June 27, 1999, respectively, are
derived from unaudited financial statements for the Berlin-Gorham
Mills.
The unaudited financial statements for the 26 week periods ended June 28, 1998
and June 27, 1999 are included in this prospectus. The unaudited financial
statements for the 52 weeks ended December 25, 1994 and December 31, 1995 are
not included in this prospectus. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations--Berlin-Gorham Mills" and the
historical financial statements, and the related notes, of the Berlin-Gorham
Mills included elsewhere in this prospectus.
44
<PAGE>
<TABLE>
<CAPTION>
As of 52 Weeks Ended As of 26 Weeks Ended
December(1) June(2)
------------------------------------------------------------ ----------------------
Statements of Operations Data: 1994 1995 1996 1997 1998 1998 1999
--------- --------- --------- --------- --------- --------- ---------
(unaudited) (unaudited) (unaudited) (unaudited)
<S> <C> <C> <C> <C> <C> <C> <C>
Net sales ......................... $ 164,733 $ 236,311 $ 177,916 $ 183,398 $ 174,423 $ 87,439 $ 86,372
Cost of sales ..................... 179,996 199,416 189,173 179,648 185,820 98,360 83,268
Severance charge .................. -- -- -- -- 1,932 1,932 --
Gross profit (loss) ............... (15,263) 36,895 (11,257) 3,750 (13,329) (12,853) 3,104
Adjustment to net realizable value -- -- -- -- -- -- 16,175
Selling and administrative expenses 5,353 4,838 3,698 6,542 9,155 5,136 4,693
Property tax accrual reversal ..... -- -- -- -- -- -- (8,957)
Gain on timberland sale ........... -- -- -- (13,518) -- -- --
Asset impairment charge ........... -- -- -- -- 143,632 -- --
Corporate overhead allocation(3) .. 3,085 3,880 5,412 5,726 7,764 3,342 3,783
Operating income (loss) ........... (23,701) 28,177 (20,367) 5,000 (173,880) (21,331) (12,590)
Interest expense and other income, 1,195 609 1,474 2,472 2,462 1,244 1,240
net
Income (loss) before income taxes . (24,896) 27,568 (21,841) 2,528 (176,342) (22,575) (13,830)
Income tax provision (benefit)(4) (8,992) 10,958 (8,303) 1,077 (68,287) (8,759) (5,366)
--------- --------- --------- --------- --------- --------- ---------
Net income (loss) ................. $ (15,904) $ 16,610 $ (13,538) $ 1,451 $(108,055) $ (13,816) $ (8,464)
========= ========= ========= ========= ========= ========= =========
Other Data:
EBITDA(5) ......................... $ 3,901 $ 56,877 $ 9,106 $ 21,387 $ 3,414 $ (3,974) $ 1,087
Adjusted EBITDA(6) ................ 8,566 62,328 15,025 27,788 7,696 (1,161) 2,054
Interest expense .................. 1,198 1,238 1,573 2,547 2,547 1,244 1,240
Depreciation and amortization ..... 24,517 24,820 24,061 24,179 23,966 12,083 2,676
Capital expenditures .............. 16,524 13,165 10,872 13,084 9,146 2,812 3,211
</TABLE>
As of As of
December June
27, 1998 27, 1999
-------- ---------
Balance Sheet Data: (unaudited)
Cash and cash equivalents .................. $ 1,753 $ 1,675
Working capital ............................ 7,684 14,286
Total assets ............................... 101,042 8,280
Total debt .......................... 30,255 30,255
- --------
(1) The Berlin-Gorham Mills' fiscal year ends on the last Sunday of December
(i.e., December 25, 1994, December 31, 1995, December 29, 1996, December
28, 1997 and December 27, 1998).
(2) The Berlin-Gorham Mills' first fiscal quarter ends on the last Sunday of
the month of June (i.e., June 28, 1998 and June 27, 1999).
(3) Corporate overhead allocation represents a pro rata allocation of Crown
Paper's corporate administrative costs, which are not directly attributable
to the Berlin-Gorham Mills. Such costs include such items as accounting and
tax services, certain human resources services, computer services and
general corporate administrative costs.
(4) The Berlin-Gorham Mills have historically been included in the consolidated
tax returns of Crown Paper. Income taxes are presented as if the
Berlin-Gorham Mills filed its taxes on a separate return basis.
(5) See definition of EBITDA in note (1) of "Selected Historical Financial
Data--Middle American Tissue."
(6) Adjusted EBITDA for the Berlin-Gorham Mills represents EBITDA adjusted as
follows:
<TABLE>
<CAPTION>
26 Weeks
Fiscal Year Ended December(1) Ended June(2)
----------------------------------------------------------- ---------------------
1994 1995 1996 1997 1998 1998 1999
------- ------- ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C> <C>
EBITDA ................................. $ 3,901 $56,877 $ 9,106 $21,387 $ 3,414 $(3,974) $ 1,087
Non-continuing employee
compensation expense ................... 2,953 2,953 2,953 2,953 2,953 1,477 601
Property tax savings ................... 1,712 2,498 2,966 3,448 1,329 1,336 366
------- ------- ------- ------- ------- ------- -------
Adjusted EBITDA ........................ $ 8,566 $62,328 $15,025 $27,788 $ 7,696 $(1,161) $ 2,054
======= ======= ======= ======= ======= ======= =======
</TABLE>
- --------
(1) The Berlin-Gorham Mills' fiscal year ends on the last Sunday of December
(i.e., December 25, 1994, December 31, 1995, December 29, 1996, December
28, 1997 and December 27, 1998).
(2) The Berlin-Gorham Mills' first fiscal quarter ends on the last Sunday of
the month of June (i.e., June 28, 1998 and June 27, 1999).
45
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
MIDDLE AMERICAN TISSUE
The following discussion should be read in conjunction with "Unaudited Pro
Forma Consolidated Financial Data," "Selected Historical Financial Data" and our
historical audited and unaudited financial statements and related notes included
elsewhere in this prospectus.
Overview
We are a leading integrated manufacturer of tissue products in North
America, with a comprehensive product line that includes jumbo tissue rolls for
converting and converted tissue products for end-use. Our converted products are
sold in the away-from-home and at-home markets, and our jumbo rolls are sold to
other manufacturers of converted tissue products. Substantially all of our net
sales are derived from the manufacture and sale of converted tissue products and
jumbo rolls. We also generate a small portion of our net sales from the sale of
tissue converting equipment.
We utilize our tissue mills on an integrated company basis to maximize
jumbo roll production at our lowest cost mills. For example, upon the
acquisition of our Neenah, Wisconsin facility from Kimberly-Clark in November
1996, we were able to consolidate tissue production by shifting manufacturing
from three of our smaller tissue mills to our largest facilities in Neenah,
Wisconsin and St. Helens, Oregon. As a result of shifting production to these
facilities, we were better able to absorb manufacturing overhead costs.
Since fiscal 1997, demand for our products has increased. Accordingly, we
have:
o increased production at our operating tissue mills;
o re-opened two of our smaller mills; and
o consolidated the operations of our Tomahawk, Wisconsin and Winchester,
New Hampshire facilities by moving one of our Tomahawk facility tissue
machines to Winchester.
We have developed a network of tissue converting equipment to support and
enhance our converted product business.
In each of our last four fiscal years, we have experienced growth in net
sales of converted tissue products and jumbo rolls. The acquisition of our
integrated tissue mill/converting facility in Neenah, Wisconsin from
Kimberly-Clark, resulting from the merger of Kimberly-Clark and Scott Paper, has
significantly contributed to the growth of net sales of our converted tissue
products and jumbo rolls. Shipments of premium and value grades of tissue
products remained strong through the first nine months of fiscal 1999 due to our
aggressive marketing efforts. Our at-home products experienced increased product
penetration, including premium grades of bath and towel tissue. Our
away-from-home sales have experienced strong growth resulting from the new and
improved tissue products manufactured at our Neenah mill.
The following is a summary of our net sales for the periods indicated
(dollars in millions):
Fiscal Years Nine Months
Ended September 30, Ended June 30,
---------------------------- -----------------
1996 1997 1998 1998 1999
------ ------ ------ ------ ------
Paper products $152.5 $196.4 $208.3 $152.6 $182.5
Equipment sales 0.2 1.2 5.7 3.6 0.9
------ ------ ------ ------ ------
Total net sales $152.7 $197.6 $214.0 $156.2 $183.4
====== ====== ====== ====== ======
We were incorporated on July 1, 1999 for the purpose of acquiring the
common stock of American Tissue from our immediate parent, Super American
Tissue, in exchange for shares of our common stock. We completed such
acquisition on July 2, 1999. American Tissue was incorporated in August 1998 for
the purpose of reorganizing the ownership interests of the stockholders of
American Tissue Corporation and certain of its affiliates into it. In October
1998, American Tissue completed its reorganization of such ownership interests,
which consist of the outstanding
46
<PAGE>
capital stock of our other corporate subsidiaries and the outstanding membership
interests in our subsidiaries formed as limited liability companies. We and our
corporate subsidiaries have elected S corporation status under the Internal
Revenue Code of 1986, as amended. As a result, we and such subsidiaries are not
subject to U.S. federal income taxes and certain state and local income taxes.
Our subsidiaries organized as limited liability companies are treated as
partnerships for federal income tax purposes.
Results of Operations
The following table sets forth certain data as a percentage of our net
sales:
<TABLE>
<CAPTION>
Fiscal Years Nine Months
Ended September 30, Ended June 30,
----------------------------------- -------------------
1996 1997 1998 1998 1999
----- ----- ----- ----- -----
(unaudited)
<S> <C> <C> <C> <C> <C>
Net sales ............................................... 100.0% 100.0% 100.0% 100.0% 100.0%
Cost of sales ........................................... 80.1 77.2 81.8 82.2 78.2
----- ----- ----- ----- -----
Gross profit ............................................ 19.9 22.8 18.2 17.8 21.8
Selling, general and administrative
expenses (1) ............................................ 11.2 13.6 13.7 13.6 12.0
----- ----- ----- ----- -----
Operating income ........................................ 8.7 9.2 4.5 4.2 9.8
Interest expense, net ................................... 6.0 6.2 6.9 6.2 5.9
Rental and other income ................................. 0.3 0.4 0.6 0.4 0.6
Income from insurance claims ............................ 5.6 0.1 1.2 0.5 --
EBITDA (2) .............................................. 18.3 13.9 11.1 10.3 15.1
</TABLE>
- ----------
(1) It is our policy to include freight expense in this category as a selling
expense.
(2) See the definition of EBITDA in note (1) of "Selected Historical Financial
Data-- American Tissue."
Nine Months Ended June 30, 1999 ("fiscal 1999 nine months") Compared to the Nine
Months Ended June 30, 1998 ("fiscal 1998 nine months")
Net Sales. Our net sales increased $27.2 million, or 17.4%, from $156.3
million in the fiscal 1998 nine months to $183.5 million in the fiscal 1999 nine
months.
Net sales of converted tissue products increased $11.2 million, or 9.5%,
from $118.3 million in the fiscal 1998 nine months to $129.5 million in the
fiscal 1999 nine months. Shipments of away-from-home products increased 1.2
million cases, or 25.5%, from the fiscal 1998 nine months to the fiscal 1999
nine months. This increase was due primarily to our strategy of increasing our
sales efforts to take advantage of competitor consolidation and the
implementation of our new private label program. Shipments of at-home products
increased 0.2 million cases, or 5.7%, from the fiscal 1998 nine months to the
fiscal 1999 nine months. During the fiscal 1999 nine months, we were able to
increase our sales of at-home products, despite competitive pricing in this
segment that resulted in an average price decrease of approximately 2.6%. We
believe this decrease in price was less than that experienced by some of our
competitors because of our focus on sales of a higher quality mix of products.
Net sales of jumbo rolls increased $18.7 million, or 54.4%, from $34.4
million in the fiscal 1998 nine months to $53.1 million in the fiscal 1999 nine
months. Shipments of jumbo rolls increased 18,000 tons, or 46.3%, from the
fiscal 1998 nine months to the fiscal 1999 nine months. We secured long term
contracts, focusing on premium and specialty grades of jumbo rolls, which
resulted in stronger pricing and higher volume in the fiscal 1999 nine months.
Despite decreases in the jumbo roll pricing of certain of our competitors, we
believe that our average selling price increased because of our mix of higher
quality specialty grades of jumbo rolls.
Net sales of equipment decreased $2.7 million from $3.6 million in the
fiscal 1998 nine months to $0.9 million in the fiscal 1999 nine months.
Equipment sales continue to be intermittent as a result of our recent entry into
this business.
Gross Profit. Our gross profit increased $12.2 million, or 43.9%, from
$27.8 million in the fiscal 1998 nine months to $40.0 million in the fiscal 1999
nine months. Gross profit, as a percentage of net sales, increased from
47
<PAGE>
17.8% in the fiscal 1998 nine months to 21.8% in the fiscal 1999 nine months.
This increase in gross profit, as a percentage of net sales, was a result of
higher sales and production volumes, lowering per unit costs and better
absorption of certain fixed costs. Depreciation and amortization increased $0.8
million, or 10.1%, from $8.0 million in the fiscal 1998 nine months to $8.8
million in the fiscal 1999 nine months.
Selling, General and Administrative Expenses. As a matter of policy, we
include freight expense in this category as a selling expense. Freight expense
increased $0.1 million from $9.5 million in the fiscal 1998 nine months to $9.6
million the fiscal 1999 nine months. Selling, general and administrative
expenses, excluding freight, increased $0.6 million, or 5.3%, from $11.7 million
in the fiscal 1998 nine months to $12.3 million in the fiscal 1999 nine months.
Selling, general and administrative expense, excluding freight, was 6.7%, as a
percentage of net sales, in the fiscal 1999 nine months as compared to 7.5% in
the fiscal 1998 nine months. This percentage decrease was due to net sales
increasing at a faster rate than selling, general and administrative expenses,
excluding freight, between the fiscal 1998 nine months and the fiscal 1999 nine
months and our continuing efforts to reduce overhead.
Operating Income. Operating income increased $11.5 million, or 175%, from
$6.6 million for the fiscal 1998 nine months to $18.1 million for the fiscal
1999 nine months. Operating income, as a percentage of net sales, was 9.8% for
the fiscal 1999 nine months, as compared to 4.2% for the fiscal 1998 nine
months. This increase was due to the reasons stated above.
Interest Expense. Interest expense increased $1.3 million, or 13%, from
$9.6 for the fiscal 1998 nine months to $10.9 million for the fiscal 1999 nine
months. This increase reflects higher short-term debt levels during the fiscal
1999 nine months, as compared to the fiscal 1998 nine months.
Fiscal 1998 Compared to Fiscal 1997
Net Sales. Our net sales increased $16.4 million, or 8.3%, from $197.6
million in fiscal 1997 to $214.0 million in fiscal 1998. The increase was
attributable to greater sales volume in most product lines.
Net sales of converted tissue products increased $6.7 million, or 4.3%,
from $154.4 million in fiscal 1997 to $161.1 million in fiscal 1998. Shipments
of away-from-home products decreased 0.6 million cases, or 9.0%, from 7.1
million cases in fiscal 1997 to 6.5 million cases in fiscal 1998. This decrease
was primarily attributable to the expiration of a major contract for converted
tissue products in April 1997. Shipments, excluding this contract, increased by
0.7 million cases in fiscal 1998, as compared to fiscal 1997. We maintained our
historic price levels in the away-from-home market while pursuing increased
distribution penetration with a 36% increase in our regional sales team from 11
to 15 sales personnel. Shipments of at-home products increased 0.6 million
cases, or 13.2%, from 4.8 million cases in fiscal 1997 to 5.4 million cases in
fiscal 1998. In anticipation of the opening of our Calexico, California
converting facility, we pursued West Coast at-home business with aggressive
pricing.
Net sales of jumbo rolls increased $5.2 million, or 12.6%, from $42.0
million in fiscal 1997 to $47.2 million in fiscal 1998. We experienced an
increase in tons sold because of an increase in production of premium grades of
tissue from our Neenah, Wisconsin mill and our St. Helens, Oregon tissue
operation.
Net sales of equipment increased $4.5 million, or 360.4%, from $1.2 million
in fiscal 1997 to $5.7 million in fiscal 1998. Equipment sales are intermittent,
and vary as a result of our recent entry into this business.
Gross Profit. Gross profit decreased $6.1 million, or 13.6%, from $45.0
million in fiscal 1997 to $38.9 million in fiscal 1998. Gross profit, as a
percentage of net sales, decreased from 22.8% in fiscal 1997 to 18.2% in fiscal
1998. This decrease in gross profit as a percentage of net sales was the result
of increased overhead due to the purchase and start-up of our Neenah, Wisconsin
mill and our Waterford, New York converting facility in the second half of
fiscal 1998. Depreciation and amortization expense relating to these facilities
as well as other capital spending increased by $2.3 million, or 27.8%, from $8.3
million in fiscal 1997 to $10.6 million in fiscal 1998.
Selling, General and Administrative Expenses. As a matter of policy, we
include freight expense in this category as a selling expense. Freight expense
increased $2.8 million, or 26.6%, from $10.6 million in fiscal 1997 to $13.4
million in fiscal 1998. This resulted from our increased volume of converted
tissue products, which increased 10.6%, and an increase in sales to West Coast
customers, in anticipation of the start-up of our Calexico, California
converting facility. Selling, general and administrative expenses, exclusive of
freight, decreased $0.4 million, or 2.3%, from $16.4 million in fiscal 1997 to
$16.0 million in fiscal 1998. Selling, general and administrative expenses,
excluding freight, was 7.5% as a percentage of net sales in fiscal 1998, as
compared to 8.3%, as a percentage of net sales in fiscal 1997.
48
<PAGE>
Operating Income. Operating income decreased $8.6 million, or 47.3%, from
$18.1 million in fiscal 1997, to $9.5 million in fiscal 1998. Operating income
as a percentage of net sales was 4.4% in fiscal 1998, as compared to 9.1% in
fiscal 1997. This decrease was due to the reasons stated above.
Interest Expense. Interest expense increased $2.4 million, or 19.6%, from
$12.3 million in fiscal 1997 to $14.7 million in fiscal 1998. This increase was
due to acquisition financing, capital spending and higher working capital needs.
Fiscal 1998 interest expense includes $1.3 million of non-cash expense for
related party debt.
Fiscal 1997 Compared to Fiscal 1996
Net Sales. Our net sales increased $44.9 million, or 29.4%, from $152.7
million in fiscal 1996 to $197.6 million in fiscal 1997. Net sales continued to
grow in fiscal 1997, as a result of the acquisition of our Neenah mill in the
first quarter of fiscal 1997 and our Greenwich mill in the third quarter of
fiscal 1996, and the start-up of new converting facilities and machines in our
Waterford, New York operation.
Net sales of converted tissue products increased $21.3 million, or 16.0%,
from $133.1 million in fiscal 1996 to $154.4 million in fiscal 1997. Shipments
of away-from-home products increased 2.3 million cases, or 48.8%, from 4.8
million cases in fiscal 1996 to 7.1 million cases in fiscal 1997. Shipments of
at-home products increased 1.2 million cases, or 31.7%, from 3.6 million cases
in fiscal 1996 to 4.8 million cases in fiscal 1997. Net sales grew at a slower
rate than sales volume as our mix of products sold reflected a higher percentage
of certain bath tissue and towels which have a lower per unit sales price.
Net sales of jumbo rolls increased $22.6 million, or 116.5%, from $19.4
million in fiscal 1996 to $42.0 million in fiscal 1997. This increase was caused
by additional sales volume resulting from the acquisition of our Neenah and
Greenwich tissue mills and the low volume of jumbo rolls sales in fiscal 1996 as
compared to fiscal 1997 due to a fire in our Hauppauge, New York facility in the
first quarter of 1996, which decreased our inventory of jumbo rolls for sale in
fiscal 1996.
Net sales of equipment increased from $0.2 million in fiscal 1996 to $1.2
million in fiscal 1997. Fiscal 1997 was the first year that we focused on
equipment sales as part of our business strategy of bundling long-term jumbo
roll sales contracts with equipment sales.
Gross Profit. Gross profit increased $14.6 million, or 47.9%, from $30.4
million in fiscal 1996 to $45.0 million in fiscal 1997. Gross profit, as a
percentage of net sales, increased from 19.9% in fiscal 1996 to 22.8% in fiscal
1997. This increase in gross profit, as a percentage of net sales, is a result
of higher sales volume at existing facilities and increased gross profit from
the paper mills acquired in the third quarter of 1996 and first quarter of 1997.
Depreciation and amortization expense increased $2.7 million, or 48.1%, from
$5.6 million in fiscal 1996 to $8.3 million in fiscal 1997. This increase was
due to higher capital spending, including the two acquisitions discussed above.
Selling, General and Administrative Expenses. As a matter of policy we
include freight expense in this category as a selling expense. Freight expenses
increased $4.2 million, or 65.7%, from $6.4 million in fiscal 1996 to $10.6
million in fiscal 1997. Selling, general and administrative expenses, exclusive
of freight, increased $5.6 million, or 52.0%, from $10.8 million in fiscal 1996
to $16.4 million in fiscal 1997. Freight expense increased as a result of
increased shipments of converted products and the shift in geographic sales as
our business expanded into the Midwest and West Coast. Selling, general and
administrative expenses, excluding freight, was 8.3% as a percentage of net
sales in fiscal 1997 as compared to 7.0% as a percentage of net sales in fiscal
1996. This increase was a result of the expansion of our sales and
administrative organization in anticipation of higher sales growth. Also,
certain expenses formerly classified in cost of sales were reclassified to this
category beginning in fiscal 1997.
Operating Income. Operating income increased $4.8 million, or 36.2%, from
$13.3 million in fiscal 1996 to $18.1 million in fiscal 1997, for the reasons
stated above. Operating income as a percentage of net sales was 9.1% for fiscal
1997, compared to 8.7% for fiscal 1996.
Unusual Item. Proceeds of insurance of $8.6 million was recognized as a
gain in fiscal 1996 relating to an insurance settlement for the fire that
destroyed our headquarters, warehouse and converting facility located in
Hauppauge, New York in the first quarter of fiscal 1996.
Interest Expense. Interest expense increased $3.1 million, or 33.8%, from
$9.2 million in fiscal 1996 to $12.3 million in fiscal 1997. The increase
resulted from acquisitions, capital spending and higher working capital needs
which in turn resulted in a significant increase in debt and related interest
expense.
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BERLIN-GORHAM MILLS
The following discussion and analysis of financial condition and results of
operations covers periods before our acquisition of the Berlin-Gorham Mills. The
results of operations and financial condition for the periods subsequent to our
acquisition of the Berlin-Gorham Mills will not necessarily be comparable to
prior periods. The following should be read in conjunction with the "Unaudited
Pro Forma Consolidated Financial Data," "Selected Historical Financial Data" and
the historical audited and unaudited financial statements and related notes of
the Berlin-Gorham Mills included elsewhere in this prospectus.
Overview
The Berlin-Gorham Mills are fully integrated pulp and paper mills. The pulp
mill has an annual capacity of approximately 350,000 tons of bleached northern
hardwood and softwood pulp. Of the pulp produced at the pulp mill in 1998,
approximately 47% of the hardwood pulp and 100% of the softwood pulp was used by
the paper mill in the production of paper and toweling and the remaining
approximately 53% of the hardwood pulp was dried and either sold to other Crown
Paper mills or as market pulp. Prior to the acquisition, at our request, Crown
Paper commenced operation of an existing wet lap machine previously idled for
which it was reimbursed by us in the amount of approximately $313,000. This wet
lap machine has added approximately 26,000 tons of annual capacity.
The four paper machines operated in the paper mill have an annual capacity
of approximately 179,000 tons of uncoated freesheet paper annually, and the
toweling machine operated in the paper mill has an annual production capacity of
approximately 39,000 tons of toweling. The four paper machines produce uncoated
freesheet paper products for the printing and publishing markets, including
premium text and cover grades, book papers, opaques and forms bond. The toweling
machine produces primarily away-from-home towel and wiper grades. Following its
spinoff in 1995 from James River, the predecessor of Fort James, Crown Paper
redirected its production at the Berlin-Gorham Mills to increase its focus on
the text and cover sector of the premium paper market.
The following is a summary of Berlin-Gorham Mills' net sales for the
periods indicated (dollars in millions):
<TABLE>
<CAPTION>
52 Weeks 26 Weeks
Ended December (1) Ended June (2)
-------------------------------------------- ------------------------
1996 1997 1998 1998 1999
-------- -------- -------- ------- -------
<S> <C> <C> <C> <C> <C>
Uncoated free sheet ........................ $ 123.0 $ 119.9 $ 119.3 $ 62.5 $ 57.7
Towel ...................................... 22.5 26.5 15.6 6.2 11.2
Market pulp ................................ 32.4 37.0 39.5 18.7 17.5
-------- -------- -------- ------- -------
Total net sales ............................ $ 177.9 $ 183.4 $ 174.4 $ 87.4 $ 86.4
======== ======== ======== ======= =======
</TABLE>
- --------
(1) See footnote (1) to Statements of Operating Data under "Selected Historical
Financial Data--Berlin-Gorham Mills."
(2) See footnote (2) to Statements of Operating Data under "Selected Historical
Financial Data--Berlin-Gorham Mills."
The Berlin-Gorham Mills historically operated as part of an operating
division of Crown Paper, and not as a stand-alone entity. As a result, the
historical financial information included in this prospectus does not
necessarily reflect what the Berlin-Gorham Mills' financial position and results
of operations would have been had the Berlin-Gorham Mills been operated as a
stand-alone entity during the periods presented.
As part of an operating division of Crown Paper, the Berlin-Gorham Mills
were allocated selling and administrative expenses and Crown Paper corporate
overhead expenses in the combined amounts of $12.3 million and $16.9 million for
the 52 weeks ended December 28, 1997 and December 27, 1998, respectively, and
$8.5 million for the 26 weeks ended June 27, 1999. The selling and
administrative expense allocations were based on sales efforts made with respect
to the Berlin-Gorham Mills, and the corporate overhead expense allocations were
based on the Berlin-Gorham Mills' projected proportion of Crown Paper's
projected tons of paper sold. All of the Berlin-Gorham Mills' selling and
administrative costs are reported as fixed costs and are included in cost of
goods sold. For comparative purposes, Crown Paper's corporate, general and
administrative costs are reported as separate items. We estimate that the
corporate overhead expenses that will be allocated by us to the Berlin-Gorham
Mills will be $1.7 million for the first year, on a stand-alone basis, based on
a detailed analysis of compensation benefits for employees employed by us, and
related non-payroll costs incurred, following the acquisition. Future operating
results are expected to be affected by changes in depreciation and amortization
expense related to impaired assets, reduced selling and administrative expenses,
elimination of certain lease financing costs and intercompany transactions with
our other affiliates and other items resulting from the Transactions. See
"Unaudited Pro Forma Consolidated Financial Data" included elsewhere in this
prospectus. We cannot assure you that we will be able to realize all of the
benefits we expect from the Berlin-Gorham Mills as a stand-alone entity after
the acquisition.
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Interest expense represents interest expense on the industrial revenue
bonds, the proceeds of which are specifically restricted for use in funding
certain environmental improvements at the Berlin-Gorham Mills. American Tissue
will not assume the industrial revenue bonds and Crown Paper will retain
liability for the industrial revenue bonds following the acquisition.
Crown Paper took a $143.6 million charge, which was recorded in the fourth
quarter of 1998, to write down the book value of Berlin-Gorham Mills. In
connection with the acquisition, Crown Paper took an adjustment to net book
value of the Berlin-Gorham Mills totaling $16.2 million, which was recorded in
the first quarter of 1999 in order to record the Berlin-Gorham Mills' assets at
their estimated net realizable value.
Results of Operations
The following sets forth certain data as a percentage of the Berlin-Gorham
Mills' net sales:
<TABLE>
<CAPTION>
52 Weeks 26 Weeks
Ended December (1) Ended June (2)
------------------------------------ ---------------------
1996 1997 1998 1998 1999
----- ----- ----- ----- -----
<S> <C> <C> <C> <C> <C>
Net sales ........................................... 100.0% 100.0% 100.0% 100.0% 100.0%
Cost of goods sold .................................. 106.3 98.0 107.6 114.7 96.4
----- ----- ----- ----- -----
Gross profit (loss) ................................. (6.3) 2.0 (7.6) (14.7) 3.6
Adjustment to net realizable value .................. -- -- -- -- 18.7
Property tax accrual reversal ....................... -- -- -- -- (10.4)
Selling and administrative expenses ................. 2.1 3.6 5.2 5.9 5.4
Asset impairment charge ............................. -- -- (82.3) -- --
Gain on timberlands sale ............................ -- 7.4 -- -- --
----- ----- ----- ----- -----
Corporate overhead allocation ....................... 3.0 3.1 4.5 3.8 4.4
Operating income (loss) ............................. (11.4) 2.7 (99.6) (24.4) (14.5)
Interest expense and other income ................... 0.8 1.3 1.4 1.4 1.4
EBITDA(3) ........................................... 5.1 11.7 2.0 (5.0) 1.3
</TABLE>
- ----------
(1) See footnote (1) to Statements of Operating Data under "Selected Historical
Financial Data--Berlin-Gorham Mills."
(2) See footnote (2) to Statements of Operating Data under "Selected Historical
Financial Data--Berlin-Gorham Mills."
(3) See definition of EBITDA in note (1) of "Selected Historical Financial
Data--American Tissue."
26 Weeks Ended June 27, 1999 ("1999 26 weeks") Compared to the 26 Weeks Ended
June 28, 1998 ("1998 26 weeks")
Net Sales. Net sales decreased $1.0 million, or 1.2%, from $87.4 million in
the 1998 26 weeks to $86.4 million in the 1999 26 weeks. Shipments increased
13,639 tons, or 9.0%, from 151,482 tons in the 1998 26 weeks to 165,121 tons in
the 1999 26 weeks.
Net sales of uncoated freesheet papers decreased $4.9 million, or 7.8%,
from $62.5 million in the 1998 26 weeks to $57.7 million in the 1999 26 weeks.
Despite improvements in our premium printing grades, poor market pricing for our
target bond grades contributed to an overall price decrease of 11.2%.
Net sales of jumbo rolls of towel increased $5.0 million, or 80.3%, from
$6.2 million in the 1998 26 weeks to $11.2 million in the 1999 26 weeks. The
increase in net sales was primarily due to a 8,185 ton increase in tons sold,
which was partially offset by a 7.0% decrease in average net sales price per
ton. The increase in tons sold was due to the efforts of the Berlin-Gorham Mills
to regain market share lost near the end of 1997 and increased production.
Net sales of pulp declined $1.2 million, or 6.3%, from $18.7 million in the
1998 26 weeks to $17.5 million in the 1999 26 weeks. The decline was primarily
due to a 9.8% decrease in average net sales price per ton that was partially
offset by a 2,038 ton, or 3.9%, increase in tons sold from 52,444 tons in the
1998 26 weeks to 54,482 tons in the 1999 26 weeks. Although difficult market
conditions prevailed, some upward movement in price was seen at the end of the
1999 26 weeks.
Gross Profit. Gross profit increased $16.0 million, from $(12.9) million in
the 1998 26 weeks to $3.1 million in the 1999 26 weeks. Gross profit as a
percentage of net sales increased from (14.7)% in the 1998 26 weeks to 3.6% in
the 1999 26 weeks. This increase in gross profit is a result of lower employee
compensation expense, depreciation and amortization and wood costs and improved
operating efficiencies, and was partially offset by a decline in average
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<PAGE>
net sales price per ton. Depreciation and amortization decreased $9.0 million,
or 77%, from $11.7 million in the 1998 26 weeks to $2.7 million in the 1999 26
weeks.
Selling and Administrative Expenses. Selling and administrative expenses
decreased $0.4 million, or 7.8%, from $5.1 million in the 1998 26 weeks to $4.7
million in the 1999 26 weeks.
Operating Loss. Operating loss decreased $8.7 million, or 40.8%, from
$(21.3) million in the 1998 26 weeks to $(12.6) million in the 1999 26 weeks.
Included in the 1999 26 weeks operating loss was a $16.2 million downward
adjustment from the sale of the Berlin-Gorham Mills, which was partially offset
by the $9.0 million property tax accrual reversal. Operating loss before these
special charges decreased $15.9 million, from $(21.3) in 1998 26 weeks to $(5.4)
million in 1999 26 weeks.
Crown Paper Corporate Overhead Allocation. Crown Paper corporate overhead
allocation increased $0.4 million, or 13.2%, from $3.3 million in the 1998 26
weeks to $3.8 million in the 1999 26 weeks.
Interest Expense. Interest expense remained materially unchanged in the
1999 26 weeks, as compared to the 1998 26 weeks, at $1.2 million.
Year Ended December 27, 1998 Compared to Year Ended December 28, 1997
Net Sales. Net sales decreased $9.0 million, or 4.9%, from $183.4 million
in 1997 to $174.4 million in 1998.
Net sales of uncoated freesheet papers decreased $0.5 million, or 0.4%,
from $119.9 million in 1997 to $119.3 million in 1998. Shipments of uncoated
freesheet tons sold in 1998 increased 6,768, or 3.9%, from 171,985 in 1997 to
178,753 in 1998. However, average net selling price per ton decreased by $29, or
4.2%, during the same period. Shipments of premium printing papers tons sold,
including text and cover grades, increased 3,857, or 49.2%, from 7,837 in 1997
to 11,694 in 1998, as a result of the Berlin-Gorham Mills continuing strategy to
focus on this market. Net sales price for premium printing papers declined $23
per ton, or 2.1%, in 1998 as compared to 1997. Net sales of web publishing
grades increased 5.4% from 59,146 tons in 1997 to 62,331 tons in 1998. In
addition, average net selling price increased $4 per ton, or 0.5%.
Net sales of jumbo rolls of towel declined $10.9 million, or 41.1%, during
1998 as compared to 1997. The decline was primarily due to a reduction in tons
sold of 9,867 tons, or 29.3%, from 33,635 in 1997 to 23,768 in 1998, due
primarily to a decision by a customer to use their own internal resources. Also
contributing to the decline in net sales was a 16.6% decline in average net
sales prices per ton as the Berlin-Gorham Mills discounted toweling pricing to
regain market share.
Net sales of pulp increased $2.5 million, or 6.6%, from $37.0 million in
1997 to $39.5 million in 1998. The increase in net sales was primarily due to an
19.0% increase in tons sold, from 99,598 tons in 1997 to 118,497 tons in 1998.
The increase in tons sold was due to increased operating efficiencies that led
to increased production during 1998 and therefore more pulp being made available
for sale to external markets. The effect of the increase in tons sold during
1998 was partially offset by a 10.4% decrease in average net sales price per ton
during 1998, as compared to 1997, which was reflective of pricing in the global
pulp markets.
Gross Profit. Gross profit decreased $17.1 million, from $3.8 million in
1997 to a loss of $(13.3) million in 1998. Gross profit as a percentage of net
sales decreased from 2.0% in 1997 to (7.6)% in 1998. This decrease in gross
profit is a result of the decline in average net selling price per ton and
decreased sales of jumbo rolls of towels. Gross profit in 1998 included the
severance charge of $1.9 million. Depreciation and amortization decreased $0.2
million, or 0.9%, from $24.2 million in 1997 to $24.0 million in 1998.
Selling and Administrative Expenses. Selling and administrative expenses
increased $2.6 million, or 39.9%, from $6.5 million in 1997 to $9.2 million in
1998. The increase was primarily due to increased sales and marketing expenses
to expand the Berlin-Gorham Mills' premium printing and publishing papers market
share.
Operating Income. Operating income decreased from $5.0 million in 1997 to a
loss of $(173.9) million in 1998. Operating income in 1998 included an asset
impairment charge of $143.6 million. Operating income in 1997 included a $13.5
million gain on timberlands sale. Operating income before these special charges
declined $21.8 million, from $(8.5) million in 1997 to $(30.3) million in 1998.
Crown Paper Corporate Overhead Allocation. Crown Paper corporate overhead
allocation increased $2.0 million, or 36.8%, from $5.7 million in 1997 to $7.8
million in 1998.
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<PAGE>
Interest Expense. Interest expense remained materially unchanged in 1998,
as compared to 1997, at $2.5 million.
Year Ended December 28, 1997 as Compared to Year Ended December 29, 1996
Net Sales. Net sales increased $5.5 million, or 3.1%, from $177.9 million
in 1996 to $183.4 million in 1997.
Net sales of uncoated freesheet papers declined $3.2 million, or 2.6%, from
$123.0 million in 1996 to $119.9 in 1997, primarily as a result of a 2.4%
decrease in net sales price per ton on substantially the same tonnage volume.
Although total net sales price per ton of uncoated freesheet paper declined,
sales of premium printing papers, including text and cover grades, increased
2,412 tons, or 44.5%, from 5,425 tons in 1996 to 7,837 tons in 1997, as a result
of the Berlin-Gorham Mill's continued strategy to focus on this market. Net
sales price for premium printing papers increased $102 per ton, or 10.2%. Sales
of web publishing grades increased 5,288 tons, or 9.8% from 53,858 tons in 1996
to 59,146 tons in 1997, with net selling price decreasing by $4 per ton, or
0.5%. Net sales price per ton and sales volume of other grades of uncoated
freesheet paper declined.
Net sales of jumbo rolls of towel increased 5,062 tons, or 17.7%, in 1997,
from 28,573 tons in 1996 to 33,635 tons in 1997. Average net sales price per ton
was materially unchanged between 1997 and 1996. The increase in tons sold was
due to favorable market conditions that allowed the Berlin-Gorham Mills to
increase sales. Net sales increased $4.0 million, or 18.0%, from $22.5 million
in 1996 to $26.5 million in 1997.
Net sales of pulp increased $4.6 million, or 14.2%, from $32.4 million in
1996 to $37.0 million in 1997. The increase was primarily due to a 14.8%
increase in tons sold during 1997 as compared to 1996. The increase in tons sold
was due to increased operating efficiencies that led to increased production
during 1997 as compared to 1996.
Gross Profit. Gross profit increased $15.0 million from $(11.3) million in
1996 to $3.8 million in 1997. Gross profit as a percentage of net sales
increased from (6.3)% in 1996 to 2.0% in 1997. This increase in gross profit, as
a percentage of net sales, is a result of improved operating efficiencies and
lower wood and pulp costs in 1997, as compared to 1996.
Selling and administrative expenses increased $2.8 million from $3.7
million in 1996 to $6.5 million in 1997. The increase was primarily due to
increased sales and marketing expenses as Crown Paper implemented a marketing
program to support production at the Berlin-Gorham Mills of premium text and
cover papers.
Operating Income. Operating income increased $25.4 million, from $(20.4)
million in 1996 to $5.0 million in 1997. Operating income in 1997 included a
$13.5 million gain on timberlands sale. Operating income before this charge
increased $11.9 million, from $(20.4) million in 1998 to $(8.5) million in 1997.
Crown Paper Corporate Overhead Allocation. Crown Paper corporate overhead
allocation increased $0.3 million from $5.4 million in 1996 to $5.7 million in
1997.
Interest Expense. Interest expense increased $1.0 million from $1.5 million
in 1996 to $2.5 million in 1997, as a result of the $12.3 million industrial
revenue bond offering, which occurred in August of 1996.
Liquidity and Capital Resources
Middle American Tissue
Historically, our growth has been financed through cash flow from
operations, borrowings under our bank credit facilities and other financings.
Net cash provided by operating activities was $21.9 million, $17.0 million and
$4.8 million in fiscal 1997, 1998 and the 1999 nine months, respectively. Our
capital expenditures were $29.2 million, $27.6 million and $12.6 million in
fiscal 1997, 1998 and the 1999 nine months, respectively. We expect to spend
approximately $22.0 million in fiscal 1999 for capital expenditures for business
maintenance and profit improvement projects, exclusive of amounts expected to be
paid with respect to the Berlin-Gorham Mills. A substantial portion of our
capital expenditures have been for acquisitions and capacity growth and profit
improvement projects, such as the acquisition of our Neenah and Greenwich tissue
mills in fiscal 1997 and 1996, respectively, and the construction and
installation of converting assets at our Calexico, California tissue converting
facility in fiscal 1999. Our capital expenditures for the fiscal 1999 nine
months included the replacement of a damaged Yankee dryer at our Mechanicville
tissue mill, repairs and upgrades to our paper machines at our Neenah and
Greenwich mills and the relocation of a tissue machine from our idled Tomahawk
mill to our Winchester mill.
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<PAGE>
Berlin-Gorham Mills
The Berlin-Gorham Mills has historically funded its growth through cash
flow from operations and borrowings under various Crown Paper credit facilities.
Net cash provided by operating activities was $8.6 million, $(12.1) million and
$(5.4) million in 1997, 1998 and the 1999 26 weeks, respectively. The
Berlin-Gorham Mills' capital expenditures were $13.1 million, $9.1 million and
$3.1 million in 1997, 1998 and the 1999 26 weeks, respectively.
Combined
As a result of the Transactions, we have a substantial amount of
indebtedness. As of June 30, 1999, after giving pro forma effect to the
Transactions, we would have had consolidated debt of approximately $208.3
million, consisting of:
(1) approximately $22.9 million of mortgage and other indebtedness;
(2) approximately $9.9 million outstanding under the New Credit Facility
(exclusive of unused commitments of $90.1, subject to borrowing base
limitations);
(3) approximately $16.0 million under the old notes, after deduction of a
discount of approximately $17.7 million; and
(4) approximately $159.5 million under the American Tissue notes, after
deduction of a discount of approximately $5.5 million.
See "Capitalization" and "Use of Proceeds."
Our primary capital requirements are for working capital, capital
expenditures and payments of interest expense. We expect combined capital
expenditures for American Tissue and the Berlin-Gorham Mills business
maintenance (excluding environmental) and profit improvement projects of
approximately $25 million in fiscal 1999 and ranging from approximately $30
million to approximately $32 million in fiscal 2000, of which we believe
approximately $15 million will be for equipment maintenance in each of fiscal
1999 and fiscal 2000. In addition, we estimate, after consultation with
independent environmental consultants, that approximately $13 million of capital
expenditures, within a range of approximately plus or minus 25%, may be required
to comply with the Cluster Rules at the Berlin-Gorham Mills, with compliance
dates beginning in 1999 and extending over the next two to five years.
We believe, based on current levels of operations and anticipated internal
growth and price increases, anticipated reductions in capital expenditures, cash
flow from operations, together with other available sources of funds including
the availability of borrowings under the New Credit Facility, will be adequate
for the foreseeable future to make required payments of principal and interest
on our indebtedness and to fund anticipated capital expenditures and working
capital requirements. Our ability to meet our debt service obligations and
reduce our total debt will be dependent, however, upon our future performance,
which, in turn, will be subject to general economic conditions and to financial,
business and other factors, including factors beyond our control. A portion of
our debt bears interest at floating rates. Therefore, our financial condition is
and will continue to be affected by changes in prevailing interest rates.
Year 2000 Compliance
The Year 2000 issue concerns the potential exposures related to the
erroneous generation of business and financial information resulting from the
fact that certain computer systems and software programs use two digits, rather
than four, to define the applicable year of business transactions. These
programs do not properly recognize a year that begins with "20" instead of the
familiar "19." These programs may process data incorrectly or stop processing
data altogether on January 1, 2000. We rely upon our own and vendor-supplied
technology and recognize the potential business risk to our assets and systems
associated with the arrival of the Year 2000.
Middle American Tissue
We have substantially completed the process of identifying and remediating
Year 2000 compliance issues associated with our computer systems and software
programs. To date, we have spent approximately $600,000 in connection with our
Year 2000 compliance program, and we believe there will be no material
additional charges through completion. We are in the process of identifying Year
2000 compliance issues associated with our suppliers'
54
<PAGE>
products, services and operations. Our customers and suppliers may not have
management information systems that are Year 2000 compliant and required systems
modifications may not be completed by the Year 2000. We have initiated formal
communications with all of our significant suppliers and large customers to
determine the extent to which we are vulnerable to those third parties failure
to address their own Year 2000 issue. Failure of our customers and suppliers to
be Year 2000 compliant could have a material adverse effect on our business,
financial condition and results of operations.
Berlin-Gorham Mills
We are in the process of remediating those computer systems and software
programs at the Berlin-Gorham Mills which were not remediated by Crown Paper.
Crown Paper represented to us that it had in operation programs designed to
identify and remediate Year 2000 issues and that it estimated that the total
cost to complete its remediation program would not exceed $1.25 million, of
which we estimate $700,000 was remaining as of the consummation of the
acquisition of the Berlin-Gorham Mills. However, we cannot assure you that the
cost of remediating such systems and programs will not significantly exceed such
amount.
Environmental Matters
At December 28, 1997, December 27, 1998 and June 27, 1999, the
Berlin-Gorham Mills had total accrued costs of $2.5 million, $2.4 million and $
2.8 million, respectively, primarily for estimated landfill site restoration,
post-closure and monitoring costs over the next 30 years. For the nine months
ended June 27, 1999, cash costs for site restoration, post-closure and
monitoring of the landfill were less than $100,000.
We believe, after consultation with independent environmental consultants,
that approximately $13 million of capital expenditures, within a range of plus
or minus approximately 25%, may be required to comply with the Cluster Rules,
with compliance dates beginning in 1999 and extending over the next two to five
years. Environmental capital spending for the 1999 fiscal year includes $0.2
million for compliance with the Cluster Rules. There are risks and uncertainties
associated with the estimate that could cause total capital expenditures and the
timing of such expenditures to be materially different from current estimates,
including changes in technology, interpretation of the rules by government
agencies that may be substantially different from management's interpretation or
other matters. The EPA has also proposed additional requirements for the pulp
and paper industry, which, if and when adopted, may require additional material
expenditure.
The Berlin-Gorham Mills have been in operation for many years and, over
such time, Crown Paper and other prior operators at the Berlin-Gorham Mills have
generated and disposed of wastes which are or may be considered hazardous. The
soil, groundwater and adjacent area remediation which is currently under
consideration with respect to the Berlin-Gorham Mills could, based upon
available information, cost up to $400,000 over the next two years. Included
among the waste materials generated by past operations are contaminants left in
the vicinity of a former chemical plant on the northern portion of the Berlin
pulp mill property, of which a small building known as the "Cell House" remains
standing. The procedures required to remove the Cell House, encapsulate and seal
off the affected areas and thereafter to monitor such areas as required by
current regulations are estimated to cost up to $2.3 million. In addition,
certain maintenance and repairs to the wastewater treatment plants at the
Berlin-Gorham Mills have been identified which are estimated to cost up to $2.1
million.
The discovery of previously unknown contamination of property underlying,
or in the vicinity of, the Berlin-Gorham Mills could require us to incur
material unforeseen expenses for which we may not have any recourse against
Crown Paper or other prior operators. Occurrences of any of these events could
have a material adverse effect on our financial condition.
The Berlin-Gorham Mills have systems which process and treat large amounts
of wastewater primarily generated by their operations. Due to aging of the
treatment systems and to the evolution of mill operations, it is anticipated
that the related treatment systems and equipment will require replacement and/or
upgrading. In addition, there is evidence that effluent in connection with the
wastewater treatment processes has, over time, resulted in accumulations of
sediment and other buildup in adjacent lagoons and watercourses. It is
anticipated that changes in the applicable processes and the related technology
and equipment may be necessary in the future both to remediate such buildups and
to accommodate expansion of mill production schedules. The foregoing changes may
require additional material capital expenditures.
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<PAGE>
Certain Other Matters
Gain on Timberland Sale. During the fourth quarter of 1997, the
Berlin-Gorham Mills sold 24,000 acres of timber-producing properties for $24.5
million and recognized a gain of $13.5 million. Net proceeds of the sale were
used to pay down Crown Vantage debt.
Settlement of City of Berlin Property Tax Case. In February 1999, Crown
Paper entered into an agreement with the City of Berlin, New Hampshire,
concerning assessed values and taxability of factory machinery at the
Berlin-Gorham Mills.. Over the next three years the agreement significantly
reduces the assessed value from recent valuations of the Berlin-Gorham Mill's
pulp mill. The Berlin-Gorham Mills reversed a property tax accrual of
approximately $9.0 million in the 1999 six months, which relates to amounts
over-accrued for previous tax years.
We Have Recently Made Changes in Our Finance and Accounting Department.
Historically, we have not always completed our fiscal year audited financial
statements or our fiscal quarter unaudited financial statements in a timely
manner. For instance, our audited financial statements for the fiscal year ended
September 30, 1998 were not issued until February 19, 1999 and our unaudited
financial statements for the fiscal quarter ended December 31, 1998 and March
31, 1999 were not issued until February 22, 1999 and May 21, 1999, respectively
The failure to complete and deliver our financial statements in the past has
caused defaults under our then existing credit facilities. See "Risk Factors --
Our Debt Agreements Contain Operating And Financial Restrictions." . However,
American Tissue timely delivered unaudited financial statements for fiscal
quarter ended June 30, 1999 to the trustee under the indenture for the American
Tissue notes and the record holder of the American Tissue notes.
To address certain deficiencies of our management information systems and
accounting systems, we have restructured our financial and accounting
department, including hiring a new chief financial officer and retaining
consultants who are working with us to install new management information
systems. We believe that such changes will be helpful in managing our
operations, including completing and delivering our financial statements in a
more timely manner.
It is our intention to deliver financial statements and file reports with
the Securities and Exchange Commission within the required time periods of the
Securities Exchange Commission and as required by the indentures governing the
old notes and the American Tissue notes and the New Credit Facility. However, we
can give you no assurance that we will be able to effect such changes in our
management information systems and accounting systems in a timely manner or that
any delay will not have a material adverse effect on our business, financial
condition and results of operations.
Inflation and Cyclicality
Although we cannot accurately anticipate the effect of inflation on our
operations, we do not believe that inflation has had, or is likely in the
foreseeable future to have, a material impact on our results of operations.
Although management of the Berlin-Gorham Mills cannot accurately anticipate
the effect of inflation on the operations of the Berlin-Gorham Mills, it does
not believe that inflation has had, or is likely in the foreseeable future to
have, a material impact on the results of operations of the Berlin-Gorham Mills.
The markets for the tissue and uncoated freesheet paper products produced
by American Tissue and the Berlin-Gorham Mills are characterized by periods of
supply and demand imbalance, with supply being added in large blocks and demand
fluctuating with changes in industry capacity, economic conditions (including in
the case of our uncoated freesheet paper products, the overall level of domestic
economic activity) and competitive conditions (including, in the case of our
uncoated freesheet paper products, intensified competition from overseas
producers responding to favorable exchange rate fluctuations and/or unfavorable
overseas market conditions). All of such conditions are beyond our control.
Seasonality
Historically, our net sales have been somewhat stronger during our third
and fourth fiscal quarters, due to increased seasonal usage by consumers in our
at-home business and inventory and usage patterns in our away-from-home
business.
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Statement of Financial Accounting Standards No. 121
Statement of Financial Accounting Standards No. 121 ("Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed Of")
requires management to assess the recoverability of its investments in
long-lived assets to be held and used in operations whenever events or
circumstances indicate that their carrying amounts may be impaired. Such
assessment requires that the future cash flows expected to result from use of
the assets are estimated and an impairment loss recognized when future cash
flows are less than the carrying value of such assets. Estimating future cash
flows requires an estimate of useful lives of its long-lived assets, future
production volumes and costs, future sales volumes, demand for the product mix
and prices of the Berlin-Gorham Mills that reflect the use of its long-lived
assets and market conditions.
Based on this assessment, Crown Paper took a $143.6 million charge which
was recorded during the fourth quarter of 1998 to write down the carrying value
of the Berlin-Gorham Mills. Statement of Financial Accounting Standards No. 121
also requires that assets held for sale be stated at the lower of cost or net
realizable value. In connection with the acquisition, Crown Paper took an
adjustment to net book value of the Berlin-Gorham Mills totaling $16.2 million,
which was recorded in the first quarter of 1999 in order to record the assets at
their estimated net realizable value. Although management of Crown Paper
believes it had a reasonable basis for its estimates, it is reasonably possible
that American Tissue may change its estimate of future cash flows and/or net
realizable values.
INDUSTRY OVERVIEW
Tissue Industry
Tissue is used principally in products such as bath tissue, facial tissue,
napkins and paper towels and is typically sold into two key market segments:
(1) the consumer, or "at-home," sector; and
(2) the commercial and industrial, or "away-from-home," sector. In general,
at-home tissue products are sold to grocery stores and supermarkets, retail mass
merchandisers, warehouse club stores and drug stores for direct purchase by the
consumer end-user. Away-from-home tissue products are usually sold to paper,
foodservice and janitorial supply distributors, who, in turn, resell these
products for use in hotels, restaurants, factories, schools and other
commercial, government and industrial institutions. Tissue is generally
manufactured in jumbo roll form and is then converted into finished product for
consumer end-use. A small quantity of tissue, however, is also used in consumer
hygienic and absorbent products such as diapers, wipes and feminine hygiene
products.
According to industry sources, approximately 42% of all U.S. tissue is
produced from purchased waste fiber, approximately 21% is produced from
purchased virgin pulp, with the remainder produced on-site at integrated pulp
and paper mills.
The U.S. tissue industry is highly concentrated due to the recent merger
activity between some of the largest industry participants. In 1995,
Kimberly-Clark acquired Scott Paper, and in 1997 Fort Howard merged with James
River, creating Fort James, the industry leader in terms of tissue capacity.
Based on estimated 1998 capacity data for U.S. manufactures, the top five tissue
producers accounted for approximately 80% of total industry capacity.
According to industry sources, the U.S. tissue industry has among the most
stable growth rates in the U.S. paper industry. Over the 15 year period from
1984 through 1998, total annual shipments of tissue increased from approximately
4.9 million tons to approximately 6.7 million tons, a compound annual growth
rate of approximately 2.2%. Since 1984, total annual shipments have declined
only once.
Tissue is a mature industry and growth in shipments for the overall
industry is correlated to increases in the general population. However, certain
segments of the overall tissue industry, such as the at-home private label
market, are experiencing significantly higher growth rates.
Capacity growth in the tissue industry averaged approximately 1.4% over the
period 1992 through 1998. Over the same period, operating rates averaged
approximately 93.8%. As a result of significant new capacity coming on-line
during 1998 and early 1999, growth in capacity for 1999 is expected to be
approximately 3.7%. However, some of this new capacity was effectively offset by
mill closures announced in 1997 and 1998 by major industry participants, such as
Kimberly-Clark and Fort James. Many industry observers expect capacity growth to
stabilize at an average of approximately 2.0% going forward, in-line with the
historical growth in shipments. Imports, except a
57
<PAGE>
modest amount of tonnage from Canada, are not a significant factor since
shipping relatively bulky tissue products long distances is usually economically
inefficient.
U.S. Tissue Industry Statistics
(000 tons)
<TABLE>
<CAPTION>
1992 1993 1994 1995 1996 1997 1998 1999e
---- ---- ---- ---- ---- ---- ---- -----
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Shipments . ..... 5,781 6,004 6,094 6,208 6,261 6,431 6,711 6,757
% change ..... 2.0% 3.9% 1.5% 1.9% 0.9% 2.7% 4.4% 0.7%
Capacity .. ..... 6,413 6,407 6,539 6,552 6,647 6,884 6,899 7,155
% change ..... 2.7% -0.1% 2.1% 0.2% 1.4% 3.6% 0.2% 3.7%
Utilization ..... 90.1% 93.7% 93.2% 94.7% 94.2% 93.4% 97.3% 94.4%
</TABLE>
- ----------
e=estimate
Source: Resource Information Systems, Inc.
While pricing remained competitive during 1998, we believe that prices for
tissue products are increasing in 1999 as a result of:
o rising pulp prices; and
o announced price increases by certain major jumbo roll manufacturers.
The At-Home Market
Since the mid-1990s, shipments in the approximately $7.0 billion at-home
market (based on estimated 1997 total sales) have been growing at an annual rate
of just over 2.0%. Converted tissue products for this segment ranges from
branded value grades (approximately 40% of the market) to specialty and premium
grades (approximately 44.0% of the market). An increasingly important segment of
the at-home market is private label. Within the at-home sector, bath tissue
represents approximately 50.0% of the market, towels make up approximately 32.0%
and facial tissue and paper napkins represent approximately the remaining 18.0%.
In general, at-home tissue products are sold to grocery stores and supermarkets,
retail mass merchandisers, warehouse club stores and drug stores for direct
purchase by the consumer end-user.
Industry sources estimate that the approximately 16.0% private label share
of the at-home market is significantly stronger in the western U.S., with an
approximate 21.8% market share. Growth in 1998 within the national private label
sector was estimated to be 4.0%. In our opinion, the higher growth rate seen
within the private label segment versus the overall tissue industry is
representative of:
(1) increased recognition by consumers that private label tissue can offer
reasonable quality at consistently attractive prices;
(2) product line extension by tissue manufacturers within the private label
segment, from traditional economy and value brands into premium brands;
(3) increased emphasis by retailers who generally receive higher margins on
private label tissue products than on branded national tissue products; and
(4) the growth of retail mass merchandisers and warehouse club stores which
generally emphasize private label tissue products.
The Away-From-Home Market
The approximately $4.0 billion away-from-home market (based on estimated
1997 total sales) has experienced modestly lower growth in shipments since the
mid-1990s versus the at-home market. Industry sources estimate the average
annual growth in shipments at approximately 1.5%. Despite positive trends
regarding dining outside the home and a growing travel market, the slower growth
in shipments seen over the past few years within the
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<PAGE>
away-from-home versus the at-home markets is likely a result of lower growth
rates in traditional manufacturing and industrial job markets versus the
increasing service economy.
Paper, foodservice and janitorial supply distributors, the primary
customers for away-from-home tissue products, tend to favor manufacturers who
can provide a broad line of various tissue products. In addition, we believe
that many of these same customers are increasingly concerned regarding industry
consolidation within the away-from-home market, and are looking for alternatives
to the large, national suppliers.
Within the away-from-home market, towels represents approximately 44% of
the market, bath tissue makes up approximately 30% and facial tissue and napkins
represent approximately the remaining 26%.
Uncoated Freesheet Papers
Uncoated freesheet paper constitutes the largest segment of the
printing/writing/publishing paper sector in the United States, with estimated
1998 capacity of 14.9 million tons representing approximately 31% of total U.S.
paper capacity of 48.4 million tons.
The primary use for uncoated freesheet paper is in office reprographic or
communication papers (i.e., copier and printer papers), accounting for
approximately 30% of total shipments; followed by:
o offset papers for commercial printing and book publishing applications
(approximately 24% of shipments);
o premium value applications, such as text and cover fine printing
grades (used for financial printing, fine stationary and promotional
brochures);
o greeting cards and technical specialty papers (approximately 18% of
shipments);
o business forms bond and computer forms (approximately 18% of
shipments); and
o envelopes (approximately 10% of shipments).
Commodity grades of uncoated freesheet, such as offset papers and forms
bond, are generally manufactured on larger machines that often have lower
production costs than smaller machines. Many manufacturers with large machines
often have kraft pulp mills onsite, enabling the lowest cost production of
uncoated freesheet paper. Smaller machines, which may include machines not
integrated to the production of kraft pulp, are typically dedicated to more
value added grades of uncoated freesheet in order to offset their generally
higher cost of production.
Despite merger activity during 1998 (e.g., Weyerhauser's purchase of
Bowater's Dryden, Ontario mill and International Paper's merger with Union
Camp), the uncoated freesheet industry remains relatively unconcentrated as
compared to tissue paper industry. Based on estimated 1998 capacity data for U.S
manufacturers, the top five uncoated freesheet producers accounted for
approximately 60% of industry capacity.
Demand for uncoated freesheet papers is correlated to strength in the
general economy and changing technology. U.S. uncoated freesheet capacity had a
compound annual growth rate of approximately 1.6% over the period 1992 through
1998. Over the same period, total annual shipments increased from approximately
12.3 million tons to 13.7 million tons, a compound annual growth rate of
approximately 1.7%. However, certain grades of uncoated freesheet, such as cut
size reprographic paper, continue to be in high demand as a result of the
increased use of computer desk top printers and the growth of the small
office/home office market. As the table below indicates, year-to-year growth was
much more cyclical, resulting in significant volatility in pricing over the same
seven-year period.
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<PAGE>
U.S. Uncoated Freesheet Industry Statistics
(000 tons)
<TABLE>
<CAPTION>
1992 1993 1994 1995 1996 1997 1998 1999
------- ------- ------- ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Shipments .... 12,348 12,532 13,462 12,993 13,160 13,684 13,651 13,974
% change . 5.5% 1.5% 7.4% -3.5% 1.3% 4.0% -0.2% 2.4%
Capacity ..... 13,617 13,625 13,956 14,393 14,488 14,701 14,946 15,163
% change . 3.1% 0.1% 2.4% 3.1% 0.7% 1.5% 1.7% 1.5%
Utilization .. 90.7% 91.9% 96.4% 90.3% 90.8% 93.1% 91.3% 92.2%
Imports, net . 228 455 214 391 295 390 595 720
Apparent U.S. 12,576 12,987 13,676 13,384 13,455 14,074 14,246 14,694
consumption
% change 5.2% 3.3% 5.3% -2.1% 0.5% 4.6% 1.2% 3.1%
Price ($/ton)* $ 578 $ 589 $ 611 $ 931 $ 747 $ 675 $ 651 $ 622
</TABLE>
- ------------
e = estimate
Source: Resource Information Systems, Inc.
According to industry sources, uncoated freesheet capacity is forecast to
increase by an average annual rate of approximately 0.9% over the 1999 to 2001
period, below the historical 10 year average of approximately 2.1%.
Average historical pricing for benchmark 20 lb. communication paper
exhibits the cyclical nature of the uncoated freesheet market. Transaction
prices were at their last cyclical low in 1992, at approximately $578 per ton,
and peaked in 1995 at approximately $931 per ton, a 61% increase in price.
Current pricing for bond paper is similar, on a nominal basis, to 1992 pricing.
Uncoated freesheet apparent U.S. consumption has increased 3.2% in the
first quarter of 1999 as compared to the same quarter in 1998, substantially
above the 1998 increase in apparent U.S. consumption. The increase in demand has
prompted a number of major U.S. producers, including Georgia-Pacific and Boise
Cascade, to announce price increases for various grades of uncoated freesheet,
although there can be no assurance that these price increase announcements will
hold.
BUSINESS
Overview
We are a leading integrated manufacturer of tissue products in North
America, with a comprehensive product line that includes jumbo tissue rolls for
converting and converted tissue products for end-use. Since our inception in
1981, we have grown primarily through the opportunistic acquisition and
integration of underperforming tissue mills and converting assets. We currently
operate six paper mills (including five tissue mills), seven converting
facilities, two printing/packaging facilities and 11 distribution centers.
During the LTM Period, we derived approximately 72.5% of our net sales from
sales of converted tissue products, approximately 26.2% from sales of jumbo
rolls and the remainder from tissue converting equipment sales. For the LTM
Period, on a pro forma basis, giving effect to the Transactions, we would have
generated net sales of approximately $409.4 million and Adjusted EBITDA of
approximately $57.2 million.
Our converting facilities transform jumbo rolls into a wide range of
finished tissue products, such as bath tissue, paper towels, napkins and facial
tissue. We believe that our flexible manufacturing capabilities allow us to
offer a range of products that is broader than that offered by any other North
American tissue producer. We sell converted tissue products in the
away-from-home and at-home markets. During the LTM Period, our tissue mills
produced approximately 96,000 tons of jumbo rolls for our own converting
operations and approximately 67,000 tons for sale to other tissue producers. In
addition to tissue products, we use our internal engineering expertise to
recondition and sell used tissue converting equipment to support our jumbo roll
business. With the acquisition of the Berlin-Gorham Mills, we became effectively
100% vertically integrated with respect to virgin pulp, increased our toweling
capacity by approximately 17.7% and extended our product offering in the
away-from-home market with uncoated freesheet papers.
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<PAGE>
Our converted tissue products are sold throughout the United States and in
certain regions of Canada and Mexico. We sell premium, specialty and commodity
grades of jumbo rolls to both domestic and international markets. Our total net
sales have increased every year since our inception.
We were founded in 1981 as a manufacturer of converted tissue products for
the at-home market, principally in the eastern United States. Since then, we
have become more vertically integrated through the acquisition of various mill
facilities. We began selling jumbo rolls to third parties in 1990. We entered
the away-from-home market in 1992 and expanded our presence in that market in
1994 with the acquisition of Tagsons Papers, Inc., which included a paper mill
and converting assets in upstate New York. Since 1992, we have sought to expand
our presence throughout North America. We commenced our western expansion
strategy with the acquisition of our tissue machine in St. Helens, Oregon in
1992. We opened our tissue converting/distribution facility in Mexicali, Mexico
in 1995 and we acquired our tissue manufacturing and converting facility in
Neenah, Wisconsin in 1996. To further support such expansion, we established a
tissue converting/distribution facility in Calexico, California in November
1998.
Business Strategy and Competitive Advantages
Our business strategy and competitive advantages include the following:
o Opportunistic Acquisitions of Underperforming Assets. We benefit from a
senior management team experienced in acquiring underperforming paper mills
and converting assets at a substantial discount to replacement costs,
implementing strict cost reduction programs and selectively making capital
expenditures to increase capacity and improve operating efficiency. In
November 1996, for example, pursuant to an opportunity created by the
merger of Kimberly-Clark and Scott Paper, we acquired our Neenah, Wisconsin
facility from Kimberly-Clark at an attractive price. The Neenah facility
then had 372 employees and five tissue machines, of which two were
operating full-time, two were operating part-time and one was idled. These
machines produced a total of approximately 43,000 tons annually. Shortly
thereafter, we implemented a number of initiatives to improve the
efficiency of the Neenah facility, including personnel reductions and
selective capital investments to improve the operation of these tissue
machines. As of March 31, 1999, the Neenah facility had 259 employees and
five tissue machines in full-time operation. We estimate that these five
full-time tissue machines will produce approximately 66,000 tons in fiscal
1999, based on production of approximately 33,000 tons in the first half of
fiscal 1999. Net sales at our Neenah facility have grown from approximately
$39.2 million in fiscal 1997 to approximately $64.0 million in the LTM
Period, a compound annual growth rate of approximately 38.7%.
o Capitalize on Flexible, Efficient Manufacturing Capability. We maintain a
diverse array of manufacturing, converting and packaging equipment and a
skilled workforce, which we believe enable us to respond to changes in
market conditions and customer requirements more rapidly than our
competitors. Our 11 tissue machines (excluding the toweling machine at the
Berlin-Gorham Mills) have an annual capacity ranging from approximately
12,000 tons to approximately 50,000 tons, and our highest capacity machine
is among the largest capacity tissue machines in the industry. In addition,
we are able to vary the raw material input on most of our tissue machines
to produce tissue from virgin pulp, recycled paper or paper manufacturing
by-products. These flexibilities enable us to economically manufacture a
broad range of products, utilizing the most efficiently configured machine
for each product.
o Capitalize on Competitor Consolidation. We believe the continuing trend of
competitor consolidation has created marketing opportunities for us. For
example, Kimberly-Clark's merger with Scott Paper and James River's merger
with Fort Howard have increased the concentration of suppliers, which is a
concern of many customers. In addition, certain niche opportunities have
been created by our competitors' consolidations, where they have chosen to
discontinue or de-emphasize certain value or economy product categories. To
capitalize on this trend and strengthen our position as an alternative
supplier in certain product areas, we have built a comprehensive product
line of premium, value and economy grades in each product category and have
increased our away-from-home salesforce.
o Strategically Locate Our Manufacturing Facilities. We believe that our
tissue mills, converting facilities and distribution centers are
strategically located across North America, including:
o five tissue mills, with three in the Northeast, one in the Midwest and
one on the West Coast;
o seven converting facilities, with four in the Northeast, one in the
Midwest, one on the West Coast and one in Mexico; and
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o 11 distribution centers, with eight in the Northeast and Middle
Atlantic States, one in the Midwest, one on the West Coast and one in
Mexico.
We believe that the geographic diversity of our locations allows us to
service both national and regional accounts economically and efficiently. Since
our inception, we have had a strong presence in the Northeast, and more
recently, we have expanded our business westward. Our Mexicali, Mexico
converting facility, which opened in fiscal 1995, and our Calexico, California
converting facility, which opened in fiscal 1998, enable us to take advantage of
the geographic diversity of our tissue mill operations in Neenah, Wisconsin and
St. Helens, Oregon.
o Continue To Expand Our Diverse and Broad Product Line. We believe that our
diverse product line, with over 200 product categories and over 780 SKUs,
is the broadest in North America and represents a key competitive
advantage. Our broad line of converted tissue products, which are available
in a wide range of grades, designs and package configurations, and our
ability to respond quickly to customer requirements for multiple-product
orders, allow us to offer "one-stop shopping" to our customers. This is
particularly important given the trend toward supplier consolidation. By
offering a wide range of products, we can provide our customers with more
frequent shipments of a larger mix of products, which lowers the minimum
efficient order quantity per product, which facilitates "just-in-time" and
"cross-docking" practices. Our strategy is to continue to expand our
product line through the introduction of new or enhanced products. Recent
additions to our product line include polycoated tablecovers, printed table
napkins, pizza boxes, center-pull towels, straws and stirrers and
split-core bath tissue.
o Diverse Customer Base. Our customer base is broadly diversified across
industries and geographic locations, greatly reducing our dependence on any
single customer or market. Prior to our acquisition of the Berlin-Gorham
Mills, no single customer represented more than 8.0% of our net sales in
the LTM Period and our top 10 customers represented approximately 28.6% of
our net sales in the LTM Period.
o Grow Jumbo Roll Sales by Leveraging Equipment Sales Business. We intend to
leverage our expertise in buying, reconditioning and selling used tissue
converting equipment to increase our sales of jumbo rolls. For example, we
generally sell our tissue converting equipment to tissue products
manufacturers who sign multi-year jumbo roll purchase contracts with us.
Our third-party jumbo rolls are generally used by domestic customers to
manufacture non-competing finished tissue products, such as branded at-home
and niche tissue products, including disposable diapers, feminine sanitary
napkins and disposable medical products or are sold to overseas converters.
During the LTM Period, our equipment sales business generated net sales of
approximately $3.1 million.
o Favorable Supply and Service Agreements. We have entered into supply and
service agreements which we believe are favorable to us. We entered into a
supply agreement with Boise-Cascade, expiring in 2022, under which we
purchase slush pulp, at a price which is substantially below the market
price for baled virgin pulp, from the integrated Boise Cascade pulp and
paper mill in St. Helens, Oregon that houses our tissue machine. During the
LTM Period, we purchased approximately 42,000 tons under this agreement,
which represented approximately 84.0% of the total pulp requirements of our
St. Helens, Oregon operation. Also, in connection with our acquisition of
the Berlin-Gorham Mills, we entered into agreements with Crown Paper, under
which Crown Paper will purchase from us annually 40,000 tons of pulp
produced at the Berlin-Gorham Mills. We have also agreed to outsource the
sales and marketing of certain grades of our uncoated freesheet papers to
the established salesforce of Crown Paper, which we believe will afford us
substantial savings over the Berlin-Gorham Mills historical selling
expense.
Products, Marketing and Customers
We manufacture and sell a full line of converted tissue products varying by
weight, softness, size, grade, package configuration and price for both the
away-from-home and at-home markets. We have four major product lines: bath
tissue, paper towels, napkins and facial tissue. We also manufacture
tablecovers, paper plates, pizza boxes and straws and stirrers. Towel, napkin
and tablecover products are available in occasional and seasonal prints for
parties and holiday seasons. Potential new products now being evaluated include
printed paper plates, hot and cold beverage cups and paper bags. In addition, we
manufacture and sell jumbo rolls to other tissue converters.
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The following table sets forth our net sales by market for the periods
shown (dollars in millions):
<TABLE>
<CAPTION>
Twelve Months
Ended
12 Months March 31,
Fiscal Years Ended September 30, 1999
----------------------------------------------------------------------------------- ----------------
1995 1996 1997 1998 (unaudited)
---------------- ----------------- ---------------- ----------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Away-from-home ...... $ 53.0 38.2% $ 69.9 45.8% $ 85.8 43.4% $ 89.2 41.7% $ 96.8 41.0%
At-home ............. 61.3 44.1 63.2 41.4% 68.6 34.7 71.9 33.6 74.5 31.5
Total converted .. 114.3 82.3 133.1 87.2% 154.4 78.1 161.1 75.3 171.3 72.5
Jumbo rolls ......... 24.7 17.7 19.4* 12.7% 42.0 21.3 47.2 22.1 61.8 26.2
Equipment sales ..... -- -- 0.2 0.1% 1.2 0.6 5.7 2.6 3.1 1.3
Total ............ $139.0 100.0% $152.7 100.0% $197.6 100.0% $214.0 100.0% $236.2 100.0%
</TABLE>
- ----------
* The decrease from fiscal 1995 was due primarily to the fire in our
Hauppauge, New York facility in November 1995.
Away-from-home converted products (approximately 41.0% of LTM Period net
sales). We manufacture and market a broad line of converted tissue products for
the estimated $4.0 billion U.S. away-from-home market. We sell our
away-from-home products principally to paper, foodservice and janitorial supply
distributors, who resell these products to hotels, restaurants, offices,
factories, hospitals, schools and government facilities. Our 15 regionally based
away-from-home sales managers are responsible for coordinating our sales efforts
to these distributors. Additionally, we seek to create "pull-through" demand for
our away-from-home products by marketing directly to end-users. Since we entered
the away-from-home market in 1992, we have built our away-from-home product line
to include 141 product categories and 299 SKUs, ranging from economy and value
grades to premium grades. Kimberly-Clark's merger with Scott Paper and James
River's merger with Fort Howard have resulted in a concentration of supply base,
a concern of customers. We believe the continuing trend of competitor
consolidation has created marketing opportunities for us, and we have become an
alternative supplier to give our customers a choice of products.
Certain niche areas have been created by our competitors' consolidations,
where they have chosen to withdraw or de-emphasize certain value or economy
product categories. We believe we are the only tissue supplier in North America
to offer premium, value and economy grades in each category for combined
shipment in a truckload order. This has enabled us to provide our customers with
what we believe to be the broadest product offering in the industry, an
increasingly critical selling point with customers who are seeking "one-stop
shopping." Our away-from-home converted products include folded and roll towels,
bulk and dispenser napkins and bath and facial tissues. While we have
historically concentrated on value-priced and economy products in this market,
we have introduced our Manhattan(TM) line of premium quality away-from-home
products to take advantage of the growing demand for premium away-from-home
products. During the LTM Period, approximately 76.7% of our away-from-home
products were sold under our brand names, with private label products (under
distributor label) and products manufactured for particular, national accounts
(under corporate label) constituting the remainder. Our away-from-home products
are sold through distributors, such as Bunzl, Burke, Restaurant Depot and Sweet
Paper, to a wide variety of end-customers, including:
o restaurants, such as Sbarro, Bertucci's and Chili's;
o hospitality companies, such as Caesars Palace, Carnival Cruise Lines
and Holiday Inn;
o corporations, such as AT&T and General Electric; and
o educational institutions, such as Dartmouth College, Johns Hopkins
University and the University of North Carolina.
In addition, we sell to national accounts, such as Burger King and Wendy's.
Our net sales in the away-from-home market have grown from approximately
$53.0 million in fiscal 1995 to approximately $96.8 million in the LTM Period, a
compound annual growth rate of approximately 18.8%. This growth was due to,
among other things:
o acquiring assets;
o expanding product lines; and
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o increasing market share in certain segments.
At-home converted products (approximately 31.5% of LTM Period net sales).
We manufacture and market a broad line of converted tissue products for the
estimated $7.0 billion U.S. at-home market. Our at-home products are sold
through a network of more than 60 independent brokers and agents that sell
throughout the United States and in certain regions of Canada and Mexico. Our
four regional sales managers are responsible for coordinating the sales efforts
of these independent brokers and agents. These sales managers focus on
maintaining close relationships with independent food brokers and retailers in
their territories by emphasizing our traditional strengths:
o value,
o competitive pricing,
o enhanced margins for retailers, and
o the flexibility to manufacture short runs of products at prices
attractive to retailers and margins acceptable to us.
In particular, we target the estimated $1.1 billion private label segment
of the at-home market, for which we manufacture products that range from economy
to premium quality grades. As a private label manufacturer, we generally seek to
avoid direct competition with larger branded consumer product companies, such as
Procter & Gamble and Kimberly-Clark. During the LTM Period, approximately 82.1%
of our at-home products are manufactured for specific retailers for sale under
private labels, with the remainder manufactured for sale under our own brand
names.
Our core at-home products include a broad line of bath tissue, paper
towels, napkins and facial tissue. Over the past several years, the at-home
market has expanded from economy products to an assortment of quality grades,
and we have responded by expanding the range and variety of printing, coloring
and embossing applied to our at-home products. We produce our branded at-home
tissue products principally under our Magnolia(TM), Sterling(TM), Magic Soft(TM)
and Elan(TM) brand names. We sell our brand name products principally to smaller
retailers that do not have their own private label brands, as well as large
retailers that wish to offer tissue across a wide price continuum.
We focus our marketing efforts for at-home products on trade promotion and
incentive programs targeted to major food store chains, mass merchandisers and
drug retailers. Consistent with our focus on the private label and branded value
segments of the at-home market, our use of advertising and promotion focused on
the end-users is minimal. We currently estimate private label penetration to be
only approximately 16.0% of the at-home market and industry sources estimate
that the growth of this segment was approximately 4.0% in 1998, as retailers
continue to extend their lines of tissue products from economy and value grades
to premium grades. We believe that this trend will continue. Our customers
include:
o grocery stores and supermarkets, such as Aldi, Pathmark, Winn Dixie,
Ralphs, Loblaws and Stop & Shop;
o mass merchandisers, including Dollar General;
o drug stores, such as Rite Aid and Walgreens; and
o buying "co-ops" and wholesalers such as Super Value and Wakefern.
Our net sales in the at-home market have grown from approximately $61.3
million in fiscal 1995 to approximately $74.5 million in the LTM Period, a
compound annual growth rate of approximately 5.7%.
Jumbo rolls (approximately 26.2% of LTM Period net sales). In addition to
supplying the internal needs of our converting facilities, we manufacture and
sell standard and specialty grades of jumbo rolls directly to converters of
finished tissue products, such as Kimberly-Clark, Georgia-Pacific and Fort
James. The jumbo rolls we sell are generally used by our domestic customers to
manufacture non-competing finished tissue products, such as branded at-home and
niche tissue products, including disposable diapers, feminine sanitary napkins
and disposable medical products. Our strategy is to emphasize stable customer
relationships to sustain a long-term market for our specialty jumbo rolls, which
often sell at a higher price per ton than our converted tissue products. Our net
sales of jumbo rolls have grown from approximately $24.7 million in fiscal 1995
to approximately $61.8 million in the LTM Period, a compound annual growth rate
of approximately 30.0%, reflecting our strategy of emphasizing jumbo roll sales.
In addition to our lines of tissue products, we have two machine shops in
Hauppauge, New York which are dedicated to refurbishing and reconditioning
converting equipment that we either use internally or sell to other tissue
converters. In fiscal 1996, 1997, 1998 and the LTM Period, we had net equipment
sales of approximately $0.2 million,
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<PAGE>
$1.2 million, $5.7 million and $3.1 million, respectively, achieving gross
profits of approximately $0.1 million, $0.9 million, $4.1 million and $2.8
million, respectively. We have initiated a strategy of bundling future jumbo
roll sales with equipment sales, which has resulted in strengthening our
long-term jumbo roll business.
Pricing Trends
We believe favorable industry tissue pricing conditions exist, particularly
in the jumbo roll market. All our tissue mills are operating at full capacity
and recent jumbo roll pricing announcements indicate a tightness of supply will
support increased prices.
Manufacturing
Jumbo Roll Manufacturing. Our jumbo roll manufacturing process begins with
wood pulp, recycled paper and waste paper. These raw materials typically are
pulped in large blenders or pulpers and moved via networks of pipes and pumps to
a tissue machine where sheets of tissue paper are formed according to customer
or grade specifications. The tissue paper is then drawn through the machine,
being formed on wires as it travels through various press rolls. Once the sheets
are formed, they are transferred to a dryer section of the machine that dries
the tissue. Following the drying process, the tissue paper is removed from the
drying cylinders and wound into jumbo rolls. Jumbo rolls are either used
internally for our converting operations or sold to third-party purchasers.
Converting. Converting involves loading jumbo tissue rolls onto converting
machines which unwind, perforate, emboss and print tissue as needed. The
machines then roll or fold the processed tissue into finished products such as
bath tissue, napkins or paper towels.
Packaging. We carton, wrap and pack our converted products into cases.
Consistent with our emphasis on vertical integration, we also manufacture our
own corrugated boxes, folding cartons, printed poly wrap and printed paper wrap.
Our packaging capabilities complement our flexible manufacturing strength by
enabling us to offer our products in a wider range of package configurations, an
especially important consideration in the at-home market, and to respond quickly
and efficiently to our customer needs.
Quality Control
Our tissue mills and converting facilities are subject to rigorous quality
control standards. We require our production facilities to adhere to strict
technical specification guidelines. For example, we require that the tissue we
produce meet standards such as basis weight, tensile strength, absorbency and
brightness. Our five tissue mills use the Measurex Open Network System, a
process control system which helps provide consistent quality and compatibility
with existing systems. Our converting facilities use an acceptance grading
system/statistical process control, which requires that plant managers and floor
supervisors be responsible for our product specifications. All quality control
processes are monitored on a daily basis and the results are forwarded for
plotting and graphing to our centralized Quality Assurance Department.
Raw Materials and Suppliers
The principal raw materials for our tissue manufacturing operations are
wood pulp, recycled paper pulp and waste paper. Under our agreement with Boise
Cascade, as recently amended, we are currently required to purchase a minimum of
35,000 tons of wood pulp per year from Boise Cascade. This minimum increases to
57,000 tons per year commencing January 1, 2000. Additionally, Boise Cascade is
currently required to make available to us a minimum of 40,000 tons of pulp per
year, which minimum increases to 62,000 tons per year, commencing January 1,
2000. All of the pulp tonnage made available to us by Boise Cascade is currently
used at our St. Helens, Oregon tissue-making operation. This tonnage is
currently sufficient to satisfy our requirements at our St. Helens facility. In
addition, Boise Cascade is required to make available to us a minimum of 20 tons
per day of blended pulp. Pricing is calculated by a formula referencing certain
market prices. Our agreement with Boise Cascade is effective through December
31, 2022. We also purchase pulp from a number of other suppliers. We purchase
wastepaper under a combination of supply arrangements with brokers located in
the Midwest and Northeast United States. In order to minimize freight costs, we
focus on maintaining and establishing relationships with wastepaper dealers
located near our manufacturing facilities and in close proximity to urban areas
where a majority of waste is generated. We believe our current sources of supply
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<PAGE>
are adequate to meet our requirements for our tissue manufacturing operations
and that with our acquisition of the Berlin-Gorham Mills, we are effectively
100% vertically integrated with respect to virgin pulp.
The principal raw materials for our tissue converting operations are
standard and specialty grade jumbo rolls of tissue. We believe our ability to
supply our converting operations with a range of tissue grades manufactured at
our mills is a competitive advantage, as we can supply all of our tissue needs
from internal production.
Competition
The tissue industry is highly competitive. We believe that competition is
based principally on product quality, price and customer service. Our
competitors include Kimberly-Clark, Fort James, Procter & Gamble,
Georgia-Pacific, Wisconsin Tissue (a subsidiary of Chesapeake Corporation),
Potlatch, Marcal, Irving and Global Tissue (a subsidiary of Kruger, Inc.). Many
of our competitors are larger and more strongly capitalized than we are, which
may enable them to better withstand periods of declining prices and adverse
operating conditions in the tissue industry.
In the uncoated freesheet paper market, we compete principally in North
America, primarily with U.S. and Canadian paper producers, but also with
overseas producers. Similar to the tissue market, we compete primarily on the
basis of price, although quality and service are often the determining factors
in the choice of a supplier. In addition, we compete with integrated and
non-integrated producers of paper products. Fully-integrated manufacturers
(i.e., those whose requirements for pulp or other fiber are met fully from their
internal sources) may have certain competitive advantages relative to those that
are not fully-integrated manufacturers in periods of relatively high prices for
raw materials, in that the former are able to ensure a steady source of such raw
materials at costs that may be lower than prices in the prevailing market. In
contrast, certain competitors which are less integrated than we are may have
certain cost advantages in periods of relatively low pulp prices in that they
may be able to purchase pulp at prices lower than our production costs.
Moreover, certain of our competitors are lower-cost producers than we are and
certain of our competitors have greater financial resources than we have. Our
competitors include International Paper, Georgia-Pacific, Champion International
and Boise Cascade. In addition, many end-users of printing/writing/publishing
products in recent years have responded to changing economic conditions and
paper prices by substituting less expensive paper grades for use in their
products, and this tendency may benefit certain of our competitors which produce
lower priced paper products.
We cannot assure you that we will be able to successfully compete in the
tissue or uncoated freesheet papers industry or that increased competition will
not have a material adverse effect on our business, financial condition and
results of operations.
Berlin-Gorham Mills Acquisition
On July 9, 1999, we purchased the Berlin-Gorham Mills from Crown Paper,
through Pulp & Paper of America LLC, an indirect subsidiary of ours, and one or
more of its subsidiaries. As consideration for the purchase of such assets, we
paid $47.1 million in cash, of which $45 million is subject to adjustment, and
certain of our indirect subsidiaries assumed certain ongoing contractual
liabilities related to the assets being acquired.
The cash portion of the purchase price included $2.1 million relating to
mill costs and wet lap machine and other repair costs and reimbursement of
certain property tax for the amount of $0.9 million prepaid for us by Crown
Paper.
In addition to the property, plant and equipment which we acquired pursuant
to the asset purchase agreement, Crown Paper transferred certain inventory to us
at the closing comprised of raw materials, finished goods, supplies and spare
parts. Such inventory is to have a value of $31.4 million. The actual value of
the inventory is being determined according to generally accepted accounting
principles as of the closing date of the acquisition. Thereafter, the $45
million of the cash portion of the purchase price will be adjusted downward
depending on the amount by which the parties agree or if they cannot agree, an
agreed-upon mediator determines, that the closing inventory value was below
$31.4 million.
In connection with our acquisition of the Berlin-Gorham Mills, we have
entered into a number of agreements with Crown Paper. Under these agreements,
Crown Paper will, for a period of three years from the consummation of the
acquisition:
o purchase from us annually, 40,000 tons of virgin pulp at a
contractually determined market-based price, less certain discounts;
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<PAGE>
o purchase orders for a minimum of 20,000 tons of certain publishing
grades of uncoated freesheet paper manufactured at the Berlin-Gorham
Mills. If we accept such orders, we will be obligated to manufacture
and sell such products to Crown Paper, under its trademarks, for
resale by Crown Paper to its customers, at certain agreed-upon prices,
less a discount; and
o be engaged as our exclusive sales representative for certain grades of
uncoated freesheet paper (other than certain publishing grades), with
the obligation to use its best efforts to sell a minimum of 130,000
tons of such papers annually for a specified commission.
Under such uncoated freesheet paper marketing agreements, Crown Paper bears
all marketing costs and selling responsibility. In addition, under the asset
purchase agreement, Crown Paper has agreed not to compete with us in the
manufacture and marketing of tissue, toweling and certain grades of uncoated
freesheet papers for a period of three years following the consummation of the
acquisition.
At the closing of the acquisition, we entered into a transitional services
agreement with Crown Paper. Under such agreement, each party will provide the
other with certain transition services for an agreed-upon period at an agreed
upon cost.
The Berlin-Gorham Mills have been in continuous operation since 1904 and
were acquired by Crown Paper in 1995 as part of its spin-off from James River,
the predecessor to Fort James. The Berlin-Gorham Mills are a fully integrated
pulp and paper manufacturing facility consisting of a kraft pulp mill in Berlin,
New Hampshire and a paper mill in Gorham, New Hampshire which is comprised of
four paper machines and a towel machine. The four paper machines were dedicated
by Crown Paper to the manufacture of uncoated freesheet papers primarily for
printing, writing and publishing applications. The toweling machine was
dedicated by Crown Paper to the manufacture of jumbo rolls of towel for
converting into commercial towel products. The Berlin-Gorham Mills also include
six hydroelectric generating facilities, six steam turbines for the generation
of electricity and a solid waste landfill. The mills and the hydroelectric
generating facilities are located on the Androscoggin River, which provides
water for operation of the mills and the hydroelectric generating facilities.
The four paper machines have an aggregate annual production capacity of
approximately 180,000 tons and produced approximately 150,000 tons of uncoated
freesheet paper products in the LTM Period, sales of which generated revenues of
approximately $115.0 million in the LTM Period. We believe that the machines are
well suited for the production of specialty grade papers and, together, produce
grades ranging from 26 to 150 pounds in basis weight. The independent
manufacturing systems of the four machines allow the Gorham paper mill to
simultaneously produce papers with different colors, characteristics and
mixtures of pulp and additives. In addition to producing various grades of
freesheet paper for sale to or through Crown Paper pursuant to our marketing
agreement with Crown Paper, we are currently using the paper machines to
manufacture:
o freesheet reprographic papers (computer printer, copier and fax
papers) under our own brands or the brands of our private label
away-from-home customers for resale to small office/home office
customers; and
o specialty papers for converting into certain disposable food service
papers such as paper plates and bags.
The toweling machine manufactures jumbo rolls of towel for converting into
away-from-home towel products, such as C-fold and multi-fold towels. This
machine has the potential for producing toweling for converting jumbo rolls into
at-home towel products, masking tape base, surgicalmedical disposables and
filtration products.
The Berlin pulp mill consists of nine batch digesters, three washer lines,
separate hardwood and softwood elemental chlorine bleach plants and a chemical
recovery unit capable of simultaneously producing hardwood and softwood pulp.
Reports filed by Crown Paper with the Securities and Exchange Commission state
that from 1992 to 1994, Fort James invested approximately $87.0 million to
rebuild and expand the chemical recovery unit, which Crown Paper believes
extended the life of such unit by approximately 20 to 25 years. The pulp mill is
connected to the Gorham paper mill via two gravity-fed pipelines. In the LTM
Period, the pulp mill supplied 85.3% of the paper mill's wood pulp requirements.
In the LTM Period, the Berlin pulp mill dried and sold approximately
116,000 tons of hardwood as market pulp (including sales to other Crown Paper
mills). Through the implementation of various strategies, including the startup
of an existing wet lap pulp machine at the Berlin pulp mill and the use of
recycled paper and certain paper manufacturing by-products that would otherwise
be discarded, we are seeking to significantly increase the amount of
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virgin pulp available for sale to our tissue mills and as market pulp to third
party purchasers. We cannot assure you that:
o we will be able to successfully implement such strategies, or
o that the implementation of such strategies will result in any
anticipated cost benefits or increased revenues.
Wood fiber is the largest single material cost for the Berlin-Gorham Mills.
Wood chips, which are used in kraft pulp making, are either produced at the
Berlin pulp mill from timber purchased under long term supply contracts or
purchased from local suppliers. Raw materials required by the Berlin-Gorham
Mills are clay and chemicals used in pulp and paper production, which are
supplied under contracts with certain suppliers. We believe that the
Berlin-Gorham Mills currently have adequate sources of raw materials and that
adequate alternative sources of supply are available.
The six hydroelectric generating facilities located on the Androscoggin
River and six steam turbines generate approximately 31 megawatt hours of
electricity in the aggregate. In 1998, the Berlin-Gorham Mills generated
approximately 82% of their power requirements and their average cost of
internally generated power was approximately 31% of the cost of purchased power.
The Berlin-Gorham Mills sell a small amount of power to the local public utility
when internal demand is less than internal generation.
The Gorham paper mill principally produces uncoated freesheet papers for
custom business forms, book and opaque papers for hard cover books and manuals
and premium grade papers for annual reports and other printing applications.
Paper products from the Berlin-Gorham Mills include:
Products Markets
----------------------- -------------------
Text and Cover, Writing
and Opaque Commercial Printing
Publishing Papers Book and Magazine
Business Papers Communication
Technical Specialties Specialty Converting
Facilities
Facilities
In addition to the Berlin-Gorham Mills, we operate five tissue mills, with
a total annual capacity of 220,000 tons. Of these mills, one is in New
Hampshire, two are in New York, one is in Oregon and one is in Wisconsin. We
also operate seven converting facilities and two packaging/printing facilities.
Of these converting facilities, one is in California, one is in Mexico, four are
in New York and one is in Wisconsin. Both packaging/printing facilities are in
New York. We also have 11 distribution facilities. Of these distribution
facilities, one is in California, one is in Mexico, one is in New Jersey, seven
are in New York and one is in Wisconsin. Certain of the mills and facilities
discussed above are located on the same real property sites. See "-Berlin-Gorham
Mills Acquisition" for information as to these facilities.
The following table lists our production facilities and their operations:
<TABLE>
<CAPTION>
Annual
Production
Mills Fiscal Year Acquired Products Capacity(1)
------------------------- -------------------- ------------------------------ -----------
<S> <C> <C> <C>
Winchester, New Hampshire 3Q 1994 100% recycled and 100% virgin
tissue 24,000 tons
Greenwich, New York 3Q 1996 100% recycled and 100% virgin
tissue 24,000 tons
Mechanicville, New York 1Q 1995 100% recycled and 100% virgin
tissue 50,000
St. Helens, Oregon(2) 1Q 1993 20% recycled and 100% virgin
tissue 50,000
Neenah, Wisconsin 1Q 1997 100% recycled and 100% virgin
tissue 72,000
-------
Total tonnage................................................................... 220,000
=======
</TABLE>
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<PAGE>
<TABLE>
<CAPTION>
Annual
Production
Converting Facilities Fiscal Year Acquired Products Capacity(1)
--------------------- -------------------- -------- -----------
<S> <C> <C> <C>
Calexico, California 1Q 1998 converted tissue 1,500,000 cases
Mexicali, Mexico 4Q 1996 converted tissue 1,000,000
Coram, New York 2Q 1997 converted tissue 2,000,000
Hauppauge, New York(3) 3Q 1990 converted tissue
3Q 1991 and plastic products 4,000,000
Waterford, New York(4) 3Q 1996 converted tissue 4,000,000
Neenah, Wisconsin 1Q 1997 converted tissue 2,500,000
----------
Total cases ..................................................................................... 15,000,000
==========
</TABLE>
- ----------
(1) All annual capacity amounts are approximate.
(2) We have leased from Boise Cascade a portion of their St. Helens, Oregon
facility pursuant to a lease expiring in December 31, 2022 in connection
with the operation of a tissue paper machine which we purchased from them
in November 1992. Boise Cascade operates such tissue machine for us on a
cost-sharing basis and, pursuant to their agreement with us, retains an
option to repurchase the machine under certain circumstances.
(3) We operate two converting facilities in Hauppauge, New York, one of which
is leased.
(4) This distribution center is held in the form of a leasehold estate granted
by the Town of Waterford Industrial Development Agency and on January 1,
2009, the expiration date of the related lease, will be reacquired in fee
by us for nominal consideration.
Legal Proceedings
From time to time we are subject to a number of legal proceedings and other
claims arising in the ordinary course of our business. We do not believe that
any pending or threatened legal proceedings or other claims will have,
individually or in the aggregate, a material adverse effect on our financial
condition or results of operations.
Environmental Regulation
Our operations are subject to comprehensive and frequently changing
federal, state and local environmental laws and regulations, including laws and
regulations governing emissions of air pollutants, discharges of waste water and
storm water, storage, treatment and disposal of materials and waste, remediation
of soil, surface water and ground water contamination, and liability for damages
to natural resources. Compliance with these laws and regulations is an
increasingly important factor in our business. We will continue to incur capital
and operating expenditures in order to maintain compliance with applicable
federal, state and local environmental laws and regulations and to meet new
regulatory requirements.
We are subject to strict, and under certain circumstances, joint and
several, liability for the investigation and remediation of environmental
contamination (including contamination caused by other parties) at properties
that we own or operate and at properties where we or our predecessors have
arranged for the disposal of regulated materials. As a result, we are involved
from time to time in administrative and judicial proceedings and inquiries
relating to environmental matters. We may be involved in additional proceedings
in the future and the total amount of such future costs and other environmental
liabilities may be material.
On April 15, 1998, the U.S. Environmental Protection Agency issued final
rules known as the "Cluster Rules" affecting pulp and paper industry discharges
of wastewater and gaseous emissions. The Cluster Rules apply to pulping from the
initial feedstock of wood and certain bleaching processes. The Cluster Rules
require changes in the pulping, bleaching and/or air emission and wastewater
treatment processes presently used in some U.S. pulp and paper mills, including
the Berlin-Gorham Mills. Based upon our understanding of the Cluster Rules, and
after consultation with independent environmental consultants, we estimate that
approximately $13 million of capital expenditures, within a range of
approximately plus or minus 25%, may be required to comply with the Cluster
Rules, with compliance dates beginning in 1999 and extending over the next two
to five years. There are risks and uncertainties associated with our estimate
that could cause total capital expenditures and timing of such expenditures to
be materially different from
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<PAGE>
current estimates. The EPA has also proposed additional requirements for the
pulp and paper industry, which, if and when adopted, may require additional
material expenditures.
The Berlin-Gorham Mills have been in operation for many years and, over
such time, Crown Paper and other prior operators at the Berlin-Gorham Mills have
generated and disposed of wastes which are or may be considered hazardous. The
soil, groundwater and adjacent area remediation which is currently under
consideration with respect to the Berlin-Gorham Mills could, based upon
available information, cost up to $400,000 over the next two years. Included
among the waste materials generated by past operations are contaminants left in
the vicinity of a former chemical plant on the northern portion of the Berlin
pulp mill property, of which a small building known as the "Cell House" remains
standing. The procedures required to remove the Cell House, to encapsulate and
seal off the affected areas and thereafter to monitor such areas as required by
current regulations are estimated to cost up to $2.3 million. The discovery of
previously unknown contamination of property underlying, or in the vicinity of,
the Berlin-Gorham Mills could require us to incur material unforeseen expenses
for which we may not have any recourse against Crown Paper or other prior
operators. In addition, certain maintenance and repairs to the wastewater
treatment plant at the Berlin-Gorham Mills have been identified, which are
estimated to cost up to $2.1 million.
The Berlin-Gorham Mills have systems which process and treat large amounts
of wastewater primarily generated by their operations. Due to aging of the
treatment systems and to the evolution of mill operations, it is anticipated
that the related treatment systems and equipment will require replacement and/or
upgrading. In addition, there is evidence that effluent in connection with the
wastewater treatment processes has, over time, resulted in accumulations of
sediment and other buildup in adjacent lagoons and watercourses. It is
anticipated that changes in the applicable processes and the related technology
and equipment may be necessary in the future both to remediate such buildups and
to accommodate expansion of mill production schedules. The foregoing changes may
require additional material capital expenditures.
Employees
As of September 30, 1999, we employed 2,394 persons, consisting of 2,000
hourly and 394 salaried employees. We have collective bargaining agreements with
the Paper, Allied-Industrial, Chemical and Energy Workers International Union
covering approximately 931 of our hourly employees, 245 of which are employed at
our mill in Neenah, Wisconsin and 686 of which are employed at the Berlin-Gorham
Mills. We also have an agreement with the Office and Professional Employees
International Union covering 22 clerical employees at the Berlin-Gorham Mills.
Our agreement relating to the Neenah hourly employees expires on May 31, 2002,
subject to automatic annual renewals unless either party objects. Our agreements
relating to the Berlin-Gorham employees expire in June 2002, as to hourly
employees, and in July 2002, as to clerical employees.
Our St. Helens, Oregon tissue machine is operated for us by employees of
Boise Cascade on a cost-sharing basis. The Boise Cascade employees are
represented by the Association of Western Pulp and Paper Workers. Boise
Cascade's collective bargaining agreement expires on March 14, 2004, subject to
automatic yearly renewals unless either party notifies the other to the
contrary.
We believe that relations with our employees are satisfactory.
MANAGEMENT
Directors and Executive Officers
The following table sets forth, as of October 15, 1999, certain
information as to our directors and executive officers and a key employee of our
subsidiary, American Tissue::
Name Age Position
- --------------------- --- -------------------------------------
Nourollah Elghanayan 83 Chairman of the Board and a director
Mehdi Gabayzadeh 54 President, Chief Executive Officer
and a director
Edward I. Stein 54 Executive Vice President and Chief
Financial Officer
Nicholas T. Galante,III 43 Executive Vice President of American
Tissue and President and Chief
Executive Officer of Pulp & Paper of
America LLC
Andrew H. Rush 40 Director
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Directors are elected by the stockholders to one-year terms. Officers serve
at the discretion of the board of directors.
Nourollah Elghanayan has served as our Chairman of the Board and a director
since our acquisition of American Tissue in July 1999 and has served in the same
positions with American Tissue since October 1998. He served as President, Chief
Operating Officer and director of our subsidiary, American Tissue Corporation,
from 1982 until October 1998. Mr. Elghanayan is also an investor in commercial
real estate.
Mehdi Gabayzadeh has served as our President, Chief Executive Officer and a
director since our acquisition of American Tissue in July 1999 and has served in
the same positions with American Tissue since October 1998. He served as
Executive Vice President and director of our subsidiary, American Tissue
Corporation, from 1982 to October 1998.
Edward I. Stein has served as our Executive Vice President and Chief
Financial Officer since our acquisition of American Tissue in July 1999 and has
served in the same positions with American Tissue since May 1999. Prior to
joining American Tissue, Mr. Stein served as Chief Financial Officer of Perry H.
Koplik & Sons, Inc., a pulp and paper broker, from 1976 to May 1999.
Nicholas T. Galante, III has served as an Executive Vice President of
American Tissue and as President and Chief Executive Officer of our subsidiary,
Pulp & Paper of America LLC, since April 1999. Mr. Galante has also served as
Director of Jumbo Rolls and Fast Food Restaurants of our subsidiary, American
Tissue Corporation, since 1994. Prior to joining American Tissue Corporation,
Mr. Galante served an Executive Vice President of Tagsons Papers, Inc. from 1977
to 1994. Tagsons Papers, Inc. filed a petition seeking relief under Chapter 11
of the Federal Bankruptcy Code in 1994.
Andrew H. Rush became one of our directors on July 9, 1999. Mr. Rush has
been a Managing Director of DLJ Merchant Banking Partners, L.P. since January
1997. From 1992 to 1997, Mr. Rush was an officer of DLJ Merchant Banking
Partners, L.P. and its predecessors. Mr. Rush currently serves as a member of
the advisory board of Triax Midwest Associates, L.P. and as a member of the
board of directors of Societe d'Ethanol de Synthese and Nextel Partners Inc. Mr.
Rush previously served as a director of Doane Products Company.
Executive Compensation
The following table sets forth the compensation earned, whether paid or
deferred, by our Chief Executive Officer and by Nicholas T. Galante, III, an
executive officer and key employee of our subsidiary, American Tissue, during
fiscal 1996, 1997 and 1998 for services rendered in all capacities to our
predecessors during such fiscal years. Mr. Nourollah Elghanayan, an executive
officer of Middle American Tissue, did not receive any compensation from our
predecessors during such fiscal years.
<TABLE>
<CAPTION>
Annual Compensation
-------------------
Other Annual All Other
Annual All Other Compen- Compen-
Name and Principal Position Fiscal Year Salary($) Bonus($) sation($)(1) sation($)(2)
- --------------------------- ----------- --------- -------- ------------ ------------
<S> <C> <C> <C> <C> <C>
Mehdi Gabayzadeh 1999 240,000 -- 620 --
President and Chief Executive Officer 1998 240,000 -- 691 --
1997 240,000 -- 749 --
Nicholas T. Galante, III(3)
Executive Vice President of American Tissue,
President and Chief Executive Officer of Pulp 1999 229,000(3) -- 262 --(4)
& Paper of America LLC 1998 210,000(3) -- 259 1,835
1997 200,000(3) -- 281 1,600
</TABLE>
- ----------
(1) Reflects life insurance premiums and car allowances paid or reimbursed by
our predecessors.
(2) Reflects matching contributions under our 401(k) Plan.
(3) Mr. Galante's salary includes an annual consulting fee of $120,000 which
has been paid to Six Gees, Inc., a corporation wholly owned by Mr. Galante.
(4) To date, we have not made our 1999 matching contribution under our 401(k)
Plan.
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<PAGE>
Edward I. Stein, our Executive Vice President and Chief Financial Officer,
began his employment with American Tissue on May 31, 1999. He will receive
annually, a salary of $275,000, entertainment reimbursement of up to $20,000 and
a personal usage and company car allowance of up to $7,500, plus reimbursement
for insurance related thereto.
Director Compensation
None of our directors receives any compensation or fees for service on the
Board of Directors.
PRINCIPAL STOCKHOLDERS
The following table sets forth certain information as of October 15, 1999,
with respect to the beneficial ownership, fully diluted, of our common stock by
(a) each stockholder known by us to own beneficially 5% or more of the
outstanding shares of our common stock; (b) each of our directors; (c) each of
our executive officers named in "Management -- Executive Compensation;" and (d)
all of our executive officers and directors as a group.
<TABLE>
<CAPTION>
Number of Shares Percentage of
Name of Beneficial Owner(1) of Common Stock Total
- --------------------------- --------------- -------------
<S> <C> <C>
Super American Tissue Inc.(2) 176.000 88,000
DLJMB Funds(3) 24.000 12.000
Nourollah Elghanayan 53.474(4) 26.737
Victoria Elghanayan 35.057(5) 17.529
Mehdi Gabayzadeh 88.000(6) 44.000
Mehdi Gabayzadeh and Joseph Neissany as
trustees for Diane
Gabayzadeh Trust 17.327(6) 8.664
Mehdi Gabayzadeh and Joseph Neissany as
trustees for Deborah
Gabayzadeh Trust 17.327(6) 8.664
Mehdi Gabayzadeh and Joseph Neissany as
trustees for John
Gabayzadeh Trust 20.103(6) 10.051
Jeffrey Elghanayan 25.773 12.887
Edward I. Stein -- --
Andrew H. Rush --(7) --
All directors and executive officers
as a group (4 persons) 141.474(4)(6)(7) 70.737
</TABLE>
- ----------
(1) The address of each of these stockholders (other than the DLJMB Funds) is
c/o American Tissue Corporation, 135 Engineers Road, Hauppauge, New York
11788.
(2) Super American Tissue Inc. directly owns 88% of our issued and outstanding
shares of common stock, after giving effect to the exercise of certain
warrants to purchase up to 12% of our common stock issued to the initial
purchasers of the old notes. Each of the persons or entities listed in this
table beneficially owns our shares through their direct ownership of our
common stock warrant or their ownership of shares of the common stock of
Super American Tissue Inc.
(3) The DLJMB Funds consist of DLJ Merchant Banking Partners II, L.P. and the
following related investors: DLJ Merchant Banking Partners II-A, L.P.; DLJ
Offshore Partners II, C.V.; DLJ Diversified Partners, L.P.; DLJ Diversified
Partners-A, L.P.; DLJ Millennium Partners, L.P.; DLJ Millennium Partners-A,
L.P.; DLJMB Funding II, Inc.; DLJ EAB Partners, L.P.; DLJ First ESC, L.P.
and DLJ ESC II, L.P., hold directly warrants to purchase up to 12% of the
common stock of Middle American Tissue as of July 9, 1999. The address of
each of these entities, other than DLJ Offshore Partners II, C.V., is 277
Park Avenue, New York, New York 10172. The address of DLJ Offshore Partners
II, C.V., is John B. Gorsiraweg 14, Willemstad, Curacao, Netherlands
Antilles.
(4) The shares of common stock beneficially owned by Mr. Elghanayan include
35.057 shares owned directly by his wife, Victoria Elghanayan. Mr.
Elghanayan disclaims beneficial ownership of the shares held by his wife.
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<PAGE>
(5) The shares of our common stock beneficially owned by Mrs. Elghanayan do not
include 18.417 shares owned directly by her husband, Nourollah Elghanayan.
Mrs. Elghanayan disclaims beneficial ownership of the shares owned by her
husband.
(6) The shares of our common stock beneficially owned by Mr. Gabayzadeh include
20.103 shares owned by the John Gabayzadeh Trust, 17.327 shares owned by
the Diane Gabayzadeh Trust and 17.327 shares owned by the Deborah
Gabayzadeh Trust, over which he has shared voting and dispositive power.
(7) Does not include warrants to purchase up to 12% of our common stock as of
July 9, 1999 beneficially owned by the DLJMB Funds. Mr. Rush is a Managing
Director of DLJ Merchant Banking Partners II, L.P. and, as a result, may be
deemed to beneficially own the warrants owned by the DLJMB Funds. Mr. Rush
disclaims beneficial ownership of the warrants beneficially owned by the
DLJMB Funds.
Super American Tissue, Mr. Elghanayan and the other stockholders of Super
American Tissue affiliated with him, Mr. Gabayzadeh and the other stockholders
of Super American Tissue affiliated with him, and certain other companies
controlled by Messrs. Elghanayan and Gabayzadeh that are not subsidiaries of
Super American Tissue have entered into a shareholders agreement. The
shareholders agreement provides that the board of directors of Super American
Tissue is to consist of an equal number of directors designated by each of
Messrs. Elghanayan and Gabayzadeh and that each subsidiary of Super American
Tissue shall be directly or indirectly managed by them, provided that if any
financing arrangement requires that the board of directors of Super American
Tissue or any of its subsidiaries consist of one or more directors not appointed
by Messrs. Elghanayan and Gabayzadeh,
o such outside directors shall constitute no more than one third of the
board of directors of Super American Tissue or the applicable
subsidiary; and
o any action by such board will require the consent of a majority of the
directors designated by each of Messrs. Elghanayan and Gabayzadeh.
Under the shareholders agreement, Messrs. Elghanayan and Gabayzadeh, or
upon the incapacity or death of either of them, the remaining shareholder and
the designee of such incapacitated or deceased shareholder, have the right to
cause Super American Tissue or any of its subsidiaries to effect an initial
public offering of its capital stock and certain other financial transactions.
However, if the purpose of an initial public offering of the capital stock of
Super American Tissue or any of its subsidiaries or other financial transaction
(including a sale of all or substantially all of the assets of Super American
Tissue or one of its subsidiaries) is the facilitation of the payment of
indebtedness owing by Super American Tissue or any of its subsidiaries to a
shareholder of Super American Tissue, then the authorization of such transaction
is subject to the prior satisfaction of certain conditions. The most significant
of such conditions is the requirement that the receipt by the shareholder
proposing such transaction or the applicable company receive an opinion of an
investment banking firm of nationally recognized standing to the effect that the
proposed transaction is fair to all of the companies that are parties to the
shareholders agreement and their respective shareholders. Super American Tissue
is not required to redeem any of its capital stock from the estate of a deceased
shareholder.
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CERTAIN RELATED PARTY TRANSACTIONS
Super American Tissue Inc., a Delaware corporation, owns all of our
outstanding common stock (other than certain warrants issued to the initial
purchasers of the old notes to purchase up to 12% of our common stock as of the
issue date of the old notes). We own 100% of the outstanding capital stock of
American Tissue. Mr. Nourollah Elghanayan, our Chairman of the Board and one of
our directors, together with members of his family, owns 50.0% of the
outstanding common stock of Super American Tissue. Mr. Mehdi Gabayzadeh, our
President, Chief Executive Officer and one of our directors, together with
certain trusts for the benefit of Mr. Gabayzadeh's children, of which he is one
of the trustees, owns the other 50.0% of the outstanding common stock of Super
American Tissue.
In August 1998, Messrs. Elghanayan and Gabayzadeh and the other
stockholders of Super American Tissue caused American Tissue to be incorporated
as a Delaware corporation. As of October 1, 1998, these stockholders
beneficially owned all of the outstanding capital stock or membership interests,
as the case may be, of all of the other corporations and limited liability
companies which are now our wholly owned subsidiaries. See Note 1 to our
historical consolidated financial statements. Effective as of October 1, 1998,
these stockholders caused American Tissue to issue 200 shares of American Tissue
common stock to them, on a pro rata basis, in exchange for the shares of common
stock and membership interests they owned in such other corporations and limited
liability companies, constituting all of the outstanding equity interests in
such corporations and limited liability companies. As a result of this exchange,
such corporations and limited liability companies became subsidiaries of
American Tissue.
Thereafter, on March 26, 1999, these stockholders caused Super American
Tissue to be incorporated as a Delaware corporation. Effective June 1, 1999,
these stockholders exchanged, on a pro rata basis, the outstanding common stock
of American Tissue they owned for pro rata shares of the common stock of Super
American Tissue. As a result of this exchange, American Tissue became a
wholly-owned direct subsidiary of Super American Tissue. On July 1, 1999, these
stockholders caused Middle American Tissue to be incorporated as a Delaware
corporation. Effective July 2, 1999, these stockholders cause us to issue shares
of our common stock in exchange for the shares of common stock of American
Tissue held by Super American Tissue. As a result, we became a wholly-owned
subsidiary of Super American Tissue, and American Tissue became our wholly-owned
subsidiary, in each case without giving effect to warrants issued to the initial
purchasers of the old notes. See "Principal Shareholders."
These stockholders also collectively own all of the outstanding shares of
common stock or membership interests, as the case may be, of the following
corporations and limited liability companies (the "Affiliated Companies"):
American Kraft Mills of Tennessee LLC, American Tissue Mills of Massachusetts,
Inc., American Tissue Mills de Mexico S.A. de C.V., American Tissue Mills of
Ohio, Inc., Huntington LLC, Lakeview Real Estate LLC and Pheasant LLC.
Each of the Affiliated Companies is owned 50.0% by Mr. Elghanayan and
members of his family and 50.0% by Mr. Gabayzadeh and certain trusts for the
benefit of Mr. Gabayzadeh's children, of which he is one of the trustees. Mr.
Elghanayan serves as Chairman, Chief Executive Officer, Treasurer and a director
of each of the Affiliated Companies which is a corporation, and as a manager of
each of the Affiliated Companies which is a limited liability company. Mr.
Gabayzadeh serves as President, Chief Operating Officer, Secretary and a
director of each of the Affiliated Companies which is a corporation, and as a
manager of each of the Affiliated Companies which is a limited liability
company. The Affiliated Companies do not have any other officers or directors.
Transactions with the Affiliated Companies
Certain of the Affiliated Companies are indebted to certain of our
subsidiaries, which indebtedness was incurred since October 1, 1997, the first
day of fiscal 1998, or was incurred prior thereto and has been outstanding since
the date of incurrence of such indebtedness. All of the amounts receivable by
our subsidiaries from the Affiliated Companies have no definite maturity date
and do not bear interest.
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<TABLE>
<CAPTION>
Highest Amount
Outstanding Amount Outstanding at
Creditor Debtor Since October 1, 1997 June 30, 1999
- -------------------------------------- -------------------------------------- --------------------- -------------
<S> <C> <C> <C>
American Tissue Corporation American Kraft Mills of Tennessee $ 5,106,731(1) $ 4,999,376
American Tissue Corporation Huntington 420,000(2) --
American Tissue Corporation American Tissue Mills of Ohio 4,547,742(3) 4,547,178
American Tissue Corporation American Tissue Mills of Massachusetts 4,916,161(4) 4,916,161
American Tissue Corporation American Tissue Mills de Mexico 2,301,058(5) 2,301,058
Grand American Tissue Mills of Ohio 1,032,063(3) 1,032,632
Grand American Tissue Mills of Massachusetts 1,442,278(4) 1,442,278
American Tissue Mills of Greenwich American Tissue Mills of Massachusetts 197,000(4) 197,000
100 Realty Management Lakeview Real Estate 395,207(6) 395,207
100 Realty Management Pheasant 182,090(7) 182,090
Unique Financing American Tissue Mills of Ohio 290,000(3) 290,000
American Tissue Mills of New York American Tissue Mills of Massachusetts 183,229(4) 183,229
Other 54,000 54,000
----------- -----------
$21,067,559 $20,540,209
=========== ===========
</TABLE>
- ----------
(1) Represents indebtedness arising from loans made from time to time to
finance the purchase of assets by American Kraft Mills of Tennessee,
consisting of a kraft paper mill and related startup costs, capital
improvements and working capital needs.
(2) Represents indebtedness arising from loans made to finance the cost of
certain improvements of real property owned by Huntington.
(3) Represents indebtedness for advances made from time to time to finance
certain continuing costs of maintaining the tissue mill owned by American
Tissue Mills of Ohio.
(4) Represents indebtedness for advances made from time to time to finance
certain continuing costs relating to a tissue mill formerly operated by
American Tissue Mills of Massachusetts which has discontinued operations.
(5) Represents indebtedness for working capital loans made from time to time to
finance the converting operations conducted by American Tissue Mills de
Mexico at our converting facility in Mexicali, Mexico.
(6) Represents indebtedness arising from working capital loans made from time
to time to finance the costs of repairs and improvements of certain real
property owned by Lakeview.
(7) Represents indebtedness arising from working capital loans made from time
to time to finance the acquisition of certain undeveloped land owned by
Pheasant which is proposed to be leased to American Tissue Corporation
following the development and construction of a warehouse.
Certain of our subsidiaries are indebted to certain of the Affiliated
Companies for money borrowed by these subsidiaries from such Affiliated
Companies during fiscal 1998 to finance the working capital requirements of such
subsidiaries. Such indebtedness is not evidenced by any promissory notes, is
payable on demand and does not accrue interest. The details of such indebtedness
are as follows:
<TABLE>
<CAPTION>
Amount Payable at
Debtor Creditor June 30, 1999
- ------------------------------- -------------------- -----------------
<S> <C> <C>
American Tissue Corporation Lakeview Real Estate $4,570,934
American Tissue Mills of Neenah Lakeview Real Estate 931,877
100 Realty Management Huntington 1,310,848
----------
Total $6,813,659
==========
</TABLE>
Our subsidiary, American Tissue Mills of Neenah, has entered into a lease,
dated August 1, 1998, with Lakeview Real Estate pursuant to which American
Tissue Mills of Neenah leases our Neenah, Wisconsin distribution facility from
Lakeview for a 20-year term expiring on July 31, 2018. The annual rental under
such lease is currently approximately $1,270,000, and increases from time to
time to a maximum annual rent of approximately
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<PAGE>
$1,460,000. In addition, the tenant pays as additional rent to Lakeview all
taxes, insurance and maintenance costs of such facility. American Tissue Mills
of Neenah has made aggregate rental payments to Lakeview from the beginning of
the lease term, August 1, 1998, through August 31, 1999, of $1,029,149.
Our subsidiary, American Tissue Corporation, leases a warehouse facility
located in Huntington, New York from Huntington LLC under a lease dated June 1,
1998, for a 20-year term expiring on May 29, 2018. The current annual rental
under such lease is approximately $520,000 and increases from time to time to a
maximum of approximately $883,000. In addition, the tenant pays as additional
rent to Huntington all taxes, insurance and maintenance costs of such facility.
American Tissue Corporation has made aggregate rental payments to Huntington
from the beginning of the lease term, June 1, 1998, through August 31, 1999 of
$633,780.
American Tissue Corporation purchases corrugating medium, a material used
to manufacture corrugated containers, and core stock from American Kraft Mills
of Tennessee at market prices. For the 18 months ended August 31, 1999, American
Tissue Corporation purchased approximately 8,701 tons of corrugating medium and
core stock from American Kraft Mills of Tennessee for which it paid an aggregate
of approximately $2,433,155.
Pursuant to an agreement dated December 12, 1994, American Tissue
Corporation reimburses American Tissue Mills de Mexico for all operating
expenses, including payroll costs, incurred by American Tissue Mills de Mexico
for converting jumbo rolls of tissue supplied by American Tissue Corporation
into finished tissue products at our converting facility in Mexicali, Mexico.
American Tissue Corporation also pays American Tissue Mills de Mexico a fee
equal to 5.0% of such operating expenses, net of any losses resulting from
currency fluctuations. For the 18 months ended August 31, 1999, American Tissue
Corporation reimbursed American Tissue Mills de Mexico for $1,484,606 of
operating expenses and paid American Tissue Mills de Mexico $74,230 in
converting fees.
Three of our subsidiaries, Engineers Road, Gilpin Realty and Coram Realty,
together with Huntington, an Affiliated Company, have entered into a mortgage
loan with Roslyn Savings Bank in the principal amount of $14.3 million, at an
annual rate of 7.5%, which matures on August 1, 2008. The aggregate principal
amount we allocated to our subsidiaries was $7,718,644.
Transactions with Certain Stockholders
Messrs. Elghanayan and Gabayzadeh have borrowed money from certain of our
subsidiaries in the aggregate amount of $1.5 million as of June 30, 1999. The
highest amount of such indebtedness outstanding since October 1, 1997 was $1.5
million. Such loans have no definite repayment date and do not bear interest.
Certain of our subsidiaries are indebted to the beneficial owners of our
common stock on account of loans made by such stockholders to our subsidiaries
to finance their working capital requirements. The aggregate amount of such
indebtedness was $21.7 million as of June 30, 1999 and each item of indebtedness
is evidenced by a demand promissory note and bears interest at 10.0% per annum.
As of July 9, 1999, all of such indebtedness was assumed by Super American
Tissue and is evidenced by a seven year note of Super American Tissue which
bears interest at 10.0% per annum, and requires no interest payments prior to
maturity. Our subsidiaries were released from liability to such stockholders. In
addition, certain of our beneficial holders of our common stock loaned Super
American Tissue $5.0 million on the issue date of the old notes on the same
terms.
DESCRIPTION OF CERTAIN INDEBTEDNESS
American Tissue's New Credit Facility
General. On July 9, 1999, American Tissue, certain of our other
subsidiaries, certain lenders and LaSalle Bank National Association, as agent
for such lenders, established the New Credit Facility pursuant to a revolving
credit and security agreement among such parties. The New Credit Facility
provides for the making of revolving credit loans to, and the issuance of
letters of credit on behalf of, one or more of our subsidiaries, subject to the
following limitations:
o the aggregate amount of loans outstanding at any one time to any
borrower will be limited to a maximum of:
(1) the sum of:
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(a) 85.0% of the face amount of such borrower's accounts
receivable assigned to, and accepted by, the lenders, plus
(b) 75.0% of the lower of the cost or market value of such
borrower's jumbo roll inventory assigned to, and accepted
by, the lenders, plus
(c) 65.0% of the lower of the cost or market value of such
borrower's inventory (other than jumbo rolls) assigned to,
and accepted by the lenders, minus
(2) such reserves as the Agent may establish from time to time;
o the aggregate sum of all loans outstanding to all borrowers at any one
time on the basis of the borrowers' eligible inventory may not exceed
$50.0 million;
o the face amount of all issued and undrawn letters of credit may not
exceed $15.0 million; and
o the aggregate amount of all loans and letters of credit may not exceed
$100.0 million.
Interest Rates. Borrowings under the New Credit Facility (including amounts
reimbursable as the result of drawings under letters of credit) bear interest,
at our election, at an annual rate equal to either 30-, 60- or 90-day LIBOR plus
2.25% or the agent's prime rate (as publicly announced from time to time).
Prepayments. Borrowings under the new credit facility may be prepaid by us
at any time without penalty.
Covenants. The obligations of the lenders who are parties to the New Credit
Facility to advance funds are subject to certain conditions customary for
facilities of similar size and nature. In addition, American Tissue and our
other subsidiaries that are parties to the New Credit Facility are subject to
certain affirmative and negative covenants customarily contained in agreements
of this type, including, without limitation, covenants that restrict, subject to
specified exceptions:
o mergers, consolidations, assets sales or changes in capital structure;
o the creation or acquisition of subsidiaries;
o purchase or redemption by American Tissue of its capital stock or
declaration or payment of dividends or distributions on such capital
stock;
o incurrence of additional indebtedness;
o investment activities;
o granting or incurrence of liens to secure other indebtedness (other
than the Notes);
o prepayment or modification of the terms of subordinated indebtedness;
and
o engaging in transactions with affiliates.
In addition, the New Credit Facility requires us to satisfy certain
financial covenants customary for facilities of similar size and nature and also
provides for customary events of default.
Collateral. The New Credit Facility is secured by a first priority lien on
all accounts receivable, inventory, chattel paper, instruments, investment
property, documents, all related general intangibles of the foregoing (other
than any intellectual property collateral) of those of our subsidiaries that are
parties to the New Credit Facility and all proceeds of the foregoing. In
addition, the New Credit Facility is secured by a security interest that is
junior to that of the trustee for the American Tissue notes on all of the
collateral securing the American Tissue notes in which such trustee has a first
priority security interest.
Mortgage and Certain Other Indebtedness
Certain of our subsidiaries have entered into financing arrangements in
connection with the purchase or construction of real property for our facilities
in the aggregate principal amount of approximately $21.0 million as of June,
1999, as follows:
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<PAGE>
<TABLE>
<CAPTION>
Annual
Principal Amount Interest Rate Maturity Lender
---------------- ------------- -------- ------
<S> <C> <C> <C>
$284,000(1) -- September 30, 2004 Community Redevelopment Agency
166,000 3.00% September 30, 2013 Community Redevelopment Agency
3,000,000(2) prime plus 1% April 15, 2004 Valley Independent Bank
6,303,214 8.05% October 17, 2007 Bank United
2,777,119 7.75% January 1, 2008 Bank United
7,718,644(3) 7.50% August 1, 2008 Roslyn Savings Bank
794,167 7.50% November 1, 2008 Security Mutual Life Insurance Company of
New York
<CAPTION>
Principal Amount Collateral
---------------- ----------
<S> <C>
$284,000(1) Converting/distribution facility Calexico, CA
166,000 Converting/distribution facility Calexico, CA
3,000,000(2) Converting/distribution facility, Calexico, CA
6,303,214 Converting/distribution facility, Waterford, NY
2,777,119 Distribution center, Saratoga Springs, NY
7,718,644(3) Distribution center, executive offices and
machine shop, Hauppauge, NY and converting
facility, Coram, NY
794,167 Distribution center, Halfmoon NY(4),
</TABLE>
- ----------
(1) This is a reimbursement loan with the Community Redevelopment Agency of the
City of Calexico, which by its terms will be forgiven 5 years after the
filing of an employment report by our subsidiary, Calexico Tissue Company,
stating that it has hired 100 employees.
(2) On April 15, 1999, this short term mortgage loan was refinanced with a
mortgage loan with Bank United in the principal amount of $4.0 million, at
an annual interest rate of 8.0%, which matures on April 15, 2004.
(3) This principal amount is part of a larger mortgage loan of approximately
$14.1 million with respect to which three of our subsidiaries, Engineers
Road, Gilpin Realty and Coram Realty, as well as an unconsolidated
affiliate, Huntington, are obligors. The outstanding principal amount of
additional indebtedness outstanding under the mortgage loan and
attributable to Huntington as of March 31, 1999 was approximately $6.4
million. See "Certain Related Party Transactions."
(4) This distribution center is held in the form of a leasehold estate granted
by the Town of Waterford Industrial Development Agency and on January 1,
2009, the expiration date of the related lease, will be reacquired by us,
for a nominal consideration.
In addition, as of June 30, 1999, we had outstanding indebtedness in the
principal amount of approximately $733,000, payable to Curtiss-Wright. This
indebtedness bears interest at an annual rate of 8.0% and matures on August 1,
2006.
American Tissue Notes
American Tissue raised approximately $159.5 million of the funds necessary
to consummate the Transactions through the issuance, in a private transaction,
of senior secured notes to an affiliate of the initial purchasers of the old
notes.
The American Tissue notes:
o are senior secured obligations of American Tissue and mature on July
15, 2006 in the principal amount of $165.0 million;
o are fully and unconditionally guaranteed by all of our other
subsidiaries on a senior secured basis;
o are redeemable by American Tissue, in whole or in part, on or after
July 15, 2004, at redemption prices ranging from 106.625% to 100% of
the principal amount of the American Tissue notes to be redeemed, plus
accrued and unpaid interest. In addition, American Tissue may redeem
up to 35.0% of the American Tissue notes before July 15, 2002 from the
proceeds of certain sales of American Tissue common stock, at 113.25%
of the principal amount of the American Tissue notes to be redeemed,
plus accrued and unpaid interest;
o are subject to repurchase by American Tissue at 101% of the principal
amount thereof at the option of the holders thereof upon the
occurrence of certain change of control events affecting American
Tissue and our other subsidiaries;
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o are secured by:
o a first priority lien on substantially all of the paper mill
plant and property and substantially all of the equipment,
intellectual property and related general intangibles, and all of
the stock and membership interests, of the guarantors of the
American Tissue notes; and
o a second priority on all of the assets of the guarantors of the
American Tissue notes securing the New Credit Facility; and
o pay interest in cash at the rate of 12 1/2% per year semi-annually in
arrears on each January 15 and July 15, commencing January 15, 2000;
and
o subject American Tissue and our other subsidiaries to customary
covenants for this type of financing, including restrictions on
indebtedness, dividends, liens, affiliate transactions, stock
repurchases, assets sales and mergers.
DESCRIPTION OF EXCHANGE NOTES
General
The exchange notes will be issued under an indenture between Middle
American Tissue and The Chase Manhattan Bank, as trustee and collateral agent,
which is also the indenture under which the old notes were issued. The terms of
the exchange notes are identical in all material respects to the terms of the
old notes, except that the exchange notes will have been registered under the
Securities Act of 1933 and, therefore, will not bear legends restricting their
transfer. Moreover, the provisions of the registration rights agreement,
including those respecting payment of liquidated damages, will not apply to the
exchange notes. The terms of the exchange notes include those stated in the
indenture and those made part of the indenture by reference to the Trust
Indenture Act of 1939. The exchange notes are subject to all of those terms, and
holders of the exchange notes are referred to the indenture and the Trust
Indenture Act for a complete statement of them.
The following summary of the material provisions of the indenture and
certain material provisions of the securities pledge agreement is not complete.
For a complete understanding of the indenture and securities pledge agreement,
you should read each of these documents in its entirety, including the
definitions stated in the indenture of the defined terms used in it. Copies of
the indenture, the securities pledge agreement and the registration rights
agreement were filed as exhibits to the exchange offer registration statement
and are available as set forth under the caption "Available Information." The
definitions of some of the terms used in this description are stated below under
"-- Certain Definitions." For purposes of this summary, the terms "Middle
American Tissue", "we", "our" or "us" refer only to Middle American Tissue and
not to any of our subsidiaries, and the term "American Tissue" refers only to
American Tissue Inc. and not to any of our other subsidiaries.
Under specified circumstances, we will be able to designate current or
future subsidiaries as Unrestricted Subsidiaries. Unrestricted Subsidiaries will
not be subject to any of the restrictive covenants set forth in the indenture.
As of the date of this prospectus, none of our subsidiaries is an Unrestricted
Subsidiary.
Principal, Maturity and Interest
The exchange notes will be limited in aggregate principal amount to
$35,755,788 and will mature on July 15, 2007. The exchange notes will be issued
in denominations of $1,000 and integral multiples thereof.
The exchange notes will accrete interest at the rate of 15% per annum
(compounded semi-annually) from July 9, 1999 until July 15, 2003, and will
accrue cash interest at the rate of 15% per annum from the most recent date to
which cash interest has been paid or, if no cash interest has been paid, from
July 15, 2003, payable semi-annually in arrears on January 15 and July 15,
commencing on January 15, 2004. We will make each cash interest payment to the
holders of record of the exchange notes on the immediately preceding January 1
and July 1. Interest will be computed on the basis of a 360-day year comprised
of twelve 30- day months.
Principal, premium, if any, and interest on the exchange notes will be
payable at our office or agency maintained for such purpose within the City and
State of New York. Until otherwise designated by us, our office or agency in New
York City will be the office of the trustee maintained for such purpose. At our
option, payment of
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interest may be made by check mailed to the holders of the exchange notes at
their respective addresses set forth in the register of holders of the
exchange notes. However, payments of the principal, premium, if any, and
interest on exchange notes, will be required to be made by wire transfer of
immediately available funds to the accounts of those holders of exchange notes
that have given wire transfer instructions to us.
Ranking and Security
The exchange notes will be our senior secured obligations, and will be
structurally subordinated to the indebtedness of our subsidiaries and any assets
of our subsidiaries securing such indebtedness.
The exchange notes will rank:
o effectively ahead of our existing and future senior unsecured
Indebtedness and junior debt to the extent of our assets securing the
exchange notes;
o equally in right of payment with all of our current and future
unsubordinated Indebtedness; and
o senior in right of payment to any of our Indebtedness that is
subordinated to the exchange notes.
Middle American Tissue is a holding company and has, and as of the issue
date of the exchange notes will have, no material assets other than the Capital
Stock of its subsidiaries, and all of its consolidated operations are conducted
through its subsidiaries.
Under the securities pledge agreement, we will have pledged to the
collateral agent for the benefit of the trustee and the holders of the Notes, a
first priority lien on the following assets constituting the "Securities
Collateral":
o all outstanding capital stock of our subsidiary, American Tissue,
owned by us and all additional shares of such capital stock we may
acquire in the future;
o all options, warrants, rights, agreements or other interests relating
to American Tissue capital stock, including any right relating to
equity in American Tissue acquired by us;
o all dividends, options, warrants, rights, returns of capital, income,
profits or other amounts in the nature of distributions distributed
to, or receivable by us, in respect of such capital stock; and
o all proceeds of the foregoing.
The indenture permits us to create certain Permitted Liens, including
Purchase Money Liens and liens securing Acquired Indebtedness and up to $10.0
million of other Indebtedness. The exchange notes will be effectively
subordinated to such Purchase Money Obligations and other Indebtedness to the
extent of the assets serving as collateral for Purchase Money Obligations and
other Indebtedness.
If an event of default occurs under the indenture, the collateral agent on
behalf of the holders of the exchange notes, in addition to any rights or
remedies available to it under the indenture, may take such actions as the
collateral agent deems advisable to protect and enforce its rights in the
collateral for the exchange notes, including, without limitation, the
disposition of the Securities Collateral in accordance with the securities
pledge agreement and applicable law.
The proceeds received by the collateral agent from the disposition of such
collateral will be applied by the collateral agent:
o first, to pay the expenses of such disposition and fees and other
amounts then payable to the trustee under the indenture and the
securities pledge agreement; and
o thereafter, to pay the principal of, premium, if any, and accrued
interest on the exchange notes (or, if prior to July 15, 2003, the
Accreted Value of the exchange notes).
Under the terms of the indenture and the securities pledge agreement, the
collateral agent will determine:
(1) whether to dispose of Securities Collateral following the
occurrence of an Event of Default and, if it determines to dispose of such
collateral, the circumstances under, and the manner in, which to dispose of
the collateral; and
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(2) whether to release all or any portion of such collateral from the
lien created by the securities pledge agreement.
The right of the collateral agent to dispose of Securities Collateral upon
the occurrence of an event of default under the indenture is likely to be
significantly impaired by applicable bankruptcy law if a bankruptcy case were to
be commenced by or against us prior to the collateral agent having disposed of
the Securities Collateral.
The amounts realizable by the collateral agent in respect of the Securities
Collateral in the event of a liquidation will depend upon market and economic
conditions at such time, the availability of buyers, certain existing liens and
similar factors. Accordingly, we cannot assure you that proceeds of any sale of
the Securities Collateral pursuant to the securities pledge agreement following
an event of default would be sufficient to satisfy, or would not be
substantially less than, amounts due under the exchange notes. See "Risk Factors
- -- The Value Of Your Security Interest In The Collateral Is Uncertain." If the
proceeds of the Securities Collateral are not sufficient to repay all amounts
due on the exchange notes, the holders of the exchange notes (to the extent not
repaid from the proceeds of the sale of the Securities Collateral) would have
only an unsecured claim against our remaining assets.
The Securities Collateral will be illiquid and may have no readily
ascertainable market value. Likewise, there can be no assurance that the
Securities Collateral will be saleable, or, if saleable, that there will not be
substantial delays in its liquidation.
Possession, Use and Release of Securities Collateral
Subject to the provisions of the indenture and the stockholders agreement,
and in accordance with the provisions of the securities pledge agreement, so
long as no event of default has occurred and continuing, we will have the right
to receive, retain and utilize all distributions on the capital stock of
American Tissue pledged to the collateral agent and to exercise all voting and
other consensual rights pertaining to such capital stock.
The indenture provides that we will be entitled to obtain a full release of
the Securities Collateral:
o upon the payment in full of the exchange notes and all other
obligations owing to the trustee, the collateral agent and the holders
of the exchange notes; or
o following legal defeasance or covenant defeasance of the indenture as
described below under "-- Legal Defeasance and Covenant Defeasance."
Use of Trust Monies
All Trust Monies will be held by the collateral agent as a part of the
collateral securing the exchange notes so long as no default or event of default
under the indenture shall have occurred and be continuing. Upon the occurrence
and during the continuance on an event of default under the indenture, the
collateral agent may apply Trust Monies in the same manner as the collateral
agent is required to apply proceeds received from the disposition of Securities
Collateral. See "--Ranking and Security."
The Trust Monies deposited with the collateral agent shall be invested in
Cash Equivalents pursuant to our direction.
Optional Redemption
At any time prior to July 15, 2003, we may, on any one or more occasions,
redeem up to 35.0% in aggregate face amount of exchange notes and old notes
originally issued under the indenture, with the net cash proceeds of one or more
Equity Offerings, at a redemption price equal to 115.0% of the Accreted Value as
of the date of redemption, provided that:
o at least 65.0% of the aggregate face amount of exchange notes and old
notes originally issued under the indenture would remain outstanding
immediately after giving effect to any such redemption; and
o such redemption occurs within 90 days after the consummation of any
such Equity Offering.
We also may redeem the exchange notes, in whole but not in part, on or
after July 9, 2000, through July 9, 2001, at 105.0% of the Accreted Value
thereof as of the date of redemption.
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On or after July 15, 2003, we may redeem all or part of these exchange
notes, upon not less than 30 nor more than 60 days' notice, at the redemption
prices (expressed as percentages of the principal amount of the exchange notes)
set forth below, plus accrued and unpaid interest thereon to the applicable
redemption date, if redeemed beginning on July 15 of each of the years indicated
below:
Date Percentage
---- ----------
2003 ........................................ 107.5%
2004 ........................................ 105.0%
2005 ........................................ 102.5%
2006 and thereafter ......................... 100.0%
Mandatory Redemption
Upon receipt of a notice from DLJ Merchant Banking Partners II, L.P., one
of the initial purchasers of the old notes, stating that it is exercising its
option under the stockholders agreement to require us to purchase certain common
stock purchase warrants sold to the initial purchasers together with the old
notes, we will be required to redeem all of the then outstanding exchange notes
at a price equal to 105.0% of the Accreted Value thereof on the date of
redemption. Any such redemption must be effected by us no later than October 9,
2002. We will not be required to effect such redemption if the option is
withdrawn in accordance with the terms of the stockholders agreement.
Other than as provided in the preceding paragraph, we are not required to
make mandatory redemption or sinking fund payments with respect to the exchange
notes, other than pursuant to a Change of Control Offer or an Asset Sale Offer.
Selection and Notice
If less than all of the exchange notes are to be redeemed at any time, the
trustee will select exchange notes for redemption:
(1) if the exchange notes are listed, in compliance with the
requirements of the principal national securities exchange on which the
exchange notes are listed; or
(2) if the exchange notes are not so listed, on a pro rata basis, by
lot or by such method as the trustee deems fair and appropriate.
No exchange notes of $1,000 or less will be redeemed in part. Notices of
redemption will be mailed by first class mail at least 30 but not more than 60
days before the redemption date to each holder of exchange notes to be redeemed
at its registered address. Notices of redemption may not be conditional. If any
exchange note is to be redeemed in part only, the notice of redemption that
relates to such exchange note will state the portion of the principal amount
thereof to be redeemed. A new exchange note in a principal amount equal to the
unredeemed portion thereof will be issued in the name of the holder thereof upon
cancellation of the original exchange note. Exchange notes called for redemption
become due on the date fixed for redemption. On and after the redemption date,
interest ceases to accrue on exchange notes or portions thereof called for
redemption.
Certain Covenants
Change of Control
If a Change of Control occurs, each holder of exchange notes will have the
right to require us to repurchase all or any part (equal to $1,000 or an
integral multiple thereof) of such holder's exchange notes pursuant to a Change
of Control Offer. In the Change of Control Offer, we will offer a Change of
Control Payment in cash equal to 101% of the Accreted Value of the exchange
notes repurchased on the Change of Control Purchase Date (or if the Change of
Control Purchase Date is after July 15, 2003, 101% of the principal amount),
plus accrued and unpaid interest thereon to the date of purchase. Within 30 days
following any Change of Control, we will mail a notice to each holder describing
the transaction or transactions that constitute the Change of Control and
offering to repurchase exchange notes on the Change of Control Purchase Date
pursuant to the procedures required by the indenture and described in such
notice. We will comply with the requirements of Rule 14e-1 under the Securities
Exchange Act of 1934 and any other securities laws and regulations thereunder to
the extent such laws and regulations are applicable
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in connection with the repurchase of the exchange notes as a result of a Change
of Control. To the extent that the provisions of any securities laws and
regulations conflict with provisions of the indenture relating to such Change of
Control Offer, we will comply with the applicable securities laws and
regulations and will not be deemed to have breached our obligations in the
indenture by virtue thereof.
The Change of Control Offer Period will be 20 business days following the
commencement of the Change of Control Offer and no longer, except to the extent
that a longer period is required by applicable law. No later than five business
days after the termination of the Change of Control Offer Period (the "Change of
Control Purchase Date"), we will purchase all exchange notes tendered in
response to the Change of Control Offer. Payment for any exchange notes so
purchased will be made in the same manner as interest payments are made.
If the Change of Control Purchase Date is on or after an interest record
date and on or before the related interest payment date, any accrued and unpaid
interest will be paid to the person in whose name an exchange note is registered
at the close of business on such record date, and no additional interest will be
payable to holders who tender exchange notes pursuant to the Change of Control
Offer.
On the Change of Control Purchase Date, we will, to the extent lawful:
(1) accept for payment all exchange 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 exchange notes or portions thereof so
tendered; and
(3) deliver or cause to be delivered to the trustee the exchange notes
so accepted together with an officers' certificate stating the aggregate
principal amount of exchange notes or portions thereof being purchased by
Middle American Tissue.
The paying agent will promptly mail to each holder of exchange notes so
tendered the Change of Control Payment for such exchange notes, and the trustee
will promptly authenticate and mail (or cause to be transferred by book-entry)
to each holder a new exchange note equal in principal amount to any unpurchased
portion of the exchange notes surrendered, if any; provided that each such new
exchange note will be in a principal amount of $1,000 or an integral multiple
thereof.
We will publicly announce the results of the Change of Control Offer on or
as soon as practicable after the Change of Control Purchase Date.
The provisions described above that require us to make a Change of Control
Offer will be applicable whether or not any other provisions of the indenture
are applicable. Except as described above with respect to a Change of Control,
the indenture does not contain provisions that permit the holders of the
exchange notes to require that we repurchase or redeem the exchange notes in the
event of a takeover, recapitalization or similar transaction. See "-- Mandatory
Redemption" for information as to circumstances under which the initial
purchasers of the old notes can require use to repurchase the exchange notes.
Our ability to repurchase exchange notes pursuant to a Change of Control
Offer may be limited by a number of factors. The New Credit Facility currently
provides that certain change of control events with respect to various of our
subsidiaries would constitute a default thereunder. In that event, we might have
to seek consent from the lenders or attempt to refinance the borrowings under
the New Credit Facility. If we do not obtain such consent or repay such
borrowings, a default under the New Credit Facility could result.
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 Middle American Tissue and its subsidiaries taken as a whole.
Although there is a limited 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 exchange notes to
require us to repurchase such exchange notes as a result of a sale, lease,
transfer, conveyance or other disposition of less than all of our assets and
those of our subsidiaries, taken as a whole to, another Person or group may be
uncertain.
We will not be required to make a Change of Control Offer upon a Change of
Control if a third party makes the Change of Control Offer in the manner, at the
times and otherwise in compliance with the requirements set forth in the
indenture applicable to a Change of Control Offer made by us and purchases all
exchange notes validly tendered and not withdrawn under such Change of Control
Offer.
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Asset Sales
The indenture provides that we will not engage in any Asset Sales. The
indentures further provides that we will not permit any of our subsidiaries to
engage in an Asset Sale, unless:
(1) such subsidiary receives consideration at the time of such Asset
Sale at least equal to the fair market value of the assets or Equity
Interests sold or otherwise disposed of in such Asset Sale, evidenced in
each case by a resolution of the board of directors of such subsidiary set
forth in an officers' certificate delivered to the trustee;
(2) at least 80.0% of the consideration therefor received by such
subsidiary is in the form of cash or Cash Equivalents; and
(3) such subsidiary applies the Net Proceeds as provided in the
following paragraph.
For purposes of clause (2) above, each of the following shall be deemed to
be cash:
(a) the amount of any liabilities (as shown on such subsidiary's
most recent balance sheet or in the notes thereto, excluding
contingent liabilities and trade payables) of such subsidiary (other
than liabilities that are by their terms subordinated to, or equal in
right of payment with, the exchange notes) that are assumed by the
transferee of any such assets; and
(b) any securities, notes or other obligations received by such
subsidiary from such transferee that are converted by such subsidiary
into cash within 60 days.
The applicable subsidiary may, its option, apply any such Net Proceeds
within 360 days of the related Asset Sale as follows:
(1) to the acquisition of "Replacement Assets," which shall be
another business or other long-term assets, in each case, in the same
or a similar, complementary, ancillary or related line of business as
any of our subsidiaries was engaged in on the issue date of the old
notes or any reasonable extensions or expansions thereof;
(2) to the repayment of qualifying indebtedness of any subsidiary
of ours permitted under the indenture; or
(3) to reimburse us or any of our subsidiaries for expenditures
made, and costs incurred, to repair, rebuild, replace or restore
property subject to loss, damage or taking to the extent that the Net
Proceeds consist of Net Insurance Proceeds received on account of such
loss, damage or taking.
If such subsidiary does not use any portion of the Net Proceeds as
described above within such 360-day period, such unused portion of the Net
Proceeds period shall constitute "Excess Proceeds" subject to disposition as
provided below. When the aggregate amount of Excess Proceeds exceeds $10.0
million, we will be required to cause such subsidiary to make an Asset Sale
Offer to all holders of exchange notes to purchase the maximum principal amount
of exchange notes that may be purchased out of the aggregate amount of Excess
Proceeds. The Asset Sale Offer Price will be equal to 100% of the Accreted Value
thereof, plus accrued and unpaid interest thereon, if any, to the date of
purchase, and will be payable in cash in accordance with the procedures set
forth in the indenture. To the extent that the aggregate amount of exchange
notes tendered pursuant to an Asset Sale Offer is less than the Excess Proceeds,
remaining Excess Proceeds shall be released to such subsidiary may be used free
and clear of the lien of the collateral documents for general corporate
purposes. Upon completion of each Asset Sale Offer, the amount of Excess
Proceeds shall be reset at zero.
The Asset Sale Offer Period will be a period of 20 business days following
the commencement of the Asset Sale Offer and no longer, except to the extent
that a longer period is required by applicable law. No later than five business
days after the termination of the Asset Sale Offer Period (the "Asset Sale
Purchase Date"), we will cause the applicable subsidiary to purchase the
principal amount of exchange notes required to be purchased pursuant to this
covenant (the "Asset Sale Offer Amount") or, if less than the Asset Sale Offer
Amount has been tendered, all exchange notes tendered in response to the Asset
Sale Offer. Payment for any exchange notes so purchased will be made in the same
manner as interest payments are made.
If the Asset Sale Purchase Date is on or after an interest record date and
on or before the related interest payment date, any accrued and unpaid interest
will be paid to the holder in whose name an exchange note is
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registered at the close of business on such record date, and no additional
interest will be payable to holders who tender exchange notes pursuant to the
Asset Sale Offer.
On or before the Asset Sale Purchase Date, we will, to the extent lawful,
cause such subsidiary to accept for payment, on a pro rata basis to the extent
necessary, the Asset Sale Offer Amount of exchange notes or portions thereof
tendered pursuant to the Asset Sale Offer, or if less than the Asset Sale Offer
Amount has been tendered, all exchange notes tendered, and will deliver to the
trustee an officers' certificate stating that such exchange notes or portions
thereof were accepted for payment in accordance with the terms of this covenant.
We, the Depositary or the paying agent, as the case may be, will promptly (but
in any case not later than five days after the Asset Sale Purchase Date) mail or
deliver to each tendering holder an amount equal to the purchase price of the
exchange notes tendered by such holder and accepted by our subsidiary for
purchase, and we will promptly issue a new exchange note, and the trustee, upon
delivery of an officers' certificate from us, will authenticate and mail or
deliver such new exchange note to such holder, in a principal amount equal to
any unpurchased portion of the exchange note surrendered. Any exchange note not
so accepted will be promptly mailed or delivered by us to the holder thereof. We
will publicly announce the results of the Asset Sale Offer on the Asset Sale
Purchase Date.
We will comply with the requirements of Rule 14e-1 under the Securities
Exchange Act of 1934 and any other securities laws and regulations thereunder to
the extent such laws and regulations are applicable in connection with the
repurchase of the exchange notes as a result of an Asset Sale. To the extent
that the provisions of any securities laws or regulations conflict with the
Asset Sale provisions of the indenture, we shall comply with the applicable
securities laws and regulations and shall not be deemed to have breached our
obligations under the Asset Sale provisions by virtue thereof.
Restricted Payments
The indenture provides that we will not, and will not permit any of our
subsidiaries to, directly or indirectly, make any of the following Restricted
Payments:
(1) declare or pay any dividend or make any distribution on account of
our or any of our subsidiaries' Equity Interests (including, without
limitation, any payment in connection with any merger or consolidation
involving us), other than dividends or distributions payable in our Equity
Interests (other than Disqualified Stock) or dividends or distributions
payable to us or any of our wholly owned subsidiaries;
(2) purchase, redeem or otherwise acquire or retire for value any of
our Equity Interests or Equity Interests of any direct or indirect parent
of ours or of any of our subsidiaries (other than any such Equity Interests
owned by us or any of our wholly owned subsidiaries that is a "Subsidiary"
as defined under "-- Certain Definitions");
(3) make any principal payment on, or purchase, redeem, defease or
otherwise acquire or retire for value, prior to any scheduled maturity,
scheduled repayment or scheduled sinking fund payment, any indebtedness
that is subordinated to the exchange notes, other than through the purchase
or acquisition by us of indebtedness through the issuance in exchange
therefor of Equity Interests (other than Disqualified Stock); or
(4) make any Restricted Investment,
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;
(b) we 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 entitled "Incurrence of Indebtedness and
Issuance of Preferred Stock;" and
(c) such Restricted Payment, together with the aggregate of all
other Restricted Payments made by us and our subsidiaries after the
Issue Date (excluding Restricted Payments permitted by clauses (2),
(3) and (4) of the next succeeding paragraph), is less than the sum
of:
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(i) 50% of our Consolidated Net Income for the period (taken
as one accounting period) from the beginning of the first fiscal
quarter commencing after the issue date of the old notes to the
end of our 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) to the extent not included in the amount described in
clause (i) above, 100% of the aggregate net cash proceeds
received after the issue date of the old notes by us:
o from the issue or sale of, or from additional capital
contributions in respect of, our Equity Interests or of
debt securities of ours or of any of our subsidiaries
that have been converted into, or canceled in exchange
for, Equity Interests of ours or of any direct or
indirect parent of ours, or
o from the issue or sale of convertible or exchangeable
Disqualified Stock that has been converted into or
exchanged for such Equity Interests (other than Equity
Interests or convertible debt securities) sold to a
subsidiary of ours and other than Disqualified Stock or
debt securities that have been converted into
Disqualified Stock), plus the aggregate net cash
proceeds received by us upon any such conversion or
exchange; plus
(iii) 100% of the cash proceeds realized upon the sale of
any Unrestricted Subsidiary (less the amount of any reserve
established for purchase price adjustments and less the maximum
amount of any indemnification or similar contingent obligation
for the benefit of the purchaser, any of its Affiliates or any
other third party in such sale, in each case as adjusted for any
permanent reduction in any such amount on or after the date of
such sale, other than by virtue of a payment made to such Person)
following the issue date of the old notes not in excess of the
original amount of the Investment in such Unrestricted
Subsidiary; plus
(iv) without duplication of amounts in clause (iii) above,
to the extent that any Restricted Investment that was made after
the issue date of the old notes is sold for cash or otherwise
liquidated or repaid for cash, the amount of net cash proceeds
received with respect to such Restricted Investment not in excess
of the original amount of such Restricted Investment.
The foregoing provisions do not prohibit:
(1) the payment of any dividend within 60 days after the date of
declaration thereof, if at the date of declaration such payment would have
complied with the provisions of the indenture;
(2) the making of any Restricted Investment in exchange for, or out of
the proceeds of, the substantially concurrent sale (other than to a
subsidiary of ours) of, or from substantially concurrent additional capital
contributions in respect of, Equity Interests of ours (other than
Disqualified Stock); provided, that any net cash proceeds that are utilized
for any such Restricted Investment, and any Net Income resulting therefrom,
will be excluded from clauses (c)(i) and (c)(ii) of the preceding
paragraph;
(3) the redemption, repurchase, retirement or other acquisition of any
Equity Interests of ours or of our direct or indirect parent in exchange
for, or out of the proceeds of, the substantially concurrent sale (other
than to a subsidiary of ours) of, or from substantially concurrent capital
contributions in respect of, other Equity Interests of ours (other than any
Disqualified Stock); provided that any net cash proceeds that are utilized
for any such redemption, repurchase, retirement or other acquisition, and
any Net Income resulting therefrom, will be excluded from clauses (c)(i)
and (c)(ii) of the preceding paragraph;
(4) the defeasance, redemption or repurchase of subordinated
Indebtedness with the net cash proceeds from an incurrence of Permitted
Refinancing Indebtedness or the substantially concurrent sale (other than
to a subsidiary of ours) of, or from substantially concurrent additional
capital contributions in respect of, our Equity Interests (other than
Disqualified Stock); provided, that any net cash proceeds that are utilized
for any such defeasance, redemption or repurchase, and any Net Income
resulting therefrom, will be excluded from clauses (c)(i) and (c)(ii) of
the preceding paragraph;
(5) Permitted Tax Payments;
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(6) the acquisition by a Receivables Subsidiary in connection with a
Qualified Receivables Transaction of Equity Interests of a trust or other
Person established by such Receivables Subsidiary to effect such Qualified
Receivables Transaction;
(7) the repurchase, redemption, retirement for value or other
acquisition of any of our Equity Interests or Equity Interests of any of
our subsidiaries from employees, officers or directors (or their nominees)
of ours or any of our subsidiaries or their authorized representatives upon
such Person's cessation of employment with us or any such subsidiary or
death pursuant to the terms of an employee benefit, employment agreement or
similar arrangement in an aggregate amount not to exceed $500,000 in any
fiscal year, plus the aggregate net cash proceeds from any issuance during
such fiscal year of Equity Interests by us or any of our subsidiaries to
employees, officers or directors thereof;
(8) pro rata dividends or other distributions made by a subsidiary of
ours to minority shareholders (or owners of an equivalent interest in the
case of a subsidiary that is not a corporation);
(9) the acquisition by us or a wholly owned subsidiary of ours of any
Equity Interest in a subsidiary of ours from a minority shareholder of such
subsidiary; and
(10) the repurchase of our Equity Interests deemed to occur upon the
exercise of stock options if such Equity Interests represent a portion of
the exercise price thereof.
Our board of directors may designate any of our subsidiaries (including a
newly acquired subsidiary) to be an Unrestricted Subsidiary if such designation
would not cause a default. For purposes of making such determination, all
outstanding Investments by us and our subsidiaries in the Unrestricted
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 fair market
value of such Investments at the time of such designation. Such designation will
only be permitted if such Restricted Payment would be permitted at such time and
if such subsidiary otherwise meets the definition of an Unrestricted Subsidiary.
See -- "Certain Definitions."
The amount of all Restricted Payments (other than cash) will be the fair
market value (evidenced by a resolution of our board of directors set forth in
an officers' certificate delivered to the trustee) on the date of the Restricted
Payment of the asset(s) proposed to be transferred by us or such subsidiary, as
the case may be, pursuant to the Restricted Payment. Not later than the date of
making any Restricted Payment, we will 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 covenant were computed,
which calculations may be based upon our latest available financial statements.
Incurrence of Indebtedness and Issuance of Preferred Stock
The indenture provides that we will not, and will not permit any of our
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
Indebtedness) and we will not issue any Disqualified Stock and will not permit
any of our subsidiaries to issue any shares of preferred stock; provided,
however, that we may incur indebtedness (including Acquired Indebtedness) or
issue shares of preferred stock or Disqualified Stock and our subsidiaries may
incur Indebtedness and issue shares of preferred stock if:
(1) the Fixed Charge Coverage Ratio for our 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 or such preferred stock or Disqualified Stock is issued would have
been at least 2.00 to 1 on or prior to the second anniversary of the Issue
Date and 2.25 to 1 at any time thereafter, determined on a pro forma basis
(including a pro forma application of the net proceeds therefrom), as if
the additional Indebtedness had been incurred, or the preferred stock or
Disqualified Stock had been issued, as the case may be, at the beginning of
such four-quarter period; and
(2) no default or event of default will have occurred and be
continuing or would occur as a consequence thereof;
provided, that no guarantee may be incurred pursuant to this paragraph unless
the guaranteed Indebtedness is incurred by us or our subsidiary in compliance
with this paragraph.
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The foregoing provisions will not apply to the following types of
"Permitted Indebtedness":
(1) the incurrence by us or any of our subsidiaries of Indebtedness
under the Revolving Credit Facility and reimbursement obligations in
respect of letters of credit (and guarantees thereof by subsidiaries) in an
aggregate principal amount at any time outstanding (with letter of credit
obligations being deemed to have a principal amount equal to the maximum
potential liability of us and our subsidiaries that are subsidiary
guarantors with respect thereto) not to exceed an amount equal to $100.0
million less any mandatory repayments or prepayments of the Revolving
Credit Facility with the proceeds of Asset Sales;
(2) Existing Indebtedness;
(3) Indebtedness represented by the exchange notes, the indenture, the
American Tissue notes, the subsidiary guarantees with respect to the
American Tissue notes and the indenture governing the American Tissue
notes;
(4) the incurrence by us or any of our subsidiaries of Indebtedness
represented by capital lease obligations 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 used in
our business or in the business of such subsidiary, in an aggregate
principal amount not to exceed $20.0 million at one time outstanding;
(5) the incurrence by us or any of our subsidiaries of Permitted
Refinancing Indebtedness;
(6) the incurrence by us or any of our wholly owned subsidiaries of
intercompany Indebtedness between or among us and any of our wholly owned
subsidiaries or between or among any wholly owned subsidiaries and the
issuance of preferred stock by any of our wholly owned subsidiaries to us
or any other of our wholly owned subsidiaries; provided, however, that (a)
any subsequent issuance or transfer of Equity Interests that results in any
such Indebtedness or preferred stock being held by a person other than us
or any wholly owned subsidiary of ours and (b) any sale or other transfer
of any such Indebtedness or preferred stock to a person that is not either
Middle American Tissue or a wholly owned subsidiary of ours will be deemed,
in each case, to constitute an incurrence of Indebtedness by us or such
subsidiary, as the case may be, not permitted pursuant to this clause (6);
(7) the incurrence by us or any of our subsidiaries that are
subsidiary guarantors of Hedging Obligations;
(8) Non-Recourse Debt;
(9) Indebtedness by us or any of our subsidiaries solely in respect of
bankers' acceptances, letters of credit and performance bonds or similar
arrangements, in each case in the ordinary course of business;
(10) Indebtedness arising from agreements of ours or any subsidiary
providing for indemnification, adjustment of purchase price or similar
obligations, in each case, incurred or assumed in connection with the
disposition of any business, assets or a subsidiary, other than guarantees
of Indebtedness incurred by any person acquiring all or any portion of such
business, assets or a subsidiary for the purpose of financing such
acquisition; provided, however, that:
(a) such Indebtedness is not reflected on our balance sheet or
the balance sheet of any of our subsidiaries (contingent obligations
referred to in a footnote to financial statements and not otherwise
reflected on the balance sheet will not be deemed to be reflected on
such balance sheet for purposes of this clause (a)); and
(b) the maximum assumable liability in respect of all such
Indebtedness shall at no time exceed the gross proceeds including
non-cash proceeds (the fair market value of such non-cash proceeds
being measured at the time it is received and without giving effect to
any subsequent changes in value) actually received by us and our
subsidiaries in connection with such disposition;
(11) the incurrence by us or any of our subsidiaries of Indebtedness
(in addition to Indebtedness permitted by any other clause of this
paragraph) in an aggregate principal amount at any time outstanding not to
exceed the sum of $10.0 million; and
(12) the incurrence by a Receivables Subsidiary of Indebtedness in an
amount not to exceed $25.0 million in a Qualified Receivables Transaction
that is without recourse to us or to any of our subsidiaries or
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their assets (other than such Receivables Subsidiary and its assets), and
is not guaranteed by any such person.
Notwithstanding any other provision of this covenant, a guarantee of
Indebtedness permitted by the terms of the indenture at the time such
Indebtedness was incurred will not constitute a separate incurrence of
Indebtedness.
Indebtedness or preferred stock of any person which is outstanding at the
time such person becomes a subsidiary of ours or is merged with or into or
consolidated with us or a subsidiary of ours will be deemed to have been
incurred at the time such person becomes such a subsidiary of ours or is merged
with or into or consolidated with us or any of our subsidiaries, as applicable.
Notwithstanding any other provisions of this covenant, the maximum amount
of Indebtedness that we or a subsidiary of ours may incur shall not be deemed to
be exceeded solely as a result of fluctuations in the exchange rates of
currencies.
For purposes of determining compliance with this "Incurrence of
Indebtedness and Issuance of Preferred Stock" covenant, in the event that an
item of Indebtedness meets the criteria of more than one of the categories of
Permitted Indebtedness described in clauses (1) through (12) above or is
entitled to be incurred pursuant to the Fixed Charge Coverage Ratio provisions
of this covenant, we may, in our 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, the payment of
interest on any Indebtedness in the form of additional Indebtedness with the
same terms, and the payment of dividends on Disqualified Stock in the form of
additional shares of the same class of Disqualified Stock will not be deemed to
be an incurrence of Indebtedness or an issuance of Disqualified Stock for
purposes of this "Incurrence of Indebtedness and Issuance of Preferred Stock"
covenant.
Liens
The indenture provides that we will not, and will not permit any of our
subsidiaries to, directly or indirectly, create, incur, assume or suffer to
exist any lien, except:
(1) with respect to any property or asset constituting Securities
Collateral, liens created by the indenture or the securities, or
(2) with respect to any property or asset (other than Securities
Collateral) now owned or hereafter acquired, Permitted Liens.
Dividend and Other Payment Restrictions Affecting Subsidiaries
The indenture will provide that we will not, and will not permit any of our
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
of our subsidiaries to:
(1) (a) pay dividends or make any other distributions to us or any of
our other subsidiaries:
(x) on our or their Capital Stock; or
(y) with respect to any other interest or participation in,
or measured by, its profits; or
(b) pay any Indebtedness owed to us or any of our other
subsidiaries;
(2) make loans or advances to us or any of our other subsidiaries; or
(3) transfer any of its properties or assets to us or any of our other
subsidiaries,
except for such encumbrances or restrictions existing under or by reason
of:
(a) Existing Indebtedness (including, without limitation, pursuant to
the Boise Agreement and Existing Mortgage Loans) and any documents or
agreements entered into pursuant thereto or securing obligations
thereunder, all as in effect on the issue date of the old notes;
(b) the Revolving Credit Facility (the New Credit Facility) and any
documents or agreements entered into pursuant thereto or securing
obligations thereunder, all as in effect as of the issue date of the old
notes, and any amendments, modifications, restatements,
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renewals, increases, supplements, refundings, replacements or refinancings
thereof; provided that such amendments, modifications, restatements,
renewals, increases, supplements, refundings, replacement or refinancings
are no more restrictive with respect to such dividend and other payment
restrictions than those contained in the agreements governing the Revolving
Credit Facility as in effect on the issue date of the old notes;
(c) the indenture, the exchange notes, the American Tissue notes, the
indenture governing the American Tissue notes and the subsidiary guarantees
and collateral documents relating to the American Tissue notes;
(d) applicable law;
(e) any instrument governing Acquired Indebtedness or Capital Stock of
a Person acquired by us or any of our subsidiaries as in effect at the time
of such acquisition (except to the extent such Acquired 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 assets of
the person, so acquired;
(f) by reason of customary non-assignment or subletting provisions in
leases and licenses entered into in the ordinary course of business and
consistent with past practices;
(g) Purchase Money Obligations for property acquired in the ordinary
course of business that impose restrictions of the nature described in
clause (3) above on the property so acquired;
(h) agreements relating to the financing of the acquisition of real or
tangible personal property acquired after the issue date of the old notes;
provided that such encumbrance or restriction relates only to the property
which is acquired and in the case of any encumbrance or restriction that
constitutes a Lien, such Lien constitutes a Purchase Money Lien;
(i) Indebtedness or other contractual requirements of a Receivables
Subsidiary in connection with a Qualified Receivables Transaction; provided
that such restrictions apply only to such Receivables Subsidiary;
(j) any restriction or encumbrance contained in contracts for sale or
other conveyance of assets permitted by the indenture in respect of the
assets being sold or conveyed pursuant to such contract;
(k) Permitted Refinancing Indebtedness; provided that the restrictions
contained in the agreements governing such Permitted Refinancing
Indebtedness are no more restrictive than those contained in the agreements
governing the Indebtedness being refinanced; or
(l) contracts with customers entered into in the ordinary course of
business in the nature of restrictions on cash, other deposits or net
worth, which restrictions are imposed by such customers.
Nothing contained in the foregoing covenant entitled "Dividend and Other
Payment Restrictions Affecting Subsidiaries" shall prevent us or any of our
subsidiaries from creating, incurring, assuming or suffering to exist any Liens
otherwise not prohibited by the covenant entitled "Liens."
Transactions with Affiliates
The indenture provides that we will not, and will not permit any of our
subsidiaries to, sell, lease, transfer or otherwise dispose of, as applicable,
any of our or such subsidiary's assets to, or purchase any property or assets
from, or enter into or make any contract, agreement, understanding, loan,
advance or guarantee with, or for the benefit of, any Affiliate (each of the
foregoing, an "Affiliate Transaction"), unless:
(1) such Affiliate Transaction is on terms that are no less favorable
to us or the relevant subsidiary than those that would have been obtained
in a comparable transaction by us or such subsidiary with an unrelated
person; and
(2) we deliver to the trustee:
(a) with respect to any Affiliate Transaction entered into after
the issue date of the old notes 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 (1) above
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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 involving aggregate
consideration in excess of $5.0 million, an opinion as to the fairness
to us or such subsidiary of such Affiliate Transaction from a
financial point of view issued by an independent accounting, appraisal
or investment banking firm of recognized standing;
provided that the following will not be deemed to be Affiliate
Transactions:
(i) provision of administrative or management services by us or any
of our officers or directors to any of our subsidiaries in the
ordinary course of business consistent with past practice;
(ii) any employment agreement entered into by us or any of our
subsidiaries in the ordinary course of business and consistent with
our past practice or the past practice of such subsidiary;
(iii) transactions between or among us and/or our wholly owned
subsidiaries or transactions between a Receivables Subsidiary and any
person in which the Receivables Subsidiary has an Investment;
(iv) transactions not restricted by the covenant entitled
"Restricted Payments" (including, without limitation, Permitted
Investments);
(v) reasonable fees and compensation paid to, and indemnity
provided on behalf of, our or any of our subsidiaries' officers,
directors, employees, agents or consultants as determined in good
faith by the board of directors; and
(vi) any sale or other issuance of our Equity Interests (other than
Disqualified Stock).
Impairment of Security Interests
The indenture provides that neither we nor any of our subsidiaries will
take or omit to take any action which action or omission could reasonably be
expected to have the result of adversely affecting or impairing the lien in
favor of the trustee for the benefit of the holders of the exchange notes in the
Securities Collateral, other than as expressly contemplated by the indenture or
the securities pledge agreement.
Line of Business
The indenture provides that we will not, and will not permit any of our
subsidiaries to, engage in any business, other than the business of owning,
operating or managing of pulp and paper manufacturing and converting businesses,
the purchase, refurbishment and sale of pulp, paper and converting equipment and
similar, complementary, ancillary or related lines of business.
Payments for Consent
The indenture provides that neither we nor any of our 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 exchange notes for or as an
inducement to any consent, waiver or amendment of any of the terms or provisions
of the indenture or the exchange notes, unless such consideration is offered to
be paid or is paid to all holders of the exchange notes that consent, waive or
agree to amend in the time frame set forth in the solicitation documents
relating to such consent, waiver or agreement.
Reports
The indenture provides that, whether or not required by the rules and
regulations of the Securities and Exchange Commission, so long as any exchange
notes are outstanding, we will furnish to the trustee and all holders of
exchange notes (1) 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 we were required to file such Forms, including a "Management's Discussion and
Analysis of Financial Condition and Results of Operations" and, with respect to
the
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annual information only, a report thereon by our certified independent
accountants and (2) all current reports that would be required to be filed with
the Commission on Form 8-K if we were required to file such reports, in each
case within the time periods specified in the Commission's rules and
regulations.
In addition, following the consummation of the Exchange Offer, whether or
not required by the rules and regulations of the Securities and Exchange
Commission, we will file a copy of all such information and reports with the
Commission for public availability within the time periods specified in the
Commission's rules and regulations (unless the Commission will not accept such a
filing) and make such information available to securities analysts and
prospective investors upon request. In addition, we have agreed that, for so
long as any exchange notes remain outstanding, we will furnish to the trustee,
holders of exchange notes 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.
Merger, Consolidation or Sale of Assets
The indenture provides that we will not, in a single transaction or series
of related transactions, consolidate or merge with or into (whether or not we
are the surviving entity), or sell, assign, transfer, lease, convey or otherwise
dispose of all or substantially all of our properties or assets in one or more
related transactions, to another corporation, person or entity unless:
(1) either:
o we are the surviving entity; or
o the person formed by or surviving any such consolidation or
merger (if other than us), or to which such sale, assignment,
transfer, lease, conveyance or other disposition will have been
made, is an entity organized or existing under the laws of the
United States, any state thereof or the District of Columbia;
(2) the surviving entity assumes all of our obligations under the
exchange notes, the indenture and the collateral documents pursuant to a
supplemental indenture in a form reasonably satisfactory to the trustee;
(3) the surviving entity causes such amendments, supplements or other
instruments to be filed and recorded in such jurisdictions as may be
required by applicable law to preserve and protect the lien of the
securities pledge agreement on the Securities Collateral owned by or
transferred to the surviving entity, together with such financing
statements as may be required to perfect any security interests in such
collateral which maybe perfected by the filing of a financing statement
under the Uniform Commercial Code of the relevant states;
(4) the Securities Collateral owned by or transferred to the surviving
entity will:
(a) continue to constitute collateral under the indenture and the
securities pledge agreement;
(b) be subject to the lien in favor of the trustee for the
benefit of the holders of the exchange notes; and
(c) not be subject to any lien;
(5) the assets of the person which is merged or consolidated with or
into the surviving entity, to the extent that such assets are assets of the
types which would constitute Securities Collateral under the securities
pledge agreement, shall be treated as such collateral and the surviving
entity will take such action as may be reasonably necessary to cause such
property and assets to be made subject to the lien of the securities pledge
agreement in the manner and to the extent required in the indenture;
(6) immediately after giving pro forma effect to such transaction, no
default or event of default exists;
(7) we or the surviving entity:
(a) will have a Consolidated Net Worth immediately after the
transaction equal to or greater than our Consolidated Net Worth
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
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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 entitled "Incurrence of Indebtedness and Issuance of
Preferred Stock;"
(8) we will have delivered to the trustee an officers' certificate and
an opinion of counsel addressed to the trustee, each stating that such
consolidation, merger, sale, assignment, transfer, lease, conveyance or
disposition and such supplemental indenture, if any, comply with the
indenture and that such supplemental indenture is enforceable.
Events of Default and Remedies
The indenture provides that each of the following constitutes an event of
default:
(1) default for 30 days in the payment when due of interest on the
exchange notes;
(2) default in payment when due of the Accreted Value or the principal
of or premium, if any, on the exchange notes (including, without
limitation, pursuant to the optional redemption provisions of the
indenture);
(3) failure by us or any of our subsidiaries to comply with the
provisions described under the captions "-- Certain Covenants -- Change of
Control," "-- Certain Covenants -- Asset Sales," "-- Certain Covenants --
Restricted Payments" or "-- Certain Covenants --Incurrence of Indebtedness
and Issuance of Preferred Stock;"
(4) continuance of a default in the performance of, or breach of, any
of our other covenants or warranties in the indenture for a period of 30
days after there has been given to us by the Trustee, or to us and the
Trustee by the holders of at least 25% in principal amount of the
outstanding exchange notes, a written notice specifying such default or
breach and requiring it to be remedied and stating that such notice is a
"Notice of Default" under the indenture;
(5) default under any mortgage, security agreement, indenture or
instrument under which there may be issued or by which there may be secured
or evidenced any Indebtedness for money borrowed by us or any of our
Significant Subsidiaries (or the payment of which is guaranteed by us or
any of our subsidiaries) whether such Indebtedness or guarantee now exists,
or is created after the issue date of the old notes, which default:
(a) is caused by a failure to pay principal of, premium, if any, or
interest on such Indebtedness, after the expiration of any grace period
provided in such Indebtedness on the date of such default (referred to
below as 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 $10.0 million or more;
(6) failure by us or any of our Significant Subsidiaries to pay final
judgments aggregating in excess of $10.0 million, which judgments are not
paid, discharged or stayed for a period of 60 days;
(7) except as permitted by the indenture, default by us in the
performance of the securities pledge agreement or any other collateral
document which adversely affects the enforceability or the validity of the
collateral agent's lien on the collateral or which adversely affects the
condition or value of the collateral, taken as a whole, in any material
respect, repudiation or disaffirmation by us of our obligations under the
securities pledge agreement or any other collateral document or the
determination in a judicial proceeding that the securities pledge agreement
or any other collateral documents is unenforceable or invalid against us
for any reason; and
(8) certain events of bankruptcy or insolvency with respect to us or
any of our Significant Subsidiaries or any group of our subsidiaries that,
taken together, would constitute a Significant Subsidiary.
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 exchange
notes may declare all the exchange notes to be due and payable immediately by
written notice to us (and to the trustee, if notice is given by the holders).
Notwithstanding the
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foregoing, in the case of an event of default arising from certain events of
bankruptcy or insolvency with respect to us, any Significant Subsidiary of ours
or any group of our subsidiaries that, taken together, would constitute a
Significant Subsidiary, all outstanding exchange notes will become due and
payable without further action or notice. In addition to acceleration of the
maturity of the exchange notes, if an event of default occurs and is continuing,
the collateral agent, as applicable, will have the right to exercise remedies
with respect to the Securities Collateral, such as sale of the Securities
Collateral, as are available under the indenture, the securities pledge
agreement and at law. Holders of the exchange notes may not enforce the
indenture or the exchange notes or exercise remedies with respect to the
collateral, except as expressly provided in the indenture. Subject to certain
limitations, holders of a majority in principal amount of the then outstanding
exchange notes may direct the trustee in its exercise of any trust or power. The
trustee may withhold from holders of the exchange 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 outstanding
exchange notes by written notice to the trustee may rescind an acceleration of
the maturity of the exchange notes and the consequences thereof if:
o the rescission would not conflict with a judgment or decree;
o we have paid or deposited with the trustee a sum sufficient to pay all
sums paid or advanced by the trustee and the reasonable compensation,
expenses, disbursements, advances of the trustee, it's agents and
counsel; and
o all existing events of default (except nonpayment of Accreted Value or
principal or interest that has become due solely because of the
acceleration) have been waived or cured.
Moreover, the holders of a majority in aggregate principal amount of the
exchange notes at the time outstanding by notice to the trustee may on behalf of
the holders of all of the exchange notes waive any existing default or event of
default and its consequences under the indenture, the exchange notes and the
securities pledge agreement, except a continuing default or event of default:
o in the payment of the principal of, premium and other amounts, if any,
or interest on, the exchange 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 exchange notes
may rescind an acceleration and its consequences, including any
related payment default that resulted from such acceleration; or
o in respect of a covenant or provision hereof which under applicable
provisions of the indenture cannot be modified or amended without the
consent of the holder of each outstanding exchange note.
We are required to deliver to the trustee annually a statement regarding
compliance with the indenture. In addition, we are required upon becoming aware
of any default or event of default under the indenture, to deliver to the
trustee a statement specifying such default or event of default.
No Personal Liability of Directors, Officers, Employees and Stockholders
No director, officer, employee, incorporator or stockholder of ours or of
any of our subsidiaries, as such, will have any liability for:
o any obligations of ours under the exchange notes, the indenture or the
securities pledge agreement; or
o for any claim based on, in respect of, or by reason of, such
obligations or their creation.
Each holder of exchange notes by accepting an exchange note waives and
releases all such liability. The waiver and release are part of the
consideration for issuance of the exchange notes. Such waiver may not be
effective to waive liabilities under the federal securities laws and it is the
view of the Securities and Exchange Commission that such a waiver is against
public policy.
Legal Defeasance and Covenant Defeasance
We may, at our option and at any time, elect to have all of our obligations
discharged with respect to the outstanding exchange notes (referred to below as
legal defeasance), except for:
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(1) the rights of holders of outstanding exchange notes to receive
solely from the trust referred to below payments in respect of the
principal of, premium, if any, and interest on such exchange notes when
such payments are due;
(2) our obligations with respect to the exchange notes concerning
issuing temporary exchange notes, registration of exchange notes,
mutilated, destroyed, lost or stolen exchange notes and the maintenance of
an office or agency for payment and money for security payments held in
trust;
(3) the rights, powers, trusts, duties and immunities of the Trustee,
and our obligations in connection therewith; and
(4) the legal defeasance provisions of the indenture.
In addition, we may, at our option and at any time, elect to have our
obligations released with respect to certain covenants described in the
indenture (referred to below as covenant defeasance) and thereafter any failure
or omission to comply or default in complying with such obligations will not
constitute a default or event of default with respect to the exchange notes.
In the event covenant defeasance occurs, certain events (not including
non-payment, bankruptcy, receivership, rehabilitation and insolvency events)
described under "-- Events of Default" will no longer constitute an event of
default with respect to the exchange notes.
In order to exercise either legal defeasance or covenant defeasance:
(1) we must irrevocably deposit with the trustee, in trust, for the
benefit of the holders of the exchange notes, cash in U.S. dollars,
non-callable Government Securities, or a combination thereof, in such
amounts as will be sufficient, in the opinion of a nationally recognized
firm of independent public accountants, to pay the principal of, premium,
if any, and interest on the outstanding exchange notes on the stated
maturity or on the applicable redemption date, as the case may be, and we
must specify whether the exchange notes are being defeased to maturity or
to a particular redemption date;
(2) in the case of legal defeasance, we must deliver to the trustee an
opinion of counsel in the United States reasonably acceptable to the
trustee confirming that (a) we have received from, or there has been
published by, the Internal Revenue Service a ruling or (b) since the issue
date of the old notes, 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 will confirm that, the holders of the outstanding
exchange 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;
(3) in the case of covenant defeasance, we will must deliver to the
trustee an opinion of counsel in the United States reasonably acceptable to
the trustee confirming that the holders of the outstanding exchange 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;
(4) no default or event of default under the indenture will have
occurred and be continuing on the date of such deposit (other than a
default or event of default resulting from the borrowing of funds to be
applied to such deposit) or insofar as events of default from bankruptcy or
insolvency events are concerned, at any time in the period ending on the
91st day after the date of deposit;
(5) such legal defeasance or covenant defeasance will not result in a
breach or violation of, or constitute a default under, any material
agreement or instrument (other than the indenture) to which we or any of
our subsidiaries is a party or by which we or any of our subsidiaries is
bound;
(6) we must deliver 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;
(7) we must deliver to the trustee an officers' certificate stating
that the deposit was not made by us with the intent of preferring the
holders of exchange notes over our other creditors with the intent of
defeating, hindering, delaying or defrauding our creditors or others; and
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(8) we must deliver to the trustee an officers' certificate and an
opinion of counsel, each stating that all conditions precedent relating to
legal defeasance or covenant defeasance have been complied with.
Satisfaction and Discharge
The indenture will be discharged and will cease to be of further effect
(except as to surviving rights or registration of transfer or exchange of
exchange notes) as to all outstanding exchange notes when either:
(1) all such exchange notes theretofore authenticated and delivered
(except lost, stolen or destroyed exchange notes which have been replaced
or paid and exchange notes for whose payment money has theretofore been
deposited in trust or segregated and held in trust by us and thereafter
repaid to us or discharged from such trust) have been delivered to the
trustee for cancellation; or
(2) all such exchange notes not theretofore delivered to the trustee
for cancellation have or will (upon the mailing of a notice or notices
deposited with the trustee, together with irrevocable instructions to mail
such notice or notices to holders of the exchange notes) become due and
payable and:
(a) we have irrevocably deposited or caused to be deposited with
the trustee as trust funds in the trust for the purpose an amount of
money sufficient to pay and discharge the entire indebtedness on the
exchange notes not theretofore delivered to the trustee for
cancellation, for principal, premium, if any, and accrued interest to
the date of such deposit;
(b) we have paid all sums payable by us under the indenture; and
(c) we have delivered irrevocable instructions to the trustee to
apply the deposited money toward the payment of the exchange notes at
maturity or the redemption date, as the case may be.
In addition, we must deliver to the trustee an officers' certificate and an
opinion of counsel stating that all conditions precedent to satisfaction and
discharge have been complied with.
Transfer and Exchange
A holder may exchange or transfer exchange notes in accordance with the
indenture. The registrar for the exchange notes and the trustee may require a
holder, among other things, to furnish appropriate endorsements and transfer
documents and we may require a holder to pay any taxes and fees required by law
or permitted by the indenture.
Amendment, Supplement and Waiver
Except as provided in the next two succeeding paragraphs, the indenture and
the exchange notes may be amended or supplemented with the consent of the
holders of at least a majority in aggregate principal amount of the exchange
notes then outstanding (including, without limitation, consents obtained in
connection with a purchase of, or tender offer or exchange offer for, exchange
notes), and any existing default or event of default (other than a default or
event of default in the payment of the principal of premium, if any, or interest
on the exchange notes, except for a default resulting from an acceleration that
has been rescinded) or compliance with any provision of the indenture or the
exchange notes, may be waived with the consent of the holders of a majority in
agreement principal amount of the then outstanding exchange notes (including,
without limitation, consents obtained in connection with a purchase of, or
tender offer or exchange offer for, exchange notes).
Without the consent of each holder of exchange notes affected thereby, an
amendment or waiver may not:
(1) reduce the principal amount of exchange notes whose holders must
consent to an amendment of, supplement to or waiver under the indenture,
the exchange notes or the securities pledge agreement;
(2) reduce the Accreted Value or principal of, or change the fixed
maturity of any exchange note, or alter the provisions with respect to the
redemption of the exchange notes (other than the covenants described above
under the captions "--Certain Covenants-Change of Control" or "--Certain
Covenants--Asset Sales");
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(3) reduce the rate of or change the time for payment of interest on
any exchange note or change or have the effect of changing Accreted Value;
(4) waive a default or event of default in the payment of principal
of, premium, if any, or interest on the exchange notes (except a rescission
of acceleration of the exchange notes by the holders of at least a majority
in aggregate principal amount of the exchange notes and a waiver of the
payment default that resulted from such acceleration);
(5) make any exchange note payable in money other than that stated in
the exchange notes;
(6) make any change in the provisions of the indenture, exchange notes
or securities pledge agreement relating to waivers of past defaults or the
rights of holders of exchange notes to receive payments of principal of or
premium, if any, or interest on the exchange notes;
(7) waive a redemption payment with respect to any exchange note
(other than a payment required by one of the covenants described in clause
(2) above or under the caption "--Optional Redemption"); or
(8) make any change in the foregoing amendment and waiver provisions.
Notwithstanding the foregoing, without the consent of the holders of the
exchange notes, we and the Trustee may, from time to time, amend or supplement
the indenture or the exchange notes to:
(1) cure any ambiguity, defect or inconsistency;
(2) provide for uncertificated exchange notes in addition to or in
place of certificated exchange notes;
(3) provide for the assumption of our obligations to holders of
exchange notes in the case of a merger or consolidation or sale of all or
substantially all of our or any of our subsidiary's assets;
(4) make any change that would provide any additional rights or
benefits to the holders of exchange notes or that does not adversely affect
the legal rights under the indenture of any such holder; or
(5) comply with requirements of the Securities and Exchange Commission
in order to effect or maintain the qualification of the indenture under the
Trust Indenture Act.
Concerning the Trustee and the Collateral Agent
The indenture contains certain limitations on the rights of the trustee,
should it become a creditor of Middle American Tissue, to obtain payment of
claims in certain cases, or to realize on certain property received in respect
of any such claim as security or otherwise. The trustee will be permitted to
engage in other transactions; however, if it acquires any conflicting interest
it must eliminate such conflict within 90 days, apply to the Securities and
Exchange Commission for permission to continue or resign. In the exercise of its
delegated responsibilities with respect to the Securities Collateral and
otherwise, the collateral agent will be indemnified by us from liability, unless
it performs with gross negligence, bad faith or wilful misconduct .
The holders of 25% in principal amount of the then outstanding exchange
notes will have the right to direct the time, method and place of conducting any
proceeding for exercising any remedy available to the trustee, subject to
certain exceptions. The indenture provides that in case an event of default
occurs (which is not cured or waived), the trustee will be required, in the
exercise of its power, to use the degree of care of a prudent man in the conduct
of his own affairs. Subject to such provisions, the trustee will be under no
obligation to exercise any of its rights or powers under the indenture at the
request of any holder of exchange notes, unless such holder has offered to the
trustee security and indemnity satisfactory to the trustee against any loss,
liability or expense. Under the securities pledge agreement, the collateral
agent is required, with respect to the custody and preservation of the
Securities Collateral, to exercise a level of care substantially equivalent to
that which the collateral agent accords similar instruments and other property
of its own.
Book-Entry, Delivery and Form
The exchange notes to be exchanged for the old notes initially will be in
the form of one registered global note without interest coupons. Upon issuance,
the global note will be deposited on the date of consummation of the exchange
offer with the trustee, as custodian for The Depository Trust Company ("DTC")
and registered in the
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name of Cede & Co., as nominee of DTC, in each case for credit to an account of
a direct or indirect participant in DTC as described below.
The global note may be transferred, in whole and not in part, only to
another nominee of DTC or to a successor of DTC or its nominee. Beneficial
interests in the global note may not be exchanged for exchange notes in
certificated form, except in the limited circumstances described below. See "--
Transfer of Interests in the Global Note for Certificated Exchange Notes."
Except in the limited circumstances described below, owners of beneficial
interests in the global note will not be entitled to receive physical delivery
of certificated notes. Transfers of beneficial interests in the global note will
be subject to the applicable rules and procedures of DTC and its direct or
indirect participants, which may change from time to time.
Initially, the trustee will act as paying agent and registrar for the
exchange notes. Exchange notes 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 is
provided solely as a matter of convenience. These operations and procedures are
solely within the control of DTC and are subject to changes by them from time to
time. We take no responsibility for these operations and procedures and urge
investors to contact DTC or its participants directly to discuss these matters.
DTC has informed us that it is a limited-purpose trust company created to
hold securities for its participant organizations and to facilitate the
clearance and settlement of transactions in those securities between those
participants through electronic book-entry changes in accounts of the
participants. The participants include securities brokers and dealers, banks,
trust companies, clearing corporations and certain other organizations. Access
to DTC's system is also available to indirect participants such as banks,
brokers, dealers and trust companies that clear through or maintain a custodial
relationship with a participant, either directly or indirectly. Persons other
than participants or indirect participants may beneficially own securities held
by or on behalf of DTC only through its participants or the indirect
participants.
We expect that, pursuant to the procedures established by DTC:
(1) upon deposit of the global notes, DTC will credit the accounts of
participants with portions of the principal amount of the global note; and
(2) ownership of such interests in the global note 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 interests in the global note).
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 the global note to such persons will be limited
to that extent.
So long as the global note holder is the registered holder of any exchange
notes, the global note holder will be considered the sole owner of such exchange
notes. Except as described below, owners of beneficial interests in the global
note will not have exchange notes registered in their names, will not receive
physical delivery of exchange notes in certificated form and will not be
considered the registered owners or "holders" thereof under the indenture for
any purpose. As a result, the ability of a person having a beneficial interest
in the global note to pledge such interest 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
interest.
Payments in respect of the Accreted Value, principal of, premium, if any,
and interest and liquidated damages, if any, on the global note registered in
the name of DTC or its nominee will be payable to DTC in its capacity as the
registered holder under the indenture. Under the terms of the indenture, we and
the trustee will treat the persons in whose names the exchange notes, including
the global note, are registered as the owners thereof for the purpose of
receiving such payments and for any and all other purposes whatsoever.
Consequently, none of us, the trustee, the collateral agent or any agent of any
of the foregoing has or will have any responsibility or liability for:
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(1) 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 note, 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 note; or
(2) any other matter relating to the actions and practices of DTC or
any of its participants or indirect participants.
DTC has advised us that its current practice, upon receipt of any payment
in respect of securities, such as the exchange notes (including principal and
interest), is to credit the accounts of the relevant participants with the
payment on the payment date, in amounts proportionate to their respective
holdings in the principal amount of beneficial interest in the relevant security
as shown on the records of DTC, unless DTC has reason to believe it will not
receive payment on such payment date. Payments by participants and indirect
participants to the beneficial owners of exchange notes will be governed by
standing instructions and customary practices and will be the responsibility of
the participants or the indirect participants and will not be the responsibility
of DTC, the trustee or us. None of us, the trustee, the collateral agent or any
agent of any of the foregoing will be liable for any delay by DTC or any of its
participants in identifying the beneficial owners of the exchange notes, and we
and the trustee may conclusively rely on and will be protected in relying on
instructions from DTC or its nominee for all purposes.
Interests in the global note will trade in DTC's Same-Day Funds Settlement
System and, therefore, transfers between participants in DTC will be effected in
accordance with DTC's procedures and will be settled in immediately available
funds.
DTC has advised us that it will take any action permitted to be taken by a
holder of exchange notes only at the direction of one or more participants to
whose account DTC has credited the interests in the global note and only in
respect of such portion of the aggregate principal amount of the exchange notes
as to which such participant or participants has or have given such direction.
However, if there is an event of default under the exchange notes, DTC reserves
the right to exchange the global note for legended exchange notes in
certificated form, and to distribute such exchange notes to its participants.
The information in this section concerning DTC and its book-entry system
has been obtained from sources that we believe to be reliable, but we take no
responsibility for the accuracy thereof.
Although DTC has agreed to the foregoing procedures to facilitate transfers
of interests in the global note among participants in DTC, it is under no
obligation to perform or to continue to perform such procedures, and such
procedures may be discontinued at any time. None of us, the trustee, the
collateral agent or any of their respective agents will have any responsibility
for the performance by DTC, its participants or indirect participants of their
obligations under the rules and procedures governing any of their operations.
We have been informed by DTC that its management is aware that some
computer applications, systems and the like for processing data ("Systems") that
are dependent upon calendar dates, including dates before, on, and after January
1, 2000, may encounter "Year 2000 problems." We have also been informed by DTC
that it has informed its participants and other members of the financial
community (the "Industry") that it has developed and is implementing a program
so that its Systems, as the same relate to the timely payments of distributions
(including principal and income payments) to security holders, book-entry
deliveries and settlement of trades within DTC, continue to function
appropriately. According to DTC, this program includes a technical assessment
and a remediation plan, each of which is complete. Additionally, DTC has
informed us that its plan includes a testing phase, which is expected to be
completed within appropriate time frames.
However, we have been informed by DTC that its ability to properly perform
its services is also dependent upon other parties, including, but not limited
to, issuers and their agents, as well as third party vendors from whom DTC
licenses software and hardware, and third-party vendors on whom DTC relies for
information or the provision of services, including telecommunications and
electrical utility service providers, among others. DTC has informed us that it
is contacting (and will continue to contact) third-party vendors from whom DTC
acquires services to:
o impress upon them the importance of such services being Year 2000
compliant; and
o determine the extent of their efforts for Year 2000 remediation (and,
as appropriate, testing) of their services.
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In addition, DTC has informed us that it is in the process of developing
such contingency plans as it deems appropriate.
According to DTC, the foregoing information with respect to DTC has been
provided to the Industry for informational purposes only and is not intended to
serve as a representation, warranty or contract modification of any kind.
Transfers of Interests in the Global Note for Certificated Exchange Notes
The global note is exchangeable for definitive exchange notes in registered
certificated form if:
(1) DTC:
(a) notifies us that it is unwilling or unable to continue as
depositary for the global note and we thereupon fail to appoint a successor
depositary within 120 days thereafter; or
(b) has ceased to be a clearing agency registered under the Securities
Exchange Act of 1934; or
(2) we, at our option, notify the trustee in writing that we elect to cause
the issuance of the certificated exchange notes; or
(3) a default or event of default with respect to the exchange notes shall
have occurred and be continuing.
In addition, beneficial interests in the global note may be exchanged for
certificated exchange notes upon request, but only upon prior written notice
given to the Trustee by or on behalf of DTC in accordance with the indenture. In
all cases, certificated exchange notes delivered in exchange for the global note
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).
Same Day Settlement and Payment
The indenture requires that payments in respect of the exchange notes
represented by the global note (including principal, premium, if any, and
interest) be made by wire transfer of immediately available funds to the
accounts specified by the global note holder. With respect to certificated
exchange notes, we will make all payments of principal, premium, if any, and
interest, 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. Exchange notes represented by
the global note 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 exchange notes will, therefore, be
required by the Depositary to be settled in immediately available funds. We
expect that secondary trading in any certificated exchange notes will also be
settled in immediately available funds.
Certain Definitions
Set forth below are some of the defined terms used in the indenture.
Reference is made to the indenture for a full disclosure of all such terms, as
well as any other capitalized or uncapitalized terms used herein for which no
definition is provided.
"Account Debtor" means any Person who is or who may become obligated to
Middle American Tissue or any Subsidiary under, with respect to, or on account
of, an Account.
"Accreted Value" means, for each $1,000 face amount of exchange notes, as
of any date of determination prior to July 15, 2003 the sum of (i) the initial
offering price of each old note and (ii) that portion of the excess of the face
amount of each exchange 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 and compounded semi-annually on each January 15 and July 15 at the
rate of 15% per annum from the date of issuance of the old notes through the
date of determination. The Accreted Value will cease to accrete on July 15,
2003.
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"Acquired Indebtedness" means, with respect to any specified Person:
(1) Indebtedness of any other Person existing at the time such other
Person is merged with or into, or became a Subsidiary of, such specified
Person, including, without limitation, Indebtedness incurred in connection
with, or in contemplation of, such other Person merging with or into, or
becoming a Subsidiary of, such specified Person; and
(2) 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, means the
possession, directly or indirectly, of the power to direct or cause the
direction of the management or policies of such Person, whether through the
ownership of voting securities, by agreement or otherwise; provided that
beneficial ownership of 10% or more of the voting securities of a Person will be
deemed to be control. Notwithstanding the foregoing:
(1) no Person (other than us or any subsidiary of ours) in which a
Receivables Subsidiary makes an Investment in connection with a Qualified
Receivables Transaction will be deemed to be an Affiliate of ours or any of
our subsidiaries solely by reason of such Investment; and
(2) none of the initial purchasers of the old notes or any of their
Affiliates will be deemed an Affiliate of ours or of any of our
subsidiaries.
"Asset Sale" means:
(1) the sale, lease, conveyance or other disposition of any non-cash
assets (including, without limitation, by way of a sale and leaseback and
including the issuance, sale or other transfer of any of the capital stock
of any Subsidiary of a Person), other than to us or to any of our wholly
owned subsidiaries and other than directors' qualifying shares, in each
case in excess of $250,000;
(2) the issuance of Equity Interests in any Subsidiaries or the sale
of any Equity Interests in any Subsidiaries, in each case, in one or a
series of related transactions (x) that have a fair market value in excess
of $250,000 or (y) with respect to which we shall have received net
proceeds in excess of $250,000; and
(3) the damage or destruction of all or any portion of the property or
assets of American Tissue or any of its subsidiaries by eminent domain;
provided, that notwithstanding the foregoing, the term "Asset Sale" will
not include:
(a) the sale, lease, conveyance, disposition or other transfer of all
or substantially all of our assets or the assets of any of our
subsidiaries, as permitted pursuant to the covenant entitled "--Merger,
Consolidation or Sale of Assets;"
(b) the sale or lease of equipment, inventory, accounts receivable or
other assets in the ordinary course of business consistent with past
practice and to the extent that such sales or leases are not part of a sale
of the business in which such equipment was used or in which such inventory
or accounts receivable arose;
(c) a transfer of assets by a wholly owned subsidiary of ours to
another of our wholly owned subsidiaries;
(d) an issuance of Equity Interests by a wholly owned subsidiary of
ours to another of our wholly owned subsidiaries;
(e) the surrender or waiver of contract rights or the settlement,
release or surrender of contract, tort or other claims of any kind;
(f) the grant in the ordinary course of business of any non-exclusive
license of patents, trademarks, registrations therefor and other similar
intellectual property;
(g) sales or transfers of accounts receivable and related assets
pursuant to a Qualified Receivables Transaction to a Receivables Subsidiary
for the fair market value thereof, including cash in an amount
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at least equal to 75% of the book value thereof as determined in accordance
with GAAP; provided that such sales shall not exceed the lesser of $25.0
million or the outstanding balance under the Revolving Credit Facility;
provided further that the entire proceeds of any such sale are used to
repay outstanding indebtedness under the Revolving Credit Facility and
permanently reduce commitments thereunder;
(h) Permitted Investments; or
(i) a Restricted Payment that is permitted by the covenant entitled
"--Restricted Payments."
For the purposes of clause (g), notes received in exchange for the transfer
of accounts receivable and related assets will be deemed cash if the Receivables
Subsidiary or other payor is required to repay such notes as soon as practicable
from available cash collections less amounts required to be established as
reserves pursuant to contractual agreements with entities that are not
Affiliates of us entered into as part of a Qualified Receivables Transaction.
"Boise Agreement" means that certain agreement dated November 23, 1992
among Boise Cascade Corporation and our subsidiaries, American Tissue Mills of
Oregon, Inc. and American Tissue Corporation, as amended on January 1, 1999 and
as the same may be further amended, modified, extended, renewed, amended and
restated or supplemented from time to time.
"Capital Lease Obligation" means, at the time any determination thereof is
to be made, the amount of the liability in respect of a capital lease that would
at such time be required to be capitalized on a balance sheet in accordance with
GAAP.
"Capital Stock" means:
(1) in the case of a corporation, corporate stock;
(2) in the case of an association, limited liability company or other
business entity, any and all shares, membership interests or other
interests, participations, rights or other equivalents (however designated)
of corporate stock;
(3) in the case of a partnership, partnership interests (whether
general or limited); and
(4) any other interest or participation that confers on a Person the
right to receive a share of the profits and losses of, or distributions of
assets of, the issuing Person.
"Cash Equivalents" means:
(1) securities issued or directly and fully guaranteed or insured by
the United States of America or any agency or instrumentality thereof
(provided that the full faith and credit of the United States is pledged in
support thereof) having maturities not more than 12 months from the date of
acquisition;
(2) U.S. dollar denominated (or foreign currency fully hedged) (a)
time deposits, money-market deposits or accounts, certificates of deposit,
Eurodollar time deposits or Eurodollar certificates of deposit and bankers'
acceptance of (i) any domestic commercial bank of recognized standing
having capital and surplus in excess of $500.0 million or (ii) any bank
whose short-term commercial paper rating from S&P is at least A-1 or the
equivalent thereof or from Moody's is at least P-1 or the equivalent
thereof (any such bank being an "Approved Lender"), in each case with
maturities of not more than 12 months from the date of acquisition, and (b)
overnight bank deposits and federal funds transactions with a bank meeting
the qualifications specified in clauses (a)(i) or (a)(ii) above;
(3) commercial paper and variable or fixed rate notes issued by any
Approved Lender (or by the parent company thereof) or any variable rate
notes issued by, or guaranteed by, any domestic corporation rated A-2 (or
the equivalent thereof) or better by S&P or P-2 (or the equivalent thereof)
or better by Moody's and maturing within 12 months of the date of
acquisition;
(4) repurchase agreements with a term of not more than 60 days with a
bank or trust company or recognized securities dealer having capital and
surplus in excess of $500.0 million for underlying securities of the types
described in subparagraphs (1), (2), or (3) above, in which the we will
have a perfected first priority security interest (subject to no other
Liens) and having, on the date of purchase thereof, a fair market value of
at least 100% of the amount of repurchase obligations;
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(5) investments in securities with maturities of 12 months or less
from the date of acquisition issued or fully guaranteed by any state,
commonwealth or territory of the United States of America, or by any
political subdivision or taxing authority thereof; and
(6) interests in money market mutual funds which invest solely in
assets or securities of the types described in subparagraphs (1) through
(5) hereof, inclusive.
"Change of Control" means such time as:
(1) a "person" or "group" (within the meaning of Section 13(d) of the
Exchange Act, except that a Person shall be deemed to have "beneficial
ownership" of all securities that such person has the right to acquire,
whether such right is exercisable immediately or only after the passage of
time, a "Group"), other than any of the Permitted Holders, has become,
directly or indirectly, the "beneficial owner," of 35% or more of the
voting power of our voting Capital Stock and the Permitted Holders
beneficially own, directly or indirectly, a lesser percentage of the voting
power of our voting Capital Stock than the percentage beneficially owned by
such person or Group; or
(2) the sale, lease or transfer of all or substantially all of the
assets of Middle American Tissue and our subsidiaries to any Person or
Group (other than a subsidiary of ours or any of the Permitted Holders); or
(3) during any period of two consecutive calendar years, individuals
who at the beginning of such period constituted our board of directors
(together with any new directors whose election by our board of directors
or whose nomination for election by our stockholders was approved by a vote
of a majority of the directors then still in office who either were
directors at the beginning of such period or whose election or nomination
for election was previously so approved) cease for any reason (other than
as a result of death) to constitute a majority of our directors then in
office; or
(4) American Tissue ceases to be a wholly-owned subsidiary of ours.
"Code" means the Internal Revenue Code of 1986, as amended from time to
time.
"Collateral" means "Securities Collateral" as such term is defined in the
securities pledge agreement and all of the property and assets that are from
time to time subject to the Lien of the Collateral Documents, including the
Liens, if any, required to be granted pursuant to the indenture.
"Collateral Account" means the collateral account established pursuant to
the indenture relating to the exchange notes.
"Consolidated EBITDA" means, with respect to us and our subsidiaries for
any period, the sum of, without duplication:
(1) the Consolidated Net Income for such period; plus
(2) the Fixed Charges for such period; plus
(3) provision for consolidated taxes based on income or profits for such
period (to the extent such income or profits were included in computing
Consolidated Net Income for such period); plus
(4) consolidated depreciation, amortization and other non-cash charges
of ours and our subsidiaries required to be reflected as expenses on our
books and records, minus
(5) cash payments with respect to any non-recurring, non-cash charges
previously added back pursuant to clause (4); and
excluding the impact of foreign currency translations.
Notwithstanding the foregoing, the provision for taxes based on the income
or profits of, and the depreciation and amortization and other non-cash charges
of, a Subsidiary of a Person will be added to Consolidated Net Income to compute
Consolidated EBITDA only to the extent (and in the same proportion) that the Net
Income of such Subsidiary was included in calculating the Consolidated Net
Income of such Person and only if a corresponding amount would be permitted at
the date of determination to be dividended or distributed, directly or
indirectly, to us by such Subsidiary without prior approval pursuant to the
terms of its charter and all agreements, instruments, judgments, decrees,
orders, statutes, rules and governmental regulations applicable to that
subsidiary or its stockholders.
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"Consolidated Net Income" means, with respect to any Person for any period,
the aggregate of the Net Income of such Person and its Subsidiaries for such
period, on a consolidated basis, determined in accordance with GAAP; provided
that:
(1) the Net Income (but not loss) of any Person that is not a
Subsidiary or that is accounted for by the equity method of accounting will
be included only to the extent of the amount of dividends or distributions
paid in cash to the referent Person or a wholly owned subsidiary thereof
that is a Subsidiary;
(2) the Net Income of any Subsidiary will be excluded to the extent
that the declaration or payment of dividends or similar distributions by
that subsidiary of that Net Income is not at the date of determination
permitted without any prior governmental approval 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 subsidiary or its stockholders;
(3) the Net Income of any Person acquired in a pooling of interests
transaction for any period prior to the date of such acquisition will be
excluded;
(4) the cumulative effect of a change in accounting principles will be
excluded; and
(5) all other extraordinary gains and extraordinary losses will be
excluded.
"Consolidated Net Worth" means, with respect to any Person as of any date,
the sum of:
(1) the consolidated equity of the common stockholders of such Person
and its consolidated Subsidiaries as of such date; plus
(2) the respective amounts reported on such Person's balance sheet as
of such date with respect to any series of preferred stock (other than
Disqualified Stock) that by its terms is not entitled to the payment of
dividends unless such dividends may be declared and paid only out of net
earnings in respect of the year of such declaration and payment, but only
to the extent of any cash received by such Person upon issuance of such
preferred stock, less:
(a) all write-ups (other than write-ups resulting from foreign
currency translations and write-ups of tangible assets of a going
concern business made within 12 months after the acquisition of such
business) subsequent to the issue date of the old notes in the book
value of any asset owned by such Person or a consolidated Subsidiary
of such Person;
(b) all investments as of such date in unconsolidated
subsidiaries of such Person and in other Persons that are not
subsidiaries (except, in each case, Permitted Investments); and
(c) all unamortized debt discount and expense and unamortized
deferred charges as of such date,
all of the foregoing determined in accordance with GAAP.
"Depositary" means, with respect to the exchange notes issuable or issued
in whole or in part in global form, the Person specified in the indenture for
the exchange notes as the Depositary with respect to the Notes, until a
successor will have been appointed and become such Depositary pursuant to the
applicable provision of the indenture, and, thereafter, "Depositary" will 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), 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 91 days
after the final maturity date of the exchange notes. Notwithstanding the
preceding sentence, any Capital Stock that would constitute Disqualified Stock
solely because the holders thereof have the right to require us 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 are
not more favorable to the holders of such Capital Stock than the covenants
entitled "-- Change of Control" and "-- Asset Sales;" provided that we may not
repurchase or redeem any such Capital Stock pursuant to such provisions unless
such repurchase or redemption complies with the covenant entitled "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).
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"Equity Offering" means an underwritten public offering pursuant to a
registration statement filed with the SEC in accordance with the Securities Act
of:
(1) our or American Tissue's Equity Interests (other than Disqualified
Stock); or
(2) Equity Interests (other than Disqualified Stock) of our parent
corporation to the extent that the cash proceeds therefrom are contributed
to our equity capital or are used to purchase our Equity Interests (other
than Disqualified Stock).
"Existing Indebtedness" means the Indebtedness of ours and our subsidiaries
in existence on the issue date of the old notes, until such amounts are repaid.
"Existing Mortgage Loans" means the documents or instruments, including any
related notes, guarantees, collateral documents and agreements executed in
connection therewith, and in each case as amended, modified, renewed, extended,
replaced, restated or refinanced from time to time which create:
(1) an obligation of American Tissue or a subsidiary guarantor of
American Tissue under the American Tissue notes; and
(2) a security interest in any mortgage collateral, in existence as of
the issue date of the American Tissue notes,
in each case, in favor of a lender under the Existing Mortgage Loans.
"Fixed Charges" means, with respect to any Person for any period, the sum,
without duplication, of:
(1) the consolidated interest incurred by such Person and its
Subsidiaries for such period, whether paid or accrued (including, without
limitation, amortization of original issue discount, non-cash interest
payments, the interest component of any deferred payment obligations, the
interest component of all payments associated with Capital Lease
Obligations, commissions, discounts and other fees and charges incurred in
respect of letters of credit or bankers' acceptance financings, and net
payments (if any) pursuant to Hedging Obligations);
(2) the consolidated interest incurred by such Person and its
Subsidiaries that was capitalized during such period;
(3) any interest expense on Indebtedness of another Person that is
guaranteed by such Person or one of its Subsidiaries or secured by a lien
on assets of such Person or one of its subsidiaries (whether or not such
guarantee or lien is called upon); and
(4) the product of (a) all cash dividend payments (and non-cash
dividend payments in the case of a Person that is a subsidiary) on any
series of preferred stock of such Person payable to a party, other than to
us or a wholly owned Subsidiary of ours, 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, 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 EBITDA of such Person and its Subsidiaries
for such period to the Fixed Charges of such Person and its Subsidiaries for
such period. In the event that we or any of our subsidiaries incurs, assumes,
guarantees or redeems any Indebtedness or issues preferred stock subsequent to
the commencement of the four-quarter reference 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 will 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. For purposes of making the computation referred to above:
(1) acquisitions that have been made by us or any of our 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
will be deemed to have occurred on the first day of the four-quarter
reference period;
(2) the Consolidated EBITDA attributable to discontinued operations,
as determined in accordance with GAAP, and operations or businesses
disposed of prior to the Calculation Date, will be excluded; and
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(3) the Fixed Charges attributable to discontinued operations, as
determined in accordance with GAAP, and operations or businesses disposed
of prior to the Calculation Date, will 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.
"GAAP" means generally accepted accounting principles set forth in the
opinions and pronouncements of the Accounting Principles Board of the American
Institute of Certified Public Accountants and statements and pronouncements of
the Financial Accounting Standards Board or in such other statements by such
other entity as have been approved by a significant segment of the accounting
profession, which are in effect on the issue date of the old notes.
"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.
"Hedging Obligations" means, with respect to any Person, the obligations of
such Person under (1) interest rate swap agreements, interest rate cap
agreements and interest rate collar agreements and (2) other agreements or
arrangements, in each case designed to protect such Person against fluctuations
in interest rates, currency rates or the prices of commodities actually at that
time used in the ordinary course of business of such Person.
"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 bankers' acceptances or
representing Capital Lease Obligations or the balance deferred and unpaid of the
purchase price of any property (except any such balance that constitutes an
accrued expense or trade payable) or representing any Hedging Obligations if and
to the extent any of the foregoing indebtedness (other than letters of credit
and Hedging Obligations) would appear as a liability upon a balance sheet of
such Person prepared in accordance with GAAP, 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.
"Independent Appraiser" means a Person who in the course of its business
appraises property and (1) where real property is involved, who is a member in
good standing of the American Institute of Real Estate Appraisers, recognized
and licensed to do business in the jurisdiction where the applicable real
property is situated, (2) who does not have a direct or indirect financial
interest in us and (3) who, in the judgment of our board of directors, is
otherwise independent and qualified to perform the tasks for which it is
engaged.
"Independent Financial Advisor" means a firm (1) which does not, and whose
directors, officers and employees or Affiliates do not, have a direct or
indirect financial interest in us (it being understood that securities of ours
acquired in the ordinary course of trading operations shall not be deemed to
give rise to such direct or indirect financial interest in us) and (2) which, in
the judgment of our board of directors, is otherwise independent and qualified
to perform the task for which it is to be engaged.
"Initial Purchasers" means the initial purchasers of the old notes.
"Interest Payment Date" means each January 15 and July 15, commencing
January 15, 2004.
"Investments" means, with respect to any Person, all investments by such
Person in other persons (including Affiliates) in the form 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 and all other items that are or would be classified as investments on
a balance sheet prepared in accordance with GAAP.
"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, except in connection with any Qualified Receivables
Transaction, any filing of or agreement to give any financing statement under
the Uniform Commercial Code (or equivalent statutes) of any jurisdiction).
"Moody's" means Moody's Investor Services.
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"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:
(1) 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 our Subsidiaries or the extinguishment of any
Indebtedness of such Person or any of our Subsidiaries; and
(2) any extraordinary or non-recurring gain (but not loss), together
with any related provision for taxes on such extraordinary or non-recurring
gain (but not loss).
"Net Proceeds" means the aggregate cash proceeds received by us or any of
our 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 expenses, and sales and brokerage commissions) and any
relocation expenses incurred as a result thereof, taxes paid or payable by us or
any of our subsidiaries as a result thereof (after taking into account any
available tax credits or deductions and any tax sharing arrangements), amounts
required to be applied to the repayment of Indebtedness (other than the exchange
notes) secured by a Lien on the asset or assets that were the subject of such
Asset Sale and any reserve for adjustment in respect of the sale price of such
asset or assets established in accordance with GAAP.
"Non-Recourse Debt" means Indebtedness:
(1) as to which neither we nor any of our 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
(2) 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 of ours or any of our 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
(3) as to which the lenders have been notified in writing that they
will not have any recourse to the stock or assets of ours or of any of our
Subsidiaries.
"Obligations" means any principal, interest, penalties, fees,
indemnifications, reimbursements, damages and other liabilities payable under
the documentation governing any Indebtedness.
"Parent" means Super American Tissue Inc., a Delaware corporation, the
indirect parent of American Tissue and our direct parent.
"Permitted Holders" means (a) Nourollah Elghanayan, Mehdi Gabayzadeh and
their respective spouses, lineal descendants and adopted children and spouses of
their respective lineal descendants and adopted children, siblings and lineal
descendants of such siblings and spouses of such persons, any foundation
controlled by any of the foregoing persons, any trusts for the benefit of any of
the foregoing persons, (b) the principal initial purchasers of the old notes,
and (c) any Affiliates of the foregoing persons.
"Permitted Investments" means:
(1) any Investments in us or in a wholly owned subsidiary of ours that
is a Subsidiary and that is engaged in the same or a similar,
complementary, ancillary or related line of business as us and our
subsidiaries were engaged in on the issue date of the old notes and
reasonable extensions or expansions thereof;
(2) any Investment by us or a wholly owned subsidiary of ours in a
Receivables Subsidiary or any Investment by a Receivables Subsidiary in any
other Person in connection with a Qualified Receivables Transaction;
provided, that the foregoing Investment is in the form of a note that the
Receivables Subsidiary or other Person is required to repay as soon as
practicable from available cash collections less amounts required to be
established as reserves pursuant to contractual agreements with entities
that are not our Affiliates entered into as part of a Qualified Receivables
Transaction;
(3) any Investments in cash and Cash Equivalents;
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(4) Investments by us or any of our subsidiaries in a Person if as a
result of such Investment (a) such Person becomes a wholly owned subsidiary
of ours that is engaged in the same or a similar line of business as we and
our subsidiaries were engaged in on the issue date of the old notes and
reasonable extensions or expansions thereof or (b) such Person is merged,
consolidated or amalgamated with or into, or transfers or conveys
substantially all of its assets to, or is liquidated into, us or a wholly
owned subsidiary of ours that is a Subsidiary and that is engaged in the
same or a similar, complementary, ancillary or related line of business as
we and our subsidiaries were engaged in on the issue date of the old notes
and reasonable extensions or expansions thereof;
(5) Investments 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 entitled "--Asset Sales;"
(6) Investments outstanding as of the issue date of the old notes;
(7) Investments which constitute Existing Indebtedness of ours or of
any of our subsidiaries;
(8) any payments made in connection with the acquisition of the
Berlin-Gorham Mills pursuant to the related asset purchase agreement;
(9) Investments, the payment for which consists exclusively of our
Equity Interests (other than Disqualified Stock);
(10) loans or advances to officers and employees of ours or any of our
subsidiaries in an aggregate amount not exceeding $1.5 million at any one
time outstanding;
(11) Investments in the form of intercompany Indebtedness to the
extent permitted under the covenant entitled "--Incurrence of Indebtedness
and Issuance of Preferred Stock;"
(12) Hedging Obligations;
(13) Investments received in connection with the bankruptcy or
reorganization of suppliers and customers and in settlement of delinquent
obligations of, and other disputes with, suppliers and customers, in each
case arising in the ordinary course of business; and
(14) other Investments in any Person (other than an Affiliate of ours
or an Affiliate of any of our subsidiaries) that do not exceed $10.0
million at any time outstanding.
"Permitted Liens" means:
(1) Liens securing obligations under the indenture, the securities
pledge agreement, the exchange notes, the Stockholders Agreement, the
indenture governing the American Tissue notes, the American Tissue notes
and the related subsidiary guarantees thereof and collateral documents
entered into in connection therewith;
(2) Liens securing the obligations under the Boise Agreement, the
Existing Mortgage Loans and the Revolving Credit Facility in an aggregate
principal amount at any time outstanding not to exceed applicable amounts
permitted under the covenant entitled "Incurrence of Indebtedness and
Issuance of Preferred Stock;"
(3) Liens in favor of us or any subsidiary of ours;
(4) Liens on property of a Person existing at the time such Person is
merged into or consolidated with us or any of our subsidiaries in
accordance with the provisions of the indenture; 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 us;
(5) Liens on property existing at the time of acquisition thereof by
us or any of our subsidiaries; provided that such Liens were in existence
prior to the contemplation of such acquisition;
(6) 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;
(7) Liens existing on the issue date of the old notes;
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(8) 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 conducted;
provided that any reserve or other appropriate provision as will be
required in conformity with GAAP will have been made therefor;
(9) Liens imposed by law or arising by operation of law, including
carriers', warehousemen's, mechanics', materialmen's, vendors',
repairmen's, or other similar Liens arising or incurred in the ordinary
course of business;
(10) Liens of landlords or of mortgagees of landlords arising by
operation of law; provided that the rental payments secured thereby are not
yet due and payable;
(11) Liens incurred in the ordinary course of the business of any of
our subsidiaries with respect to obligations that do not exceed $5.0
million at any one time outstanding and that (a) are not incurred in
connection with the borrowing of money or the obtaining of advances or
credit (other than trade credit in the ordinary course of business) and (b)
do not in the aggregate materially detract from the value of the property
or materially impair the use thereof in the operation of business by us or
such subsidiary;
(12) Liens incurred or deposits made in the ordinary course of
business in connection with workers' compensation, unemployment insurance
and other types of social security or public utility obligations;
(13) Purchase Money Liens (including extensions and renewals thereof);
(14) Liens securing reimbursement obligations with respect to letters
of credit which encumber only documents and other property relating to such
letters of credit and the products and proceeds thereof;
(15) judgment and attachment Liens not giving rise to an event of
default under the indenture;
(16) Liens encumbering deposits made to secure obligations arising
from statutory, regulatory, contractual or warranty requirements;
(17) Liens arising out of consignment or similar arrangements for the
sale of goods;
(18) any interest or title of a lessor in property subject to any
Capital Lease Obligation or operating lease;
(19) Liens arising from filing Uniform Commercial Code financing
statements regarding leases;
(20) Liens securing Acquired Indebtedness (and any Permitted
Refinancing Indebtedness which refinances such Acquired Indebtedness)
incurred in accordance with the covenant described under "--Certain
Covenants--Incurrence of Indebtedness and Issuance of Preferred Stock;"
provided that (a) such Liens secured the Acquired Indebtedness at the time
of, and prior to, the incurrence of such Acquired Indebtedness by us or any
of our subsidiaries and were not granted in connection with, or in
anticipation of the incurrence of such Acquired Indebtedness by us or such
subsidiary and (b) such Liens do not extend to or cover any property or
assets of ours or of any of our subsidiaries, other than the property or
assets that secured the Acquired Indebtedness prior to the time such
Indebtedness became Acquired Indebtedness of ours or of such subsidiary;
(21) Liens on assets of a Receivables Subsidiary incurred in
connection with a Qualified Receivables Transaction;
(22) zoning restrictions, easements, licenses, covenants,
reservations, restrictions on the use of real property and defects,
irregularities and deficiencies in title to real property that do not,
individually or in the aggregate, materially affect our ability or the
ability of any of our subsidiaries to conduct its business and are incurred
in the ordinary course of business;
(23) Liens securing our obligations under Hedging Obligations
permitted to be incurred under the covenant entitled "Incurrence of
Indebtedness and Issuance of Preferred Stock" or any collateral for the
Indebtedness to which such Hedging Obligations relate;
(24) Liens upon specific items of inventory or other goods and
proceeds of any Person securing such Person's obligations in respect of
bankers' acceptance issued or credited for the account of such Person to
facilitate the purchase, shipment or storage of such inventory or other
goods;
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(25) leases or subleases granted to others that do not materially
interfere with the ordinary course of business of Middle American Tissue
and our subsidiaries;
(26) Liens encumbering property or other assets under construction
arising from progress or partial payments by a customer or us or any of our
subsidiaries relating to such property or other assets;
(27) Liens in favor of customs and revenue authorities arising as a
matter of law to secure payment of customs duties in connection with the
importation of goods; and
(28) Liens securing other Indebtedness not exceeding $10.0 million at
any one time outstanding.
"Permitted Refinancing Indebtedness" means any Indebtedness of ours or any
of our subsidiaries issued in exchange for, or the net proceeds of which are
used to extend, refinance, renew, replace, defease or refund, Indebtedness of
ours or any of our subsidiaries incurred pursuant to the Fixed Charge Coverage
Ratio test in the first paragraph of, or pursuant to clause (2) or (3) of the
second paragraph of, the covenant entitled "Incurrence of Indebtedness and
Issuance of Preferred Stock;" provided that:
(1) the principal amount (or Accreted Value, if applicable) of such
Permitted Refinancing Indebtedness does not exceed the principal amount (or
accreted value, if applicable) of the Indebtedness so extended, refinanced,
renewed, replaced, defeased or refunded (plus the amount of reasonable
expenses incurred in connection therewith);
(2) such Permitted Refinancing Indebtedness 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;
(3) if the Indebtedness being extended, refinanced, renewed, replaced,
defeased or refunded is subordinated in right of payment to the exchange
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 exchange notes on terms at least as favorable to the
holders of the exchange notes as those contained in the documentation
governing the Indebtedness being extended, refinanced, renewed, replaced,
defeased or refunded; and
(4) such Indebtedness is incurred either by us or by any subsidiary of
ours that is the obligor on the Indebtedness being extended, refinanced,
renewed, replaced, defeased or refunded.
"Permitted Tax Payments" means, for so long as we and American Tissue
remain "qualified Subchapter S subsidiaries" (as defined in Section
1361(b)(3)(B) of the Code), distributions to Parent to reimburse the
shareholders of Parent:
(1) for tax liabilities, in an amount (not to exceed $2.0 million)
equal to the product of:
(i) the previously unpaid interest on the Related Party Debt that
will become taxable to the current holder of such debt on the issue
date of the old notes as a result of the assumption of or transfer of
such debt by or to Parent on the issue date of the old notes;
(ii) the percentage of Parent's stock not owned on the issue date
of the old notes by the current holder of the Related Party Debt, his
spouse or a grantor trust of which either of them is grantor (a
"Related Trust"); and
(iii) the maximum combined individual federal, state and local
income tax rates in effect on the issue date of the old notes;
(2) for tax liabilities in respect of each taxable year of American
Tissue (or portion of a taxable year) beginning on or after the issue date
of the old notes, in an amount equal to:
(i) (A) the amount of original issue discount on the Related
Party Debt accrued during such year minus (B) the product of (I) the
percentage of Parent's stock owned during such time by the current
holder of the Related Party Debt, his spouse or a Related Trust and
(II) the amount of original issue discount specified in clause (A),
plus the amount of original issue discount incurred with respect to
the exchange notes and/or the old notes for such year (the "Annual
Intermediate OID"), plus American Tissue's taxable loss, if any for
such year, minus American Tissue's taxable income (to the extent such
income does not exceed the sum of the amount of original issue
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discount described in clause (A) and the Annual Intermediate OID for
such year), if any, for such year, multiplied by
(ii) the maximum combined individual federal, state, and local
income tax rate for such year; and
(3) for tax liabilities, in an amount equal to the product of:
(i) (A) the excess, if any, of:
(I) the cumulative net taxable income since April 1, 1999 of
American Tissue over
(II) the cumulative interest expense incurred by us with
respect to the exchange notes and/or the old notes, plus the
cumulative interest expense incurred by Parent with respect
to the Related Party Debt since April 1, 1999 and a
percentage of any such unpaid interest expense incurred
prior to April 1, 1999 equal to the percentage of Parent's
stock not owned on the issue date of the old notes by the
current holder of the Related Party Debt, his spouse or a
Related Trust, increased by
(B) the cumulative amounts included in clause (2) (i) (B)
that have actually reduced a distribution under clause (2) and
(ii) the maximum combined individual federal, state and local
income tax rates in effect from time to time (excluding any state or
locality that treats us, American Tissue or Parent as a C
corporation), minus
(iii) all prior distributions made under this clause (3) and any
tax payments in respect of any taxable period (or portion thereof)
beginning on or after April 1, 1999 that were made prior to the issue
date of the old notes by us or Parent to or on behalf of any of their
shareholders.
If American Tissue becomes taxable as a "C" corporation (as defined in
Section 1361(a)(2) of the Code) and becomes a member (for income tax purposes)
of an affiliated, consolidated, combined or unitary group of which Parent is the
common parent (a "Group Member"), "Permitted Tax Payments" shall mean
distributions to Parent for income tax liabilities imposed on American Tissue as
a Group Member, in an amount equal to
(a) the cumulative net taxable income of American Tissue from the date
on which American Tissue becomes a C corporation and a Group Member,
multiplied by the maximum marginal federal, state and/or local corporate
income tax rates in effect from time to time (excluding any jurisdiction
that does not treat American Tissue as a Group Member), minus
(b) all prior distributions made pursuant to this sentence and any
such taxes paid directly by American Tissue.
Notwithstanding the foregoing, no distribution shall qualify as a Permitted
Tax Payment if a default or event of default under the indenture exists or would
result therefrom. Any combined federal, state and/or local tax rate referred to
in this definition shall be determined taking into account the deductibility of
state and local income taxes for federal income tax purposes.
Notwithstanding the foregoing, no Permitted Tax Payment shall be permitted
if:
(x) a default or event of default under the indenture exists or would
result therefrom or
(y) the obligations with respect to any such Permitted Tax Payments are not
subordinated in right of payment to the obligations of American Tissue
under the American Tissue notes.
"Person" means any individual, corporation, partnership, limited liability
company, joint venture, association, joint-stock company, trust, unincorporated
organization or government or agency or political subdivision thereof or any
other entity (including any subdivision or ongoing business of any such entity
or substantially all of the assets of any such entity, subdivision or business).
"Purchase Money Lien" means a lien granted on an asset or property to
secure a Purchase Money Obligation permitted to be incurred under the Indenture
and incurred solely to finance the purchase, or the cost of construction or
improvement, of such asset or property; provided, however, that such lien
encumbers only such asset or property and is granted within 90 days of such
acquisition.
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"Purchase Money Obligations" of any Person means any obligations of such
Person to any seller or any other Person incurred or assumed to finance the
purchase, or the cost of construction or improvement, of real or personal
property to be used in the business of such Person or any of its Subsidiaries in
an amount that is not more than 100% of the cost, or fair market value, as
appropriate, of such property, and incurred within 90 days after the date of
such acquisition (excluding accounts payable to trade creditors incurred in the
ordinary course of business).
"Qualified Receivables Transaction" means any transaction or series of
transactions that may be entered into by us or any of our subsidiaries pursuant
to which we or any of our subsidiaries may sell, convey or otherwise transfer to
(i) a Receivables Subsidiary (in the case of a transfer by us or any of our
subsidiaries) and (ii) any other Person (in the case of a transfer by a
Receivables Subsidiary), or may grant a security interest in, any accounts
receivable (whether now existing or arising in the future) of ours or any of our
subsidiaries, and any assets related thereto including, without limitation, all
collateral securing such accounts receivable, all contracts and all guarantees
or other obligations in respect of such accounts receivable, proceeds of such
accounts receivable and other assets which are customarily transferred or in
respect of which security interests are customarily granted in connection with
asset securitization transactions involving accounts receivable.
"Receivables Subsidiary" means a wholly owned subsidiary of ours which
engages in no activities other than in connection with the financing of accounts
receivable and which is designated by our board of directors (as provided below)
as a Receivables Subsidiary:
(1) no portion of the Indebtedness or any other obligations
(contingent or otherwise) of which:
(a) is guaranteed by us or any of our subsidiaries (excluding
guarantees of obligations (other than the principal of, and interest
on, Indebtedness) pursuant to representations, warranties, covenants
and indemnities entered into in the ordinary course of business in
connection with a Qualified Receivables Transaction);
(b) is recourse to or obligates us or any of our subsidiaries in
any way other than pursuant to representations, warranties, covenants
and indemnities entered into in the ordinary course of business in
connection with a Qualified Receivables Transaction; or
(c) subjects any property or asset of ours or any of our
subsidiaries, directly or indirectly, contingently or otherwise, to
the satisfaction thereof, other than pursuant to representations,
warranties, covenants and indemnities entered into in the ordinary
course of business in connection with a Qualified Receivables
Transaction;
(2) with which neither we nor any of our subsidiaries has any material
contract, agreement, arrangement or understanding other than on terms no
less favorable to us or such subsidiary than those that might be obtained
at the time from persons who are not our Affiliates, other than fees
payable in the ordinary course of business in connection with servicing
accounts receivable; and
(3) with which neither we nor any of our subsidiaries has any
obligation to maintain or preserve such subsidiary's financial condition or
cause such subsidiary to achieve certain levels of operating results.
Any such designation by our board of directors will be evidenced to the
Trustee by filing with the Trustee a certified copy of the resolution of our
board of directors giving effect to such designation and an officers'
certificate certifying that such designation complied with the foregoing
conditions.
"Related Party Debt" means
(x) the debt of American Tissue that is assumed by or otherwise transferred
to Parent on the issue date of the old notes in an aggregate amount not in
excess of $28.0 million; and
(y) the debt of Parent on the issue date of the old notes in the aggregate
amount not in excess of $5.0 million, in each case accruing interest at not
more than 10% per annum.
"Restricted Investment" means an Investment other than a Permitted
Investment.
"Revolving Credit Facility" means the credit agreement among American
Tissue, certain of its subsidiaries, certain lenders and LaSalle Bank National
Association, as lender and agent for the other lenders, providing for working
capital and other financing, as the same may be amended, amended and restated,
supplemented or otherwise modified, including any refinancing, refunding,
replacement or extension thereof by the same or any other lender or group of
lenders.
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"Securities Act" means the Securities Act of 1933, as amended.
"Significant Subsidiary" means any Subsidiary that would be a
"significant subsidiary" as defined in Rule 1-02 of Regulation S-X,
promulgated pursuant to the Act, as such Regulation is in effect on the date
hereof.
"S&P" means Standard & Poor's Financial Information Services.
"Stockholders Agreement" means the stockholders agreement dated as of the
issue date of the old notes among, us, the Initial Purchasers, Parent and
certain other parties named therein.
"Subsidiary" means, with respect to any Person: any corporation, limited
liability company, 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 (2) 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 one
or more Subsidiaries of such Person (or any combination thereof).
Unrestricted Subsidiaries will not be included in the definition of
"Subsidiary" for any purposes of this Indenture (except, as the context may
otherwise require, for purposes of the definition of "Unrestricted Subsidiary").
Unless the context otherwise requires, reference to a Subsidiary in any
provision of this Indenture shall be deemed to mean a Subsidiary of Holdings.
"Trust Indenture Act" means the Trust Indenture Act of 1939 (15 U.S.C.
Sections 77aaa-77bbbb) as in effect on the date on which the Indenture is
qualified under the TIA.
"Trust Monies" means all cash and Cash Equivalents received by the
collateral agent:
(1) pursuant to the securities pledge agreement;
(2) as proceeds of any sale or other disposition of all or any part of
the Securities Collateral by or on behalf of the collateral agent or any
collection, recovery, receipt, appropriation or other realization of or
from all or any part of the Securities Collateral pursuant to the Indenture
or of the securities pledge agreement or otherwise; or
(3) for application as provided in the relevant provisions of the
securities pledge agreement for which disposition is not otherwise
specifically provided for in any the securities pledge agreement;
provided, however, that Trust Monies shall in no event include any property
deposited with the trustee for any redemption, legal defeasance or covenant
defeasance of exchange notes, for the satisfaction and discharge of the
indenture or to pay the purchase price of exchange notes pursuant to a Change of
Control Offer or Asset Sale Offer.
"Unrestricted Subsidiary" means any of our subsidiaries (other than
American Tissue) that is designated by our board of directors as an Unrestricted
Subsidiary pursuant to a board resolution; but only to the extent that such
subsidiary:
(1) has no Indebtedness other than Non-Recourse Debt;
(2) is not party to any agreement, contract, arrangement or
understanding with us or any of our subsidiaries unless the terms of any
such agreement, contract, arrangement or understanding are no less
favorable to us or such Subsidiary than those that might be obtained at the
time from Persons who are not our Affiliates;
(3) is a Person with respect to which neither we nor any of our
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; and
(4) has not guaranteed or otherwise directly or indirectly provided
credit support for any Indebtedness of ours or any of our subsidiaries.
Any such designation by our board of directors will 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 entitled "Restricted Payments" hereof. If, at any time, any
Unrestricted Subsidiary would fail to meet the foregoing requirements as an
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Unrestricted Subsidiary, it will thereafter cease to be an Unrestricted
Subsidiary for purposes of the indenture and any Indebtedness of such Subsidiary
will be deemed to be incurred by a subsidiary of ours as of such date (and, if
such Indebtedness is not permitted to be incurred as of such date under the
covenant entitled "Incurrence of Indebtedness and Issuance of Preferred Stock"
hereof, we will be in default of such covenant). Our board of directors may at
any time designate any Unrestricted Subsidiary to be a Subsidiary; provided that
such designation will be deemed to be an incurrence of Indebtedness by a
subsidiary of ours of any outstanding Indebtedness of such Unrestricted
Subsidiary and such designation will only be permitted if (a) such Indebtedness
is permitted under the covenant entitled "Incurrence of Indebtedness and
Issuance of Preferred Stock," and (b) no default or event of default under the
indenture would be in existence following such designation.
"Weighted Average Life to Maturity" means, when applied to any Indebtedness
at any date, the number of years obtained by dividing:
(1) 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
(2) the then outstanding principal amount of such Indebtedness.
CERTAIN UNITED STATES INCOME TAX CONSIDERATIONS
General
The following is a summary of the material U.S. federal income tax
considerations relevant to U.S. Holders, as defined below, of the acquisition,
ownership and disposition of the exchange notes acquired in and under the terms
of our exchange offer by holders of old notes that acquired their old notes on
original issuance and for the original offering price, but does not purport to
be complete. It applies only if you are a holder that acquires exchange notes
under our exchange offer. The discussion is based on current provisions of the
Internal Revenue Code of 1986, applicable U.S. Treasury regulations, judicial
authority and administrative rulings and pronouncements of the Internal Revenue
Service, all as in effect as of the date of this prospectus. We cannot assure
that the IRS will not take a contrary view, and we have not sought, and will not
seek, a ruling from the IRS. Legislative, judicial, or administrative changes or
interpretations may be forthcoming that could alter or modify the following
statements and conclusions. Any such changes or interpretations may or may not
be retroactive and could affect the tax consequences to holders of the exchange
notes.
We assume in our discussion below that the exchange notes are held as
capital assets. This discussion is for general information only, and does not
address all of the tax consequences that may be relevant to particular holders
of the exchange notes in light of their specific circumstances. Moreover, this
discussion does not address U.S. federal tax laws applicable to holders that may
be subject to special tax rules, including, without limitation:
o banks and other financial institutions;
o real estate investment trusts;
o regulated investment companies;
o insurance companies;
o tax-exempt organizations;
o custodians, nominees or similar intermediaries holding the exchange
notes for others;
o persons who own exchange notes through partnerships, S corporations or
other pass through entities;
o dealers in securities;
o persons that hold a exchange note as part of a "straddle," or as part
of a "hedging," "conversion" or "integrated" transaction for U.S.
federal income tax purposes;
o persons whose functional currency is not the U.S. dollar;
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o persons subject to the alternative minimum tax;
o Non-U.S. Holders (as defined below) that are entitled to claim the
benefits of tax treaties to which the United States is a party; or
o Non-U.S. Holders that are engaged in a U.S. trade or business.
Finally, this discussion does not consider the effect of the tax laws of
any foreign, state, local or other tax laws or estate or gift tax considerations
that may be applicable to a particular holder.
When we use the term "U.S. Holder," we mean an initial beneficial owner of
exchange notes who, for U.S. federal income tax purposes:
o is an individual who is a citizen or resident of the United States (as
determined under U.S. federal income tax laws);
o is a corporation organized or formed in or under the laws of the
United States or any political subdivision thereof;
o is an estate whose income is includible in gross income for U.S.
federal income tax purposes regardless of its source; or
o is a trust if (1) a U.S. court is able to exercise primary supervision
over the administration of the trust and (2) one or more U.S. trustees
or fiduciaries have the authority to control all substantial decisions
of the trust.
When we use the term "Non-U.S. Holder," we mean an initial beneficial
holder of an exchange note who does not qualify as a U.S. Holder.
WE ADVISE YOU TO CONSULT WITH YOUR OWN TAX ADVISORS REGARDING THE TAX
CONSEQUENCES TO YOU OF THE ACQUISITION, OWNERSHIP AND SALE OF THE EXCHANGE
NOTES, INCLUDING THE FEDERAL, STATE, LOCAL, FOREIGN AND OTHER TAX CONSEQUENCES
OF SUCH ACQUISITION, OWNERSHIP AND SALE AND OF POTENTIAL CHANGES IN APPLICABLE
TAX LAWS.
Interest and Original Issue Discount
Each old note was issued with original issue discount ("OID"), and,
accordingly, each exchange note will also have OID. You are required to include
in income, in each year (regardless of whether you are a cash or accrual basis
taxpayer), in advance of the receipt of cash payments on such exchange notes,
that portion of the OID, computed on a constant yield-to-maturity basis,
attributable to each day during such year on which you held the exchange notes.
The amount of OID with respect to each exchange note is equal to the excess
of (1) its "stated redemption price at maturity" over (2) its "issue price."
Under OID Regulations, the "issue price" of the exchange notes is the initial
offering price (not including any bond house, broker or similar person or
organization acting in the capacity of an underwriter, placement agent or
wholesaler) at which a substantial amount of the old notes were sold. The
"stated redemption price at maturity" of each exchange note is the sum of all
cash payments (whether denominated as principal or interest) provided by the
exchange note, other than payments of "qualified stated interest". Qualified
stated interest is stated interest that is unconditionally payable at least
annually at a single fixed rate that appropriately takes into account the length
of the interval between payments. Accordingly, the 12 1/2% current interest
payable on an exchange note will constitute qualified stated interest. All other
amounts payable on the exchange notes will be included in the exchange note's
stated redemption price at maturity.
As a U.S. Holder of a debt instrument issued with OID, you will be required
to include in gross income (generally as ordinary interest income) for U.S.
federal income tax purposes an amount equal to the sum of the "daily portions"
of such OID for all days during the taxable year on which you hold the debt
instrument. The daily portions of OID are determined on a constant
yield-to-maturity basis by allocating to each day on which you hold the debt
instrument a pro rata portion of the OID on such debt instrument which is
attributable to the "accrual period" (generally the period between interest
payment or compounding dates) in which such day is included. The amount of the
OID attributable to each "accrual period" is the product of:
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(1) the "adjusted issue price" at the beginning of such accrual period
and
(2) the "yield to maturity" of the debt instrument (stated in a manner
appropriately taking into account the length of the accrual period),
less any qualified stated interest attributable to that accrual period.
The "adjusted issue price" of an exchange note at the beginning of an
accrual period generally will be equal to the issue price of the old note you
exchanged for the exchange note plus the aggregate amount of OID that accrued in
all prior accrual periods, less any cash payments that have been made on the
exchange note other than payments of qualified stated interest.
Qualified stated interest paid on an exchange note generally will be
taxable to you as ordinary income at the time it accrues or is received, in
accordance with your method of accounting for federal income tax purposes. Other
payments on the exchange notes are not separately included in your income as
interest, but rather are treated first as payments of previously accrued and
unpaid OID and then as payments of principal.
Disposition of the Exchange Notes.
You must recognize taxable gain or loss on the sale, exchange, redemption,
retirement or other taxable disposition of an exchange note. The amount of your
gain or loss generally equals the amount you receive for the exchange note (less
any amounts attributable to accrued and unpaid qualified stated interest) minus
your adjusted tax basis in the exchange notes. Your adjusted tax basis in an
exchange note generally will equal the cost to you of the old notes you
exchanged for the exchange notes, increased by the amount of OID previously
included in your income with respect to such old notes and such exchange notes,
and decreased by the amount of any principal or interest payments previously
received by you on the exchange notes (other than payments of qualified stated
interest).
Your gain or loss will generally be a long-term capital gain or loss if you
have held the old note and the exchange note you received in the exchange offer
for more than one year. Otherwise, it will be short-term capital gain or loss.
The deductibility of capital losses is subject to limitation.
Information Reporting and Backup Withholding.
We will report to U.S. Holders of the exchange notes and the IRS the amount
of any "reportable payments" and any amount withheld with respect to the
exchange notes during the calendar year.
A noncorporate U.S. Holder may, under certain circumstances, be subject to
"backup withholding" unless such U.S. Holder provides to us a correct taxpayer
identification number and otherwise complies with applicable requirements of the
backup withholding rules. In addition, a U.S. Holder will be subject to backup
withholding if we have been notified by the IRS that backup withholding is
required for such U.S. Holder due to a failure to properly report interest and
dividend payments. The backup withholding rate is 31% of "reportable payments,"
which include interest and, under certain circumstances, principal payments.
PLAN OF DISTRIBUTION
Each holder desiring to participate in the exchange offer will be required
to represent, among other things, that:
(1) it is not an "affiliate" (as defined in Rule 405 of the Securities
Act) of Middle American Tissue;
(2) it is not engaged in, and does not intend to engage in, and has no
arrangement or understanding with any person to participate in, a
distribution of the exchange notes; and
(3) it is acquiring the exchange notes in the ordinary course of its
business.
A holder that cannot make such representation will not be able to
participate in the exchange offer, and may only sell its old notes under a
registration statement containing the selling securityholder information
required by Item 507 of Regulation S-K under the Securities Act or under an
exemption from the registration requirements of the Securities Act.
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Each broker-dealer who holds old notes that were acquired for its own
account as a result of market-making activities or other trading activities,
other than old notes acquired directly from us , may exchange such old notes
under the exchange offer. However, such participating broker-dealer may be
deemed to be an "underwriter" within the meaning of the Securities Act and must,
therefore, deliver a prospectus meeting the requirements of the Securities Act
in connection with any resales of the exchange notes received by the
broker-dealer in the exchange offer. Such prospectus delivery requirement may be
satisfied by the delivery by such broker-dealer of this prospectus, as it may be
amended or supplemented from time to time.
Based upon interpretations by the staff of the Securities and Exchange
Commission, we believe that exchange notes issued under the exchange offer to
participating broker-dealers may be offered for resale, resold, and otherwise
transferred by a participating broker-dealer upon compliance with the prospectus
delivery requirements, but without compliance with the registration
requirements, of the Securities Act. We have agreed that for a period of not
less than one year following the consummation of the exchange offer, to make
this prospectus, as amended or supplemented, available to participating
broker-dealers for use in connection with any such resale. During such period of
time, delivery of this prospectus, as it may be amended or supplemented, will
satisfy the prospectus delivery requirements of a participating broker-dealer
engaged in market making or other trading activities. In addition, until
, all dealers effecting transactions on the exchange notes may be
required to deliver a prospectus.
Based upon interpretations by the staff of the Securities and Exchange
Commission, we believe that exchange notes to be issued under the exchange offer
may be offered for resale, resold and otherwise transferred by a holder thereof,
other than a participating broker-dealer, without compliance with the
registration and prospectus delivery requirements of the Securities Act.
We will not receive any proceeds from any sale of the exchange notes by
broker-dealers. Exchange notes received by broker-dealers for their own account
pursuant to the exchange offer may be sold from time to time in one or more
transactions:
o in the over-the-counter market;
o in negotiated transactions;
o through the writing of options on the exchange notes or a combination
of such methods of resale;
o at market prices prevailing at the time of resale;
o at prices related to such prevailing market prices; or
o at negotiated prices.
Any such resale 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 participating broker-dealer and/or the purchasers of
any such exchange notes. Any participating broker-dealer that resells exchange
notes that were received by it for its own account under the exchange offer and
any broker or dealer that participates in a distribution of such new notes may
be deemed to be an "underwriter" within the meaning of the Securities Act and
any profit on any such resale of exchange notes and any commissions or
concessions received by any such persons may be deemed to be underwriting
compensation under the Securities Act. The letter of transmittal states that by
acknowledging that it will deliver, and by delivering, a prospectus, a
participating broker-dealer will not be deemed to admit that it is an
"underwriter" within the meaning of the Securities Act.
We have agreed to pay all expenses incidental to the exchange offer, other
than commissions and concessions of any brokers or dealers, and will indemnify
holders of the exchange notes, including any broker-dealers, against specified
liabilities, including liabilities under the Securities Act, as set forth in the
registration rights agreement.
LEGAL MATTERS
Mandel & Resnik P.C., New York, New York will issue an opinion for us and
our subsidiaries with respect to the issuance of the exchange notes offered
hereby, including:
(1) our existence and good standing under our state of incorporation;
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(2) our authorization of the issuance and sale of the exchange notes;
and
(3) the enforceability of the exchange notes.
EXPERTS
Our consolidated financial statements as of and for the fiscal years ended
September 30, 1997 and 1998 included in this prospectus have been audited by
Arthur Andersen LLP, independent public accountants, as stated in their report
appearing herein, and are included herein in reliance upon such report given
upon the authority of such firm as experts in accounting and auditing.
Our consolidated financial statements as of and for the fiscal year ended
September 30, 1996 included in this prospectus have been audited by Holtz
Rubenstein & Co., LLP, independent public accountants, as stated in their report
appearing herein, and are included herein in reliance upon such report given
upon the authority of such firm as experts in accounting and auditing.
Ernst & Young LLP, independent auditors, have audited the financial
statements of the Berlin-Gorham Pulp and Paper Mill at December 27, 1998 and
December 28, 1997 and for each of the three years in the period ended December
27, 1998, as set forth in their report. We have included the financial
statements of the Berlin-Gorham Pulp and Paper Mill in this prospectus and
elsewhere in the registration statement in reliance on Ernst & Young LLP's
report, given on their authority as experts in accounting and auditing.
CHANGE IN CERTIFYING ACCOUNTANTS
In 1997, we changed our certifying accountants from Holtz Rubenstein & Co.,
LLP to Arthur Andersen LLP. Our board of directors recommended and approved the
appointment of Arthur Andersen LLP as our certifying accountants. During the
fiscal years ended September 30, 1993, 1994, 1995 and 1996, there were no
disagreements with our former accountants on any matter of accounting principles
or practices, financial statement disclosure, or auditing scope or procedure,
which disagreements, if not resolved to the satisfaction of our former
accountants, would have caused them to make reference to the subject matter of
the disagreement in their report. None of the our former accountants' reports on
our financial statements for the fiscal years ended September 30, 1994, 1995 and
1996 contained an adverse opinion or disclaimer of opinion, nor was it modified
or qualified as to uncertainty, audit scope or accounting principles.
AVAILABLE INFORMATION
We have filed with the Securities and Exchange Commission a registration
statement on Form S-4, the "exchange offer registration statement," which term
encompasses all amendments, exhibits, annexes and schedules thereto, pursuant to
the Securities Act of 1933, and the rules and regulations promulgated
thereunder, covering the exchange notes being offered. This prospectus does not
contain all the information set forth in the exchange offer registration
statement. For further information with respect to Middle American Tissue, and
the exchange offer, reference is made to the exchange offer registration
statement. Statements made in this prospectus as to the contents of any
contract, agreement or other document referred to are not necessarily complete.
With respect to each such contract, agreement or other document filed as an
exhibit to the exchange offer registration statement, reference is made to the
exhibit for a more complete description of the document or matter involved, and
each such statement shall be deemed qualified in its entirety by such reference.
The exchange offer registration statement, including the exhibits thereto,
can be inspected and copied at the public reference facilities maintained by the
Securities and Exchange Commission at Room 1024, 450 Fifth Street, N.W.,
Washington, D.C. 20549, and at the Regional Offices of the Securities and
Exchange Commission at Seven World Trade Center, Suite 1300, New York, New York
10048 and at 500 West Madison Street, Suite 1400, Chicago, Illinois 60661.
Copies of such materials can be obtained from the Public Reference Section of
the Securities and Exchange Commission at 450 Fifth Street, N.W., Washington,
D.C. 20549, at prescribed rates. In addition, the Securities and Exchange
Commission maintains a Web site that contains reports, proxy and information
statements and other information regarding registrants that file electronically
with the Securities and Exchange Commission. The address of such Web site is:
http://www.sec.gov.
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As a result of the filing of the exchange offer registration statement, we
will become subject to the informational requirements of the Securities Exchange
Act of 1934, and, in accordance therewith, will be required to file periodic
reports and other information with the Securities and Exchange Commission. Our
obligation to file periodic reports and other information with the Securities
and Exchange Commission will be suspended if the exchange notes are held of
record by fewer than 300 holders as of the beginning of our fiscal year, other
than the fiscal year in which the exchange offer registration statement is
declared effective. We will, nevertheless, be required to continue to file
reports with the Securities and Exchange Commission if the exchange notes are
listed on a national securities exchange.
In the event we cease to be subject to the informational requirements of
the Securities Exchange Act of 1934, we will be required under the indenture
relating to the exchange notes to continue to file with the Securities and
Exchange Commission the annual and quarterly reports, information, documents or
other reports, including, without limitation, reports on Forms 10-K, 10-Q and
8-K, which would be required pursuant to the informational requirements of the
Securities Exchange Act of 1934.
Under the indenture, we will furnish the holders of exchange notes with
annual, quarterly and other reports after we file such reports with the
Securities and Exchange Commission.
Annual reports delivered to the trustee and the holders of exchange notes
will contain financial information that has been examined and reported upon,
with an opinion expressed by a firm of independent public accountants. We will
also furnish such other reports as may be required by law.
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INDEX TO FINANCIAL STATEMENTS
<TABLE>
Middle American Tissue Inc.
<S> <C>
Reports of Independent Public Accountants........................................................ F-2
Consolidated Balance Sheets at June 30, 1999 (unaudited), September 30, 1998
and 1997......................................................................................... F-4
Consolidated Statements of Operations for the nine month periods ended June 30,
1999 and 1998 (unaudited) and the years ended September 30, 1998, 1997 and 1996.................. F-5
Consolidated Statements of Stockholders' Equity at June 30, 1999 (unaudited) and
September 30, 1998, 1997, 1996 and 1995.......................................................... F-6
Consolidated Statements of Cash Flows for the nine month periods ended June 30,
1999 and 1998 (unaudited) and the years ended September 30, 1998, 1997 and 1996.................. F-7
Notes to Consolidated Financial Statements....................................................... F-9
Berlin-Gorham Mills
Report of Independent Auditors................................................................... F-23
Balance Sheets at December 27, 1998 and December 28, 1997........................................ F-24
Statements of Operations for the 52 weeks ended December 27, 1998, December 28,
1997 and December 29, 1996....................................................................... F-25
Statements of Changes in Crown Vantage's Investment for the fifty two weeks
ended December 27, 1998, December 28, 1997 and December 29, 1996................................. F-26
Statements of Cash Flows for the fifty two weeks ended December 27, 1998,
December 28, 1997 and December 29, 1996.......................................................... F-27
Notes to Financial Statements.................................................................... F-28
Balance sheets at June 27, 1999 (unaudited) and December 27, 1998................................ F-37
Statements of Operations for the 26 weeks ended June 27, 1999 and June 28, 1998
(unaudited)...................................................................................... F-38
Statements of Cash Flows for the 26 weeks ended June 27, 1999 and June 28, 1998
(unaudited)...................................................................................... F-39
Notes to Interim Financial Statements............................................................ F-40
</TABLE>
F-1
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Board of Directors and Stockholder of Middle American Tissue Inc.:
We have audited the accompanying consolidated balance sheets of Middle
American Tissue Inc. (the "Company") as of September 30, 1998 and 1997, and the
related consolidated statements of operations, stockholders' equity and cash
flows for each of the two years in the period ended September 30, 1998. 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 Middle American Tissue Inc.
as of September 30, 1998 and 1997, and the results of its operations and its
cash flows for each of the two years in the period ended September 30, 1998 in
conformity with generally accepted accounting principles.
s/Arthur Andersen LLP
Arthur Andersen LLP
Melville, New York
October 26, 1999
F-2
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Board of Directors and Stockholder of Middle American Tissue Inc.
We have audited the accompanying consolidated statements of operations,
stockholders' equity and cash flows of Middle American Tissue Inc. (the
"Company") for the year ended September 30, 1996. These financial statements are
the responsibility of the Company's management. Our responsibility is to express
an opinion on these financial statements based on our audit.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the results of operations and cash flows of Middle
American Tissue Inc. for the year ended September 30, 1996 in conformity with
generally accepted accounting principles.
s/Holtz Rubenstein & Co., LLP
Holtz Rubenstein & Co., LLP
Melville, New York
December 23, 1996
F-3
<PAGE>
MIDDLE AMERICAN TISSUE INC.
CONSOLIDATED BALANCE SHEETS
(dollars in thousands, except share amounts)
<TABLE>
<CAPTION>
June 30, September 30,
-------- ------------------------
1999 1998 1997
-------- -------- --------
ASSETS (unaudited)
<S> <C> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents .......................................................... $ 597 $ 1,480 $ 870
Accounts receivable, net of allowance for doubtful accounts of
$408 (unaudited), $83 and $1,380, respectively .................................... 35,078 33,229 29,466
Inventories (Note 3) ............................................................... 57,219 51,988 51,986
Equipment held for sale ............................................................ 3,322 393 1,968
Prepaid expenses and other current assets .......................................... 3,860 2,872 3,620
Total current assets ...................................................... 100,076 89,962 87,910
PROPERTY, PLANT AND EQUIPMENT, net (Note 4) ........................................ 163,900 157,705 128,734
DUE FROM RELATED PARTIES (Note 9) .................................................. 21,672 19,879 11,334
DEFERRED COSTS, net ................................................................ 2,589 3,148 2,388
OTHER ASSETS ....................................................................... 185 125 151
-------- -------- --------
$288,422 $270,819 $230,517
======== ======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Notes payable (Note 6) ............................................................. $ 74,810 $ 66,317 $ 47,280
Current portion of long-term debt (Note 7) ......................................... 6,427 6,553 5,957
Current portion of capital lease and financing
obligations (Note 8) ............................................................... 5,055 5,059 2,866
Accounts payable ................................................................... 45,859 50,153 46,953
Accrued expenses ................................................................... 12,200 10,628 5,746
-------- -------- --------
Total current liabilities ................................................. 144,351 138,710 108,802
DUE TO RELATED PARTIES (Note 9) .................................................... 27,912 22,743 20,276
LONG-TERM DEBT (Note 7) ............................................................ 48,620 51,280 52,830
CAPITAL LEASE AND FINANCING
OBLIGATIONS (Note 8) ............................................................... 24,689 24,442 14,751
-------- -------- --------
Total liabilities ......................................................... 245,572 237,175 196,659
======== ======== ========
COMMITMENTS AND CONTINGENCIES (Note 12) STOCKHOLDER'S EQUITY (Note 1):
Common stock, no par value; 200 shares authorized, 200
shares issued and outstanding ..................................................... 1,605 1,605 1,605
Additional paid-in capital ......................................................... 8,225 7,266 6,006
Retained earnings .................................................................. 33,020 24,773 26,247
-------- -------- --------
42,850 33,644 33,858
-------- -------- --------
$288,422 $270,819 $230,517
======== ======== ========
</TABLE>
The accompanying notes are an integral part of these consolidated balance
sheets.
F-4
<PAGE>
MIDDLE AMERICAN TISSUE INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(dollars in thousands)
<TABLE>
<CAPTION>
Nine Months
Ended June 30, Year Ended September 30,
------------------------- -----------------------------------------
1999 1998 1998 1997 1996
--------- --------- --------- --------- ---------
(Unaudited)
<S> <C> <C> <C> <C> <C>
NET SALES:
Paper products ................................... $ 182,557 $ 152,681 $ 208,334 $ 196,368 $ 152,543
Equipment ........................................ 930 3,617 5,654 1,228 179
--------- --------- --------- --------- ---------
183,487 156,298 213,988 197,596 152,722
--------- --------- --------- --------- ---------
COST OF SALES:
Paper products ................................... 143,328 127,105 173,509 152,285 122,152
Equipment ........................................ 140 1,379 1,574 285 121
--------- --------- --------- --------- ---------
143,468 128,484 175,083 152,570 122,273
--------- --------- --------- --------- ---------
Gross profit .............................. 40,019 27,814 38,905 45,026 30,449
--------- --------- --------- --------- ---------
OPERATING EXPENSES:
Selling .......................................... 15,217 14,677 20,373 15,311 11,110
General and administrative ....................... 6,749 6,573 9,015 11,642 6,071
--------- --------- --------- --------- ---------
21,966 21,250 29,388 26,953 17,181
--------- --------- --------- --------- ---------
Operating income .......................... 18,053 6,564 9,517 18,073 13,268
--------- --------- --------- --------- ---------
OTHER INCOME (EXPENSES):
Interest expense, net:
Interest forgiven by related party ............. (959) (954) (1,260) -- --
Other interest expense, net .................... (9,931) (8,687) (13,412) (12,272) (9,175)
--------- --------- --------- --------- ---------
Interest expense, net ............................ (10,890) (9,641) (14,672) (12,272) (9,175)
Rental income .................................... 900 661 1,215 788 502
Other income ..................................... -- -- -- -- --
Income from insurance claims ..................... 184 827 2,466 284 8,587
--------- --------- --------- --------- ---------
(9,806) (8,153) (10,991) (11,200) (86)
--------- --------- --------- --------- ---------
NET INCOME (LOSS) .................................. $ 8,247 $ (1,589) $ (1,474) $ 6,873 $ 13,182
========= ========= ========= ========= =========
</TABLE>
The accompanying notes are an integral part of these consolidated statements.
F-5
<PAGE>
MIDDLE AMERICAN TISSUE INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(dollars in thousands)
<TABLE>
<CAPTION>
Common Stock
------------------------ Additional Retained
Shares Amount Paid-in Capital Earnings Total
-------- -------- --------------- -------- --------
<S> <C> <C> <C> <C> <C>
Balance at September 30, 1995 .................... 200 $ 1,605 $ 6,006 $ 6,192 $ 13,803
Net income .................................. -- -- -- 13,182 13,182
-------- -------- -------- -------- --------
Balance at September 30, 1996 ............... 200 1,605 6,006 19,374 26,985
Net income .................................. -- -- -- 6,873 6,873
-------- -------- -------- -------- --------
Balance at September 30, 1997 ............... 200 1,605 6,006 26,247 33,858
Net loss .................................... -- -- -- (1,474) (1,474)
Interest forgiven (Note 9) .................. -- -- 1,260 -- 1,260
-------- -------- -------- -------- --------
Balance at September 30, 1998 ............... 200 1,605 7,266 24,773 33,644
Interest forgiven (unaudited) ............... -- -- 959 -- 959
Net income (unaudited) ...................... -- -- -- 8,247 8,247
-------- -------- -------- -------- --------
Balance at June 30, 1999 (unaudited) ............. 200 $ 1,605 $ 8,225 $ 33,020 $ 42,850
======== ======== ======== ======== ========
</TABLE>
The accompanying notes are an integral part of these consolidated statements.
F-6
<PAGE>
MIDDLE AMERICAN TISSUE INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(dollars in thousands)
<TABLE>
<CAPTION>
Nine Months
Ended June 30 Year Ended September 30,
---------------------- ------------------------------------
1999 1998 1998 1997 1996
-------- -------- -------- -------- --------
(unaudited)
<S> <C> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) ......................................... $ 8,247 $ (1,589) $ (1,474) $ 6,873 $ 13,182
Adjustments to reconcile net income to net cash
provided by (used in) operating activities:
Depreciation and amortization ........................... 8,830 8,018 10,585 8,282 5,593
Provision for bad debts ................................. 450 -- 560 1,120 497
Forgiveness of interest ................................. 959 954 1,260 -- --
Other ................................................... -- 183 -- -- --
Changes in operating assets and liabilities:
Accounts receivable ................................... (2,299) (900) (4,323) 23,452 (29,688)
Inventories ........................................... (5,231) 4,787 (2) (21,995) (4,172)
Equipment held for sale ............................... (2,308) 1,380 1,575 310 --
Prepaid expenses and other current assets ............. (988) (229) 748 (1,644) 1,553
Other assets .......................................... (60) 246 26 (138) 5,085
Accounts payable and accrued expenses ................. (2,722) (4,657) 8,082 5,625 18,301
-------- -------- -------- -------- --------
Net cash provided by (used in) operating
activities ........................................ 4,878 8,193 17,037 21,885 10,351
-------- -------- -------- -------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures ...................................... (12,607) (19,178) (27,566) (29,172) (40,933)
-------- -------- -------- -------- --------
Net cash used in investing activities ............... (12,607) (19,178) (27,566) (29,172) (40,933)
-------- -------- -------- -------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net borrowings on revolving lines of credit ............... 8,851 15,279 16,944 5,462 5,589
Proceeds from notes payable ............................... 632 222 3,195 8,487 13,100
Proceeds from long-term debt .............................. 4,787 13,971 13,800 45,277 8,679
Proceeds from financing obligations ....................... 4,575 11,771 5,091 -- --
Principal payments on American Tissue Notes payable ....... (99) (4,459) (1,102) (2,035) (8,723)
Principal payments on long-term debt ...................... (4,573) (217) (5,617) (3,535) (494)
Principal payments upon
refinancing of mortgages ................................ (3,000) (9,150) (9,137) (25,016) (9)
Principal payments on capital leases and
financing obligations .................................. (6,507) (2,688) (3,660) (20,201) (169)
Increase in deferred costs ................................ (304) (1,137) (2,297) (1,114) 520
Advances and repayments to related parties, net ........... 3,376 (12,888) (6,078) 680 11,224
-------- -------- -------- -------- --------
Net cash provided by financing activities ........... 6,846 10,704 11,139 8,005 29,717
-------- -------- -------- -------- --------
</TABLE>
F-7
<PAGE>
MIDDLE AMERICAN TISSUE INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS (continued)
(dollars in thousands)
<TABLE>
<CAPTION>
Nine Months
Ended June 30, Year Ended September 30,
----------------------- ------------------------------------
1999 1998 1998 1997 1996
-------- -------- -------- -------- --------
(unaudited)
<S> <C> <C> <C> <C> <C>
NET INCREASE IN CASH AND CASH EQUIVALENTS ................. (883) (281) 610 718 (865)
CASH AND CASH EQUIVALENTS, beginning
of period ................................................. 1,480 870 870 152 1,017
-------- -------- -------- -------- --------
CASH AND CASH EQUIVALENTS, end
of period ................................................. $ 597 $ 589 $ 1,480 $ 870 $ 152
======== ======== ======== ======== ========
SUPPLEMENTAL CASH FLOW INFORMATION:
Interest paid .......................................... $ 9,931 $ 8,687 $ 13,574 $ 10,672 $ 16,474
======== ======== ======== ======== ========
Income taxes paid ...................................... $ 11 $ 45 $ 62 $ 97 --
======== ======== ======== ======== ========
Non-cash financing transactions relating to
capital lease obligations entered into ............... $ 4,183 $ 6,745 $ 10,453 $ 2,021 $ 8,770
======== ======== ======== ======== ========
</TABLE>
The accompanying notes are an integral part of these consolidated statements.
F-8
<PAGE>
MIDDLE AMERICAN TISSUE INC.
AMERICAN TISSUE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. DESCRIPTION OF BUSINESS:
Middle American Tissue Inc. (the "Company"), a Delaware corporation, was
formed in July 1999. The Company is a wholly-owned subsidiary of Super American
Tissue Inc. (the "Parent") and is the parent of American Tissue Inc. (the
"Subsidiary").
The Subsidiary, a Delaware corporation, was formed in August 1998 and is
the parent of various affiliated entities that were previously owned by, and
were under the common management and control of, the same stockholders.
Effective October 1, 1998, the stockholders of the affiliated companies
transferred their respective stock or membership interests in those entities to
the Subsidiary. Effective June 1999, the stockholders transferred their
respective stock in the Subsidiary to the Parent in exchange for pro rata shares
of the Parent. Effective July 1999, the Parent transferred its stock in the
Subsidiary to the Company in exchange for shares of the Company's stock.
The transactions described above constitute transfers of interests in
commonly controlled entities, and have been accounted for in a manner similar to
a pooling of interests. Accordingly, the accompanying financial statements of
the Company include the accounts of the Subsidiary and its respective
subsidiaries for the periods presented at the historical costs of the assets and
liabilities of such entities. Such financial statements have been presented on a
consolidated basis as if the Company had been in existence throughout the
periods presented.
The operations of the Company, through its ownership of the common stock of
the Subsidiary, consists of the following companies:
Paper Manufacturing and Converting Entities:
American Tissue Corporation ("ATC") Engaged in the conversion and
sale of paper products (see
below).
American Tissue Mills of Oregon, Inc.
("ATM-Oregon") Owns a tissue paper machine in
St. Helens, Oregon that is used
in the manufacturing of virgin
paper. The paper machine is
located in a facility owned and
operated by Boise Cascade
Corporation (Note 11).
American Tissue Mills of New Hampshire, Inc.
("ATM-New Hampshire") Engaged in the manufacture of
recycled paper.
American Tissue Mills of New York, Inc.
("ATM-New York") Engaged in the manufacture of
recycled paper.
American Tissue Mills of Neenah LLC
("ATM-Neenah) Engaged in the manufacture of
virgin and recycled paper and
conversion of paper products.
American Tissue Mills of Wisconsin, Inc.
("ATM-Wisconsin") Engaged in the manufacture of
recycled paper. This facility
closed during fiscal 1998 and
is transferring all its
equipment assets to American
Tissue Mills of New Hampshire,
Inc. (Note 11).
American Tissue Mills of Greenwich LLC
("ATM-Greenwich") Engaged in the manufacture of
virgin and recycled paper.
Real Estate Operations:
F-9
<PAGE>
100 Realty Management LLC Serves to coordinate payments
made to the real estate
companies listed below by the
operating companies listed
above and make payments on
behalf of the real estate
companies to outside vendors.
Engineers Road LLC Owns and operates a facility
located at 135 Engineers Road,
Hauppauge, New York.
Coram Realty LLC Owns and operates a facility
located at 468 Mill Road,
Coram, New York. Gilpin Realty
Corp. Owns and operates a
facility located at 45 Gilpin
Avenue, Hauppauge, New York.
Grand LLC Owns and operates a facility
located at 148 Hudson River
Road, Waterford, New York.
Saratoga Realty LLC Owns and operates a facility
located at 3 Duplainville Road,
Saratoga Springs, New York.
Markwood LLC and Company Markwood LLC is the parent
Company of Fabricaciones
Metalicas Mexicanas, S.A.
("FMMSA"). FMMSA owns and
operates an industrial park in
Mexico with multiple
facilities, two of which are
leased to outside third parties
and the remaining are leased to
American Tissue Mills de
Mexico, an affiliate of our
stockholders.
Calexico Tissue Company LLC Owns and operates a facility
located at 2361 Portico Blvd.,
Calexico, California.
Other Entities:
Unique Financing LLC Engaged in the business of
financing the acquisition of
certain used machinery and
equipment.
American Cellulose Mill Corp. Provides trucking services to
our paper manufacturing and
converting entities.
In addition to the above listed operations, the Subsidiary engages in the
acquisition, refurbishment and resale of various tissue converting equipment
through its ATC subsidiary. These activities are presented as separate
components of revenues and cost of sales in the accompanying consolidated
financial statements.
The real estate operations of the Subsidiary primarily consist of the lease
of facilities owned by the real estate entities and which are used by several of
the paper manufacturing and converting entities. These transactions are
eliminated in the consolidated financial statements, with the exception of
Markwood LLC, as described above.
The stockholders of the Parent also own, manage and control other
corporations and limited liability companies in similar lines of business that
are not included in the accompanying consolidated financial statements. Any
transactions with these companies are entered into at "arm's length" and any
resulting amounts due from or due to these companies are recorded as due from
related parties and due to related parties respectively.
F-10
<PAGE>
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
Principles of Consolidation
The consolidated financial statements include the accounts of the Company,
the Subsidiary and the wholly-owned subsidiaries of the Subsidiary, as described
in Note 1. All significant intercompany accounts and transactions have been
eliminated in the consolidated financial statements.
Cash and Cash Equivalents
Cash and cash equivalents include cash on hand, cash in banks, and other
short-term, highly liquid investments with original maturities of three months
or less. Te cost of cash equivalents approximates fair value as of September 30,
1998 and 1997.
Concentration of Credit Risk
Financial instruments that potentially subject the Company to
concentrations of credit risk consist principaly of accounts receivable from
sales. The Company performs ongoing credit evaluations of its customers'
financial condition and payment history. Generally, accounts receivable are due
within 30 days. Credit losses have historically been consistent with
management's expectations. Most of our business activities are with
distributors, retailers, and paper converters located within the eastern United
States and Canada.
Inventories
Inventories are valued at the lower of cost (first-in, first-out method) or
market.
Equipment Held for Sale
Equipment held for sale consists of equipment purchased by us with the
intent of resale. This equipment is not used in our operations and, accordingly,
is not subject to depreciation. The assets are carried at the lower of cost or
their net realizable value.
Property, Plant and Equipment
Property, plant and equipment are stated at cost, net of accumulated
depreciation and amortization. Depreciation is computed principally on the
straight-line method over the following estimated useful lives of the related
assets:
Buildings and building improvements 30 -- 39.5 years
Machinery and equipment 5 -- 20 years
Leasehold improvements the lesser of the useful life of the asset or the term of
the lease
Deferred Costs
Deferred costs primarily represent loan origination and refinancing costs
and other capitalizable expenses that are either being amortized over the term
of the loan or sixty months depending on the nature of the expense. Amortization
expense on deferred costs was approximately $1,537,000, $1,128,000 and $355,000
for the years ended September 30, 1998, 1997 and 1996.
Long-Lived Assets
Statement of Financial Accounting Standards ("SFAS") No. 121, "Accounting
for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed
of," requires that long-lived assets be reviewed for impairment whenever events
or changes in circumstances indicate that the carrying amount of the assets in
question may not be recoverable. The adoption of SFAS No. 121 in fiscal 1997 did
not have a material effect on our results of operations or financial position.
F-11
<PAGE>
Fair Value of Financial Instruments
The Company complies with SFAS No. 107, "Disclosure about Fair Value of
Financial Instruments", which requires disclosures about the fair value of our
financial instruments. The methods and assumptions used to estimate the fair
value of the following classes of financial instruments were:
Current Assets and Current Liabilities: The carrying amount of cash,
current receivables and payables and certain other short-term financial
instruments approximate their fair value.
Long-Term Debt: The fair value of our long-term debt, including the current
portion, was estimated using a discounted cash flow analysis, based on our
assumed incremental borrowing rates for similar types of borrowing arrangements.
The carrying amount of variable and fixed rate debt at September 30, 1998 and
1997 approximates fair value.
Revenue
Revenue is recognized upon shipment of our products to our customers.
Income Taxes
The Parent's stockholders have elected to be taxed under the provisions of
Sub-chapter "S" of the Internal Revenue Code ("S" Corporation). Prior to the
transfer of ownership discussed in Note 1, the Subsidiary's subsidiaries were
treated as either "S" Corporations or limited liability companies treated as
partnerships under the Internal Revenue Code. Accordingly, the stockholders of
the Parent include their respective shares of the Company's net income in their
individual income tax returns. The amount of corporate level minimum taxes and
taxes based on income imposed by state and local authorities is not material.
Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
Recently Issued Accounting Standards
In June 1997, the Financial Accounting Standards Board ("FASB") issued SFAS
No. 130, "Reporting Comprehensive Income." SFAS No. 130 establishes standards
for the reporting and display of comprehensive income and its components in a
full set of financial statements. The Company's consolidated financial
statements will be required to include comprehensive income disclosures
beginning in fiscal 1999. Restatement of prior period information must be made
for comparative purposes. The Company currently does not have any items of other
comprehensive income. Accordingly, comprehensive income (loss) is the same as
net income (loss) for each of the periods presented in the consolidated
statements of operations.
In February 1998, the FASB issued SFAS No. 132, "Employers' Disclosures
About Pensions and Other Postretirement Benefits." SFAS No. 132 requires
additional information about the changes in the benefit obligation and fair
value of plan assets during the period, while standardizing the disclosure
requirements for pensions and other postretirement benefits. The Company is
required to adopt the provisions of SFAS No. 132 in fiscal 1999.
In June 1998, the FASB issued SFAS No. 133, "Accounting for Derivative
Instruments and Hedging Activities." This statement establishes accounting and
reporting standards for derivative instruments, including certain derivative
instruments embedded in other contracts, and for hedging activities. SFAS No.
133, as amended by SFAS No. 137, "Accounting for Derivative Instruments and
Hedging Activities -- Deferral of Effective Date of FASB Statement No. 133,"
will become effective for the Company as of the quarter ended December 31, 2000
and will not require retroactive restatement of prior period financial
statements. The Company currently does not use derivative instruments or engage
in hedging activities and, accordingly, does not expect that this statement will
have an impact on its consolidated financial statements when adopted.
F-12
<PAGE>
SFAS No. 130 and 132 expand and modify financial statement disclosures and,
accordingly, will have no impact on our results of operations or financial
position.
3. INVENTORIES:
Inventories, at cost, consist of the following:
September 30,
June 30, -----------------------
1999 1998 1997
------- ------- -------
(unaudited)
(amounts in 000s)
Raw materials .................. $26,476 $32,645 $27,251
Work-in-process ................ 361 56 297
Finished goods ................. 30,382 19,287 24,438
------- ------- -------
$57,219 $51,988 $51,986
======= ======= =======
4. PROPERTY, PLANT AND EQUIPMENT, NET:
Property, plant and equipment, at cost, consist of the following:
<TABLE>
<CAPTION>
September 30,
June 30, -----------------------
1999 1998 1997
--------- --------- ---------
(unaudited)
(amounts in 000s)
<S> <C> <C> <C>
Machinery and equipment ....................... $ 131,439 $ 136,818 $ 113,614
Buildings and building improvements ........... 23,288 19,426 20,592
Leasehold improvements ........................ 4,825 4,650 4,002
Land .......................................... 4,544 4,544 3,537
--------- --------- ---------
164,096 165,438 141,745
Less: accumulated depreciation and amortization (37,053) (30,641) (23,650)
--------- --------- ---------
127,043 134,797 118,095
Projects in progress .......................... 36,857 22,908 10,639
--------- --------- ---------
Total property, plant and
equipment, net ........................ $ 163,900 $ 157,705 $ 128,734
========= ========= =========
</TABLE>
Depreciation and amortization expense on property, plant and equipment was
approximately $9,048,000, $7,154,000 and $5,238,000 during the years ended
September 30, 1998, 1997 and 1996, respectively. Included in the costs of
property, plant and equipment is capitalized interest relating to funding
required for various construction and project development. Capitalized interest
was approximately $599,000 for the year ended September 30, 1998. No interest
was capitalized in 1997.
F-13
<PAGE>
5. ACCRUED EXPENSES:
Accrued expenses consist of the following:
September 30,
June 30, ---------------------
1999 1998 1997
------- ------- -------
(unaudited)
(amounts in 000s)
Compensation and benefits ............ $ 4,831 $ 1,939 $ 1,828
Promotion and incentives ............. 1,323 1,232 295
Occupancy costs ...................... 3,503 2,918 2,166
Other ................................ 2,543 4,539 1,457
------- ------- -------
$12,200 $10,628 $ 5,746
======= ======= =======
6. NOTES PAYABLE:
Notes payable consist of the following:
September 30,
June 30, -----------------
1999 1998 1997
------- ------- -------
(unaudited)
(amounts in 000s)
Secured note payable to LaSalle Bank National
Association(a) ................................... $67,192 $57,531 $42,769
Secured note payable to Mashreq Bank(b) .......... 4,365 5,175 2,993
Unsecured note payable to A.I. Credit Corp.(c) ... -- 428 423
Other(d) ......................................... 3,253 3,183 1,095
------- ------- -------
$74,810 $66,317 $47,280
- ---------- ======= ======= =======
(a) The Subsidiary and certain of its subsidiaries have entered into loan and
security agreements with this bank whereby such subsidiaries may borrow an
aggregate of (i) 85% of eligible accounts receivable and (ii) the lesser of
$34,000,000 or 65% of the lower of the cost or market value of eligible
inventory. The aggregate loan limit under the loan agreement, as amended, is
$60,000,000. All borrowings are due on demand with interest payable monthly at
3/4% above the bank's prime rate (9% and 9.25% at September 30, 1998 and 1997,
respectively). The loan agreement is in effect until June 16, 1999 and is
renewable on a year to year basis thereafter. The loan is collateralized by
accounts receivable, inventory, tangible and intangible assets of certain of our
subsidiaries, and is guaranteed by our Parent's principal stockholders. The loan
agreement requires, among other things, the maintenance of a minimum level of
tangible net worth. The Subsidiary was in compliance with these loan covenants
at September 30, 1998 and 1997. However, the default discussed in Note 6 with
respect to the GECC debt triggered a default under the LaSalle agreement. The
Subsidiary received a waiver of default from LaSalle Bank National Association.
(b) The Subsidiary has a current borrowing facility with this bank for the
purpose of financing machinery and equipment purchases. Borrowings under this
facility have a maximum term of one year from the date of initiation. All
borrowings are collateralized by the assets financed, as well as personal and
corporate guarantees. The facility limit is $5,700,000 and borrowings bear
interest at an annual rate of prime plus three-quarters of one percent (9% and
9.25% at September 30, 1998 and 1997, respectively).
(c) This note was issued in connection with the financing of certain insurance
premiums by A.I. Credit Corp. The borrowings outstanding at September 30, 1998
are payable in monthly installments of approximately $76,000 through April 1,
1999 and bear interest at a rate of 6.25% per annum. The note at September 30,
1997 required monthly payments of approximately $70,000 through March 29, 1998
and bore interest at an annual rate of 6.1%.
(d) The Company's subsidiaries also received loans from other unrelated
individuals and entities. Amounts outstanding are payable upon demand and carry
stated rates of interest ranging between 10% and 13% per annum.
F-14
<PAGE>
7. LONG-TERM DEBT:
Long-term debt consists of the following:
<TABLE>
<CAPTION>
September 30,
June 30, --------------------
1999 1998 1997
-------- -------- --------
(unaudited)
(amounts in 000s)
<S> <C> <C> <C>
General Electric Capital Corporation ("GECC")(a) $ 30,773 $ 34,220 $ 38,851
Israel Discount Bank ("IDB")(b) ................ 1,491 2,050 1,650
Curtiss-Wright Flight Systems/Shelby, Inc.(c) .. 718 773 847
Mortgage loans payable(d) ...................... 21,615 20,340 17,439
Community Redevelopment Agency of Calexico(e) .. 450 450 --
-------- -------- --------
55,047 57,833 58,787
Less: current portion of long-term debt ........ (6,427) (6,553) (5,957)
-------- -------- --------
$ 48,620 $ 51,280 $ 52,830
======== ======== ========
</TABLE>
- ----------
(a) On June 1, 1997, the Subsidiary entered into a six year financing agreement
with GECC for long-term financing to refinance existing debt. Such financing
agreement provides for two term loans-term loan A in the amount of $30,000,000
and term loan B in the amount of $10,000,000. Borrowings under term loan A bear
interest at a fixed rate of 9.31% per annum. Borrowings under term loan B bore
interest at a rate of prime plus 1% (9.5% at September 30, 1997) per annum.
Effective October 21, 1997, the interest rate on term loan B was converted to a
fixed rate of 9.01% per annum by GECC, with a balloon payment of $12,807,000 on
the two loans due on June 20, 2003. The financing agreement requires, among
other things, the maintenance of minimum tangible net worth, a fixed charge
coverage ratio, and a maximum leverage ratio. As of September 30, 1998, the
Subsidary was not in compliance with certain financial covenant requirements.
However, subsequent to year-end, GECC amended the agreement, resulting in the
Subsidiary being in compliance with such financial covenants. Additionally, the
most recent of such amendments shortened the maturity of such term loans to June
30, 2000, as discussed in Note 12.
(b) The Subsidary has issued two notes to IDB. The first note had an original
face value of $1,500,000, was issued in June 1996 and is collateralized by
substantially all of the assets of ATM-Greenwich. This note bears interest at an
annual rate of prime plus one and one-half percent (9.75% and 10% at September
30, 1998 and 1997, respectively). This note requires monthly principal payments
of $50,000. The second note was issued for $1,000,000 in October 1997 and is
collateralized by substantially all of the assets of Grand LLC. The note
requires monthly principal payments of $50,000 commencing November 1998, with a
final balloon payment of $450,000 in October 1999. This second note bears
interest at an annual rate of prime plus three-quarters of one percent (9% at
September 30, 1998).
(c) On July 29, 1996, the Subsidary entered into a term loan with Curtiss-Wright
Flight Systems/Shelby, Inc. ("Curtiss-Wright") in order to borrow funds for
certain renovations to our New Jersey distribution center (the "Distribution
Center"). The Subsidary leases the Distribution Center from Curtiss-Wright. The
principal balance outstanding on this term loan is being amortized through
August 1, 2006 at a fixed interest rate of 8% per annum and is subordinated to
our debt to LaSalle Bank National Association (see Note 5).
(d) Mortgage loans payable consist of several mortgage loans on certain
properties owned by us. All properties under the mortgage loans serve as
collateral for the debt. During fiscal 1998, the Subsidary obtained a new
mortgage loan in the amount of $2,850,000 relating to its Saratoga property and
paid-off the existing mortgage loan held by LaSalle Bank National Association in
the amount of $2,837,000. The Subsidiary refinanced existing mortgage loans on
properties owned by Grand LLC, Coram Realty LLC, Engineers Road LLC and Gilpin
Realty Corp. The Grand LLC refinancing consisted of the repayment of $6,300,000
to the existing lender and receipt of proceeds of $6,500,000 from a new lender.
The other mortgage loans refinanced were made by the existing lender and were
included as part of a consolidated $14,325,000 mortgage loan encompassing these
entities as well as an unconsolidated affiliate. During fiscal 1998, the
Subsidiary obtained a secured 8.75% note payable from Valley Independent Bank
for $3,000,000 in connection with the financing of certain construction at its
Calexico facility. The note had an original maturity of
F-15
<PAGE>
August 5, 1998, however, no payments have been made. See Note 14 for information
regarding the April 19, 1999 refinancing of this note into a long-term mortgage.
The outstanding balances at September 30, 1998 have interest rates ranging from
7.5% to 8.05%. The refinanced mortgage loans had interest rates ranging from
8.375% to 8.625% as of September 30, 1997. Mortgage loans payable have varying
maturity dates between October 2007 and February 2018, with the exception of the
mortgage loan on Markwood LLC. The mortgage loan on Markwood LLC's property was
subsequently amended in December 1998, calling for extinguishment by March 1,
1999 in the amount of $175,000; the carrying amount of this note at September
30, 1998 is $354,000.
(e) The loans from Community Redevelopment Agency of the City of Calexico are in
the principal amounts of $166,000 and $284,000 at September 30, 1998. These
loans were obtained to finance certain construction at the Calexico facility.
The promissory note evidencing the $166,000 obligation is amortized on a
quarterly basis over a 15 year period and bears interest at a rate of 3% per
annum. The $284,000 reimbursement loan is due in 2004, however, this loan may be
forgiven as of the fifth year of the loan (2002) provided that the Subsidiary
provides certain documentation to the lender demonstrating that the Subsidiary
employs at least 100 Qualified Employees, as defined in the loan agreement, for
a minimum period of five years. The reimbursement loan is non-interest bearing,
subject to certain provisions that may require interest in the event of a
default by us, as defined in the relevant agreement.
Reference is made to Note 12 for presentation of the annual maturities of
long-term debt, as amended.
8. CAPITAL LEASE AND FINANCING OBLIGATIONS:
Capital lease and financing obligations require future minimum payments
as follows at September 30, 1998:
Year Ending September 30, (amounts in 000s)
- ------------------------- ----------------
1999 ......................................................... $ 7,598
2000 ......................................................... 7,274
2001 ......................................................... 7,377
2002 ......................................................... 8,436
2003 ......................................................... 4,942
Thereafter ................................................... 1,265
--------
36,892
Less: portion attributable to interest ....................... (7,391)
--------
Present value of capital lease and financing obligations at
September 30, 1998 ........................................... $ 29,501
========
These instruments are collateralized by the specific machinery and
equipment covered under each obligation. The balances of assets leased and
financed are as follows at September 30:
1998 1997
-------- --------
(amounts in 000s)
Gross assets ............................... $ 41,018 $ 25,474
Accumulated amortization ................... (5,968) (3,015)
-------- --------
Net book value ........................ $ 35,050 $ 22,459
======== ========
Amortization relating to these assets has been included in the amounts
reported in Note 4.
F-16
<PAGE>
9. RELATED PARTY TRANSACTIONS:
Due from related parties consist of the following:
September 30,
June 30, ---------------------
1999 1998 1997
------- ------- -------
(unaudited)
(amounts in 000s)
Affiliated entities ............... $20,540 $18,659 $11,020
Stockholders ...................... 1,132 1,220 314
------- ------- -------
$21,672 $19,879 $11,334
======= ======= =======
The receivables from the affiliated entities have arisen in the normal
course of business, primarily from sales between companies in the consolidated
group to other entities owned by our Parent's stockholders. These receivables
have no definite repayment date.
Amounts due from our Parent's stockholders primarily represent loans made
to certain of our Parent's stockholders. The loans have no stated rates of
interest and have no definite repayment date prior to September 30, 1999.
Due to related parties consist of the following:
September 30,
June 30, ---------------------
1999 1998 1997
------- ------- -------
(unaudited)
(amounts in 000s)
Affiliated entities ............... $ 6,937 $ 2,236 $ 41
Stockholders ...................... 20,975 20,507 20,235
------- ------- -------
$27,912 $22,743 $20,276
======= ======= =======
The amounts due to affiliated entities have arisen in the ordinary course
of business between the Company and the affiliated entities. The stockholders of
the affiliated entities have represented to us that they do not intend to
require any payment of our obligations prior to September 30, 1999.
Amounts owed to our Parent's stockholders and their families carried
original stated interest rates of 10%. Of this amount, $10,965,000 is
subordinated to other debt agreements. Effective October 1, 1997, one of our
Parent's stockholders released the Company from its obligation to pay interest
from October 1, 1997 and forward, for an indefinite period of time. Accordingly,
interest expense of $1,260,000 for the period of October 1, 1997 through
September 30, 1998, on the loans from this stockholder has been imputed at 7.75%
per annum and recorded as a capital contribution through additional paid-in
capital. The stockholder has also represented that any accrued interest prior to
October 1, 1997 will not be required to be repaid prior to September 30, 1999.
The stockholders have represented to us that they do not intend to seek
repayment of any amounts of indebtedness prior to September 30, 1999. Interest
expense on the outstanding borrowings from the stockholders and their immediate
families approximated $1,390,000, $1,385,000 and $1,580,000 for the years ended
September 30, 1998, 1997 and 1996, respectively.
10. EMPLOYEE RETIREMENT PLANS:
The Company, through some of its subsidiaries, offers various retirement
benefits to its employees. The following is a brief summary of the plans offered
by the entities included in the consolidated results of the Company:
401(k) Plans
The Company sponsors two 401(k) plans. One plan covers certain union
employees at one of our facilities. The other plan covers substantially all
other employees of the Company, subject to certain plan eligibility
F-17
<PAGE>
requirements. Both plans allow for employee contributions based on a percentage
of compensation, ranging between 1% and 15%. We will match employee
contributions to the union plan in amounts equal to 75% of the first 2% and 50%
of the next 3% of employees' compensation. The Company can make matching
contributions to the other plan up to 6% of employee contributions, at the
discretion of the Board of Directors. The discretionary contribution rate for
the years ended September 30, 1998 and 1997 was 2%. Total Company contributions
made to the 401(k) Plans were approximately $353,000, $305,000 and $71,600 for
the years ended September 30, 1998, 1997 and 1996, respectively.
Pension Plan
The Company maintains a noncontributory defined benefit pension plan, the
American Tissue Pension Plan for Hourly Employees (the "Plan"). The Plan
provides certain employees of ATM-Neenah with retirement benefits. The Plan's
assets are invested in a money market fund.
The following tables set forth the funded status of the Plan based on
actuarial valuations at October 1, 1998 and 1997 covering the fiscal years
ending:
September 30,
---------------
1998 1997
----- -----
(Amounts in 000s)
Actuarial present value of accumulated benefit obligation:
Vested benefits .............................................. $ -- $ --
Nonvested benefits ........................................... 483 171
Accumulated benefit obligation ............................... $ 483 $ 171
Projected benefit obligation for service rendered to date .... $ 871 $ 312
Plan assets at fair value .................................... 219 25
Plan assets less than projected benefit obligation ........... (652) (287)
Unrecognized net loss (gain) ................................. 134 (11)
----- -----
Accrued pension cost ......................................... $(518) $(298)
===== =====
Net pension cost for the years ended September 30, 1998 and 1997, include
the following components:
1998 1997
----- -----
(Amounts in 000s)
Service costs-benefits earned during the period ........... $ 395 $ 323
Interest costs on the projected benefit obligation ........ 23 --
Expected return on assets ................................. (8) --
----- -----
Net pension cost .................... $ 410 $ 323
===== =====
The weighted-average discount rate and rate of increase in future
compensation levels used in determining the average actuarial present values of
the projected benefit obligations were 7.5% and 4.5% and 6.75% and 4.5%,
respectively, for the years 1998 and 1997, respectively. The average expected
long-term rate of return on assets was 9.5% for the years 1998 and 1997.
11. INSURANCE SETTLEMENT:
During fiscal 1998, the Company incurred various losses relating to
physical damage of machinery and equipment and property damages. The Company has
submitted claims to their insurance companies and any resulting gains are
reported as income from insurance claims in the accompanying consolidated
statement of operations.
On November 16, 1995, a fire destroyed one of our operating facilities that
included our executive and administrative offices. The Company held fire,
property and business interruption insurance in the amount of $35,000,000. The
Company settled its insurance claim in October 1996 for approximately
$27,400,000. Substantially, all of the gain on the insurance settlement, as
reported in the statement of operations, represents the difference between the
replacement value and the carrying value of the equipment destroyed in the fire.
On September 30, 1996, the Company accrued $4,500,000 to cover additional costs
relating to the clean-up of the
F-18
<PAGE>
property and amounts due to the property owner. Included in the cost of the
insurance settlement is approximately $1,118,000 of interest expense.
12. COMMITMENTS AND CONTINGENCIES:
Leases
The Company leases operating facilities under non-cancelable leases, with
unrelated parties and affiliated entities, which expire at various dates through
December 31, 2012. These leases require minimum future rental payments as
follows:
Year Ending September 30, (amounts in 000s)
- ------------------------- -----------------
1999 .................................................. $ 2,133
2000 .................................................. 2,170
2001 .................................................. 1,416
2002 .................................................. 969
2003 .................................................. 1,051
Thereafter ............................................ 2,977
-------
$10,716
=======
ddition, the Company is obligated to pay certain real estate taxes under
these lease arrangements. Rent expense approximated $2,065,000, $2,010,000 and
$1,642,000 for the years ended September 30, 1998, 1997 and 1996.
Boise Cascade
Concurrent with the acquisition of its tissue paper machine from Boise
Cascade Corporation ("Boise"), ATM Oregon entered into an agreement with Boise
whereby Boise will operate and maintain the machine through December 2012. ATM
Oregon will reimburse Boise each month for the cost of such operations and
maintenance. Fees under this agreement approximated $11,911,000, $11,782,000 and
$10,200,000 for the years ended September 30, 1998, 1997 and 1996, including
approximately $695,000, $659,000 and $565,000 of fees capitalized relating to
fixed asset improvements.
Under certain circumstances, Boise has the option to acquire, and ATM
Oregon has the option to sell, the machine through December 31, 2012. The
calculation of the sales price under these options is based on the net book
value of the machine, as defined. Boise has a priority security interest in the
equipment.
In addition, ATM Oregon has an obligation to purchase a minimum quantity of
paper pulp from Boise each year during the term of the agreement. Paper pulp
purchases from Boise approximated $16,199,000, $15,574,000 and $15,826,000 for
the years ended September 30, 1998, 1997 and 1996.
At September 30, 1998 and 1997, accounts payable and accrued expenses
included approximately $2,685,000 and $2,626,000 due to Boise.
Independent Broker
Certain subsidiaries of the Subsidiary have obligations to purchase a
minimum quantity of paper pulp from, and to supply a maximum quantity of jumbo
rolls to, an independent broker for a term of three years under certain
conditions.
Wisconsin
The Subsidiary closed its facility in Tomahawk, Wisconsin in October 1997.
As discussed in Note 1, all equipment assets at this facility were transferred
to our New Hampshire mill. As of September 30, 1998, the net book value of the
remaining property was not material.
F-19
<PAGE>
Litigation
The Company and its subsidiaries are involved in legal proceedings, claims
and litigation arising in the ordinary course of business. The outcome of such
current legal proceedings, claims and litigation could have a material effect on
our operating results or cash flows when resolved in a future period. Reference
is made to Note 14 for discussion of certain matters that occurred subsequent to
the date of these financial statements.
13. SUBSEQUENT EVENTS:
New Mortgage
In October 1998, the Subsidiary obtained an additional mortgage on the
property owned by Grand LLC in the amount of $800,000. The loan requires monthly
payments of approximately $6,000 commencing on December 1, 1998, bears interest
at a rate of 7.5% per annum, and requires a balloon payment at maturity on
November 1, 2008.
GECC Agreement
During January 1999, GECC amended its financing agreement with the
Subsidiary to, among other things, change the maturity of the term loans
outstanding thereunder from June 30, 2003 to June 30, 2000, to fix the interest
rate at 10.5% per annum and to amend certain covenants effective with the
quarter ending March 31, 1999.
As a result of the foregoing, transactions, discussed herein, the schedule
of annual principal maturities of long-term debt as of September 30, 1998 and
including the new mortgage on the Calexico facility discussed in Note 14 is as
follows:
Year Ending September 30, Amount (in 000s)
- ------------------------- ----------------
1999 .................................................. $ 6,553
2000 .................................................. 31,138
2001 .................................................. 635
2002 .................................................. 687
2003 .................................................. 741
Thereafter ............................................ 18,079
-------
$57,833
=======
Berlin-Gorham Mills Acquisition
On March 24, 1999, the Subsidiary entered into an asset purchase agreement
with Crown Paper Co., a wholly-owned company of Crown Vantage Inc., covering the
purchase of the inventory and fixed assets and the assumption of certain
liabilities of two paper and converting mills located in Berlin and Gorham, New
Hampshire. The purchase price of $47,100,000 in cash, is subject to adjustment,
based upon inventory values being higher or lower than $31,400,000 at a date
that approximates the closing of this transaction.
This transaction closed on July 9, 1999 and the Subsidiary paid $45,000,000
to Crown Paper Co. as an consideration for the acquisition, pending final
resolution of inventory values.
Refinancing
On April 19, 1999, the Subsidiary refinanced its 8.75% note payable from
Valley Independent Bank of $3,000,000 (see Note 6) with a $4,000,000 mortgage
note from Bank United. The term of this note is five years with principal
amortization based on a twenty year term. The rate of interest on this mortgage
is 8.00%. As a result of the refinancing the 8.75% note payable has been
reflected as long-term debt in the accompanying consolidated balance sheets as
of September 30, 1998 and March 31, 1999.
Senior Secured Discount Notes, Warrants and Equity Investment By Parent
On July 9, 1999, the Company raised approximately $20,000,000 through the
sale of 15% Series A Senior Secured Discount Notes due 2007 ("Middle Tissue
Notes") and warrants (the "Warrants") to purchase up to 12% of the Company's
common stock at a nominal exercise price. The Middle American Tissue Notes
accrete interest at an annual interest rate of 15% compounded semi-annually
through July 15, 2003 and accrue interest at a fixed annual
F-20
<PAGE>
rate of 15% due in cash every six months commencing on July 15, 2004 through
2007. Based on the relative fair values of the Middle American Tissue Notes and
Warrants, the Company has allocated approximately $3,781,000 to the Warrants.
In connection with the above transaction, the Company has a call right (the
"Year Two Call Option"), to redeem all, but not less than all, of the Middle
American Tissue Notes and the Warrants for a fixed redemption price at any date
beginning with the first anniversary of the date of closing though the second
anniversary of the date of closing. If the Company does not exercise the Year
Two Call Option, and the initial purchasers of the Warrants hold more than 50%
of the Warrants, the holders have the put right (the "Year Two Put Option") to
require the Company to repurchase all, but not less than all, of the Warrants
and the Middle American Tissue Notes at a fixed redemption price.
In the event a qualified IPO (as defined in the Middle American Tissue
Notes and Warrants Purchase Agreement) has not occurred prior to the fifth
anniversary of the date of closing, the Parent shall have the right (the "Year
Five Call Option") at any time following such fifth anniversary to purchase all,
but not less than all, of the Warrants, provided, however, that the holders
shall have the right to postpone consummation of the Year Five Call Option for a
maximum postponement period of three years. In addition, the holders shall have
a right at any time following such fifth anniversary to require the Parent to
purchase all, but not less than all, of the Warrants at a price as defined in
the warrant agreement.
In addition, on July 9, 1999, the Parent made an equity investment in the
Company in the amount of $5,000,000.
The Company used both this amount and the net proceeds raised in connection
with the sale of the Middle American Tissue Notes and the Warrants to make a
$24.5 million equity contribution to the Subsidiary.
Senior Secured Note Offering
On July 9, 1999, the Subsidiary sold $165,000,000 aggregate principal
amount of its 12 1/2% senior secured notes due 2006 (the "American Tissue
notes") in a private placement. The initial purchaser of the American Tissue
notes has informed the Subsidiary that it promptly resold the American Tissue
notes to "qualified institutional buyers" in reliance on Rule 144A under the
Securities Act of 1933. Repayment of the American Tissue notes is guaranteed by
all of the Subsidiary's subsidiaries. After deduction of an original issue
discount, the Subsidiary received net proceeds of $159,446,100 from the sale of
the American Tissue notes, excluding expenses.
The American Tissue notes are secured by first priority liens on, among
other things, all of the paper mill plant and property, substantially all of the
equipment, intellectual property and related general intangibles of the
Subsidiary's subsidiaries and all of the stock and membership interests of each
of the Subsidiary's subsidiaries. In addition, the American Tissue notes are
secured by second priority liens on, among other things, certain other real
property, accounts receivable, inventory and related general intangibles of the
Subsidiary's subsidiaries.
At July 9, 1999, the total proceeds received by the Subsidiary from the
Senior Secured Discount Notes, Warrants, Equity Investment and Senior Secured
Notes was approximately $179,038,000, which amount was net of a discount on the
American Tissue notes of $5,553,900 and commissions and expenses of
approximately $5,408,000. The Subsidiary used the proceeds to make the asset
purchase from Crown Paper (see Note 7 above), to pay down certain outstanding
debt as of the closing date and pay certain related fees and expenses.
Transfer of Related Party Debt
On July 9, 1999, approximately $27,900,000, representing all amounts owed
by the Subsidiary's subsidiaries to beneficial owners of the Company's common
stock and to certain affiliated entities as of such date were assumed by the
Parent. This transaction has been treated as an equity contribution from the
Parent to the Company, and thereafter, to the Subsidiary . The Subsidiary's
subsidiaries have been released from liability to such stockholders and
affiliated entities.
Litigation Settlement
In August 1999, the Company settled an action that was filed in the United
States District Court for the Eastern District of New York in June 1998
containing various claims of natural origin discrimination brought on behalf of
21 former employees of ATC. This action was settled without determination of
liability, for approximately
F-21
<PAGE>
$10,000 per plaintiff and $405,000 in the aggregate. Additionally, ATC is a
party to an action brought before the National Labor Relations Board by the
Service Employees International Union, Local 339, AFL-CIO in August 1996,
whereby ATC has been charged with certain violations of employees' rights under
the National Labor Relations Act. In November 1998, an administrative law judge
rendered a decision against ATC and awarded back pay to the same 21 employees in
the case discussed above. No amount for the back pay award has been determined
and it is presently not possible to estimate the amount of the award.
14. UNAUDITED INTERIM CONSOLIDATED FINANCIAL INFORMATION:
The unaudited consolidated balance sheet and statement of stockholders
equity as of June 30, 1999 and the unaudited consolidated statements of
operations and cash flows for the nine months ended June 30, 1999 and 1998, in
the opinion of management, have been prepared on the same basis as the audited
consolidated financial statements and include all significant adjustments
(consisting primarily of normal recurring adjustments) considered necessary for
a fair presentation of the results of these interim periods. Operating results
for the nine month period ended June 30, 1999 are not necessarily indicative of
the results for the entire year.
F-22
<PAGE>
REPORT OF INDEPENDENT AUDITORS
Management and Board of Directors of
Crown Vantage Inc.
We have audited the accompanying balance sheets of Crown Vantage Inc.'s
Berlin-Gorham Pulp and Paper Mill (the "Berlin-Gorham Mills") as of December 27,
1998 and December 28, 1997 and the related statements of operations, cash flows
and changes in Crown Vantage's investment for the 52 weeks ended December 27,
1998, December 28, 1997 and December 29, 1996. These statements are the
responsibility of the Berlin-Gorham Mills' management. Our responsibility is to
express an opinion on these 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 presentation of the financial
statements. We believe that our audits provide a reasonable basis for our
opinion.
As described in Note 1, the financial statements referred to above include
the historical assets, liabilities and results of operations of the
Berlin-Gorham Mills and are not intended to be a complete presentation of the
Berlin-Gorham Mills' or Crown Vantage Inc.'s historical assets, liabilities and
results of operations. These financial statements were prepared for the purpose
of complying with the rules and regulations of the Securities and Exchange
Commission for inclusion in a Registration Statement Form S-4 of Middle American
Tissue Inc.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of the Berlin-Gorham Mills as
of December 27, 1998 and December 28, 1997 and the results of its operations and
cash flows for the 52 weeks ended December 27, 1998, December 28, 1997 and
December 29, 1996, in conformity with generally accepted accounting principles.
s/Ernst & Young LLP
ERNST & YOUNG LLP
April 23, 1999
San Francisco, California
F-23
<PAGE>
BERLIN-GORHAM MILLS
BALANCE SHEETS
(dollars in thousands)
December 27, December 28,
1998 1997
-------- --------
Assets
Current Assets:
Cash and cash equivalents ........................ $ 1,753 $ 5,166
Accounts receivable .............................. 6,537 3,564
Inventories ...................................... 27,371 29,913
Prepaid expenses and other current assets ........ 115 679
-------- --------
Total current assets .......................... 35,776 39,322
-------- --------
Property, plant and equipment, net .................. 46,185 202,916
Other assets ........................................ 19,081 17,228
-------- --------
Total Assets .................................. $101,042 $259,466
======== ========
Liabilities and Equity
Current Liabilities:
Accounts payable ................................. $ 6,912 $ 5,525
Accrued liabilities .............................. 21,180 21,676
-------- --------
Total current liabilities ..................... 28,092 27,201
-------- --------
Long-term debt ...................................... 30,255 30,255
Accrued post retirement benefits other than pensions 30,724 31,389
Other long-term liabilities ......................... 2,033 1,937
-------- --------
Total Liabilities ............................. 91,104 90,782
-------- --------
Crown Vantage's Investment .......................... 9,938 168,684
-------- --------
Total Liabilities and Equity .................. $101,042 $259,466
======== ========
See notes to financial statements.
F-24
<PAGE>
BERLIN-GORHAM MILLS
STATEMENTS OF OPERATIONS
(dollars in thousands)
52 Weeks 52 Weeks 52 Weeks
Ended Ended Ended
December 27, December 28, December 29,
1998 1997 1996
--------- --------- ---------
Net sales ......................... 174,423 $ 183,398 $ 177,916
Cost of goods sold ................ 185,820 179,648 189,173
Severance charge .................. 1,932 -- --
--------- --------- ---------
Gross margin ................... (13,329) 3,750 (11,257)
Selling and administrative expenses (9,155) (6,542) (3,698)
Asset impairment charge ........... (143,632) -- --
Gain on timberlands sale .......... -- 13,518 --
Corporate allocation .............. (7,764) (5,726) (5,412)
--------- --------- ---------
Operating income (loss) ........... (173,880) 5,000 (20,367)
Interest expense .................. (2,547) (2,547) (1,573)
Other income, net ................. 85 75 99
--------- --------- ---------
Income (loss) before income taxes . (176,342) 2,528 (21,841)
Income tax provision (benefit) .... (68,287) 1,077 (8,303)
--------- --------- ---------
Net income (loss) ................. $(108,055) $ 1,451 $ (13,538)
========= ========= =========
See notes to financial statements.
F-25
<PAGE>
BERLIN-GORHAM MILLS
STATEMENTS OF CHANGES IN CROWN VANTAGE'S INVESTMENT
(dollars in thousands)
<TABLE>
<CAPTION>
52 Weeks 52 Weeks 52 Weeks
Ended Ended Ended
December 27, December 28, December 29,
1998 1997 1996
--------- --------- ---------
<S> <C> <C> <C>
Crown Vantage's Investment
Beginning Balance ................................. $ 168,684 $ 187,420 $ 219,002
Net Income (Loss) ................................. (108,055) 1,451 (13,538)
Capital investment (withdrawal):
Settlement of income taxes with Crown Vantage (68,287) 1,077 (8,303)
Capital investment (withdrawal) ............. 17,596 (21,264) (9,741)
--------- --------- ---------
Ending Balance ....................................... $ 9,938 $ 168,684 $ 187,420
========= ========= =========
</TABLE>
See notes to financial statements.
F-26
<PAGE>
BERLIN-GORHAM MILLS
STATEMENTS OF CASH FLOWS
(dollars in thousands)
<TABLE>
<CAPTION>
52 Weeks 52 Weeks 52 Weeks
Ended Ended Ended
December 27, December 28, December 29,
1998 1997 1996
--------- --------- ---------
<S> <C> <C> <C>
Cash provided by (used for) operating activities:
Net income (loss) .................................... $(108,055) $ 1,451 $ (13,538)
Items not affecting cash:
Depreciation and cost of timber harvested ......... 23,966 24,179 24,061
Gain on sale of timberlands ....................... -- (13,518) --
Asset impairment charge ........................... 143,632 -- --
Other, net ........................................ (439) 164 (924)
Tax provision (benefit) ........................... (68,287) 1,077 (8,303)
Change in current assets and liabilities:
Accounts receivable ............................... (2,973) 2,759 8,697
Inventories ....................................... 1,042 (5,713) 1,442
Other current assets .............................. 564 (269) (274)
Accounts payable .................................. 1,387 (52) (671)
Other current liabilities ......................... (496) 243 3,083
Other, net ........................................... (2,471) (1,737) 870
--------- --------- ---------
Cash (used for) provided by operating
activities .................................... (12,130) 8,584 14,443
--------- --------- ---------
Cash provided by (used for) investing activities:
Expenditures for property, plant and equipment .... (9,146) (13,084) (10,872)
Proceeds from sale of property, plant and equipment 488 25,008 56
Other, net ........................................ (221) (165) 101
--------- --------- ---------
Cash (used for) provided by investing activities (8,879) 11,759 (10,715)
--------- --------- ---------
Cash provided by (used for) financing activities:
Proceeds from issuance of Industrial
Revenue Bonds, less underwriting costs ............ -- -- 12,100
Crown Vantage's capital investment (withdrawal) ... 17,596 (21,264) (9,741)
--------- --------- ---------
Cash provided by (used for) financing
activites ..................................... 17,596 (21,264) 2,359
Increase (decrease) in cash and cash equivalents .. (3,413) (921) 6,087
Cash and cash equivalents, beginning of year ...... 5,166 6,087 --
--------- --------- ---------
Cash and cash equivalents, end of year ............... $ 1,753 $ 5,166 $ 6,087
========= ========= =========
</TABLE>
See notes to financial statements.
F-27
<PAGE>
BERLIN-GORHAM MILLS
Notes to Financial Statements
Note 1
The accompanying financial statements comprise the historical assets,
liabilities and operating results of the Berlin-Gorham Mills located in Berlin
and Gorham, New Hampshire, respectively. The Berlin-Gorham Mills are owned by
Crown Paper Co., a wholly-owned Company of Crown Vantage Inc. (collectively
"Crown Vantage"). Subject to the successful consummation of the Asset Purchase
Agreement and related agreements by and between Crown Paper and American Tissue
Inc. ("American Tissue"), the Berlin-Gorham Mills will be sold to Pulp & Paper
of America LLC, an affiliate of American Tissue (the "Sale").
The accompanying financial statements have been prepared as if the
Berlin-Gorham Mills had operated as an independent stand-alone entity for all
periods presented. There are no allocations of Crown Vantage borrowings or
related interest expense in the accompanying financial statements except for
borrowings and interest expense of certain industrial revenue bonds incurred by
Crown Vantage that are restricted to environmental expenditures at the
Berlin-Gorham Mills. The Berlin- Gorham Mills engaged in various transactions
with Crown Vantage and its other mills that are characteristic of a group of
entities under common control. Throughout the period covered by these financial
statements, the Berlin-Gorham Mills participated in Crown Vantage's centralized
cash management system and, as such, its cash funding requirements were met by
Crown Vantage. The Berlin-Gorham Mills' operational transactions resulted in
amounts receivable from and payable to Crown Vantage, which fluctuate over time
and have not been settled through cash transfers. Accordingly, the amounts have
been presented net in the balance sheet as Crown Vantage's Investment.
Crown Vantage general and administrative costs not directly attributable to
the Berlin-Gorham Mills have been allocated based primarily on tons sold. Such
allocations totaled $6.9 million in 1998, $5.2 million in 1997 and $5.2 million
in 1996.
The Berlin-Gorham Mills are fully integrated pulp and paper mills. The
Berlin pulp mill produces approximately 220,000 tons of northern bleached
hardwood kraft pulp and 60,000 tons of northern bleached softwood kraft pulp
annually. Approximately 45% of the hardwood kraft is used by the Gorham mill in
the production of paper and the remaining hardwood kraft is dried and either
sold to other Crown Vantage mills or as market pulp. All of the softwood kraft
pulp is consumed by the Gorham mill in the production of paper. The
Berlin-Gorham Mills purchase a small quantity of pulp (approximately 15,000 tons
annually) to supply pulp grades not produced internally and to supply the paper
mill during the annual pulp mill outage.
The Gorham paper mill operates four paper machines that produce
approximately 150,000 tons of paper annually and one commercial toweling machine
with production capacity of approximately 40,000 tons annually. The four paper
machines produce a variety of printing and publishing papers including premium
text and cover grades, book papers, opaques, and forms bond.
On December 27, 1998, the Berlin-Gorham Mills employed approximately 850
individuals of which approximately 85% were hourly employees and 15% were
salaried employees. All of the hourly employees are represented under
collectively bargained union contracts.
Note 2
Summary of Significant Accounting Policies
Basis of Presentation
The accompanying financial statements include the results of operations,
assets and liabilities of the Berlin-Gorham Mills for the 52 weeks ended
December 27, 1998, and December 28, 1997. The accompanying financial statements
also include the results of operations of the Berlin-Gorham Mills for the 52
weeks ended December 29, 1996. The Berlin-Gorham Mills' fiscal year includes the
52 or 53 weeks ending on the last Sunday in December.
F-28
<PAGE>
Cash
Cash of approximately $1.8 million and $5.2 million at December 27, 1998
and December 28, 1997, respectively, represents remaining proceeds from an
industrial revenue bond offering that can be used only for qualified
environmental projects.
Inventories
Inventories are stated at the lower of cost or market and include the cost
of materials, labor and manufacturing overhead. The last-in, first-out cost flow
assumption is used for valuing all inventories other than stores and supplies,
which are valued using the first-in, first-out method.
Property, Plant and Equipment
Property, plant and equipment are stated at cost, less accumulated
depreciation, including related delivery and installation costs and interest
incurred on significant capital projects during their construction periods.
Expenditures for improvements that increase asset values or extend useful lives
are capitalized. Maintenance and repair costs are expensed as incurred. For
financial reporting purposes, depreciation is computed using the straight-line
method over the estimated useful lives of the respective assets, which range
from 20 to 45 years for buildings and 5 to 20 years for machinery and equipment.
Management assesses the recoverability of its investments in long-lived
assets to be held and used in operations whenever events or circumstances
indicate that their carrying amounts may be impaired. Such assessment requires
that the future cash flows expected to result from use of the assets are
estimated and an impairment loss recognized when future cash flows are less than
the carrying value of such assets. Estimating future cash flows requires an
estimate of useful lives of its long-lived assets, future production volumes and
costs, future sales volumes, demand for the mills' product mix and prices that
reflect the use of its long-lived assets and market conditions. Based on this
assessment, a $143.6 million charge was recorded during the fourth quarter of
1998 to write down impaired assets to the present value of their estimated
future cash flows. Although management believes it has a reasonable basis for
its estimates, it is reasonably possible that the estimate of future cash flows
could change from current estimates which could result in recognizing, in future
periods, additional material impairment losses on its long-lived assets at the
Berlin-Gorham Mills. (See "Note 11").
Landfill Closure and Post-Closure Costs
The Berlin-Gorham Mills accrue for landfill closure and post-closure costs
over the periods that benefit from the use of the landfills. Management
regularly reviews the adequacy of cost estimates and adjusts the accrued amounts
as necessary.
Income Taxes
The Berlin-Gorham Mills have historically been included in the consolidated
federal income tax returns and combined/unitary state income tax and value added
tax returns of Crown Vantage. The benefit/provision for income taxes is
management's estimate of the Berlin-Gorham Mills' share of Crown Vantage's
income tax benefit that is intended to approximate the current provision/benefit
that would have been recognized had the Berlin-Gorham Mills filed separate
income tax returns. All taxes are domestic.
Current income taxes payable/receivable and deferred income tax assets and
liabilities have been treated as if settled immediately through Crown Vantage's
investment. Because the Berlin-Gorham Mills are included in the consolidated
Crown Vantage returns, net operating loss carryforwards, investment and other
tax credit carryforwards included in the calculation of the Crown Vantage income
tax benefit cannot be utilized on a standalone basis. As the Berlin-Gorham Mills
are not a separate legal or tax entity they are considered to have no reportable
net operating loss, tax credit carryforwards, or deferred tax assets and
liabilities.
Interest Expense
Interest expense included in the accompanying financial statements
represents interest expense on the industrial revenue bonds specifically
restricted for use in funding certain environmental capital improvements at the
Berlin-Gorham Mills. Interest expense reflected in the statements of operations
and the amount of debt reflected in the balance sheets are not intended to
reflect interest expense that the Berlin-Gorham Mills may have incurred nor the
amount of debt which would have been outstanding had the Berlin-Gorham Mills
been a standalone Company for the years presented. As discussed below under
"Crown Vantage's Investment," transactions with Crown
F-29
<PAGE>
Vantage are treated as settled immediately through the investment account. As a
result, there were no advances from Crown Vantage outstanding that would require
recognition of interest expense.
Sale of Accounts Receivable
In 1996, Crown Vantage entered into a five-year agreement with certain
banks which provides for the sale of undivided interests in a revolving pool of
trade accounts receivable, including trade receivables attributable to the
Berlin-Gorham Mills. As collections reduce accounts receivable included in the
pool, Crown Vantage sells undivided interests in new receivables to bring the
amount sold up to the amount permitted. Accounts receivable reported in the
accompanying balance sheets represent the Berlin-Gorham Mills receivables net of
the undivided interests in the Berlin-Gorham Mills receivables sold ($6.9
million and $8.4 million at December 27, 1998 and December 28, 1997,
respectively).
The proceeds from sales are less than the face amount of undivided
interests in accounts receivable sold and this discount ($.9 million in 1998,
$.5 million in 1997, and $.2 million in 1996) is included in corporate
allocations in the statement of operations.
Selected Sales Information
During 1998, 1997, and 1996 export sales to foreign markets from the
Berlin-Gorham Mills represented less than 10% of net sales for that year. The
Berlin-Gorham Mills have one significant customer that purchases both pulp and
uncoated paper. Pulp sold to this customer accounted for 13.6% of net sales in
1998, 9.6% in 1997 and 10.0% in 1996. Uncoated papers sold to this customer
accounted for 10.3% of net sales in 1998, 9.3% in 1997 and 3.1% in 1996. Sales
of pulp to other Crown Vantage mills, which are included in the accompanying
Statement of Operations, totaled $11.5 million in 1998, $15.9 million in 1997
and $17.1 million in 1996.
Crown Vantage's Investment
Crown Vantage's Investment reflects the historical intercompany activity
between the Berlin-Gorham Mills and Crown Vantage, and the Berlin-Gorham Mills'
cumulative results of operations. Transactions with Crown Vantage are reflected
as though they were settled immediately as an addition to or reduction of Crown
Vantage's Investment and there are no amounts due to or from Crown Vantage at
December 27, 1998 or December 28, 1997.
Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make assumptions that
affect the amounts reported in the financial statements and accompanying notes.
Actual results could differ from those estimates.
Note 3
Concentration of Credit Risk
Credit risk represents the accounting loss that would be recognized at the
reporting date if customers failed completely to perform as contracted.
Concentrations of credit risk that arise from financial instruments exist for
groups of customers when they have similar economic characteristics that would
cause their ability to meet contractual obligations to be similarly affected by
changes in economic or other conditions. The Berlin-Gorham Mills do not have any
significant concentration of credit risk.
F-30
<PAGE>
Note 4
Supplemental Balance Sheet Information
<TABLE>
<CAPTION>
1998 1997
-------- --------
(dollars in thousands)
<S> <C> <C>
Inventories
Raw Materials .............................. $ 3,950 $ 3,482
Work-in-process ............................ 586 677
Finished goods ............................. 13,031 14,545
Stores and supplies ........................ 11,702 13,391
-------- --------
29,269 32,095
Last-in, first-out reserve ................. (1,898) (2,182)
-------- --------
Total Inventories .................... $ 27,371 $ 29,913
======== ========
Valued at lower of cost or market:
Last-in, first-out ......................... $ 15,669 $ 16,522
First-in, first-out ........................ 11,702 13,391
-------- --------
Total inventories .................... $ 27,371 $ 29,913
======== ========
<CAPTION>
1998 1997
-------- --------
(dollars in thousands)
<S> <C> <C>
Property, Plant and Equipment
Land and improvements ...................... $ 17,499 $ 23,157
Buildings .................................. 35,447 43,716
Machinery and equipment .................... 280,294 342,106
Construction in progress ................... 3,633 4,690
-------- --------
336,873 413,669
Accumulated depreciation ................... (290,688) (210,753)
-------- --------
Net property, plant and equipment .......... $ 46,185 $202,916
======== ========
<CAPTION>
1998 1997
-------- --------
(dollars in thousands)
<S> <C> <C>
Accrued Liabilities
Compensated absences ....................... $ 2,948 $ 3,133
Employee insurance benefits ................ 3,272 4,950
Accrued interest ........................... 1,154 1,161
Taxes payable, other than income taxes ..... 8,568 7,475
Other accrued liabilities .................. 5,238 4,957
-------- --------
Total accrued liabilities .................. $ 21,180 $ 21,676
======== ========
</TABLE>
F-31
<PAGE>
Note 5
Long-term Debt
Long term debt consists of the following industrial revenue bonds (in
thousands) for both 1998 and 1997:
7.75% Refunding Bonds, due 2022 ........................... $17,955
7.875% Project Bonds, due 2026 ............................ 12,300
-------
$30,255
=======
Proceeds from the sale of the 7.875% Project Bonds are used to finance
eligible environmental project costs. At December 27, 1998 and December 28, 1997
approximately $1.8 million and $5.2 million, respectively had not yet been
spent. At December 27, 1998 and December 28, 1997, the fair value of the
industrial revenue bonds approximated book value. Cash paid for interest totaled
$2.4 million for 1998, $2.4 million for 1997 and $1.2 million for 1996.
Note 6
Pension and Other Benefit Plans
In connection with a spin-off transaction in 1995, Crown Vantage and James
River Corporation of Virginia (now "Fort James Corporation") entered into an
agreement with the Pension Benefit Guaranty Corporation (the "PBGC") whereby
U.S. pension plans transferred to Crown Vantage (including the Berlin-Gorham
Mills pension plans) and corresponding accumulated participant benefits were
frozen (the "Frozen Plans"). New pension plans (the "New Plans") were then
established by Crown Vantage that have terms substantially similar to the Frozen
Plans. An agreement exists between Fort James Corporation and the PBGC which
provides that, if the PBGC institutes proceedings to terminate a Frozen Plan,
Fort James Corporation may either assume sponsorship of the plan or will be
responsible for all liabilities arising from the termination of the plan. Fort
James Corporation's contingent obligation with respect to the Frozen Plans will
generally end when there are no unfunded benefit obligations for the Frozen
Plans. Fort James Corporation and Crown Vantage have entered into an agreement
that establishes minimum funding requirements by Crown Vantage for the Frozen
Plans that are at least equal to minimum funding requirements pursuant to
Section 412 of the Internal Revenue Code. All hourly plans at the Berlin-Gorham
Mills are for employees and retirees of that facility. The salary plan is for
all salaried employees of Crown Vantage. The Berlin-Gorham Mills were allocated
a portion of the salaried plan balances and income/expense based on actuarial
calculations.
Hourly employees at the Berlin-Gorham Mills who retire after having
attained at least age 55 with 10 years of service are eligible for post-retiree
medical benefits ("Other Benefits"). Salaried employees hired before January 1,
1993, generally become eligible for retiree medical benefits after reaching age
55 with 15 years of service or after reaching age 65. Salaried employees hired
after January 1, 1993 are not eligible for retiree medical benefits. The retiree
medical plans are unfunded.
The financial statements include the present value of benefit obligations,
related components of pension and other benefit costs, unrecognized net gains,
prior service costs, transition liabilities and plan assets that were derived
from actuarial calculations.
Summary information on the Berlin-Gorham Mills' pension and other benefit
plans is as follows:
F-32
<PAGE>
<TABLE>
<CAPTION>
Pension Benefits Other Benefits
-------------------------- --------------------------
1998 1997 1998 1997
-------- -------- -------- --------
(dollars in thousands)
<S> <C> <C> <C> <C>
Change in benefit obligation
Benefit obligation at beginning of year .................... $ 71,224 $ 69,979 $ 19,901 $ 22,117
Service cost ............................................... 1,298 1,030 408 371
Interest cost .............................................. 5,167 5,586 1,441 1,420
Amendment .................................................. 73 -- -- --
Plan participants' contributions ........................... 294 249 727 688
Actuarial (gain) loss ...................................... 3,201 320 1,125 (2,521)
Benefits paid .............................................. (5,936) (5,940) (2,062) (2,174)
-------- -------- -------- --------
Benefit obligation at end of year .......................... $ 75,321 $ 71,224 $ 21,540 $ 19,901
======== ======== ======== ========
Change in plan assets
Fair value of plan assets at beginning of year ............. $ 97,907 $ 83,949
Actual return on plan assets ............................... 1,667 19,024
Company contributions ...................................... 1,095 625
Plan participants' contributions ........................... 294 249
Benefits paid .............................................. (5,936) (5,940)
-------- --------
Fair value of plan assets at end of year ................... $ 95,027 $ 97,907
======== ========
</TABLE>
Plan assets are invested primarily in domestic equity and fixed income
mutual funds. The following table sets forth the funded status of the
Berlin-Gorham Mill's pension plans and other benefit plans at December 27, 1998,
and December 28, 1997:
<TABLE>
<CAPTION>
Pension Plans Other Benefits Plans
--------------------------- ---------------------------
1998 1997 1998 1997
-------- -------- -------- --------
(dollars in thousands)
<S> <C> <C> <C> <C>
Funded status (over/(under)funded) ..................... $ 19,706 $ 26,683 $(21,540) $(19,901)
Unrecognized net gain .................................. (5,535) (15,356) (3,892) (5,181)
Unrecognized prior service cost (gain) ................. 2,546 3,006 (5,292) (6,307)
Unrecognized net transition liability .................. 1,153 1,635 -- --
-------- -------- -------- --------
Net asset (liability) .................................. $ 17,870 $ 15,968 $(30,724) $(31,389)
======== ======== ======== ========
</TABLE>
The components of the Berlin-Gorham Mill's net pension and other benefit
costs, were as follows:
<TABLE>
<CAPTION>
Pension Plans Other Benefit Plans
------------------------------------- -------------------------------------
1998 1997 1996 1998 1997 1996
------- ------- ------- ------- ------- -------
(dollars in thousands)
<S> <C> <C> <C> <C> <C> <C>
Service cost ............................. $ 1,298 $ 1,030 $ 1,804 $ 408 $ 371 $ 469
Interest cost ............................ 5,167 5,586 8,073 1,441 1,420 1,655
Net investment income on plan
assets .............................. (7,733) (7,546) (9,994) -- -- --
Net amortization ......................... 351 518 1,170 (1,179) (1,341) (1,052)
------- ------- ------- ------- ------- -------
Net benefit cost (income) ................ $ (917) $ (412) $ 1,053 $ 670 $ 450 $ 1,072
======= ======= ======= ======= ======= =======
</TABLE>
Net amortization of pension and other benefit costs includes amortization
of the net transition assets, net experience gains and losses, and prior service
costs over 15 to 20 years. The actuarial assumptions used in determining net
pension and other benefit costs and related pension and other benefit
obligations were as follows:
F-33
<PAGE>
<TABLE>
<CAPTION>
Pension Benefits Other Benefits
------------------ ----------------
1998 1997 1998 1997
------ ------ ------ ------
<S> <C> <C> <C> <C>
Discount Rate ..................................... 7.0% 7.5% 7.0% 7.5%
Assumed rate of increase in compensation levels ... 4.0% 4.0%
Expected long-term rate of return on plan assets .. 10.0% 10.0%
</TABLE>
Changes in actuarial assumptions for 1998 resulted in an increase to other
benefit costs of $.1 million and the related accumulated benefit obligation of
$1 million. The assumed health care cost trend rate used in measuring the
accumulated benefit obligation for other benefits was 6.5% in 1998, declining by
0.5% per year through 2002 to an ultimate rate of 4.5%. The effect of a 1%
change in the health care cost trend rate assumptions is as follows:
1% increase 1% decrease
----------- -----------
(dollars in thousands)
Service and interest cost ......................... $ 262 $ 215
Accumulated postretirement benefit obligation ..... $2,520 $2,197
Prepaid pension assets are included in other assets.
Note 7
Commitments and Contingent Liabilities
Leases
As of December 27, 1998, future minimum rental payments under noncancelable
operating leases were as follows:
Minimum
Rentals
-------
(dollars in thousands)
1999 ........................................... $ 748
2000 ........................................... 732
2001 ........................................... 559
2002 ........................................... 471
2003 ........................................... 471
Later years .................................... 579
------
Total future minimum rentals ................... $3,560
======
Rent expense totaled $1.1 million in 1998, $.5 million in 1997 and $.6
million in 1996.
Environmental Matters
The Berlin-Gorham Mills have accrued $2.4 million at December 27, 1998 and
$2.5 million at December 28, 1997 primarily for estimated landfill site
restoration, post-closure and monitoring costs.
The Environmental Protection Agency signed final rules affecting pulp and
paper industry discharges of wastewater and gaseous emissions ("Cluster Rules")
which became effective on April 15, 1998. These Cluster Rules require changes in
the pulping, bleaching and/or wastewater treatment processes presently used in
some U.S. pulp and paper mills, including the Berlin pulp mill. Management
estimates that approximately $12.9 million of capital expenditures may be
required to comply with the rules with compliance dates beginning in 1999 and
extending over the next two to five years. 1998 environmental capital spending
includes $.2 million for compliance with the Cluster Rules. There are risks and
uncertainties associated with the estimate that could cause total capital
expenditures and timing of such expenditures to be materially different from
current estimates, including changes in
F-34
<PAGE>
technology, interpretation of the rules by government agencies that is
substantially different from Management's interpretation, or other items.
Note 8
Timberland Gain
During the fourth quarter of 1997, the Berlin-Gorham Mills sold
approximately 24,000 acres of timber-producing properties for approximately
$24.5 million and recognized a gain of $13.5 million. Proceeds of the sale were
used to pay down Crown Vantage debt.
Note 9
Severance
During 1998, the Berlin-Gorham Mills accrued $1.9 million relating to a 5%
work force reduction. The accrual is for anticipated expenses resulting from the
work force reduction, primarily for severance and benefit payments to the
approximately 100 affected employees. Both hourly and salaried employees from
manufacturing, maintenance, and office staff were affected. As of December 27,
1998, approximately $1.0 million had been paid and the remainder will be paid
during the first half of 1999.
Note 10
Year 2000 Issue (Unaudited)
The Year 2000 issue concerns the potential inability of computer
applications, information technology systems, and certain software-based
"embedded" control systems to properly recognize and process date-sensitive
information as the Year 2000 approaches and beyond. The Berlin-Gorham Mills
could suffer material adverse impacts on their operations and financial results
if the applications and systems used by the Berlin-Gorham Mills, or by third
parties with whom the Berlin-Gorham Mills do business, do not accurately or
adequately process or manage dates or other information as a result of the Year
2000 issue.
The Berlin-Gorham Mills use a variety of software applications, business
information systems, accounting subsystems, process control systems and related
software, communication devices, and networking and other operating systems. The
Berlin-Gorham Mills have completed an inventory of all such systems and are
currently in the process of testing, upgrading, replacing, or otherwise
modifying these systems to adequately address the Year 2000 issue. The
Berlin-Gorham Mills believe they will be able to timely modify or replace
affected systems to prevent any material detrimental effects on operations and
financial results. However, the Berlin-Gorham Mills can give no assurance that
all critical Year 2000 issues will be resolved in a timely manner or that
potentially unresolved issues would not have a material adverse impact on the
results of operations.
The Berlin-Gorham Mills have certain key relationships with customers,
vendors and outside service providers. Failure by the Berlin-Gorham Mills' key
customers, vendors and outside service providers to adequately address the Year
2000 issue could have a material adverse impact on the Berlin-Gorham Mills'
operations and financial results. The Berlin-Gorham Mills are currently
assessing the Year 2000 readiness of these key customers, vendors and outside
service providers and, at this time, cannot determine what the impact of their
readiness will be on the Berlin-Gorham Mills.
Note 11
Subsequent Event
In March 1999, Crown Vantage reached an agreement with American Tissue for
the sale of substantially all of the Berlin-Gorham Mills' assets and certain
liabilities. In connection with Crown Vantage's decision to sell the
Berlin-Gorham Mills, the net assets to be sold will be written down to their net
realizable value in the first quarter of
F-35
<PAGE>
1999. As a result, a charge will be recognized in the Berlin-Gorham Mills' 1999
first quarter of approximately $16.2 million.
Settlement of Berlin Property Tax Case
On February 1, 1999, Crown Paper entered into an agreement with the City of
Berlin, New Hampshire concerning assessed values and taxability of factory
machinery. Over the next three years the agreement significantly reduces the
assessed value from recent valuations of the Berlin-Gorham Mills' pulp mill. The
Berlin-Gorham Mills will reverse a property tax accrual of approximately $9
million in the first quarter of 1999, which relates to amounts over-accrued for
previous tax years.
F-36
<PAGE>
BERLIN-GORHAM MILLS
BALANCE SHEET
(dollars in thousands)
<TABLE>
<CAPTION>
June 27, 1999 December 27, 1998
------------- -----------------
(unaudited)
<S> <C> <C>
Assets
Current Assets:
Cash and cash equivalents .................................. $ 1,675 $ 1,753
Accounts receivable ........................................ 5,759 6,537
Inventories ................................................ 26,282 27,371
Prepaid expenses and other current assets .................. 386 115
-------- --------
Total current assets ....... 34,102 35,776
-------- --------
Property, plant and equipment, net ......................... 30,838 46,185
Other assets ............................................... 16,340 19,081
-------- --------
Total Assets ......................... 81,280 $101,042
======== ========
Liabilities and Equity
Current Liabilities:
Accounts payable ........................................... 6,459 $ 6,912
Accrued liabilities ........................................ 13,407 21,180
-------- --------
Total current liabilities ............ 19,866 28,092
-------- --------
Long-term debt ............................................. 30,255 30,255
Accrued post retirement benefits other than pensions ....... 24,337 30,724
Other long-term liabilities ................................ 2,179 2,033
-------- --------
Total Liabilities .................... 76,637 91,104
-------- --------
Crown Vantage's Investment ................................. 4,643 9,938
-------- --------
Total Liabilities and Equity 81,280 $101,042
======== ========
</TABLE>
See notes to interim financial statements.
F-37
<PAGE>
BERLIN-GORHAM MILLS
STATEMENTS OF OPERATIONS
(dollars in thousands)
26 Weeks Ended
-----------------------------
June 27, 1999 June 28, 1998
------------- -------------
(unaudited)
Net sales .................................. $ 86,372 $ 87,439
Cost of sales .............................. 83,268 98,360
Severance charge ........................... -- 1,932
-------- --------
Gross margin ............................ 3,104 (12,853)
Adjustment to net realizable value ......... 16,175 --
Selling and administrative expenses ........ 4,693 5,136
Property tax accrual reversal .............. (8,957) --
Gain on timberland sale .................... -- --
Asset impairment charge .................... -- --
Corporate overhead allocation(3) ........... 3,783 3,342
-------- --------
Operating income (loss) .................... (12,590) (21,331)
Interest expense and other income, net ..... 1,240 1,244
-------- --------
Loss before income taxes ................... (13,830) (22,575)
Income tax benefit(4) ...................... (5,366) (8,759)
-------- --------
Net loss ................................... $ (8,464) $(13,816)
======== ========
See notes to interim financial statements.
F-38
<PAGE>
BERLIN-GORHAM MILLS
STATEMENTS OF CASH FLOWS
(dollars in thousands)
<TABLE>
<CAPTION>
26 Weeks Ended
------------------------------------
June 27, 1999 June 28, 1998
------------- -------------
(unaudited)
<S> <C> <C>
Cash provided by (used for) operating activities:
Net loss ............................................. (8,464) (13,816)
Items not affecting cash:
Depreciation and cost of timber harvested ......... 2,676 12,083
Property tax accrual reversal ..................... (8,957) --
Adjustment to net realizable value ................ 16,175 --
Other, net ........................................ 25 25
Tax benefit ....................................... (5,366) (8,759)
Change in current assets and liabilities:
Accounts receivable ............................... 777 298
Inventories ....................................... 1,090 156
Other current assets .............................. (271) (524)
Accounts payable .................................. (452) (28)
Other current liabilities ......................... (2,777) 6,290
Other, net ........................................... 146 121
-------- --------
Cash used for operating activities ................... (5,398) (4,154)
Cash provided by (used for) investing activities:
Expenditures for property, plant and equipment .... (3,211) (2,812)
Proceeds from sale of property, plant and equipment -- (212)
Other, net ........................................ (3) 208
-------- --------
Cash used for investing activities .............. (3,214) (2,816)
Cash provided by (used for) financing activities:
Crown Vantage's capital investment ................ 8,534 6,742
-------- --------
Cash provided by financing activities ........... 8,534 6,742
-------- --------
Decrease in cash and cash equivalents ............. (78) (228)
Cash and cash equivalents, beginning of year ...... 1,753 5,167
======== ========
Cash and cash equivalents, end of period ........ $ 1,675 $ 4,939
======== ========
</TABLE>
See notes to interim financial statements.
F-39
<PAGE>
BERLIN-GORHAM MILLS
Notes to Interim Financial Statements
(unaudited)
Note 1-Organization and Basis of Presentation
The Berlin-Gorham Mills are owned by Crown Paper Co., a wholly-owned
Company of Crown Vantage Inc. (collectively "Crown Vantage"). Subject to the
successful consummation of the Asset Purchase Agreement and related agreements
by and between Crown Paper Co. and American Tissue Inc. ("American Tissue"), the
Berlin-Gorham Mills will be sold to Pulp & Paper of America LLC, an affiliate of
American Tissue (the "Sale"). The accompanying condensed financial statements
have been prepared in accordance with generally accepted accounting principles
for interim financial information. Accordingly, they do not include all of the
information and notes required by generally accepted accounting principles for
annual financial statements. The condensed balance sheet as of December 27, 1998
was derived from audited financial statements, but does not include all
disclosures required by generally accepted accounting principles for annual
financial statements. In the opinion of management, all adjustments (consisting
of normal recurring accruals) considered necessary for a fair presentation have
been included. Operating results for the 26 weeks ended June 27, 1999 are not
necessarily indicative of the results that may be expected for the year ended
December 26, 1999. For further information, refer to the Berlin-Gorham Mills'
financial statements and footnotes thereto included in financial statements for
the year ended December 27, 1998.
The accompanying financial statements have been prepared as if the
Berlin-Gorham Mills had operated as an independent stand-alone entity for all
periods presented. There are no allocations of Crown Vantage borrowings or
related interest expense in the accompanying financial statements except for
borrowings and interest expense of certain industrial revenue bonds incurred by
Crown Vantage that are restricted to environmental expenditures at the
Berlin-Gorham Mills. The Berlin-Gorham Mills engaged in various transactions
with Crown Vantage and its other mills that are characteristic of a group of
entities under common control. Throughout the period covered by these financial
statements, the Berlin-Gorham Mills participated in Crown Vantage's centralized
cash management system and, as such, its cash funding requirements were met by
Crown Vantage. The Berlin-Gorham Mills' operational transactions resulted in
amounts receivable from and payable to Crown Vantage, which fluctuate over time
and have not been settled through cash transfers. Accordingly, the amounts have
been presented net in the balance sheet as Crown Vantage's Investment. For a
description of all significant intercompany transactions effecting the
Berlin-Gorham Mills please see the Berlin-Gorham Mills financial statements for
the year ended December 27, 1998.
Crown Vantage general and administrative costs not directly attributable to
Berlin-Gorham have been allocated based primarily on tons sold. Such allocations
for the first six months totaled $3.8 million in 1999, and $3.3 million in 1998.
Note 2-Sale of Accounts Receivable
In 1996, Crown Vantage entered into a five-year agreement with certain
banks which provides for the sale of undivided interests in a revolving pool of
trade accounts receivable, including trade receivables attributable to the
Berlin-Gorham Mills. As collections reduce accounts receivable included in the
pool, Crown Vantage sells undivided interests in new receivables to bring the
amount sold up to the amount permitted. Accounts receivable reported in the
accompanying balance sheets represent the Berlin-Gorham Mills receivables net of
the undivided interests in the Berlin-Gorham Mills receivables sold ($6.2
million at June 27, 1999 and $6.9 million at December 27, 1998).
The proceeds from sales are less than the face amount of undivided
interests in accounts receivable sold and this discount ($0.4 million in 1999
and 1998) is included in corporate allocations in the statement of operations.
F-40
<PAGE>
Note 3-Sales to Crown Vantage Locations
Net sales of pulp to other Crown Vantage mills, which are included in the
accompanying Statement of Operations, totaled $5.6 million in 1999, and $6.0
million in 1998.
Note 4-Inventories
(amounts in thousands) June 27, 1999 December 27, 1998
- ---------------------- ------------- -----------------
Raw Materials ....................... $ 2,943 $ 3,950
Work-in-process ..................... 615 586
Finished goods ...................... 11,877 13,031
Stores and supplies ................. 11,848 11,702
-------- --------
27,283 29,269
Last-in, first-out reserve .......... (1,001) (1,898)
-------- --------
Total Inventories ................... $ 26,282 $ 27,371
======== ========
Long term debt consists of the following industrial revenue bonds (in
thousands) for periods presented:
7.75% Refunding Bonds, due 2022 ........................... $17,955
7.875% Project Bonds, due 2026 ............................ 12,300
-------
$30,255
=======
Proceeds from the sale of the 7.875% Project Bonds are used to finance
eligible environmental project costs. At June 27, 1999 and December 27, 1998
approximately $1.7 million and $1.8 million, respectively had not yet been
spent.
Note 6-Environmental Matters
The Berlin-Gorham Mills have accrued $2.8 million at June 27, 1999 and $2.4
million at December 27, 1998 primarily for estimated landfill site restoration,
post-closure and monitoring costs.
The Environmental Protection Agency signed final rules affecting pulp and
paper industry discharges of wastewater and gaseous emissions ("Cluster Rules"),
which became effective on April 15, 1998. These Cluster Rules require changes in
the pulping, bleaching and/or wastewater treatment processes presently used in
some U.S. pulp and paper mills, including the Berlin pulp mill. Management
estimates that approximately $12.9 million of capital expenditures may be
required to comply with the rules with compliance dates beginning in 1999 and
extending over the next two to five years. As of June 27, 1999, $0.2 million had
been spent in 1999 and Cluster Rule capital spending from inception to date
totals $0.4 million. There are risks and uncertainties associated with the
estimate that could cause total capital expenditures and timing of such
expenditures to be materially different from current estimates, including
changes in technology, interpretation of the rules by government agencies that
is substantially different from Management's interpretation, or other items.
Note 7-Year 2000 Issue
The Year 2000 issue concerns the potential inability of computer
applications, information technology systems, and certain software-based
"embedded" control systems to properly recognize and process date-sensitive
information as the Year 2000 approaches and beyond. The Berlin-Gorham Mills
could suffer material adverse impacts on its operations and financial results if
the applications and systems used by the Berlin-Gorham Mills, or by third
parties with whom the Berlin-Gorham Mills do business, do not accurately or
adequately process or manage dates or other information as a result of the Year
2000 issue.
F-41
<PAGE>
The Berlin-Gorham Mills use a variety of software applications, business
information systems, accounting subsystems, process control systems and related
software, communication devices, and networking and other operating systems. The
Berlin-Gorham Mills have completed an inventory of all such systems and are
currently in the process of testing, upgrading, replacing, or otherwise
modifying these systems to adequately address the Year 2000 issue. The
Berlin-Gorham Mills believe they will be able to timely modify or replace its
affected systems to prevent any material detrimental effects on operations and
financial results. However, the Berlin-Gorham Mills can give no assurance that
all critical Year 2000 issues will be resolved in a timely manner or that
potentially unresolved issues would not have a material adverse impact on the
results of operations.
The Berlin-Gorham Mills have certain key relationships with customers,
vendors and outside service providers. Failure by the Berlin-Gorham Mills' key
customers, vendors and outside service providers to adequately address the Year
2000 issue could have a material adverse impact on the Berlin-Gorham Mills'
operations and financial results. The Berlin-Gorham Mills are currently
assessing the Year 2000 readiness of these key customers, vendors and outside
service providers and, at this time, cannot determine what the impact of their
readiness will be on the Berlin-Gorham Mills.
Note 8-Berlin-Gorham Sale
In March 1999, Crown Vantage reached an agreement with American Tissue for
the sale of substantially all of the Berlin-Gorham Mills' assets and certain
liabilities. Management expects to consummate the sale during the second quarter
of 1999. In connection with Crown Vantage's decision to sell the Berlin-Gorham
Mills, a charge for $16.2 million was recorded in the first quarter of 1999 in
order to adjust the Berlin-Gorham Mills' net book value to its net realizable
value. The charge consisted of the following elements:
(amounts in millions)
Fixed asset write-down ........................................ $16.5
Accrued transaction fees ...................................... 2.5
Loss on curtailment of pension plans .......................... 3.4
Gain on curtailment/settlement of other benefit plans ......... (6.2)
-----
Total charge .................................................. $16.2
=====
Note 9-Settlement of Berlin Property Tax Case
On February 1, 1999, Crown Paper entered into an agreement with the City of
Berlin, New Hampshire concerning assessed values and taxability of factory
machinery. Over the next three years the agreement significantly reduces the
assessed value from recent valuations of the Berlin-Gorham Mills' pulp mill. The
Berlin-Gorham Mills reversed a property tax accrual of approximately $9 million
in the first quarter of 1999, which relates to amounts over-accrued for previous
tax years.
F-42
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 20. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
The registrant is incorporated under the laws of the State of Delaware.
Section 145 of the Delaware General Corporation Law ("Section 145"), inter alia,
provides that a Delaware corporation may indemnify any persons who were, are or
are threatened to be made, parties to any threatened, pending or completed
action, suit or proceeding, whether civil, criminal, administrative or
investigative (other than an action by or in the right of such corporation), by
reason of the fact that such person is or was an officer, director, employee or
agent of such corporation, or is or was serving at the request of such
corporation as a director, officer employee or agent of another corporation or
enterprise. The indemnity may include expenses (including attorneys' fees),
judgments, fines and amounts paid in settlement actually and reasonably incurred
by such person in connection with such action, suit or proceeding, provided such
person acted in good faith and in a manner he reasonably believed to be in or
not opposed to the corporation's best interests and, with respect to any
criminal action or proceeding, had no reasonable cause to believe that his
conduct was illegal. A Delaware corporation may indemnify any persons who are,
were or are threatened to be made, a party to any threatened, pending or
completed action or suit by or in the right of the corporation by reason of the
fact that such person was a director, officer, employee or agent of such
corporation, or is or was serving at the request of such corporation as a
director, officer, employee or agent of another corporation or enterprise. The
indemnity may include expenses (including attorneys' fees) actually and
reasonably incurred by such person in connection with the defense or settlement
of such action or suit, provided such person acted in good faith and in a manner
he reasonably believed to be in or not opposed to the corporation's best
interests, provided that no indemnification is permitted without judicial
approval if the officer, director, employee or agent is adjudged to be liable to
the corporation. Where an officer, director, employee or agent is successful on
the merits or otherwise in the defense of any action referred to above, the
corporation must indemnify him against the expenses which such officer or
director has actually and reasonably incurred.
The registrant's certificate of incorporation, as amended, provides for the
indemnification of directors and officers of the registrant to the fullest
extent permitted by the Delaware General Corporation Law.
Section 145 further authorizes a corporation to purchase and maintain
insurance on behalf of any person who is or was a director, officer, employee or
agent of the corporation, or is or was serving at the request of the corporation
as a director, officer, employee or agent of another corporation or enterprise,
against any liability asserted against him and incurred by him in any such
capacity, arising out of his status as such, whether or not the corporation
would otherwise have the power to indemnify him under Section 145.
The registrant has insurance covering all of its registrant's directors and
officers against certain liabilities for actions taken in such capacities,
including liabilities under the Securities Act of 1933.
ITEM 21. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.
(a) A list of exhibits included as part of this registration statement is
set forth in the Exhibit Index which immediately precedes such exhibits and is
incorporated herein by reference
ITEM 22. UNDERTAKINGS.
The undersigned registrant undertakes:
(1) To file, during any period in which offers or sales are being made, a
post-effective amendment to this registration statement:
(i) to include any prospectus required by Section 10(a)(3) of the
Securities Act of 1933;
II-1
<PAGE>
(ii) To reflect in the prospectus any facts or events arising after
the effective date of the registration statement (or the most
recent post-effective amendment thereof) which individually or in
the aggregate, represent a fundamental change in the information
set forth in the registration statement; and
(iii) To include any material information with respect to the plan of
distribution not previously disclosed in the registration
statement or any material change to such information in the
registration statement.
(2) that, for purposes of determining any liability under the Securities
Act of 1933 (the "Securities Act"), each such post-effective amendment shall be
deemed to be a new registration statement relating to the securities offered
therein, and the offering of such securities at the time shall be deemed to be
the initial bona fide offering thereof.
(3) to remove from registration by means of a post-effective amendment any
of the securities being registered which remain unsold at the termination of the
offering.
(4) that, for the purpose of determining any liability under the Securities
Act, each post-effective amendment that contains a form of prospectus shall be
deemed to be a new registration statement relating to the securities offered
therein, and the offering of such securities at that time shall be deemed to be
the initial bona fide offering thereof.
(5) to respond to requests for information that is incorporated by
reference into the prospectus pursuant to Item 4, 10(b), 11, or 13 of this form,
within one business day of receipt of such request, and to send the incorporated
documents by first class mail or other equally prompt means. This includes
information contained in documents filed subsequent to the effective date of the
registration statement through the date of responding to the request.
(6) to supply by means of a post-effective amendment all information
concerning a transaction, and the company being acquired involved therein, that
was not the subject of and included in the registration statement when it became
effective.
Insofar as indemnification for liabilities arising under the Securities Act
may be permitted to directors, officers and controlling persons of the
registrant pursuant to the provisions described under Item 20 or otherwise, the
registrant has been advised that in the opinion of the Securities and Exchange
Commission such indemnification is against public policy as expressed in the
Securities Act and is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by the
registrant of expenses incurred or paid by a director, officer or controlling
person of the registrant in the successful defense of any action, suit or
proceeding) is asserted by such director, officer or controlling person in
connection with the securities being registered, the registrant will, unless in
the opinion of its counsel the matter has been settled by controlling precedent,
submit to a court of appropriate jurisdiction the question whether such
indemnification by it is against public policy as expressed in the Securities
Act and will be governed by the final adjudication of such issue.
II-2
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS ON SCHEDULE
To the Board of Directors and
Stockholder of Middle American Tissue Inc.:
We have audited, in accordance with generally accepted auditing standards, the
consolidated financial staetments of Middle American Tissue Inc. (the "Company")
included in this registration statement and have issued our report thereon dated
August 10, 1999. Our audits were made for the purpose of forming an opinion on
the basic financial statements taken as a whole. The accompanying schedule 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 a 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.
/s/ ARTHUR ANDERSEN LLP
ARTHUR ANDERSEN LLP
Melville, New York
August 10, 1999
II-3
<PAGE>
SCHEDULE II
MIDDLE AMERICAN TISSUE INC.
VALUATION AND QUALIFYING ACCOUNTS
AMOUNTS IN 000s
COLUMN A COLUMN B COLUMN C COLUMN D COLUMN E
-------- -------- -------- -------- --------
Balance Write-off
at of Balance
beginning Charged uncollect- at
of to ible end of
Description period expenses accounts period
----------- ------ -------- -------- ------
Allowance for doubtfule accounts
September 30, 1996 ................. $ 363 $ 497 $ 407 $ 453
September 30, 1997 ................. $ 453 $1,120 $ 193 $1,380
September 30, 1998 ................. $1,380 $ 560 $1,857 $ 83
II-4
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
has duly caused this registration statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the Village of Hauppauge, State of
New York, on October 22, 1999.
MIDDLE AMERICAN TISSUE INC.
By: /s/ Mehdi Gabayzadeh
----------------------------------------
Name: Mehdi Gabayzadeh
Title: President and Chief Executive Officer
POWER OF ATTORNEY
Each of the undersigned constitutes and appoints Mehdi Gabayzadeh, Edward
I. Stein and Nourollah Elghanayan and each of them (with full power to act
alone), as attorneys and agents for the undersigned, with full power of
substitution and resubstitution, for and in the name, place and stead of the
undersigned, in any and all capacities, to sign and file with the Securities
Exchange Commission under the Securities Act any or all amendments (including
post-effective amendments) and exhibits to this registration statement and any
and all applications, instruments and other documents to be filed with the
Commission pertaining to the registration of the securities covered hereby, with
full power and authority to do and perform each and every act and thing
requisite and necessary to be done in and about the premises, as fully to all
intents and purposes as they might or could do in person, hereby ratifying and
confirming all that said attorneys-in-fact and agents or their substitute or
substitutes may lawfully do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, this
registration statement and power of attorney have been signed by the following
persons in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<S> <C> <C>
/s/Nourollah Elghanayan Chairman of the Board and Director October 22, 1999
- ---------------------------
Nourollah Elghanayan
/s/Mehdi Gabayzadeh President and Chief Executive Officer October 22, 1999
- --------------------------- (Principal Executive Officer) and
Mehdi Gabayzadeh Director
/s/Edward I. Stein Executive Vice President and Chief October 22, 1999
- --------------------------- Financial Officer (Principal
Edward I. Stein Financial and Accounting Officer)
/s/Andrew Rush Director October 26, 1999
- ---------------------------
Andrew Rush
</TABLE>
II-5
<PAGE>
INDEX TO EXHIBITS
EXHIBIT
NUMBER DESCRIPTION
------ -----------
3.1 Certificate of Incorporation of Middle American Tissue Inc. (1)
3.2 By-Laws of Middle American Tissue Inc. (1)
4.1 Indenture dated as of July 9, 1999 between Middle American Tissue
Inc. and The Chase Manhattan Bank, as trustee and collateral
agent (1)
4.2 Form of 15% Series B Senior Secured Discount Notes due 2007 (1)
4.3 Purchase Agreement dated July 9, 1999 among Middle American
Tissue Inc., and the Initial Purchasers named therein (1)
4.4 Registration Rights Agreement dated as of July 9, 1999, among
Middle American Tissue Inc., and the Initial Purchasers named
therein (1)
4.5 Securities Pledge Agreement dated as of July 9, 1999 among Middle
American Tissue Inc., The Chase Manhattan Bank, as trustee and
collateral agent (1)
5.1 Opinion of Mandel & Resnik P.C. (2)
10.1 Indenture dated as of July 9, 1999 among American Tissue Inc.,
the subsidiary guarantors named therein and The Chase Manhattan
Bank, as Trustee (3)
10.2 12 1/2% Series A Senior Secured Note due 2006 of American Tissue
Inc. in the face amount of $165.0 million (3)
10.3 Security Agreement dated as of July 9, 1999 made by American
Tissue Inc. and the subsidiary guarantors named therein in favor
of the Trustee (3)
10.4 Form of Mortgage, Assignment of Leases, Security Agreement and
Fixture Filing dated as of July 9, 1999 by each of the following
companies in favor of the Trustee: American Tissue Mills of
Greenwich LLC relating to premises at Mill Road, Greenwich, New
York; America Tissue Mills of New Hampshire, Inc. relating to
premises at 116 Lost Road, Winchester, New Hampshire; American
Tissue Mills of Neenah LLC relating to premises at 249 Lake
Street, Neenah, Wisconsin; American Tissue Mills of New York,
Inc. relating to premises at 510 South Main Street,
Mechanicville, New York; American Tissue Mills of Wisconsin, Inc.
relating to premises at 858 West Leather Avenue, Tomahawk,
Wisconsin; Berlin Mills Railway, Inc. relating to premises in
Gorham, New Hampshire; Coram LLC relating to premises at 466-468
Mill Road, Coram, New York; Crown Vantage-New Hampshire Electric,
Inc., relating to premises in Berlin and Gorham, New Hampshire;
Engineers Road LLC relating to premises at 135 Engineers Road,
Hauppauge, New York; Gilpin Realty Corp. relating to premises at
45 Gilpin Avenue, Hauppauge, New York; Landfill of America LLC
relating to premises in Success, New Hampshire; Paper of America
LLC relating to premises in Gorham, New Hampshire; Pulp of
America LLC relating to premises in Berlin, New Hampshire; and
Saratoga Realty LLC relating to premises at 3 Duplainville Road,
Saratoga Springs, New York (3)
10.5 Leasehold Mortgage, Assignment of Leases, Security Agreement and
Fixture Filing dated as of July 9, 1999 between Grand LLC, as
mortgagor, and the Trustee, as mortgagee (3)
<PAGE>
EXHIBIT
NUMBER DESCRIPTION
------ -----------
10.6 Leasehold Deed of Trust, Assignment of Leases, Security Agreement
and Fixture Filing dated as of July 9, 1999 made by American
Tissue Mills of Oregon, Inc., as grantor, to Ticor Title
Insurance Company, as trustee for the benefit of the Trustee, as
beneficiary (3)
10.7 Existing Lien Intercreditor Agreement dated as of July 9, 1999
among American Tissue Inc., each of the Subsidiary Guarantors,
the Trustee, Bank United, The Roslyn Savings Bank and LaSalle
Bank National Association (3)
10.8 Consent and Intercreditor Agreement dated as of July 9, 1999
among American Tissue Mills of Oregon, Inc., American Tissue
Corporation, the Trustee and Boise Cascade Corporation (3)
10.9 Amended and Restated Loan and Security Agreement dated July 9,
1999 among American Tissue Inc., certain subsidiaries of American
Tissue Inc., certain lenders and LaSalle Bank National
Association, for itself and as agent for the other lenders (3)
10.10 Asset Purchase Agreement dated March 24, 1999 by and among Crown
Paper Co., Crown Vantage-New Hampshire Electric, Inc., Berlin
Mills Railway, Inc., as Seller, and American Tissue Holdings Inc.
(now known as American Tissue Inc.) and Pulp & Paper of America
LLC, as Buyer (3)
10.11 Pulp Purchase Agreement dated March 24, 1999 between Crown Paper
Co. and Pulp & Paper of America LLC (2)
10.12 Paper Brokerage Agreement dated March 24, 1999 between Crown
Paper Co. and Pulp & Paper of America LLC (2)
10.13 Strategic Alliance Agreement dated March 24, 1999 between Crown
Paper Co. and Pulp & Paper of America LLC (2)
10.14 Lease dated August 1, 1998 between American Tissue Mills of
Neenah LLC and Lakeview Real Estate LLC relating to premises
located at 249 North Lake Street, Neenah, Wisconsin (3)
10.15 Lease dated June 1, 1998 between American Tissue Corporation and
Huntington LLC relating to premises located at 1 Arnold Drive,
Huntington, New York (3)
10.16 Lease dated January 18, 1996 between American Tissue Corporation
and Reckson Operating Partnership, L.P. relating to premises
located at 85 Nicon Court, Hauppauge, New York (3)
10.17 Lease dated in February 1990 between American Tissue Corporation
and Vanderbilt Associates relating to premises located at 110
Plant Avenue, Hauppauge, New York (3)
10.18 Novation Agreement dated as of July 9, 1999 among Super American
Tissue Inc., Nourollah Elghanayan, Mehdi Gabayzadeh, Lakeview
Real Estate LLC and Huntington LLC (3)
10.19 Lease dated August 15, 1996 between American Tissue Corporation
and Swimline Corporation relating to premises located at 56
Vanderbilt Motor Parkway, Commack, New York (3)
10.20 Lease Agreement dated as of March 20, 1998 between Waterford
Industrial Development Authority and Grand LLC relating to
premises located in Waterford, New York (3)
-2-
<PAGE>
EXHIBIT
NUMBER DESCRIPTION
------ -----------
10.21 Agreement dated November 23, 1992 between American Tissue Mills
of Oregon, Inc. and Boise Cascade Corproation, as amended by the
Amendment dated January 1, 1999 among the same parties and
American Tissue Corporation (3)
10.22 Lease Agreement dated December 15, 1995 between American Tissue
Corporation and Curtiss-Wright Flight Systems/Shelby, Inc.
relating to premises located at Passaic Street, Wood-Ridge, New
Jersey (3)
10.23 Loan Agreement dated December 15, 1995 between American Tissue
Corporation and Curtiss-Wright Flight Systems/Shelby, Inc. (3)
10.24 Lease Agreement dated as of November 1, 1997 between St. Lawrence
& Atlantic Railroad Company and Berlin Mills Railway Inc. (3)
10.25 Service Agreement dated as of November 1, 1997 between Crown
Paper Co. and St. Lawrence & Atlantic Railroad Company (3)
10.26 Note and Mortgage dated October 27, 1998 made by Grand LLC in
favor of Security Mutual Life Insurance Company of New York
relating to premises located in Halfmoon, New York (3)
10.27 Consolidated Mortgage Note and Consolidated Mortgage dated
December 29, 1997 made by Saratoga Realty LLC in favor of Bank
United relating to premises located at 3 Duplainville Road,
Saratoga Springs, New York (3)
10.28 Consolidated Mortgage Note and Consolidated Mortgage dated
October 17, 1997 made by Grand LLC in favor of Bank United
relating to premises located at Bell's Lane, Waterford, New York
(3)
10.29 Consolidated Mortgage Note and Consolidated Mortgage dated July
21, 1998 made by Gilpin Realty Corp., Coram Realty LLC, Engineers
Road LLC and Huntington LLC in favor of The Roslyn Savings Bank
relating to premises located at 135 Engineers Road, Hauppauge,
New York, 466-468 Mill Road, Coram, New York and 45 Gilpin
Avenue, Hauppauge, New York (3)
10.30 Mortgage Note and Deed of Trust dated as of April 19, 1999 made
by Calexico Tissue Company LLC in favor of Bank United (3)
10.31 Agency Loan Promissory Note and Agency Loan Deed of Trust dated
in May 1997 made by Calexico Tissue Company LLC in favor of
Community Development Agency of the City of Calexico (3)
10.32 Reimbursement Promissory Note and Reimbursement Deed of Trust
dated in July 1997 made by Calexico Tissue Company LLC in favor
of Community Development Agency of the City of Calexico (3)
10.33 Agreement to Supply Sand and Gravel in Place dated October 30,
1997 between John Hancock Mutual Life Insurance Company and Crown
Paper Co. (3)
10.34 Roundwood Supply Agreement dated June 28, 1999 between Prime
Timber Company LLC and Crown Paper Co. (3)
10.35 Northeast Roundwood Supply Agreement dated October 30, 1997
between John Hancock Mutual Life Insurance Company and Crown
Paper Co. (3)
10.36 Cooperative Agreement dated June 19, 1995 between Kimberly-Clark
Corporation and United Paperworker's International Union,
AFL-CIO, and Local No. 482 (3)
-3-
<PAGE>
EXHIBIT
NUMBER DESCRIPTION
------ -----------
10.37 Labor Agreement dated as of June 24, 1997 between Crown Vantage
and United Paperworkers International Union, AFL-CIO, and its
United Brotherhood Local Union No. 75 (3)
10.38 Labor Agreement dated July 15, 1997 between Crown Paper Co. and
Office and Professional Employees International Union, Local 6
(3)
10.39 Agreement dated December 12, 1994 between American Tissue
Corporation and American Tissue Mills de Mexico S.A. de C.V. (3)
12.1 Computation of ratio of earnings to fixed charges (1)
21.1 Subsidiaries of Middle American Tissue Inc. (1)
23.1 Consent of Arthur Andersen LLP (1)
23.2 Consent of Holtz Rubenstein & Co., LLP (1)
23.3 Consent of Ernst & Young LLP (1)
23.4 Consent of Mandel & Resnik P.C. (included in Exhibit 5.1) (2)
24.1 Powers of Attorney (included in signature pages)
25.1 Statement of Eligibility of Trustee on Form T-1 (1)
27.1 Financial Data Schedule (1)
99.1 Form of Letter of Transmittal (1)
99.2 Form of Notice of Guaranteed Delivery (1)
99.3 Form of Letter to Record Holders of Old Notes (1)
99.4 Form of Letter to Beneficial Holders of Old Notes (1)
- ------------------
(1) Filed herewith
(2) To be filed by amendment
(3) Previously filed as an exhibit to American Tissue Inc. Registration
Statement No. 333-88017 on Form S-4 filed with the Securities and Exchange
Commission on September 29, 1999 and all amendments thereto concerning an
offer to exchange $165.0 million aggregate principal amount of Senior
Secured Notes due 2006 to be issued by American Tissue Inc., which exhibit
is incorporated in this registration statement by reference.
-4-
STATE OF DELAWARE
SECRETARY OF STATE
DIVISION OF CORPORATIONS
FILED 09:00 AM 07/01/1999
991272907 -- 3065306
CERTIFICATE OF INCORPORATION
OF
MIDDLE AMERICAN TISSUE INC.
----------
FIRST. The name of this corporation shall be:
MIDDLE AMERICAN TISSUE INC.
SECOND. Its registered office in the State of Delaware is to be located at
1013 Centre Road, in the City of Wilmington, County of New Castle and its
registered agent at such address is CORPORATION SERVICE COMPANY.
THIRD. The purpose or purposes of the corporation shall be:
To engage in any lawful act or activity for which corporations may be
organized under the General Corporation Law of Delaware.
FOURTH. The total number of shares of stock which this corporation is
authorized to issue is:
Two hundred (200) shares without par value.
FIFTH. The name and address of the incorporator is as follows:
Tricia Taylor
Corporation Service Company
1013 Centre Road
Wilmington, DE 19805
SIXTH. The Board of Directors shall have the power to adopt, amend or
repeal the by-laws.
<PAGE>
SEVENTH. No director shall be personally liable to the Corporation or its
stockholders for monetary damages for any breach of fiduciary duty by such
director as a director. Notwithstanding the foregoing sentence, a director shall
be liable to the extent provided by applicable law, (i) for breach of the
director's duty of loyalty to the Corporation or its stockholders, (ii) for acts
or omissions not in good faith or which involve intentional misconduct or a
knowing violation of law, (iii) pursuant to Section 174 of the Delaware General
Corporation Law or (iv) for any transaction from which the director derived an
improper personal benefit. No amendment to or repeal of this Article Seventh
shall apply to or have any effect on the liability or alleged liability of any
director of the Corporation for or with respect to any acts or omissions of such
director occurring prior to such amendment.
IN WITNESS WHEREOF, the undersigned, being the incorporator hereinbefore
named, has executed, signed and acknowledged this certificate of incorporation
this first day of July, A.D., 1999.
/s/ Tricia Taylor
-----------------------
Tricia Taylor
Incorporator
<PAGE>
State of Delaware
Office of the Secretary of State PAGE 1
I, EDWARD J. FREEL, SECRETARY OF STATE OF THE STATE OF DELAWARE, DO HEREBY
CERTIFY THE ATTACHED IS A TRUE AND CORRECT COPY OF THE CERTIFICATE OF
INCORPORATION OF "MIDDLE AMERICAN TISSUE INC.",FILED IN THIS OFFICE ON THE FIRST
DAY OF JULY, A.D. 1999, AT 9 O'CLOCK A.M.
A FILED COPY OF THIS CERTIFICATE HAS BEEN FORWARDED TO THE NEW CASTLE
COUNTY RECORDER OF DEEDS.
/s/ Edward J. Freel
-----------------------------------
Edward J. Freel, Secretary of State
AUTHENTICATION: 9846314
DATE: 07-02-99
3065306 8100
991272907
BY-LAWS
OF
MIDDLE AMERICAN TISSUE INC.
(Formed under the laws of the State of Delaware)
<PAGE>
ARTICLE I
SHAREHOLDERS
1.1. Annual Meeting. A meeting of the shareholders shall be held annually for
the election of directors (each, a "Director", and collectively, the
"Directors") and the transaction of other business on such date in each year as
may be determined by the Board of Directors (the "Board"), but in no event later
than 180 days following the end of the fiscal year of Middle American Tissue
Inc. (the "Corporation").
1.2. Special Meetings. Special meetings of the shareholders may be called by the
Board or, subject to the control of the Board, by the President and shall be
called by the Board upon the written request of the holders of record of a
majority of the outstanding shares of the Corporation entitled to vote at the
meeting requested to be called. Such request shall state the purpose or purposes
of the proposed meeting. At such meetings the only business which may be
transacted is that relating to the purpose or purposes set forth in the notice
thereof.
1.3. Place of Meetings. Meetings of shareholders shall be held at such place,
within or without the State of Delaware, as may be fixed by the Board. If no
place is so fixed, such meetings shall be held at the office of the Corporation
in the State of New York.
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1.4. Notice of Meetings. Notice of each meeting of shareholders shall be given
in writing and shall state the place, date and hour of the meeting and the
purpose or purposes for which the meeting is called. Notice of a special meeting
shall indicate that it is being issued by or at the direction of the person or
persons calling or requesting the meeting.
If, at any meeting, action is proposed to be taken which would, if taken,
entitle objecting shareholders to receive payment for their shares, the notice
shall include a statement of that purpose and to that effect.
1.5. Waiver of Notice. Notice of meeting need not be given to any shareholder
who submits a signed waiver of notice, in person or by proxy, whether before or
after the meeting. The attendance of any shareholder at a meeting, in person or
by proxy, without protesting prior to the conclusion of the meeting the lack of
notice of such meeting, shall constitute a waiver of notice by him.
1.6. Inspectors of Election. The Board, in advance of any shareholders' meeting,
may appoint one or more inspector to act at the meeting or any adjournment
thereof. If inspectors are not so appointed, the person presiding at a
shareholders' meeting may, and on the request of any shareholder entitled to
vote thereat shall, appoint two inspectors. In case any person appointed fails
to appear or act, the vacancy may be filled by appointment made by the Board in
advance of the meeting or at the meeting by the person
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presiding thereat. Each inspector, before entering upon the discharge of his
duties, shall take and sign an oath faithfully to execute the duties of
inspector at such meeting with strict impartiality and according to the best of
his ability.
The inspectors shall determine the number of shares outstanding and the voting
power of each, the shares represented at the meeting, the existence of a
quorum,and the validity and effect of proxies, and shall receive votes, ballots
or consents, hear and determine all challenges and questions arising in
connection with the right to vote, count and tabulate all votes, ballots or
consents, determine the result, and do such acts as are proper to conduct the
election or vote with fairness to all shareholders. On request of the person
presiding at the meeting or any shareholder entitled to vote thereat, the
inspectors shall make a report in writing of any challenge, question or matter
determined by them and execute a certificate of any fact found by them. Any
report or certificate made by them shall be prima facie evidence of the facts
stated and of the vote as certified by them.
1.7. List of Shareholders at Meetings. A list of shareholders as of the record
date, certified by the Secretary, any Assistant Secretary or by a transfer
agent, shall be produced at any meeting of shareholders upon the request thereat
or prior thereto of any shareholder. If the right to vote at any meeting is
challenged, the inspectors of election, or person presiding thereat, shall
require such list of shareholders to be produced as evidence of the
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right of the persons challenged to vote at such meeting, and all persons who
appear from such list to be shareholders entitled to vote thereat may vote at
such meeting.
1.8. Qualification of Voters. Unless otherwise provided in the Certificate of
Incorporation, every shareholder of record shall be entitled at every meeting of
shareholders to one vote for every share standing in his name on the record of
shareholders.
Treasury shares as of the record date and shares held as of the record date by
another domestic or foreign corporation of any type or kind, if a majority of
the shares entitled to vote in the election of directors of such other
corporation is held as of the record date by the Corporation, shall not be
shares entitled to vote or to be counted in determining the total number of
outstanding shares.
Shares held by an administrator, executor, guardian, conservator, committee, or
other fiduciary, except a trustee, may be voted by him, either in person or by
proxy, without transfer of such shares into his name. Shares held by a trustee
may be voted by him, either in person or by proxy, only after the shares have
been transferred into his name as trustee or into the name of his nominee.
Shares standing in the name of another domestic or foreign corporation of any
type or kind may be voted by such officer, agent
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or proxy as the by-laws of such corporation may provide, or, in the absence of
such provision, as the board of directors of such corporation may determine.
A shareholder shall not sell his vote or issue a proxy to vote to any person for
any sum of money or anything of value except as permitted by law.
1.9. Quorum of Shareholders. The holders of a majority of the shares entitled to
vote thereat shall constitute a quorum at a meeting of shareholders for the
transaction of any business.
When a quorum is once present to organize a meeting, it is not broken by the
subsequent withdrawal of any shareholders.
The shareholders who are present in person or by proxy and who are entitled to
vote may, by a majority of votes cast, adjourn the meeting despite the absence
of a quorum.
1.10. Proxies. Every shareholder entitled to vote at a meeting of shareholders
or to express consent or dissent without a meeting may authorize another person
or persons to act for him by proxy.
Every proxy must be signed by the shareholder or his attorney-in-fact. No proxy
shall be valid after the expiration of 11 months from the date thereof unless
otherwise provided in the proxy.
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Every proxy shall be revocable at the pleasure of the shareholder executing it,
except as otherwise provided by law.
The authority of the holder of a proxy to act shall not be revoked by the
incompetence or death of the shareholder who executed the proxy unless before
the authority is exercised, written notice of an adjudication of such
incompetence or of such death is received by the Secretary of any Assistant
Secretary.
1.11. Vote or Consent of Shareholders. Directors shall, except as otherwise
required by law or by written agreement among the shareholders, be elected by a
plurality of the votes cast at a meeting of shareholders by the holders of
shares entitled to vote in the election.
Whenever any corporate action, other than the election of directors, is to be
taken by vote of the shareholders, it shall, except as otherwise required by law
or by written agreement among the shareholders, be authorized by a majority of
the votes cast at a meeting of shareholders by the holders of shares entitled to
vote thereon.
Whenever shareholders are required or permitted to take any action by vote, such
action may be taken without a meeting on written consent, setting forth the
action so taken, signed by the holders of all outstanding shares entitled to
vote thereon. Written consent thus given by the holders of all outstanding
shares
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<PAGE>
entitled to vote shall have the same effect as a unanimous vote of
shareholders.
1.12. Fixing Record Date. For the purpose of determining the shareholders
entitled to notice of or to vote at any meeting of shareholders or any
adjournment thereof, or to express consent to or dissent from any proposal
without a meeting, or for the purpose of determining shareholders entitled to
receive payment of any dividend or the allotment of any rights, or for the
purpose of any other action, the Board may fix, in advance, a date as the record
date for any such determination of shareholders. Such date shall not be more
than fifty (50) nor less than ten (10) days before the date of such meeting, nor
more then fifty (50) days prior to any other action.
When a determination of shareholders of record entitled to notice of or to vote
at any meeting of shareholders has been made as provided in this section, such
determination shall apply to any adjournment thereof, unless the Board fixes a
new record date for the adjourned meeting.
ARTICLE II
BOARD OF DIRECTORS
2.1. Power of Board and Qualification of Directors. The business of the
Corporation shall be managed by the Board. Each Director shall be at least
eighteen (18) years of age.
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2.2. Number of Directors. The number of directors constituting the entire Board
shall be five (5), elected by a majority of the shareholders.
2.3. Election and Term of Directors. At each annual meeting of shareholders,
Directors shall be elected to hold office until the next annual meeting and
until their successors have been elected and qualified.
2.4. Quorum of Directors and Action by the Board. A majority of the entire Board
shall constitute a quorum for the transaction of business, and, except where
otherwise provided by these by-laws or by written agreement among the
shareholders, the vote of a majority of the directors present at a meeting at
the time of such vote, if a quorum is then present, shall be the act of the
Board.
Any action required or permitted to be taken by the Board or any committee
thereof may be taken without a meeting if all members of the Board or the
committee consent in writing to the adoption of a resolution authorizing the
action. The resolution and the written consent thereto by the members of the
Board or committee shall be filed with the minutes of the proceedings of the
Board or committee.
2.5. Meetings of the Board. An annual meeting of the Board shall be held in each
year directly after the annual meeting of shareholders. Regular meetings of the
Board shall be held at such
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times as may be fixed by the Board. Special meetings of the Board may be held at
any time upon the call of the President or a majority of the Directors.
Meetings of the Board shall be held at such places as may be fixed by the Board
for annual and regular meetings and in the notice of meeting for special
meetings. If no place is so fixed, meetings of the Board shall be held at the
principal office of the Corporation. Any one (1) or more members of the Board
may participate in meetings by means of a conference telephone or similar
communications equipment.
No notice need be given of annual or regular meetings of the Board. Notice of
each special meeting of the Board shall be given to each director either by mail
not later than noon, Delaware time, on the third day prior to the meeting or by
telegram, written message or orally to the Director not later than noon,
Delaware time, on the day prior to the meeting. Notices are deemed to have been
given: by mail, when deposited in the United States mail; by telegram at the
time of filing; and by messenger at the time of delivery. Notices by mail,
telegram or messenger shall be sent to each Director at the address designated
by him for that purpose, or, if none has been so designated, at his last known
residence or business address.
Notice of a meeting of the Board need not be given to any Director who submits a
signed waiver of notice whether before or after the
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<PAGE>
meeting, or who attends the meeting without protesting, prior thereto or at its
commencement, the lack of notice to him.
A notice, or waiver of notice, need not specify the purpose of any meeting of
the Board.
A majority of the Directors present, whether or not a quorum is present, may
adjourn any meeting to another time and place. Notice of any adjournment of a
meeting to another time or place shall be given, in the manner described above,
to the Directors who were not present at the time of the adjournment and, unless
such time and place are announced at the meeting, to the other Directors.
2.6. Resignations. Any Director of the Corporation may resign at any time by
giving written notice to the Board or to the President or to the Secretary of
the Corporation. Such resignation shall take effect at the time specified
therein, and unless otherwise specified therein, the acceptance of such
resignation shall not be necessary to make it effective.
2.7. Removal of Directors. Any one or more of the Directors may be removed for
cause by a vote of the majority of the shares. For purposes of these by-laws,
"cause" shall mean gross negligence, dishonesty and/or a willful failure to
perform the duties of a Director as set forth in these by-laws. Any and all of
the Directors may be removed with or without cause by vote of the shareholders.
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<PAGE>
2.8. Newly Created Directorships and Vacancies. Newly created directorships
resulting from an increase in the number of Directors and/or vacancies occurring
in the Board for any reason, except the removal of Directors by shareholders,
may be filled by vote of a majority of the Directors then in office, although
less than a quorum exists, unless otherwise agreed upon by the Corporation or
its shareholders. Vacancies occurring as a result of the removal of Directors by
shareholders shall be filled by the shareholders, unless otherwise agreed upon
by the Corporation or its shareholders. A Director elected to fill a vacancy
shall be elected to hold office for the unexpired term of his predecessor.
2.9. Executive and Other Committees of Directors. The Board, by resolution
adopted by a majority of the entire Board, may designate from among its members
an executive committee and other committees each consisting of two (2) or more
directors and each of which, to the extent provided in the resolution, shall
have all the authority of the Board, except that no such committee shall have
authority as to the following matters:
(1) The submission to shareholders of any action that needs
shareholders' approval;
(2) The filling of vacancies in the Board or in any committee;
(3) The fixing of compensation of the Directors for serving on the
Board or on any committee;
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(4) The amendment or repeal of the by-laws, or the adoption of new
by-laws;
(5) The amendment or repeal of any resolution of the Board which, by
its term, shall not be so amendable or repealable; or
(6) The removal or indemnification of Directors.
The Board may designate one or more Directors as alternate members of any such
committee, who may replace any absent member or members at any meeting of such
committee.
Unless a greater proportion is required by the resolution designating a
committee, a majority of the entire authorized number of members of such
committee shall constitute a quorum for the transaction of business, and the
vote of a majority of the members present at a meeting at the time of such vote,
if a quorum is then present, shall be the act of such committee.
Each such committee shall serve at the pleasure of the Board.
2.10. Compensation of Directors. The Board shall have authority to fix the
compensation of Directors for services in any capacity.
2.11. Interest of Directors in a Transaction. Unless shown to be unfair and
unreasonable as to the Corporation, no contract or other transaction between the
Corporation and one (1) or more of its Directors, or between the Corporation and
any other corporation,
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firm, association or other entity in which one (1) or more of the Directors are
directors or officers, or are financially interested shall be either void or
voidable, irrespective of whether such interested Director or Directors are
present at a meeting of the Board, or of a committee thereof, which authorizes
such contract or transaction and irrespective of whether his or their votes are
counted for such purpose. In the absence of fraud, any such contract or
transaction may be conclusively authorized or approved as fair and reasonable
by:
(1) the Board, or a duly empowered committee thereof, by a vote
sufficient for such purpose without counting the vote or votes of
such interested Director(s) (although he or they may be counted
in determining the presence of a quorum at the meeting which
authorizes such contract or transaction), if the fact of such
common directorship, officership or financial interest is
disclosed or known to the Board or committee (as the case may
be); or
(2) the shareholders entitled to vote for the election of Directors,
if such common directorship, officership or financial interest is
disclosed or known to such shareholders.
Notwithstanding the foregoing, no loan, except advances in connection with
indemnification, shall be made by the Corporation to any Director unless it is
authorized by vote of the shareholders
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without counting any shares of the Director who would be the borrower.
ARTICLE III
OFFICERS
3.1. Officers. The Board, as soon as may be practicable after the annual
election of Directors, shall elect a President, Treasurer and Secretary and from
time to time may elect or appoint one (1) or more Executive Vice Presidents,
Senior Vice Presidents, Vice Presidents and such other officers as it may
determine. Any two (2) or more offices may be held by the same person, except
that the same person may not hold the offices of President and Secretary unless
there be only (1) shareholder. The Board may also elect one (1) or more
Assistant Secretaries and Assistant Treasurers.
3.2. Other Officers. The Board may appoint such other officers and agents as it
shall deem necessary who shall hold their offices for such terms and shall
exercise such powers and perform such duties as shall be determined from time to
time by the Board.
3.3. Compensation. The salaries of all officers and agents of the Corporation
shall be fixed by the Board. Any payments made to an officer of the Corporation
such as a salary, commission, bonus, interest or rent, or entertainment expenses
incurred by him or her, which shall be disallowed in whole or in part as a
deductible expense by the Internal Revenue Service, shall be reimbursed by
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such officer of the Corporation to the full extent of such disallowance. It
shall be the duty of the Board to enforce payment of each such amount
disallowed. In lieu of payment by the officer, subject to the determination of
the Directors, proportionate amounts may be withheld from future compensation
payments until the amount owed to the Corporation has been recovered.
3.4. Term of Office and Removal. Each officer shall hold office for the term for
which he is elected or appointed, and until his successor has been elected or
appointed and qualified. Unless otherwise provided in the resolution of the
Board electing or appointing an officer, his or her term of office shall extend
to and expire at the meeting of the Board following the next annual meeting of
shareholders. Any officer may be removed by the Board, with or without cause, at
any time. Removal of an officer without cause shall be without prejudice to his
or her contract rights, if any, and the election or appointment of an officer
shall not of itself create contract rights.
3.5. Powers and Duties.
(a) President: The President shall be the chief operating officer of the
Corporation, shall have general and active management of the business of the
Corporation and shall see that all orders and resolutions of the Board are
carried into effect. He shall also preside at all meetings of the shareholders
and the Board.
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He shall execute bonds, mortgages and other contracts requiring a seal, under
the seal of the Corporation, except where required or permitted by law to be
otherwise signed and executed and except where the signing and execution thereof
shall be expressly delegated by the Board to some other officer or agent of the
Corporation.
(b) Vice-Presidents: The Vice-Presidents, in the order designated by the
Board, or in the absence of any designation, then in the order of their
election, during the absence or disability of or refusal to act by the
President, shall perform the duties and exercise the powers of the President,
and shall perform such other duties as the Board shall prescribe.
(c) Secretary and Assistant Secretaries: The Secretary shall attend all
meetings of the Board and all meetings of the shareholders and record all the
proceedings of the meetings of the Corporation and of the Board in a book to be
kept for that purpose and shall perform like duties for the standing committees
when required. The Secretary shall give, or cause to be given, notice of all
meetings of the shareholders and special meetings of the Board, and shall
perform such other duties as may be prescribed by the Board or President, under
whose supervision the Secretary shall be. The Secretary shall have custody of
the corporate seal of the Corporation and he or she, or an Assistant Secretary,
shall have authority to affix the same to any instrument requiring it and when
so affixed, it may be attested by his or her signature or by the
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signature of such Assistant Secretary. The Board may give general authority to
any other officer to affix the seal of the Corporation and to attest the
affixing by his or her signature.
The Assistant Secretary or, if there be more than one, the Assistant Secretaries
in the order designated by the Board (or in the absence of any designation, then
in the order of their election), shall, in the absence of the Secretary or in
the event of his or her inability or refusal to act, perform the duties and
exercise the powers of the Secretary and shall perform such other duties and
have such other powers as the Board may from time to time prescribe.
(d) Treasurer and Assistant Treasurers: The Treasurer shall have the
custody of the corporate funds and securities and shall keep full and accurate
accounts of receipts and disbursements in books belonging to the Corporation and
shall deposit all monies and other valuable effects in the name and to the
credit of the Corporation in such depositories as may be designated by the
Board.
He shall disburse the funds of the Corporation as may be ordered by the Board,
taking proper vouchers for such disbursements, and shall render to the President
and the Board, at its regular meetings, or when the Board so requires, an
account of all his transactions as Treasurer and of the financial condition of
the Corporation.
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If required by the Board, the Treasurer shall give the Corporation a bond (which
shall be renewed every six (6) years) in such sum and with such surety or
sureties as shall be satisfactory to the Board for the faithful performance of
the duties of his or her office and for the restoration to the Corporation, in
case of his or her death, resignation, retirement or removal from office, of all
books, papers, vouchers, money and other property of whatever kind in his or her
possession or under his or her control belonging to the Corporation.
The Assistant Treasurer or, if there shall be more than one (1), the Assistant
Treasurers in the order designated by the Board (or in the absence of any
designation, then in the order of their election), shall, in the absence of the
Treasurer or in the event of his or her inability or refusal to act, perform the
duties and exercise the powers of the Treasurer and shall perform such other
duties and have such other powers as the Board may from time to time prescribe.
3.6. Books to be Kept. The Corporation shall keep (a) correct and complete books
and records of account, (b) minutes of the proceedings of the shareholders,
Board and any committees of Directors, and (c) a current list of the Directors
and officers and their residence addresses. The Corporation shall also keep at
its office in the State of Delaware or at the office of its transfer agent or
registrar in the State of Delaware, if any, a record containing the names and
addresses of all shareholders, the number
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and class of shares held by each and the dates when they respectively became the
owners of the record thereof.
The Board may determine whether and to what extent and at what times and places
and under what conditions and regulations any accounts, books, records or other
documents of the Corporation shall be open to inspection, and no creditor,
security holder or other person shall have any right to inspect any accounts,
books, records or other documents of the Corporation except as conferred by
statute or as so authorized by the Board.
3.7. Checks, Notes, etc. All checks and drafts on, and withdrawals from the
Corporation's accounts with banks or other financial institutions, and all bills
of exchange, notes and other instruments for the payment of money, drawn, made,
indorsed, or accepted by the Corporation, shall be signed on its behalf by the
person or persons thereunto authorized by, or pursuant to resolution of, the
Board.
ARTICLE IV
FORMS OF CERTIFICATES AND LOSS AND
TRANSFER OF SHARES
4.1. Forms of Share Certificates. The shares of the Corporation shall be
represented by certificates, in such forms as the Board may prescribe, signed by
the President or a Vice-President and the Secretary or an Assistant Secretary or
the Treasurer or an
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Assistant Treasurer, and may be sealed with the seal of the Corporation or a
facsimile thereof. The signatures of the officers upon a certificate may be
facsimiles if the certificate is countersigned by a transfer agent or registered
by a registrar other than the Corporation or its employee. In case any officer
who has signed or whose facsimile signature has been placed upon a certificate
shall have ceased to be such officer before such certificate is issued, it may
be issued by the Corporation with the same effect as if he or she were such
officer at the date of issue.
Each certificate representing shares issued by the Corporation shall set forth
upon the face or back of the certificate, or shall state that the Corporation
will furnish to any shareholder upon request and without charge, a full
statement of the designation, relative rights, preferences and limitations of
the shares of each class of shares, if more than one (1), authorized to be
issued and the designation, relative rights, preferences and limitations of each
series of any class of preferred shares authorized to be issued so far as the
same have been fixed, and the authority of the Board to designate and fix the
relative rights, preferences and limitations of other series.
Each certificate representing shares shall state upon the face thereof:
(1) That the Corporation is formed under the laws of the State of
Delaware;
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(2) The name of the person or persons to whom issued; and
(3) The number and class of shares, and the designation of the
series, if any, which such certificate represents.
4.2. Transfers of Shares. Shares of the Corporation shall be transferable on the
record of shareholders upon presentment to the Corporation or a transfer agent
of a certificate or certificates representing the shares requested to be
transferred, with proper indorsement on the certificate or on a separate
accompanying document, together with such evidence of the payment of transfer
taxes and compliance with other provisions of law as the Corporation or its
transfer agent may require.
4.3. Lost, Stolen or Destroyed Share Certificates. No certificate for shares of
the Corporation shall be issued in place of any certificate alleged to have been
lost, destroyed or wrongfully taken, except, if and to the extent required by
the
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Board, upon:
(1) Production of evidence of loss, destruction or wrongful taking;
(2) Delivery of a bond indemnifying the Corporation and its agents
against any claim that may be made against it or them on account
of the alleged loss, destruction or wrongful taking of the
replaced certificate or the issuance of the new certificate;
(3) Payment of the expense of the Corporation and its agents incurred
in connection with the issuance of the new certificate; and
(4) Compliance with such other reasonable requirements as may be
imposed.
ARTICLE V
OTHER MATTERS
5.1. Corporate Seal. The Board may adopt a corporate seal, alter such seal at
pleasure, and authorize it to be used by causing it or a facsimile to be affixed
or impressed or reproduced in any other manner.
5.2. Fiscal Year. The fiscal year of the Corporation shall be the period of
twelve (12) months ending December 31 of each year.
5.3. Amendments. By-laws of the Corporation may be adopted, amended or repealed
by vote of the holders of the shares at the
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time entitled to vote in the election of Directors. By-laws may also be adopted,
amended or repealed by the Board, but any by-law adopted by the Board may be
amended or repealed by the shareholders entitled to vote thereon as hereinabove
provided.
If any by-law regulating an impending election of Directors is adopted, amended
or repealed by the Board, there shall be set forth in the notice of the next
meeting of shareholders for the election of Directors the by-law so adopted,
amended or repealed, together with a concise statement of the changes made.
5.4. Indemnification. The Corporation shall, to the extent legally permissible,
indemnify any person serving or who has served as a Director or officer of the
Corporation, or at its request as a Director, officer, trustee, employee or
other agent of any organization in which the Corporation owns shares or of which
it is a creditor, against all liabilities and expenses, including amounts paid
in satisfaction of judgments, in compromise, or as fines or penalties, and
counsel fees, reasonably incurred by him or her in connection with the defense
or disposition of any action, suit or other proceeding, whether civil or
criminal, in which he or she may be involved or with which he or she may be
threatened, while serving, or thereafter, by reason of his or her being or
having been such a director, officer, trustee, employee or agent, except with
respect to any matter as to which he or she shall have been adjudicated in any
proceeding not to have acted in good faith in the reasonable belief that his or
her action was in the best
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interests of the Corporation; provided, however, that as to any matter disposed
of by a compromise payment by such director, officer, trustee, employee or
agent, pursuant to a consent decree or otherwise, no indemnification either for
said payment or for any other expenses shall be provided unless:
(1) such compromise shall be approved as in the best interests of the
Corporation, after notice that it involves such indemnification:
(i) by a disinterested majority of the Directors, then in office; or
(ii) by the holders of a majority of the outstanding stock of the
Corporation at the time entitled to vote for Directors, voting as
a single class, exclusive of any stock owned by any interested
Director or officer; or
(2) in the absence of action by disinterested Directors or shareholders,
there has been obtained at the request of a majority of the Directors then in
office an opinion in writing of independent legal counsel to the effect that
such Director, officer, trustee, employee or agent appears to have acted in good
faith in the reasonable belief that his or her action was in the best interest
of the Corporation.
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<PAGE>
Expenses, including counsel fees, reasonably incurred by any such Director,
officer, trustee, employee or agent in connection with the defense or
disposition of any such action, suit or other proceeding may be paid from time
to time by the Corporation in advance of the final disposition thereof upon
receipt of an undertaking by such individual to repay the amounts so paid by the
Corporation if it is ultimately determined that indemnification for such
expenses is not authorized under this section. The right of indemnification
hereby provided shall not be exclusive of or affect any other rights to which
any such Director, officer, trustee, employee or agent may be entitled. Nothing
contained in this Article shall affect any rights to indemnification to which
corporate personnel other than Directors, officers, trustees, employees or
agents may be entitled by contract or otherwise under law. As used in this
section, the terms "Director", "officer", "trustee", "employee" and "agent"
include their respective heirs, executors and administrators, and an
"interested" Director, officer, trustee, employee or agent is one against whom
in such capacity the proceedings in question, or other proceedings on the same
or similar grounds, are then pending.
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<PAGE>
WRITTEN CONSENT
OF
THE SOLE SHAREHOLDER
OF
MIDDLE AMERICAN TISSUE INC.
The undersigned, being the holder of all the outstanding shares of Middle
American Tissue Inc. (the "Corporation"), a Delaware corporation, acting
without a meeting pursuant to section 228 of the Delaware General Corporation
Law, hereby consents to the following actions:
RESOLVED, that Article II, Section 2.4 of the Corporation's By-laws be
amended so that the first clause of the first sentence of such section
provides that the presence of all members of the Board shall be required to
constitute a quorum for the transaction of business;
RESOLVED, that Article V, Section 5.4 of the Corporation's By-laws be
amended to include as its final sentence the following:
The right of indemnification herein provided shall not be
amended, repealed or modified in any way adverse to the directors
who are not affiliates of Super American Tissue Inc., Nourollah
Elghanayan or Mehdi Gabayzadeh until at least six (6) years have
passed following the date that such directors are no longer
serving as directors;
RESOLVED, that the Board of Directors and Officers of the Corporation
be, and hereby are, authorized and directed to take or cause to be taken
all steps required by law or otherwise necessary or appropriate to
implement these resolutions and to take all of the above actions to which
the undersigned hereby gives its consent.
Dated: July 30, 1999 SUPER AMERICAN TISSUE INC.
By: /s/ Mehdi Gabayzadeh
---------------------------
Mehdi Gabayzadeh, President
Middle American Tissue Inc.
as Issuer
$35,755,788
15% Senior Secured Discount Notes
due 2007
-------------
INDENTURE
Dated as of July 9, 1999
-------------
The Chase Manhattan Bank
as Trustee
The Chase Manhattan Bank
as Collateral Agent
<PAGE>
TABLE OF CONTENTS
Page
ARTICLE 1
DEFINITIONS AND INCORPORATION
BY REFERENCE
SECTION 1.01. Definitions.................................................. 1
SECTION 1.02. Other Definitions............................................26
SECTION 1.03. Incorporation by Reference of Trust Indenture Act............27
SECTION 1.04. Rules of Construction........................................27
ARTICLE 2
THE NOTES
SECTION 2.01. Form and Dating..............................................28
SECTION 2.02. Execution and Authentication.................................28
SECTION 2.03. Registrar and Paying Agent...................................29
SECTION 2.04. Paying Agent To Hold Money in Trust..........................29
SECTION 2.05. Holder Lists.................................................29
SECTION 2.06. Transfer and Exchange........................................30
SECTION 2.07. Replacement Notes............................................41
SECTION 2.08. Outstanding Notes............................................42
SECTION 2.09. Treasury Notes...............................................42
SECTION 2.10. Temporary Notes..............................................42
SECTION 2.11. Cancellation.................................................42
SECTION 2.12. Defaulted Interest...........................................43
ARTICLE 3
REDEMPTION
SECTION 3.01. Notices to Trustee...........................................43
SECTION 3.02. Selection of Notes To Be Redeemed............................43
SECTION 3.03. Notice of Redemption.........................................44
SECTION 3.04. Effect of Notice of Redemption...............................45
SECTION 3.05. Deposit of Redemption Price..................................45
SECTION 3.06. Notes Redeemed in Part.......................................45
SECTION 3.07. Optional Redemption..........................................45
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SECTION 3.08. Mandatory Redemption.........................................46
ARTICLE 4
COVENANTS
SECTION 4.01. Payment of Notes.............................................46
SECTION 4.02. Maintenance of Office or Agency..............................47
SECTION 4.03. Change of Control............................................47
SECTION 4.04. Asset Sales..................................................49
SECTION 4.05. Restricted Payments..........................................52
SECTION 4.06. Incurrence of Indebtedness and Issuance of Preferred Stock...55
SECTION 4.07. Liens........................................................58
SECTION 4.08. Dividend and Other Payment Restrictions Affecting Subsidiarie58
SECTION 4.09. Transactions with Affiliates.................................60
SECTION 4.10. Calculation of Original Issue Discount.......................61
SECTION 4.11. Impairment of Security Interests.............................61
SECTION 4.12. Line of Business.............................................61
SECTION 4.13. Payments for Consent.........................................61
SECTION 4.14. Reports......................................................61
SECTION 4.15. Taxes........................................................62
SECTION 4.16. Maintenance of Properties; Insurance, Books and Records......62
SECTION 4.17. Statement as to Compliance...................................63
ARTICLE 5
SUCCESSORS
SECTION 5.01. Merger, Consolidation or Sale of Assets......................63
SECTION 5.02. Successor Corporation Substituted............................64
ARTICLE 6
DEFAULTS AND REMEDIES
SECTION 6.01. Events of Default............................................65
SECTION 6.02. Acceleration.................................................67
SECTION 6.03. Other Remedies...............................................67
SECTION 6.04. Waiver of Past Defaults......................................68
SECTION 6.05. Control by Majority..........................................68
SECTION 6.06. Limitation on Suits..........................................68
SECTION 6.07. Rights of Holders of Notes To Receive Payment................69
SECTION 6.08. Collection Suit by Trustee...................................69
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SECTION 6.09. Trustee May File Proofs of Claim.............................69
SECTION 6.10. Priorities...................................................70
SECTION 6.11. Undertaking for Costs........................................70
ARTICLE 7
TRUSTEE
SECTION 7.01. Duties of Trustee............................................71
SECTION 7.02. Rights of Trustee............................................72
SECTION 7.03. Individual Rights of Trustee.................................73
SECTION 7.04. Trustee's Disclaimer.........................................73
SECTION 7.05. Notice of Defaults...........................................73
SECTION 7.06. Reports by Trustee to Holders of the Notes...................73
SECTION 7.07. Compensation and Indemnity...................................74
SECTION 7.08. Replacement of Trustee.......................................75
SECTION 7.09. Successor Trustee by Merger, etc.............................76
SECTION 7.10. Eligibility; Disqualification................................76
SECTION 7.11. Preferential Collection of Claims Against Holdings...........76
ARTICLE 8
DISCHARGE OF INDENTURE; LEGAL DEFEASANCE
AND COVENANT DEFEASANCE
SECTION 8.01. Satisfaction and Discharge...................................76
SECTION 8.02. Option to Effect Legal Defeasance or Covenant
Defeasance................................................77
SECTION 8.03. Legal Defeasance and Discharge...............................77
SECTION 8.04. Covenant Defeasance..........................................78
SECTION 8.05. Conditions to Legal or Covenant Defeasance...................78
SECTION 8.06. Deposited Money and Government Securities To Be
Held in Trust; Other Miscellaneous Provisions.............79
SECTION 8.07. Repayment to Holdings........................................80
SECTION 8.08. Reinstatement................................................80
ARTICLE 9
AMENDMENT, SUPPLEMENT AND WAIVER
SECTION 9.01. Without Consent of Holders of Notes..........................81
SECTION 9.02. With Consent of Holders of Notes.............................81
SECTION 9.03. Compliance with Trust Indenture Act..........................83
SECTION 9.04. Revocation and Effect of Consents............................83
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SECTION 9.05. Notation on or Exchange of Notes.............................83
SECTION 9.06. Trustee To Sign Amendments, etc..............................83
ARTICLE 10
COLLATERAL
SECTION 10.01. Collateral Documents.........................................84
SECTION 10.02. Recording, Registration and Opinions.........................84
SECTION 10.03. Release of Collateral........................................85
SECTION 10.04. Authorization of Actions To Be Taken by the Collateral
Agent Under the Collateral Documents......................86
SECTION 10.05. Authorization of Receipt of Funds by the Collateral
Agent Under the Collateral Documents......................86
SECTION 10.06. Powers Exercisable by Receiver or Trustee....................86
SECTION 10.07. Purchaser Protected..........................................86
ARTICLE 11
APPLICATION OF TRUST MONIES
SECTION 11.01. Collateral Account...........................................87
SECTION 11.02. Investment of Trust Monies...................................87
ARTICLE 12
MISCELLANEOUS
SECTION 12.01. Trust Indenture Act Controls.................................87
SECTION 12.02. Notices......................................................88
SECTION 12.03. Communication by Holders of Notes with
Other Holders of Notes....................................89
SECTION 12.04. Certificate and Opinion as to Conditions Precedent...........89
SECTION 12.05. Statements Required in Certificate or Opinion................89
SECTION 12.06. Rules by Trustee and Agents..................................90
SECTION 12.07. No Personal Liability of Directors, Officers,
Employees and Stockholders................................90
SECTION 12.08. Governing Law................................................90
SECTION 12.09. No Adverse Interpretation of Other Agreements................90
SECTION 12.10. Successors...................................................90
SECTION 12.11. Severability.................................................90
SECTION 12.12. Counterpart Originals........................................90
SECTION 12.13. Table of Contents, Headings, etc.............................91
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INDENTURE, dated as of July 9, 1999, between Middle American Tissue Inc., a
Delaware corporation ("Holdings"), The Chase Manhattan Bank, as trustee (the
"Trustee"), and The Chase Manhattan Bank, as collateral agent (the "Collateral
Agent").
Each party agrees as follows for the benefit of the other party and for the
equal and ratable benefit of the Holders of (i) Holdings' Series A Senior
Secured Discount Notes due 2007 issued on the date hereof (the "Series A Notes")
and (ii) if and when issued as provided in the Registration Rights Agreement (as
defined), Holdings' Series B Senior Secured Discount Notes due 2007 issued in
the Registered Exchange Offer (as defined) in exchange for any Series A Notes
(the "Series B Notes" and together with the Series A Notes issued hereunder, the
"Notes"). Except as otherwise provided herein, the Notes will be limited to
$35,755,788 in aggregate face amount outstanding.
ARTICLE 1
DEFINITIONS AND INCORPORATION
BY REFERENCE
SECTION 1.01. Definitions.
"144A Global Note" means a Global Note in the form of Exhibit A 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 Notes sold in reliance on Rule 144A.
"Account Debtor" means any Person who is or who may become obligated to
Holdings or any Subsidiary under, with respect to, or on account of, an Account.
"Accreted Value" means, for each $1,000 face amount of Notes, as of any
date of determination prior to July 15, 2003 the sum of (i) the initial offering
price of each Note and (ii) that portion of the excess of the principal amount
of each 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 and
compounded semi-annually on each January 15 and July 15 at the rate of 15% per
annum from the date of issuance of the Notes through the date of determination.
The Accreted Value will cease to accrete on July 15, 2003.
"Accrued Bankruptcy Interest" means, with respect to any Indebtedness, all
interest accruing thereon after the filing of a petition by or against Holdings
or any of its Subsidiaries under any Bankruptcy Law, in accordance with and at
the rate (including any rate applicable upon any default or event of default, to
the extent lawful) specified in the documents evidencing or governing such
Indebtedness, whether or not the claim for such interest is allowed as a claim
after such filing in any proceeding under such Bankruptcy Law.
<PAGE>
"Acquired Indebtedness" means, with respect to any specified Person:
(1) Indebtedness of any other Person existing at the time such other
Person is merged with or into or became a Subsidiary of such specified
Person, including, without limitation, Indebtedness incurred in connection
with, or in contemplation of, such other Person merging with or into or
becoming a Subsidiary of such specified Person, and
(2) 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, will mean
the possession, directly or indirectly, of the power to direct or cause the
direction of the management or policies of such Person, whether through the
ownership of voting securities, by agreement or otherwise; provided that
beneficial ownership of 10% or more of the voting securities of a Person will be
deemed to be control. Notwithstanding the foregoing, (y) no Person (other than
Holdings or any Subsidiary of Holdings) in which a Receivables Subsidiary makes
an Investment in connection with a Qualified Receivables Transaction will be
deemed to be an Affiliate of Holdings or any of its Subsidiaries solely by
reason of such Investment and (z) no Initial Purchaser or any of its Affiliates
will be deemed an Affiliate of Holdings or any of its Subsidiaries.
"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 Purchase Agreement" means the asset purchase agreement, dated as of
March 24, 1999, for the purchase and sale of the Berlin-Gorham Mills, by and
among Crown Paper Co., Crown Vantage-New Hampshire Electric, Inc., Berlin Mills
Railway, Inc., American Tissue Inc. (f/k/a American Tissue Holdings Inc.) and
Pulp & Paper of America LLC, including any instrument or agreement executed in
connection therewith, as such agreements or instruments are in effect on the
Issue Date.
"Asset Sale" means:
(1) the sale, lease, conveyance or other disposition of any non-cash
assets (including, without limitation, by way of a sale and leaseback and
including the issuance, sale or other transfer of any of the capital stock
of any Subsidiary of such Person) other than to any of Holdings' Wholly
Owned Subsidiaries and other than directors' qualifying shares, in each
case, in excess of $250,000;
(2) the issuance of Equity Interests in any Subsidiaries or the sale
of any Equity Interests in any Subsidiaries, in each case, in one or a
series of related transactions (x) that
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have a fair market value in excess of $250,000 or (y) with respect to which
Holdings shall have received net proceeds in excess of $250,000; and
(3) the damage or destruction of all or any portion of the property or
assets of the Company or any of its Subsidiaries or the taking of all or
any portion of the property or assets of the Company or any of its
Subsidiaries by eminent domain;
provided, that notwithstanding the foregoing, the term "Asset Sale" will not
include:
(a) the sale, lease, conveyance, disposition or other transfer of all
or substantially all of the assets of Holdings or any of its Subsidiaries,
as permitted pursuant to Section 5.01;
(b) the sale or lease of Equipment, inventory, accounts receivable or
other assets in the ordinary course of business consistent with past
practice and to the extent that such sales or leases are not part of a sale
of the business in which such Equipment was used or in which such inventory
or accounts receivable arose;
(c) a transfer of assets by a Wholly Owned Subsidiary to another
Wholly Owned Subsidiary;
(d) an issuance of Equity Interests by a Wholly Owned Subsidiary to
another Wholly Owned Subsidiary;
(e) the surrender or waiver of contract rights or the settlement,
release or surrender of contract, tort or other claims of any kind;
(f) the grant in the ordinary course of business of any non-exclusive
license of patents, trademarks, registrations therefor and other similar
intellectual property;
(g) sales or transfers of accounts receivable and related assets
pursuant to a Qualified Receivables Transaction to a Receivables Subsidiary
for the fair market value thereof, including cash in an amount at least
equal to 75% of the book value thereof as determined in accordance with
GAAP; provided that such sales shall not exceed the lesser of $25.0 million
or the outstanding balance under the Revolving Credit Facility; and
provided further that the entire proceeds of any such sale are used to
repay outstanding indebtedness under the Revolving Credit Facility and
permanently reduce commitments thereunder;
(h) Permitted Investments; or
(i) a Restricted Payment that is permitted by Section 4.05.
For the purposes of clause (g), notes received in exchange for the transfer of
accounts receivable and related assets will be deemed cash if the Receivables
Subsidiary or other payor is required to repay said notes as soon as practicable
from available cash collections less amounts required to be established as
reserves pursuant to contractual agreements with entities that are not
Affiliates of Holdings entered into as part of a Qualified Receivables
Transaction.
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<PAGE>
"Berlin-Gorham Mills" means the pulp and paper mills located in Berlin and
Gorham, New Hampshire and certain related assets to be acquired by the Company
on the Issue Date pursuant to the Asset Purchase Agreement.
"Board of Directors" means the Board of Directors of Holdings, or any
authorized committee of the Board of Directors of Holdings.
"Board Resolution" means a resolution duly adopted by the Board of
Directors and certified by an Officer.
"Boise Agreement" means that certain agreement dated November 23, 1992,
among The Boise Cascade Corporation, American Tissue Mills of Oregon, Inc. and
American Tissue Corporation, as amended on January 1, 1999 and as the same may
be further amended, modified, extended, renewed, amended and restated or
supplemented from time to time.
"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:
(1) in the case of a corporation, corporate stock;
(2) in the case of an association, limited liability company or other
business entity, any and all shares, membership interests or other
interests, participations, rights or other equivalents (however designated)
of corporate stock;
(3) in the case of a partnership, partnership interests (whether
general or limited); and
(4) any other interest or participation that confers on a Person the
right to receive a share of the profits and losses of, or distributions of
assets of, the issuing Person.
"Cash Equivalents" means:
(1) securities issued or directly and fully guaranteed or insured by
the United States of America or any agency or instrumentality thereof
(provided that the full faith and credit of the United States is pledged in
support thereof) having maturities not more than 12 months from the date of
acquisition;
(2) U.S. dollar denominated (or foreign currency fully hedged) (a)
time deposits, money-market deposits or accounts, certificates of deposit,
Eurodollar time deposits or Eurodollar certificates of deposit and bankers'
acceptances of (i) any domestic commercial bank of recognized standing
having capital and surplus in excess of $500.0 million or (ii) any bank
whose short-term commercial paper rating from S&P is at least A-1 or the
equivalent thereof or from Moody's is at least P-1 or the equivalent
thereof (any such bank
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<PAGE>
being an "Approved Lender"), in each case with maturities of not more than
12 months from the date of acquisition, and (b) overnight bank deposits and
federal funds transactions with a bank meeting the qualifications specified
in clauses (a)(i) or (a)(ii) above;
(3) commercial paper and variable or fixed rate notes issued by any
Approved Lender (or by the parent company thereof) or any variable rate
notes issued by, or guaranteed by, any domestic corporation rated A-2 (or
the equivalent thereof) or better by S&P or P-2 (or the equivalent thereof)
or better by Moody's and maturing within 12 months of the date of
acquisition;
(4) repurchase agreements with a term of not more than 60 days with a
bank or trust company or recognized securities dealer having capital and
surplus in excess of $500.0 million for underlying securities of the types
described in subparagraphs (1), (2), or (3) above, in which Holdings will
have a perfected first priority security interest (subject to no other
Liens) and having, on the date of purchase thereof, a fair market value of
at least 100% of the amount of repurchase obligations;
(5) investments in securities with maturities of 12 months or less
from the date of acquisition issued or fully guaranteed by any state,
commonwealth or territory of the United States of America, or by any
political subdivision or taxing authority thereof; and
(6) interests in money market mutual funds which invest solely in
assets or securities of the types described in subparagraphs (1) through
(5) hereof, inclusive.
"Cedel" means Cedel Bank, SA.
"Change of Control" means such time as:
(1) a "person" or "group" (within the meaning of Section 13(d) of the
Exchange Act, except that a Person shall be deemed to have "beneficial
ownership" of all securities that such Person has the right to acquire,
whether such right is exercisable immediately or only after the passage of
time, a "Group"), other than any of the Permitted Holders, has become,
directly or indirectly, the "beneficial owner" of 35% or more of the voting
power of the voting Capital Stock of Holdings and the Permitted Holders
beneficially own, directly or indirectly, a lesser percentage of the voting
power of the voting Capital Stock of Holdings than the percentage
beneficially owned by such person or Group; or
(2) the sale, lease or transfer of all or substantially all of the
assets of Holdings and its Subsidiaries to any person or Group (other than
a Subsidiary or any of the Permitted Holders); or
(3) during any period of two consecutive calendar years, individuals
who at the beginning of such period constituted the Board of Directors of
Holdings (together with any new directors whose election by the Board of
Directors of Holdings or whose nomination for election by the stockholders
of Holdings was approved by a vote of a majority of the directors then
still in office who either were directors at the beginning of such period
or whose election or nomination for election was previously so approved)
cease for any reason
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<PAGE>
(other than as a result of death) to constitute a majority of the directors
of Holdings then in office; or
(4) the Company ceases to be a Wholly Owned Subsidiary of Holdings.
"Collateral" means "Security Collateral" as such term is defined in the
Securities Pledge Agreement and all of the property and assets that are from
time to time subject to the Lien of the Collateral Documents, including the
Liens, if any, required to be granted pursuant to Section 10.01 and otherwise
required pursuant to the other provisions of this Indenture.
"Collateral Account" means the collateral account established pursuant to
this Indenture.
"Collateral Agent" means The Chase Manhattan Bank, as collateral agent
under the Securities Pledge Agreement and the other Collateral Documents until a
successor replaces it in accordance with the provisions of this Indenture and
the Collateral Documents and, thereafter, means each such successor.
"Collateral Documents" means, collectively, the Securities Pledge Agreement
and all other pledge agreements, collateral assignments or other instruments
evidencing or creating any security interests in favor of the Collateral Agent
(for its benefit and the benefit of the Trustee (for its benefit and the benefit
of the Holders)) in all or any portion of the Collateral including, without
limitation, financing statements, in each case, as amended, amended and
restated, extended, renewed, supplemented or otherwise modified from time to
time, in accordance with the terms hereof and thereof.
"Company" means American Tissue Inc., a Delaware corporation.
"Company's Collateral Documents" means the "Collateral Documents" as such
term is defined in the Company's Indenture.
"Company's Indenture" means the Indenture dated July 9, 1999, relating to
the Company's 12 1/2% Senior Secured Notes due 2006, as the same may be amended,
supplemented or otherwise modified, including any refinancing, refunding,
replacement or extension thereof by the same or any other lender or group of
lenders.
"Company's Notes" means the 12 1/2% Senior Secured Notes due 2006 of the
Company.
"Consolidated EBITDA" means, with respect to Holdings and its Subsidiaries
for any period, the sum of, without duplication:
(1) the Consolidated Net Income for such period; plus
(2) the Fixed Charges for such period; plus
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(3) provision for consolidated taxes based on income or profits for
such period (to the extent such income or profits were included in
computing Consolidated Net Income for such period); plus
(4) consolidated depreciation, amortization and other non-cash charges
of Holdings and its Subsidiaries required to be reflected as expenses on
the books and records of Holdings; minus
(5) cash payments with respect to any non-recurring, non-cash charges
previously added back pursuant to clause (4); and
(6) excluding the impact of foreign currency translations.
Notwithstanding the foregoing, the provision for taxes based on the income or
profits of, and the depreciation and amortization and other non-cash charges of,
a Subsidiary of a Person will be added to Consolidated Net Income to compute
Consolidated EBITDA only to the extent (and in the same proportion) that the Net
Income of such Subsidiary was included in calculating the Consolidated Net
Income of such Person and only if a corresponding amount would be permitted at
the date of determination to be dividended or distributed, directly or
indirectly, to Holdings by such Subsidiary without prior approval pursuant to
the terms of its charter and all agreements, instruments, judgments, decrees,
orders, statutes, rules and governmental regulations applicable to that
Subsidiary or its stockholders.
"Consolidated Net Income" means, with respect to any Person for any period,
the aggregate of the Net Income of such Person and its Subsidiaries for such
period, on a consolidated basis, determined in accordance with GAAP; provided
that:
(1) the Net Income (but not loss) of any Person that is not a
Subsidiary or that is accounted for by the equity method of accounting will
be included only to the extent of the amount of dividends or distributions
paid in cash to the referent Person or a Wholly Owned Subsidiary thereof
that is a Subsidiary;
(2) the Net Income of any Subsidiary will be excluded to the extent
that the declaration or payment of dividends or similar distributions by
that Subsidiary of that Net Income is not at the date of determination
permitted without any prior governmental approval 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 Subsidiary or its stockholders;
(3) the Net Income of any Person acquired in a pooling of interests
transaction for any period prior to the date of such acquisition will be
excluded;
(4) the cumulative effect of a change in accounting principles will be
excluded; and
(5) all other extraordinary gains and extraordinary losses will be
excluded.
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"Consolidated Net Worth" means, with respect to any Person as of any date,
the sum of:
(1) the consolidated equity of the common stockholders of such Person
and its consolidated Subsidiaries as of such date, plus
(2) 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 Issue Date 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 of such Person
and in other 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.
"Corporate Trust Office" shall be at the address of the Trustee or the
Collateral Agent, as the case may be, specified in Section 12.02 hereof or such
other address as to which the Trustee or the Collateral Agent, as the case may
be, may give notice to Holdings.
"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 Note registered in the name of the
Holder thereof and issued in accordance with Section 2.06 hereof, in the form of
Exhibit A hereto except that such 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 Notes issuable or issued in whole
or in part in global form, the Person specified in this Indenture as the
Depositary with respect to the Notes, until a successor will have been appointed
and become such Depositary pursuant to the applicable provision of this
Indenture, and, thereafter, "Depositary" will 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), 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 91 days
after the final maturity date of the Notes. Notwithstanding the preceding
sentence, any Capital Stock that would constitute Disqualified Stock solely
because the holders thereof have the right to require Holdings 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 are
not more favorable to the holders of such Capital Stock than the provisions
described under Sections 4.03 and 4.04;
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provided that Holdings may not repurchase or redeem any such Capital Stock
pursuant to such provisions unless such repurchase or redemption complies with
Section 4.05.
"DLJMB" means DLJ Merchant Banking Partners II, L.P. and its successors.
"Domestic Subsidiary" means any Subsidiary that is organized and existing
under the laws of the United States, any state thereof or the District of
Columbia.
"Equipment" shall have the meaning given to such term in the Security
Agreement (as such term is defined in the Company's Indenture).
"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 pursuant to a
registration statement filed with the SEC in accordance with the Securities Act
of (1) Equity Interests (other than Disqualified Stock) of the Company or
Holdings or (2) Equity Interests (other than Disqualified Stock) of Holdings'
parent to the extent that the cash proceeds therefrom are contributed to the
equity capital of Holdings or are used to purchase Equity Interests (other than
Disqualified Stock) of Holdings.
"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 Series B Notes received by a Holder in the Exchange
Offer.
"Exchange Offer" means the offer that may be made by Holdings pursuant to
the Registration Rights Agreement to exchange Series B Notes for Series A Notes.
"Exchange Offer Registration Statement" has the meaning given to such term
in the Registration Rights Agreement.
"Existing Indebtedness" means the Indebtedness of Holdings and its
Subsidiaries in existence on the Issue Date, until such amounts are repaid.
"Existing Mortgage Loans" means the documents or instruments, including any
related notes, guarantees, collateral documents and agreements executed in
connection therewith, and in each case as amended, amended and restated,
supplemented, renewed, extended, replaced, restated or refinanced from time to
time, which create (1) an obligation of the Company or a Subsidiary Guarantor
(as such term is defined in the Company's Indenture) and (2) a security interest
in any Existing Mortgage Collateral (as such term is defined in the Company's
Indenture), in each case, in favor of an Existing Mortgage Lender (as such term
is defined in the Company's Indenture).
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"Fixed Charge Coverage Ratio" means with respect to any Person for any
period, the ratio of the Consolidated EBITDA of such Person and its Subsidiaries
for such period to the Fixed Charges of such Person and its Subsidiaries for
such period. In the event that the Company or any of its Subsidiaries incurs,
assumes, Guarantees or redeems any Indebtedness or issues preferred stock
subsequent to the commencement of the four-quarter reference 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 will 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. For purposes of making the computation referred to above:
(1) acquisitions that have been made by Holdings or any of its
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
will be deemed to have occurred on the first day of the four-quarter
reference period;
(2) the Consolidated EBITDA attributable to discontinued operations,
as determined in accordance with GAAP, and operations or businesses
disposed of prior to the Calculation Date, will be excluded; and
(3) the Fixed Charges attributable to discontinued operations, as
determined in accordance with GAAP, and operations or businesses disposed
of prior to the Calculation Date, will 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.
"Fixed Charges" means, with respect to any Person for any period, the sum,
without duplication, of:
(1) the consolidated interest incurred by such Person and its
Subsidiaries for such period, whether paid or accrued (including, without
limitation, amortization of original issue discount, non-cash interest
payments, the interest component of any deferred payment obligations, the
interest component of all payments associated with Capital Lease
Obligations, commissions, discounts and other fees and charges incurred in
respect of letters of credit or bankers' acceptance financings, and net
payments (if any) pursuant to Hedging Obligations);
(2) the consolidated interest incurred by such Person and its
Subsidiaries that was capitalized during such period;
(3) any interest expense on Indebtedness of another Person that is
Guaranteed by such Person or one of its Subsidiaries or secured by a Lien
on assets of such Person or one of its Subsidiaries (whether or not such
Guarantee or Lien is called upon); and
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(4) the product of (a) all cash dividend payments (and non-cash
dividend payments in the case of a Person that is a Subsidiary) on any
series of preferred stock of such Person payable to a party other than
Holdings or a Wholly Owned Subsidiary, 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, on a consolidated basis and in accordance with
GAAP.
"Foreign Subsidiary" means any Subsidiary that is organized and existing
under the laws of a jurisdiction other than the United States, any state thereof
or the District of Columbia.
"GAAP" means generally accepted accounting principles set forth in the
opinions and pronouncements of the Accounting Principles Board of the American
Institute of Certified Public Accountants and statements and pronouncements of
the Financial Accounting Standards Board or in such other statements by such
other entity as have been approved by a significant segment of the accounting
profession, which are in effect on the Issue Date.
"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.
"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 Article 2 hereof.
"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 deposit or collection in the ordinary course of business and
indemnity obligations arising in favor of officers, directors or employees of
the guarantor under corporation statutes, charter and bylaw provisions or by
contract or under contracts entered into with suppliers and customers in the
ordinary course of business of the guarantor), direct or indirect, in any manner
(including, without limitation, letters of credit and reimbursement agreements
in respect thereof), of all or any part of any Indebtedness.
"Hedging Obligations" means, with respect to any Person, the obligations of
such Person under (1) interest rate swap agreements, interest rate cap
agreements and interest rate collar agreements and (2) other agreements or
arrangements, in each case designed to protect such Person against fluctuations
in interest rates, currency rates or the prices of commodities actually at that
time used in the ordinary course of business of such Person.
"Holder" means a Person in whose name a Note is registered on the
Registrar's books.
"IAI Global Note" means the Global Note in the form of Exhibit A hereto
bearing the Global Note Legend and the Private Placement Legend and deposited
with or on behalf of and
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<PAGE>
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 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 bankers' acceptances or
representing Capital Lease Obligations or the balance deferred and unpaid of the
purchase price of any property (except any such balance that constitutes an
accrued expense or trade payable) or representing any Hedging Obligations if and
to the extent any of the foregoing indebtedness (other than letters of credit
and Hedging Obligations) would appear as a liability upon a balance sheet of
such Person prepared in accordance with GAAP, 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.
"Indenture" means this Indenture, as amended or supplemented from time to
time.
"Independent Appraiser" means a person who in the course of its business
appraises property and (1) where real property is involved, who is a member in
good standing of the American Institute of Real Estate Appraisers, recognized
and licensed to do business in the jurisdiction where the applicable real
property is situated, (2) who does not have a direct or indirect financial
interest in Holdings and (3) who, in the judgment of the Board of Directors, is
otherwise independent and qualified to perform the tasks for which it is
engaged.
"Independent Financial Advisor" means a firm (1) which does not, and whose
directors, officers and employees or Affiliates do not, have a direct or
indirect financial interest in Holdings (it being understood that securities of
Holdings acquired in the ordinary course of trading operations shall not be
deemed to give rise to such direct or indirect financial interest in Holdings)
and (2) which, in the judgment of the Board of Directors, is otherwise
independent and qualified to perform the task for which it is to be engaged.
"Indirect Participant" means entities such as banks, brokers, dealers and
trust companies that clear through or maintain a custodial relationship with a
Participant, either directly or indirectly.
"Initial Purchasers" means DLJMB and the other initial purchasers of the
Series A Notes named in Schedule 1 of the Purchase Agreement dated the Issue
Date and relating to the Notes.
"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 that is not also a QIB.
"Interest Payment Date" means each January 15 and July 15, commencing
January 15, 2004.
"Investments" means, with respect to any Person, all investments by such
Person in other Persons (including Affiliates) in the form of direct or indirect
loans (including guarantees of
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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 and all other items that
are or would be classified as investments on a balance sheet prepared in
accordance with GAAP.
"Issue Date" means the date on which Notes are first issued under this
Indenture.
"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 will accrue for
the intervening period.
"Letter of Transmittal" means the letter of transmittal to be prepared by
Holdings and sent to all Holders of the 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, except in connection with any Qualified Receivables
Transaction, 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
the Registration Rights Agreement.
"Moody's" means Moody's Investors Service, Inc., or any successor thereto.
"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:
(1) 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 Subsidiaries or the extinguishment of any
Indebtedness of such Person or any of its Subsidiaries; and
(2) any extraordinary or non-recurring gain (but not loss), together
with any related provision for taxes on such extraordinary or non-recurring
gain (but not loss).
"Net Proceeds" means the aggregate cash proceeds received by Holdings or
any of its 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 expenses, and sales and brokerage commissions) and any
relocation expenses incurred as a
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result thereof, taxes paid or payable by Holdings or any of its Subsidiaries as
a result thereof (after taking into account any available tax credits or
deductions and any tax sharing arrangements), amounts required to be applied to
the repayment of Indebtedness (other than the Notes) secured by a Lien on the
asset or assets that were the subject of such Asset Sale and any reserve for
adjustment in respect of the sale price of such asset or assets established in
accordance with GAAP.
"Non-Recourse Debt" means Indebtedness:
(1) as to which neither Holdings nor any of its 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
(2) 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 of Holdings or any of its 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
(3) as to which the lenders have been notified in writing that they
will not have any recourse to the stock or assets of Holdings or any of its
Subsidiaries.
"Non-U.S. Person" means a Person who is not a U.S. Person, as defined in
Regulation S.
"Note Custodian" means The Chase Manhattan Bank, as custodian with respect
to the Global Notes, or any successor entity thereto.
"Obligations" means any principal, interest, penalties, fees,
indemnifications, reimbursements, damages and other liabilities payable under
the documentation governing any Indebtedness.
"Offering" means the offering of the Series A Notes by Holdings on the
Issue Date.
"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 Holdings or
any Subsidiary by two Officers of Holdings or such Subsidiary, as applicable,
one of whom must be the principal executive officer, the principal financial
officer, the treasurer or the principal accounting officer of Holdings or such
Subsidiary, as applicable, that meets the requirements of Section 13.05 hereof.
"Opinion of Counsel" means an opinion from legal counsel who is reasonably
acceptable to the Trustee that meets the requirements of Section 13.05 hereof.
The counsel may be an employee of or counsel to Holdings, any Subsidiary of
Holdings or the Trustee.
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"Parent" means Super American Tissue Inc., a Delaware corporation, the
indirect parent of the Company and the direct parent of Holdings.
"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).
"Permitted Holders" means (x) Nourollah Elghanayan, Mehdi Gabayzadeh and
their respective spouses, lineal descendants and adopted children and spouses of
their respective lineal descendants and adopted children, siblings and lineal
descendants of such siblings and spouses of such Persons, any foundation
controlled by any of the foregoing persons, any trusts for the benefit of any of
the foregoing persons, (y) DLJMB, and (z) any Affiliates of the foregoing
persons.
"Permitted Investments" means:
(1) any Investments in Holdings or in a Wholly Owned Subsidiary of
Holdings that is a Subsidiary and that is engaged in the same or a similar,
complementary, ancillary or related line of business as Holdings and its
Subsidiaries were engaged in on the Issue Date and reasonable extensions or
expansions thereof;
(2) any Investment by Holdings or a Wholly Owned Subsidiary of
Holdings in a Receivables Subsidiary or any Investment by a Receivables
Subsidiary in any other Person in connection with a Qualified Receivables
Transaction; provided, that the foregoing Investment is in the form of a
note that the Receivables Subsidiary or other Person is required to repay
as soon as practicable from available cash collections less amounts
required to be established as reserves pursuant to contractual agreements
with entities that are not Affiliates of Holdings entered into as part of a
Qualified Receivables Transaction;
(3) any Investments in cash and Cash Equivalents;
(4) Investments by Holdings or any Subsidiary of Holdings in a Person
if as a result of such Investment (a) such Person becomes a Wholly Owned
Subsidiary of Holdings that is engaged in the same or a similar,
complementary, ancillary or related line of business as Holdings and its
Subsidiaries were engaged in on the Issue Date and reasonable extensions or
expansions thereof or (b) such Person is merged, consolidated or
amalgamated with or into, or transfers or conveys substantially all of its
assets to, or is liquidated into, Holdings or a Wholly Owned Subsidiary of
Holdings that is a Subsidiary and that is engaged in the same or a similar,
complementary, ancillary or related line of business as Holdings and its
Subsidiaries were engaged in on the Issue Date and reasonable extensions or
expansions thereof;
(5) Investments 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 4.04;
(6) Investments outstanding as of the Issue Date;
(7) Investments which constitute Existing Indebtedness of Holdings or
of any of its Subsidiaries;
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(8) any payments made in connection with the acquisition of the
Berlin-Gorham Mills pursuant to the Asset Purchase Agreement;
(9) Investments, the payment for which consists exclusively of Equity
Interests (other than Disqualified Stock) of Holdings;
(10) loans or advances to officers and employees of Holdings or any
Subsidiary in an aggregate amount not exceeding $1.5 million at any one
time outstanding;
(11) Investments in the form of intercompany Indebtedness to the
extent permitted under Section 4.06;
(12) Hedging Obligations;
(13) Investments received in connection with the bankruptcy or
reorganization of suppliers and customers and in settlement of delinquent
obligations of, and other disputes with, suppliers and customers, in each
case arising in the ordinary course of business; and
(14) other Investments in any Person that do not exceed $10.0 million
at any time outstanding.
"Permitted Liens" means:
(1) Liens securing obligations under this Indenture, the Collateral
Documents, the Notes, the Stockholders Agreement, the Company's Indenture,
the Company's Notes and the related subsidiary guarantees and the Company's
Collateral Documents;
(2) Liens securing the obligations under the Boise Agreement, the
Existing Mortgage Loans and the Company's Revolving Credit Facility in an
aggregate principal amount at any time outstanding not to exceed applicable
amounts permitted under Section 4.06;
(3) Liens in favor of Holdings or any Subsidiary;
(4) Liens on property of a Person existing at the time such Person is
merged into or consolidated with Holdings or any Subsidiary of Holdings in
accordance with the provisions of this Indenture; 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 Holdings;
(5) Liens on property existing at the time of acquisition thereof by
any Subsidiary of Holdings; provided that such Liens were in existence
prior to the contemplation of such acquisition;
(6) 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;
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(7) Liens existing on the Issue Date to the extent and in the manner
such Liens are in effect on the Issue Date;
(8) 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 conducted;
provided that any reserve or other appropriate provision as will be
required in conformity with GAAP will have been made therefor;
(9) Liens imposed by law or arising by operation of law, including
carriers', warehousemen's, mechanics', materialmen's, vendors',
repairmen's, landlord's or other similar Liens arising or incurred in the
ordinary course of business and with respect to amounts that either (a) are
not yet delinquent or (b) are being contested in good faith by appropriate
proceedings and as to which appropriate reserves or other provisions have
been made in accordance with GAAP;
(10) Liens of landlords or of mortgagees of landlords arising by
operation of law; provided that the rental payments secured thereby are not
yet due and payable;
(11) Liens incurred in the ordinary course of business of any
Subsidiary of Holdings with respect to obligations that do not exceed $5.0
million at any one time outstanding and that (a) are not incurred in
connection with the borrowing of money or the obtaining of advances or
credit (other than trade credit in the ordinary course of business) and (b)
do not in the aggregate materially detract from the value of the property
or materially impair the use thereof in the operation of business by
Holdings or such Subsidiary;
(12) Liens incurred or deposits made in the ordinary course of
business in connection with workers' compensation, unemployment insurance
and other types of social security or public utility obligations;
(13) Purchase Money Liens (including extensions and renewals thereof);
(14) Liens securing reimbursement obligations with respect to letters
of credit which encumber only documents and other property relating to such
letters of credit and the products and proceeds thereof;
(15) judgment and attachment Liens not giving rise to an Event of
Default;
(16) Liens encumbering deposits made to secure obligations arising
from statutory, regulatory, contractual or warranty requirements;
(17) Liens arising out of consignment or similar arrangements for the
sale of goods;
(18) any interest or title of a lessor in property subject to any
Capital Lease Obligation or operating lease;
(19) Liens arising from filing Uniform Commercial Code financing
statements regarding leases;
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(20) Liens securing Acquired Indebtedness (and any Permitted
Refinancing Indebtedness which refinances such Acquired Indebtedness)
incurred in accordance with Section 4.06; provided that (a) such Liens
secured the Acquired Indebtedness at the time of and prior to the
incurrence of such Acquired Indebtedness by Holdings or a Subsidiary of
Holdings and were not granted in connection with or in anticipation of the
incurrence of such Acquired Indebtedness by Holdings or a Subsidiary of
Holdings and (b) such Liens do not extend to or cover any property or
assets of Holdings or of any of its Subsidiaries other than the property or
assets that secured the Acquired Indebtedness prior to the time such
Indebtedness became Acquired Indebtedness of Holdings or a Subsidiary;
(21) Liens on assets of a Receivables Subsidiary incurred in
connection with a Qualified Receivables Transaction;
(22) zoning restrictions, easements, licenses, covenants,
reservations, restrictions on the use of real property and defects,
irregularities and deficiencies in title to real property that do not,
individually or in the aggregate, materially affect the ability of Holdings
or any Subsidiary of Holdings to conduct its business or the value of the
property affected thereby and are incurred in the ordinary course of
business;
(23) Liens securing obligations of Holdings under Hedging Obligations
permitted to be incurred under Section 4.06 or any collateral for the
Indebtedness to which such Hedging Obligations relate;
(24) Liens upon specific items of inventory or other goods and
proceeds of any Person securing such Person's obligations in respect of
bankers' acceptance issued or credited for the account of such Person to
facilitate the purchase, shipment or storage of such inventory or other
goods;
(25) leases or subleases granted to others that do not materially
interfere with the ordinary course of business of Holdings and its
Subsidiaries and do not materially affect the value of the property subject
thereto;
(26) Liens encumbering property or other assets under construction
arising from progress or partial payments by a customer or Holdings'
Subsidiaries relating to such property or other assets;
(27) Liens in favor of customs and revenue authorities arising as a
matter of law to secure payment of customs duties in connection with the
importation of goods; and
(28) Liens securing other Indebtedness not exceeding $10.0 million at
any one time outstanding.
"Permitted Refinancing Indebtedness" means any Indebtedness of Holdings or
any of its Subsidiaries issued in exchange for, or the net proceeds of which are
used to extend, refinance, renew, replace, defease or refund, Indebtedness of
Holdings or any of its Subsidiaries incurred pursuant to the Fixed Charge
Coverage Ratio test in the first paragraph of, or pursuant to clause (2) or (3)
of the second paragraph of, Section 4.06; provided that:
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(1) the principal amount (or accreted value, if applicable) of such
Permitted Refinancing Indebtedness does not exceed the principal amount (or
accreted value, if applicable) of the Indebtedness so extended, refinanced,
renewed, replaced, defeased or refunded (plus the amount of reasonable
expenses incurred in connection therewith);
(2) such Permitted Refinancing Indebtedness 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;
(3) if the Indebtedness being extended, refinanced, renewed, replaced,
defeased or refunded is subordinated in right of payment to the 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
Notes on terms at least as favorable to the Holders of Notes as those
contained in the documentation governing the Indebtedness being extended,
refinanced, renewed, replaced, defeased or refunded; and
(4) such Indebtedness is incurred either by Holdings or by the
Subsidiary who is the obligor on the Indebtedness being extended,
refinanced, renewed, replaced, defeased or refunded.
"Permitted Tax Payments" means, for so long as Holdings and the Company
remain "qualified Subchapter S subsidiaries" (as defined in Section
1361(b)(3)(B) of the Code), distributions to Parent to reimburse the
shareholders of Parent:
(1) for tax liabilities, in an amount (not to exceed $2.0 million)
equal to the product of (i) the previously unpaid interest on the Related
Party Debt that will become taxable to the current holder of such debt on
the Issue Date as a result of the assumption of or transfer of such debt by
or to Parent on the Issue Date, (ii) the percentage of Parent's stock not
owned on the Issue Date by the current holder of the Related Party Debt,
his spouse or a grantor trust of which either of them is grantor (a
"Related Trust") and (iii) the maximum combined individual federal, state
and local income tax rates in effect on the Issue Date;
(2) for tax liabilities in respect of each taxable year of the Company
(or portion of a taxable year) beginning on or after the Issue Date, in an
amount equal to (i) (A) the amount of original issue discount on the
Related Party Debt accrued during such year minus (B) the product of (I)
the percentage of Parent's stock owned during such time by the current
holder of the Related Party Debt, his spouse or a Related Trust and (II)
the amount of original issue discount specified in clause (A), plus the
amount of original issue discount incurred with respect to the Notes for
such year (the "Annual Intermediate OID"), plus the Company's taxable loss,
if any, for such year, minus the Company's taxable income (to the extent
such income does not exceed the sum of the amount of original issue
discount described in clause (A) and the Annual Intermediate OID for such
year), if any, for such year, multiplied by (ii) the maximum combined
individual federal, state and local income tax rate for such year; and
(3) for tax liabilities, in an amount equal to the product of (i) (A)
the excess, if any, of (I) the cumulative net taxable income since April 1,
1999 of the Company over
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(II) the cumulative interest expense incurred by Holdings with respect to
the Notes, plus the cumulative interest expense incurred by Parent with
respect to the Related Party Debt since April 1, 1999 and a percentage of
any such unpaid interest expense incurred prior to April 1, 1999 equal to
the percentage of Parent's stock not owned on the Issue Date by the current
holder of the Related Party Debt, his spouse or a Related Trust, increased
by (B) the cumulative amounts included in clause (2)(i)(B) that have
actually reduced a distribution under clause (2) and (ii) the maximum
combined individual federal, state and local income tax rates in effect
from time to time (excluding any state or locality that treats the Company,
Holdings or Parent as a "C" corporation), minus (iii) all prior
distributions made under this clause (3) and any tax payments in respect of
any taxable period (or portion thereof) beginning on or after April 1, 1999
that were made prior to the Issue Date by Holdings or Parent to or on
behalf of any of their shareholders.
If the Company becomes taxable as a "C" corporation (as defined in Section
1361(a)(2) of the Code) and becomes a member (for income tax purposes) of an
affiliated, consolidated, combined or unitary group of which Parent is the
common parent (a "Group Member"), "Permitted Tax Payments" shall mean
distributions to Parent for income tax liabilities imposed on the Company as a
Group Member, in an amount equal to (a) the cumulative net taxable income of the
Company from the date on which the Company becomes a "C" corporation and a Group
Member, multiplied by the maximum marginal federal, state and/or local corporate
income tax rates in effect from time to time (excluding any jurisdiction that
does not treat the Company as a Group Member), minus (b) all prior distributions
made pursuant to this sentence and any such taxes paid directly by the Company.
Notwithstanding the foregoing, no distribution shall qualify as a Permitted
Tax Payment if a Default or Event of Default exists or would result therefrom.
Any combined federal, state and/or local tax rate referred to in this definition
shall be determined taking into account the deductibility of state and local
income taxes for federal income tax purposes.
Notwithstanding the foregoing, no Permitted Tax Payment shall be permitted
if (x) a Default or Event of Default exists or would result therefrom or (y) the
obligations with respect to any such Permitted Tax Payments are not subordinated
in right of payment to the obligations of the Company under the Notes.
"Person" means any individual, corporation, partnership, limited liability
company, joint venture, association, joint-stock company, trust, unincorporated
organization or government or agency or political subdivision thereof or any
other entity (including any subdivision or ongoing business of any such entity
or substantially all of the assets of any such entity, subdivision or business).
"Private Placement Legend" means the legend set forth in Section 2.06(g)(i)
to be placed on all Notes issued under this Indenture except where otherwise
permitted by the provisions of this Indenture.
"Public Equity Offering" means an underwritten initial public offering of
common stock of Holdings or the Company pursuant to an effective registration
statement filed under the Securities Act (excluding registration statements
filed on Form S-8).
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"Purchase Money Lien" means a Lien granted on an asset or property to
secure a Purchase Money Obligation permitted to be incurred under this Indenture
and incurred solely to finance the purchase, or the cost of construction or
improvement, of such asset or property; provided, however, that such Lien
encumbers only such asset or property and is granted within 90 days of such
acquisition.
"Purchase Money Obligations" of any Person means any obligations of such
Person to any seller or any other Person incurred or assumed to finance the
purchase, or the cost of construction or improvement, of real or personal
property to be used in the business of such Person or any of its Subsidiaries in
an amount that is not more than 100% of the cost, or fair market value, as
appropriate, of such property, and incurred within 90 days after the date of
such acquisition (excluding accounts payable to trade creditors incurred in the
ordinary course of business).
"Qualified Receivables Transaction" means any transaction or series of
transactions that may be entered into by Holdings or any of its Subsidiaries
pursuant to which Holdings or any of its Subsidiaries may sell, convey or
otherwise transfer to (i) a Receivables Subsidiary (in the case of a transfer by
Holdings or any of its Subsidiaries) and (ii) any other Person (in the case of a
transfer by a Receivables Subsidiary), or may grant a security interest in, any
accounts receivable (whether now existing or arising in the future) of Holdings
or any of its Subsidiaries, and any assets related thereto including, without
limitation, all collateral securing such accounts receivable, all contracts and
all guarantees or other obligations in respect of such accounts receivable,
proceeds of such accounts receivable and other assets which are customarily
transferred or in respect of which security interests are customarily granted in
connection with asset securitization transactions involving accounts receivable.
"Qualified IPO" means an initial Public Equity Offering in which (i)
Holdings or the Company, as the case may be, shall have received at least $50
million of gross proceeds, (ii) there shall be at least 50 holders of the common
stock sold in such offering and (iii) such common stock sold in such offering
shall be listed on a major national stock exchange or quoted on the Nasdaq
National Market.
"QIB" means a "qualified institutional buyer" as defined in Rule 144A.
"Receivables Subsidiary" means a Wholly Owned Subsidiary of Holdings which
engages in no activities other than in connection with the financing of accounts
receivable and which is designated by the Board of Directors of Holdings (as
provided below) as a Receivables Subsidiary (1) no portion of the Indebtedness
or any other Obligations (contingent or otherwise) of which (a) is guaranteed by
Holdings or any Subsidiary of Holdings (excluding guarantees of Obligations
(other than the principal of, and interest on, Indebtedness) pursuant to
representations, warranties, covenants and indemnities entered into in the
ordinary course of business in connection with a Qualified Receivables
Transaction), (b) is recourse to or obligates Holdings or any Subsidiary of
Holdings in any way other than pursuant to representations, warranties,
covenants and indemnities entered into in the ordinary course of business in
connection with a Qualified Receivables Transaction or (c) subjects any property
or asset of Holdings or any Subsidiary of Holdings, directly or indirectly,
contingently or otherwise, to the satisfaction thereof, other than pursuant to
representations, warranties, covenants and indemnities entered into in the
ordinary course of business in connection with a Qualified Receivables
Transaction, (2) with which neither Holdings nor any Subsidiary of Hold-
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ings has any material contract, agreement, arrangement or understanding other
than on terms no less favorable to Holdings or such Subsidiary than those that
might be obtained at the time from Persons who are not Affiliates of Holdings,
other than fees payable in the ordinary course of business in connection with
servicing accounts receivable, and (3) with which neither Holdings nor any
Subsidiary of Holdings has any obligation to maintain or preserve such
Subsidiary's financial condition or cause such Subsidiary to achieve certain
levels of operating results. Any such designation by the Board of Directors will
be evidenced to the Trustee by filing with the Trustee a certified copy of the
resolution of the Board of Directors giving effect to such designation and an
Officers' Certificate certifying that such designation complied with the
foregoing conditions.
"Registration Rights Agreement" means the Registration Rights Agreement,
dated as of the Issue Date, by and among Holdings 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 Global Note bearing the Global Note
Legend and the Private Placement Legend and deposited with or on behalf of the
Depositary and registered in the name of the Depositary or its nominee, issued
in a denomination equal to the outstanding principal amount of the Notes
initially sold in reliance on Rule 903 of Regulation S.
"Related Party Debt" means (x) the debt of the Company that is assumed by
or otherwise transferred to Parent on the Issue Date in an aggregate amount not
in excess of $28.0 million and (y) the debt of Parent incurred on the Issue Date
in the aggregate amount not in excess of $5.0 million, in each case accruing
interest at not more than 10% per annum.
"Responsible Officer," when used with respect to the Trustee, means any
officer within the Corporate Trust Administration 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 Broker-Dealer" has the meaning set forth in the Registration
Rights Agreement.
"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 Investment" means an Investment other than a Permitted
Investment.
"Restricted Period" means the 40-day restricted period as defined in
Regulation S.
"Revolving Credit Facility" means the credit agreement among the Company,
the subsidiaries of the Company named therein, certain lenders and LaSalle Bank
National Association, as
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lender and agent for the other lenders, providing for working capital and other
financing, as the same may be amended, amended and restated, supplemented or
otherwise modified, including any refinancing, refunding, replacement or
extension thereof by the same or any other lender or group of lenders.
"Rule 144" means Rule 144 promulgated under the Securities Act.
"Rule 144A" means Rule 144A promulgated under the Securities Act.
"S&P" means Standard & Poor's Ratings Services, or any successor thereto.
"SEC" means the Securities and Exchange Commission.
"Secured Parties" shall have the meaning given to such term in the
Securities Pledge Agreement.
"Securities Act" means the Securities Act of 1933, as amended.
"Securities Pledge Agreement" means the securities pledge agreement
substantially in the form of Exhibit D attached hereto, as the same may be
amended and restated, extended, renewed, supplemented or otherwise modified from
time to time in accordance with the terms hereof and thereof.
"Shelf Registration Statement" has the meaning set forth in the
Registration Rights Agreement.
"Significant Subsidiary" means any Subsidiary that would be a "significant
subsidiary" as defined in Rule 1-02 of Regulation S-X, promulgated pursuant to
the Securities Act, as such Regulation is in effect on the date hereof.
"Stockholders Agreement" means the stockholders agreement dated as of the
date hereof among the Initial Purchasers, Holdings, Parent and certain other
parties named therein.
"Subsidiary" means, with respect to any Person, (1) any corporation,
limited liability company, 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 (2) 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 one or more Subsidiaries of such Person (or any combination thereof).
Unrestricted Subsidiaries will not be included in the definition of "Subsidiary"
for any purposes of this Indenture (except, as the context may otherwise
require, for purposes of the definition of "Unrestricted Subsidiary"). Unless
the context otherwise requires, reference to a Subsidiary in any provision of
this Indenture shall be deemed to mean a Subsidiary of Holdings.
"Tax" or "Taxes" means (i) all federal, state, local or foreign taxes,
charges, fees, imposts, levies or other assessments, including, without
limitation, all net income, alternative minimum, gross receipts, capital, sales,
use, ad valorem, value added, transfer, franchise, profits, in-
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ventory, capital stock, license, withholding, payroll, employment, social
security, unemployment, excise, severance, stamp, occupation, property and
estimated taxes, customs duties, fees, assessments and charges of any kind
whatsoever, (ii) all interest, penalties, fines, additions to tax or other
additional amounts imposed by any taxing authority in connection with any item
described in clause (i) and (iii) all transferee, successor, joint and several
or contractual liability (including, without limitation, liability pursuant to
Treas. Reg. ss. 1.1502-6 (or any similar state, local or foreign provision)) in
respect of any items described in clause (i) or (ii).
"Tax Return" means all returns, declarations, reports, estimates,
information returns and statements required to be filed in respect of any Taxes.
"TIA" means the Trust Indenture Act of 1939 (15 U.S.C.ss.ss. 77aaa-77bbbb)
as amended and as in effect on the date on which this Indenture is qualified
under the TIA.
"Transfer Restricted Notes" means securities that bear, or that are
required to bear, the Private Placement Legend.
"Trust Monies" means all cash and Cash Equivalents received by the Trustee:
(1) pursuant to the Collateral Documents;
(2) as proceeds of any sale or other disposition of all or any part of
the Collateral by or on behalf of the Collateral Agent or any collection,
recovery, receipt, appropriation or other realization of or from all or any
part of the Collateral pursuant to this Indenture or any of the Collateral
Documents or otherwise; or
(3) for application as provided in the relevant provisions of any
Collateral Document for which disposition is not otherwise specifically
provided for in any Collateral Document;
provided, however, that Trust Monies shall in no event include any property
deposited with the Trustee for any redemption, legal defeasance or covenant
defeasance of Notes, for the satisfaction and discharge of this Indenture or to
pay the purchase price of Notes pursuant to a Change of Control Offer or Asset
Sale Offer.
"Trustee" means the party named as such above until a successor replaces it
in accordance with the applicable provisions of this Indenture and thereafter
means the successor serving hereunder; provided, however, that for purposes of
the provisions of Article 7 of this Indenture, each reference to the Trustee
shall be deemed to be a reference to the Trustee and/or the Collateral Agent, as
appropriate.
"UCC" shall have the meaning given to such term in the Securities Pledge
Agreement.
"Unrestricted Definitive Note" means one or more Definitive Notes that do
not bear, and are not required to bear, the Private Placement Legend.
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"Unrestricted Global Note" means a permanent Global Note in the form of
Exhibit A 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 Notes that do not bear, and are not
required to bear, the Private Placement Legend.
"Unrestricted Subsidiary" means any Subsidiary of Holdings (other than the
Company) 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:
(1) has no Indebtedness other than Non-Recourse Debt;
(2) is not party to any agreement, contract, arrangement or
understanding with Holdings or any Subsidiary of Holdings unless the terms
of any such agreement, contract, arrangement or understanding are no less
favorable to Holdings or such Subsidiary than those that might be obtained
at the time from Persons who are not Affiliates of Holdings;
(3) is a Person with respect to which neither Holdings nor any of its
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; and
(4) has not guaranteed or otherwise directly or indirectly provided
credit support for any Indebtedness of Holdings or any of its Subsidiaries.
Any such designation by the Board of Directors will 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
4.05. If, at any time, any Unrestricted Subsidiary would fail to meet the
foregoing requirements as an Unrestricted Subsidiary, it will thereafter cease
to be an Unrestricted Subsidiary for purposes of this Indenture and any
Indebtedness of such Subsidiary will be deemed to be incurred by a Subsidiary of
Holdings as of such date (and, if such Indebtedness is not permitted to be
incurred as of such date under Section 4.06, Holdings will be in default of such
Section). The Board of Directors may at any time designate any Unrestricted
Subsidiary to be a Subsidiary; provided that such designation will be deemed to
be an incurrence of Indebtedness by a Subsidiary of Holdings of any outstanding
Indebtedness of such Unrestricted Subsidiary and such designation will only be
permitted if (a) such Indebtedness is permitted under Section 4.06, and (b) 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.
"Weighted Average Life to Maturity" means, when applied to any Indebtedness
at any date, the number of years obtained by dividing:
(1) the sum of the products obtained by multiplying (a) the amount of
each then remaining installment, sinking fund, serial maturity or other
required payment of principal,
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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
(2) the then outstanding principal amount of such Indebtedness.
"Wholly Owned Subsidiary" of any Person means a Subsidiary of such Person
all of the outstanding Capital Stock or other ownership interests of which
(other than directors' qualifying shares) will at the time be owned by such
Person or by one or more Wholly Owned Subsidiaries of such Person. Unrestricted
Subsidiaries will not be included in the definition of "Wholly Owned Subsidiary"
for any purposes of this Indenture (except, as the context may otherwise
require, for purposes of the definition of "Unrestricted Subsidiary").
SECTION 1.02. Other Definitions.
Defined in
Term Section
---- ----------
"Affiliate Transaction" 4.09
"Approved Lender" 1.01
"Asset Sale Offer" 4.04
"Asset Sale Offer Amount" 4.04
"Asset Sale Offer Period" 4.04
"Asset Sale Purchase Date" 4.04
"Authentication Order" 2.02
"Bankruptcy Law" 6.01
"Calculation Date" 1.01
"Change of Control Offer" 4.03
"Change of Control Offer Period" 4.03
"Change of Control Payment" 4.03
"Change of Control Purchase Date" 4.03
"Covenant Defeasance" 8.04
"Custodian" 6.01
"DTC" 2.03
"Event of Default" 6.01
"Excess Proceeds" 4.04
"Group" 1.01
"Holdings Obligations" 4.01
"Legal Defeasance" 8.03
"Paying Agent" 2.03
"Payment Default" 6.01
"Redemption Price" 3.03
"Registrar" 2.03
"Released Trust Monies" 11.04
"Replacement Assets" 4.04
"Restricted Payments" 4.05
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Defined in
Term Section
---- ----------
"Surviving Entity" 5.01
"Year Two Redemption Price" 3.07
SECTION 1.03. Incorporation by Reference of Trust Indenture Act.
Whenever this Indenture refers to a provision of the TIA, the 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 Notes;
"indenture security holder" means a Holder of a Note;
"indenture to be qualified" means this Indenture;
"indenture trustee" or "institutional trustee" means the Trustee;
"obligor" on the Notes means Holdings and any successor obligor upon the
Notes.
All other terms used in this Indenture that are defined by the TIA, defined
by TIA reference to another statute or defined by SEC rule under the TIA have
the meanings so assigned to them.
SECTION 1.04. Rules of Construction.
Unless the context otherwise requires:
(1) a term has the meaning assigned to it;
(2) an accounting term not otherwise defined has the meaning assigned
to it in accordance with GAAP;
(3) "or" is not exclusive;
(4) words in the singular include the plural, and in the plural
include the singular;
(5) provisions apply to successive events and transactions; and
(6) references to sections of or rules under the Securities Act shall
be deemed to include substitute, replacement or successor sections or rules
adopted by the SEC from time to time.
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ARTICLE 2
THE NOTES
SECTION 2.01. Form and Dating.
(a) General. The Notes and the Trustee's certificate of authentication
shall be substantially in the form of Exhibit A hereto. The Notes may have
notations, legends or endorsements required by law, stock exchange rule or
usage. Each Note shall be dated the date of its authentication.
The terms and provisions contained in the Notes shall constitute, and are
hereby expressly made, a part of this Indenture and Holdings 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 Note conflicts with the express provisions of this Indenture, the provisions
of this Indenture shall govern and be controlling.
(b) Global Notes. Notes issued in global form shall be substantially in the
form of Exhibit A attached hereto (including the Global Note Legend thereon and
the "Schedule of Exchanges of Interests in the Global Note" attached thereto).
Notes issued in definitive form shall be substantially in the form of Exhibit A
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 Notes as shall be specified
therein and each shall provide that it shall represent the aggregate principal
amount of outstanding Notes from time to time endorsed thereon and that the
aggregate principal amount of outstanding Notes represented thereby may from
time to time be reduced or increased, as appropriate, to reflect exchanges and
redemptions. Any endorsement of a Global Note to reflect the amount of any
increase or decrease in the aggregate principal amount of outstanding Notes
represented thereby shall be made by the Trustee or the Note Custodian, at the
direction of the Trustee, in accordance with instructions given by the Holder
thereof as required by Section 2.06 hereof.
(c) 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 Global Notes that are held by Participants through
Euroclear or Cedel.
SECTION 2.02. Execution and Authentication.
Two Officers shall sign the Notes for Holdings by manual or facsimile
signature. If an Officer whose signature is on a Note no longer holds that
office at the time a Note is authenticated, the Note shall nevertheless be
valid. A Note shall not be valid until authenticated by the manual signature of
the Trustee. The signature shall be conclusive evidence that the Note has been
authenticated under this Indenture. The Trustee shall, upon a written order of
Holdings signed by two Officers (an "Authentication Order"), authenticate Notes
for original issue up to the aggregate principal amount stated in paragraph 4 of
the Notes. The aggregate principal amount of Notes out-
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standing 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
Holdings to authenticate Notes. An authenticating agent may authenticate 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
SECTION 2.03. Registrar and Paying Agent.
Holdings shall maintain an office or agency where Notes may be presented
for registration of transfer or for exchange ("Registrar") and an office or
agency where Notes may be presented for payment ("Paying Agent"). The Registrar
shall keep a register of the Notes and of their transfer and exchange. Holdings
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. Holdings may change any Paying Agent or
Registrar without notice to any Holder. Holdings shall notify the Trustee in
writing of the name and address of any Agent not a party to this Indenture. If
Holdings fails to appoint or maintain another entity as Registrar or Paying
Agent, the Trustee shall act as such. Holdings or any of its Subsidiaries may
act as Paying Agent or Registrar. Holdings initially appoints The Depository
Trust Company ("DTC") to act as Depositary with respect to the Global Notes.
Holdings initially appoints the Trustee to act as the Registrar and Paying
Agent.
SECTION 2.04. Paying Agent To Hold Money in Trust.
Holdings 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,
premium or Liquidated Damages, if any, or interest on the Notes, and will notify
the Trustee of any default by Holdings in making any such payment. While any
such default continues, the Trustee may require a Paying Agent to pay all money
held by it to the Trustee. Holdings at any time may require a Paying Agent to
pay all money held by it to the Trustee. Upon payment over to the Trustee, the
Paying Agent (if other than Holdings or a Subsidiary) shall have no further
liability for the money. If Holdings 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 Holdings, the Trustee shall serve as Paying Agent for
the 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, Holdings 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 Notes and
Holdings shall otherwise comply with TIA ss. 312(a).
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SECTION 2.06. Transfer and Exchange.
(a) Transfer and Exchange of Global Notes. A Global Note may not be
transferred as a whole except by the Depositary to a nominee of the Depositary,
by a nominee of the Depositary to the Depositary or to another nominee of the
Depositary, or by the Depositary or any such nominee to a successor Depositary
or a nominee of such successor Depositary. All Global Notes will be exchanged by
Holdings for Definitive Notes if (i) Holdings 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
Holdings within 120 days after the date of such notice from the Depositary or
(ii) Holdings 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. 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 Note authenticated and delivered in exchange for, or in lieu
of, a Global Note or any portion thereof, pursuant to this Section 2.06 (other
than Definitive Notes) 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 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 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
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beneficial interest to be transferred or exchanged and (2) instructions
given in accordance with the Applicable Procedures containing information
regarding the Participant account to be credited with such increase or (B)
(1) a written order from a Participant or an Indirect Participant given to
the Depositary in accordance with the Applicable Procedures directing the
Depositary to cause to be issued a Definitive Note in an amount equal to
the beneficial interest to be transferred or exchanged and (2) instructions
given by the Depositary to the Registrar containing information regarding
the Person in whose name such Definitive Note shall be registered to effect
the transfer or exchange referred to in (B)(1) above. 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 Notes or otherwise applicable
under the Securities Act, the Note Custodian 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) if the transferee will take delivery in the form of a
beneficial interest in 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 and certificates and Opinion of Counsel required by
item (3)(d) 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
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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 Restricted Broker-Dealer
pursuant to the Exchange Offer Registration Statement in accordance
with the Registration Rights Agreement; or
(D) the Registrar receives the following: (1) if the holder of
such beneficial interest in a Restricted Global Note proposes to
exchange such beneficial interest for a beneficial interest in an
Unrestricted Global Note, a certificate from such holder in the form
of Exhibit C hereto, including the certifications in item (1)(a)
thereof; or (2) if the holder of such beneficial interest in a
Restricted Global Note proposes to transfer such beneficial interest
to a Person who shall take delivery thereof in the form of a
beneficial interest in an Unrestricted Global Note, a certificate from
such holder in the form of Exhibit B hereto, including the
certifications in item (4) thereof; and, in each such case set forth
in this subparagraph (D), if the Registrar so requests or if the
Applicable Procedures so require, an Opinion of Counsel in form
reasonably acceptable to the Registrar to the effect that such
exchange or transfer is in compliance with the Securities Act and that
the restrictions on transfer contained herein and in the Private
Placement Legend are no longer required in order to maintain
compliance with the Securities Act.
If any such transfer is effected pursuant to subparagraph (B) or (D) above
at a time when an Unrestricted Global Note has not yet been issued, the Company
shall issue and, upon receipt of an Authentication Order in accordance with
Section 2.02 hereof, the Trustee shall authenticate one or more 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;
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(B) if such beneficial interest is being transferred to a QIB in
accordance with Rule 144A under the Securities Act, a certificate to
the effect set forth in Exhibit B hereto, including the certifications
in item (1) thereof;
(C) if such beneficial interest is being transferred to a
Non-U.S. Person in an offshore transaction in accordance with Rule 903
or Rule 904 under the Securities Act, a certificate to the effect set
forth in Exhibit B hereto, including the certifications in item (2)
thereof;
(D) if such beneficial interest is being transferred pursuant to
an exemption from the registration requirements of the Securities Act
in accordance with Rule 144 under the Securities Act, a certificate to
the effect set forth in Exhibit B hereto, including the certifications
in item (3)(a) thereof;
(E) if such beneficial interest is being transferred to Holdings
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
(F) 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 Note Custodian shall cause the aggregate principal amount of the applicable
Restricted Global Note to be reduced accordingly pursuant to Section 2.06(h)
hereof, and Holdings shall execute and, upon receipt of an Authentication Order
pursuant to Section 2.02, the Trustee shall authenticate and deliver to the
Person designated in the instructions a Restricted Definitive Note in the
appropriate principal amount. Any Restricted 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 Restricted
Definitive Notes to the Persons in whose names such Notes are so registered. Any
Restricted 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.
(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 Holdings;
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(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 Restricted
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 an Unrestricted Definitive Note or to transfer such
beneficial interest to a Person who takes delivery thereof in the form
of an Unrestricted Definitive Note, then, upon satisfaction of the
conditions set forth in Section 2.06(b)(ii) hereof, the Note Custodian
shall cause the aggregate principal amount of the applicable
Unrestricted Global Note to be reduced accordingly pursuant to Section
2.06(h) hereof, and Holdings shall execute and, upon receipt of an
Authentication Order pursuant to Section 2.02, the Trustee shall
authenticate and deliver to the Person designated in the instructions
an Unrestricted Definitive Note in the appropriate principal amount.
Any Unrestricted 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
Unrestricted Definitive Notes to the Persons in whose names such Notes
are so registered. Any Unrestricted 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 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:
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(A) if the Holder of such Restricted Definitive Note
proposes to exchange such Note for a beneficial interest in a
Restricted Global Note, a certificate from such Holder in the
form of Exhibit C hereto, including the certifications in item
(2)(b) thereof;
(B) if such Restricted Definitive Note is being
transferred to a QIB in accordance with Rule 144A under the
Securities Act, a certificate to the effect set forth in
Exhibit B hereto, including the certifications in item (1)
thereof;
(C) if such Restricted Definitive Note is being
transferred to a Non-U.S. Person in an offshore transaction in
accordance with Rule 903 or Rule 904 under the Securities Act,
a certificate to the effect set forth in Exhibit B hereto,
including the certifications in item (2) thereof;
(D) if such Restricted Definitive Note is being
transferred pursuant to an exemption from the registration
requirements of the Securities Act in accordance with Rule 144
under the Securities Act, a certificate to the effect set
forth in Exhibit B hereto, including the certifications in
item (3)(a) thereof;
(E) if such Restricted Definitive Note is being
transferred to Holdings or any of its Subsidiaries, a
certificate to the effect set forth in Exhibit B hereto,
including the certifications in item (3)(b) thereof;
(F) 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; or
(G) 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)(d)
thereof, if applicable;
the Note Custodian 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 (D) 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 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
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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 Restricted 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 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 Restricted Definitive Notes proposes to
transfer such 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 Restricted Definitive Notes so transferred or
exchanged and the Note Custodian shall 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 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 subparagraph (ii)(B) or (ii)(D) above
or this subparagraph (iii) at a time when an Unrestricted Global Note
has not yet been issued, Holdings 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 reg-
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istration 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 its attorney, duly authorized in writing. In
addition, the requesting Holder shall provide any additional certifications,
documents and information, as applicable, required pursuant to the following
provisions of this Section 2.06(e).
(i) Restricted Definitive Notes to Restricted Definitive Notes.
Any Restricted Definitive Note may be transferred to and registered in
the name of Persons who take delivery thereof in the form of a
Restricted Definitive Note if the Registrar receives the following:
(A) if the transfer will be made pursuant to Rule 144A under
the Securities Act, then the transferor must deliver a
certificate in the form of Exhibit B hereto, including the
certifications in item (1) thereof;
(B) if the transfer will be made pursuant to Rule 903 or
Rule 904 of the Securities Act, 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 Restricted
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 Re-
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stricted Definitive Notes proposes to transfer such 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 Holdings to the effect
that such exchange or transfer is in compliance with the
Securities Act and that the restrictions on transfer contained
herein and in the Private Placement Legend are no longer required
in order to maintain compliance with the Securities Act.
(iii) Unrestricted Definitive Notes to Unrestricted Definitive
Notes. A Holder of Unrestricted Definitive Notes may transfer such
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, Holdings 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, and accepted for exchange in
the Exchange Offer, 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 Holdings and (ii) Unrestricted 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 Note Custodian shall cause the aggregate
principal amount of the applicable Restricted Global Notes to be reduced
accordingly, and Holdings shall execute and, upon receipt of an Authentication
Order pursuant to Section 2.02, the Trustee shall authenticate and deliver to
the Persons designated by the Holders of Definitive Notes so accepted Definitive
Notes in the appropriate principal amount.
(g) Legends. The following legends shall appear on the face of all Global
Notes and Definitive Notes issued under this Indenture unless specifically
stated otherwise in the applicable provisions of this Indenture.
(i) Private Placement Legend.
(A) Except as permitted by subparagraph (B) below, each Global Note
and each Definitive Note (and all Notes issued in exchange therefor or
substitution thereof) shall bear the legend in substantially the following
form:
"THIS NOTE (OR ITS PREDECESSOR) HAS NOT BEEN REGISTERED UNDER THE U.S.
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 FOLLOWING SENTENCE. BY ITS ACQUISITION
HEREOF OR OF A BENEFICIAL INTEREST HEREIN, THE HOLDER
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(1) REPRESENTS THAT (A) IT IS A "QUALIFIED INSTITUTIONAL BUYER" (AS
DEFINED IN RULE 144A UNDER THE SECURITIES ACT) (A "QIB"), (B) IT IS
ACQUIRING THIS NOTE 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"), (2) AGREES THAT
IT WILL NOT RESELL OR OTHERWISE TRANSFER THIS NOTE EXCEPT (A) TO
HOLDINGS OR ANY OF ITS SUBSIDIARIES, (B) TO A PERSON WHO 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 UNDER 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
REGISTRATION OF TRANSFER OF THIS NOTE (THE FORM OF WHICH LETTER CAN BE
OBTAINED FROM THE TRUSTEE) AND, IF SUCH TRANSFER IS IN RESPECT OF AN
AGGREGATE PRINCIPAL AMOUNT OF NOTES LESS THAN $250,000, AN OPINION OF
COUNSEL ACCEPTABLE TO HOLDINGS THAT SUCH TRANSFER IS IN COMPLIANCE
WITH THE SECURITIES ACT, (F) IN ACCORDANCE WITH ANOTHER EXEMPTION FROM
THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT (AND BASED UPON AN
OPINION OF COUNSEL ACCEPTABLE TO HOLDINGS) OR (G) PURSUANT TO AN
EFFECTIVE REGISTRATION STATEMENT AND, IN EACH CASE, IN ACCORDANCE WITH
APPLICABLE SECURITIES LAWS OF ANY STATE OF THE UNITED STATES OR ANY
OTHER APPLICABLE JURISDICTION, AND (3) AGREES THAT IT WILL DELIVER TO
EACH PERSON TO WHOM THIS NOTE 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 NOTE IN VIOLATION OF THE FOREGOING."
(B) Notwithstanding the foregoing, any Global Note or Definitive
Note issued pursuant to subparagraphs (b)(iv), (c)(ii), (c)(iii),
(d)(ii), (d)(iii), (e)(ii), (e)(iii) or (f) of this Section 2.06 (and
all Notes issued in exchange therefor or substitution thereof) shall
not bear the Private Placement Legend.
(ii) Global Note Legend. Each Global Note shall bear a legend in
substantially the following form:
"THIS GLOBAL NOTE IS HELD BY THE DEPOSITARY (AS DEFINED IN THIS
INDENTURE GOVERNING THIS NOTE) OR ITS NOMINEE IN CUS-
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TODY 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 2.06 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 HOLDINGS."
(iii) Original Issue Discount Legend. Each Global Note shall bear a
legend in substantially the following form:
"FOR PURPOSES OF SECTIONS 1272, 1273 AND 1275 OF THE INTERNAL REVENUE
CODE OF 1986, AS AMENDED, AND THE RULES AND REGULATIONS THEREUNDER,
THIS SECURITY IS BEING ISSUED WITH ORIGINAL ISSUE DISCOUNT; FOR EACH
$1,000 PRINCIPAL AMOUNT OF THIS SECURITY, (1) THE ISSUE PRICE IS
$447.48; (2) THE AMOUNT OF ORIGINAL ISSUE DISCOUNT IS $1,152.52; (3)
THE ISSUE DATE IS JULY 9, 1999; AND (4) THE YIELD TO MATURITY
(COMPOUNDED SEMI-ANNUALLY) IS 18.385%."
(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 cancelled in whole and not in part, each such Global Note
shall be returned to or retained and cancelled by the Trustee in accordance
with Section 2.11 hereof. At any time prior to such cancellation, if any
beneficial interest in a Global Note is exchanged for 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
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 Note Custodian 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 Note Custodian or by the Depositary at the direction of the Note
Custodian to reflect such increase.
(i) General Provisions Relating to Transfers and Exchanges.
(i) To permit registrations of transfers and exchanges, Holdings shall
execute and the Trustee shall authenticate Global Notes and Definitive
Notes upon receipt of an Authentication Order.
(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 Holdings 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
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similar governmental charge payable upon exchange or transfer pursuant to
Sections 2.10, 3.06, 4.03 and 4.04 hereof.
(iii) The Registrar shall not be required to register the transfer of
or exchange any Note selected for redemption in whole or in part, except
the unredeemed portion of any 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 Holdings, evidencing the same
Indebtedness, 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) Holdings shall not be required (A) to issue, to register the
transfer of or to exchange any Notes during a period beginning at the
opening of business 15 days before the day of any selection of 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
Note so selected for redemption in whole or in part, except the unredeemed
portion of any Note being redeemed in part or (c) to register the transfer
of or to exchange a 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 Note, the Trustee, any Agent and Holdings may deem and treat the Person
in whose name any Note is registered as the absolute owner of such Note for
the purpose of receiving payment of principal of and interest on such Notes
and for all other purposes, and none of the Trustee, any Agent or Holdings
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 Notes.
If any mutilated Note is surrendered to the Trustee, or Holdings and the
Trustee receive evidence to their satisfaction of the destruction, loss or theft
of any Note, Holdings shall issue and the Trustee, upon receipt of an
Authentication Order, shall authenticate a replacement Note if the Trustee's
requirements are met. If required by the Trustee or Holdings, an indemnity bond
must be supplied by the Holder that is sufficient in the judgment of the Trustee
and Holdings to protect and hold harmless Holdings, the Trustee, any Agent and
any authenticating agent from any loss that any of them may suffer if a Note is
replaced. Holdings may charge for its expenses in replacing a Note. Every
replacement Note is an additional obligation of Holdings, whether or not the
destroyed, lost or stolen Notes shall be at any time enforceable by anyone and
shall be entitled to all of the benefits of this Indenture equally and
proportionately with all other Notes duly issued hereunder. In case any such
mutilated, destroyed, lost or stolen Note has become or is about to become due
and
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payable, Holdings in its discretion may, instead of issuing a new Note, pay such
Note. Upon the issuance of any new Note under this Section, Holdings may require
the payment of a sum sufficient to cover any tax or other governmental charge
that may be imposed in relation thereto and any other expenses (included the
fees and expenses of the Trustee) connected therewith. The provisions of this
Section are exclusive and shall preclude (to the extent lawful) all other rights
and remedies with respect to the replacement or payment of mutilated, destroyed,
lost or stolen Notes.
SECTION 2.08. Outstanding Notes.
The Notes outstanding at any time are all the Notes authenticated by the
Trustee except for those cancelled by it, those delivered to it for
cancellation, those reductions in the interest in a Global Note effected by the
Trustee in accordance with the provisions hereof, and those described in this
Section as not outstanding. Except as set forth in Section 2.09 hereof, a Note
does not cease to be outstanding because Holdings or an Affiliate of Holdings
holds the Note. If a 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 Note is held by a bona fide purchaser. If the principal amount of any
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 Holdings, a
Subsidiary or an Affiliate of any thereof) holds, on a redemption date or the
maturity date, money sufficient to pay Notes payable on that date, then on and
after that date such Notes shall be deemed to be no longer outstanding and shall
cease to accrue interest.
SECTION 2.09. Treasury Notes.
In determining whether the Holders of the required principal amount of
Notes have concurred in any direction, waiver or consent, Notes owned by
Holdings, or by any Person directly or indirectly controlling or controlled by
or under direct or indirect common control with Holdings, 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 Notes that the Trustee knows are so owned shall be so disregarded.
SECTION 2.10. Temporary Notes.
Until certificates representing Notes are ready for delivery, Holdings may
prepare and the Trustee, upon receipt of an Authentication Order, shall
authenticate temporary Notes. Temporary Notes shall be substantially in the form
of certificated Notes but may have variations that Holdings considers
appropriate for temporary Notes and as shall be reasonably acceptable to the
Trustee. Without unreasonable delay, Holdings shall prepare and the Trustee
shall authenticate definitive Notes in exchange for temporary Notes. Holders of
temporary Notes shall be entitled to all of the benefits of this Indenture.
SECTION 2.11. Cancellation.
Holdings at any time may deliver Notes to the Trustee for cancellation. The
Registrar and Paying Agent shall forward to the Trustee any Notes surrendered to
them for registration of transfer, exchange or payment. The Trustee and no one
else shall cancel all Notes surrendered for registration of transfer, exchange,
payment, replacement or cancellation and shall destroy cancelled
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Notes (subject to the record retention requirement of the Exchange Act).
Certification of the destruction of all cancelled Notes shall be delivered to
Holdings. Holdings may not issue new Notes to replace Notes that it has paid or
that have been delivered to the Trustee for cancellation.
SECTION 2.12. Defaulted Interest.
If Holdings defaults in a payment of interest on the Notes, it shall pay
the defaulted interest in any lawful manner plus, to the extent lawful, interest
payable on the defaulted interest, to the Persons who are Holders on a
subsequent special record date, in each case at the rate provided in the Notes
and in Section 4.01 hereof. Holdings shall notify the Trustee in writing of the
amount of defaulted interest proposed to be paid on each Note and the date of
the proposed payment. Holdings 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, Holdings (or, upon the written
request of Holdings, the Trustee in the name and at the expense of Holdings)
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
SECTION 3.01. Notices to Trustee.
If Holdings elects to redeem Notes pursuant to the optional redemption
provisions of Section 3.07 hereof, it shall furnish to the Trustee, at least 45
days (unless a shorter period is acceptable to the Trustee) 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 Notes to be redeemed, (iv) the
amount of any Liquidated Damages and (v) the redemption price.
SECTION 3.02. Selection of Notes To Be Redeemed.
If less than all of the Notes are to be redeemed at any time, the Trustee
shall select the Notes to be redeemed among the Holders of the Notes in
compliance with the requirements of the principal national securities exchange,
if any, on which the Notes are listed or, if the Notes are not so listed, on a
pro rata basis, by lot or in accordance with any other method the Trustee
considers fair and appropriate. In the event of partial redemption by lot, the
particular Notes to be redeemed shall be selected, unless otherwise provided
herein, not less than 30 nor more than 60 days prior to the redemption date by
the Trustee from the outstanding Notes not previously called for redemption.
The Trustee shall promptly notify Holdings in writing of the Notes selected
for redemption and, in the case of any Note selected for partial redemption, the
principal amount thereof to be redeemed. To the extent practicable, Notes and
portions of Notes selected shall be in amounts of $1,000 or integral multiples
of $1,000; except that if all of the Notes of a Holder are to be re-
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deemed, the entire outstanding amount of Notes held by such Holder, even if not
an integral multiple of $1,000, shall be redeemed. Except as provided in the
preceding sentence, provisions of this Indenture that apply to Notes called for
redemption also apply to portions of Notes called for redemption.
SECTION 3.03. Notice of Redemption.
At least 30 days but not more than 60 days before a redemption date,
Holdings shall mail or cause to be mailed, by first class mail, a notice of
redemption to each Holder whose Notes are to be redeemed at its registered
address.
The notice shall identify the Notes to be redeemed and shall state:
(a) the redemption date;
(b) the redemption price, stated as a percentage of Accreted Value or
principal amount, the amount of accrued interest and unpaid interest, if
any, to the redemption date and the amount of Liquidated Damages, if any;
(c) if any Note is being redeemed in part, the portion of the Accreted
Value or principal amount of such Note to be redeemed and that, after the
redemption date upon surrender of such Note, a new Note or Notes in
principal amount equal to the unredeemed portion shall be issued upon
cancellation of the original Note;
(d) the name and address of the Paying Agent;
(e) that Notes called for redemption must be surrendered to the Paying
Agent to collect the redemption price;
(f) that, unless Holdings defaults in making such redemption payment,
interest on Notes called for redemption ceases to accrue on and after the
redemption date;
(g) the paragraph of the Notes and/or Section of this Indenture
pursuant to which the 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 Notes.
At Holdings' request, the Trustee shall give the notice of redemption in
Holdings' name and at its expense; provided, however, that Holdings shall have
delivered to the Trustee, at least 45 days prior to the redemption date, an
Officers' Certificate requesting that the Trustee give such notice and setting
forth the information to be stated in such notice as provided in the preceding
paragraph.
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SECTION 3.04. Effect of Notice of Redemption.
Once notice of redemption is mailed in accordance with Section 3.03 hereof,
Notes called for redemption become irrevocably due and payable on the redemption
date at the redemption price stated in the notice. A notice of redemption may
not be conditional.
SECTION 3.05. Deposit of Redemption Price.
One Business Day prior to the redemption date, Holdings shall deposit with
the Trustee or with the Paying Agent immediately available funds sufficient to
pay the applicable redemption price and accrued and unpaid interest, if any, on
all Notes to be redeemed on such redemption date. The Trustee or the Paying
Agent shall promptly return to Holdings any money deposited with the Trustee or
the Paying Agent by Holdings in excess of the amounts necessary to pay the
redemption price of, and accrued interest on, all Notes to be redeemed.
If Holdings complies with the provisions of the preceding paragraph, on and
after the redemption date, Accreted Value or interest, as the case may be, shall
cease to accrue on the Notes or the portions of Notes called for redemption. If
a 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 Note was registered at the close of
business on such record date. If any Note called for redemption shall not be so
paid upon surrender for redemption because of the failure of Holdings 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 Notes and in Section 4.01 hereof.
SECTION 3.06. Notes Redeemed in Part.
Upon surrender of a Note that is redeemed in part (with, if Holdings or the
Trustee so requires, due endorsement by, or a written instrument of transfer in
form satisfactory to Holdings and the Trustee duly executed by, the Holder
thereof or his attorney duly authorized in writing), Holdings shall issue and,
upon receipt of an Authentication Order, the Trustee shall authenticate for the
Holder at the expense of Holdings a new Note equal in principal amount to the
unredeemed portion of the Note surrendered.
SECTION 3.07. Optional Redemption.
Holdings may redeem the Notes as follows:
(a) At any time on or after the first anniversary of the Issue Date
and on or prior to the second anniversary of the Issue Date, in whole but
not in part, upon not less than 30 nor more than 60 days' notice, at the
Year Two Redemption Price. The "Year Two Redemption Price" shall equal 105%
of Accreted Value as of the date of redemption, plus Liquidated Damages, if
any, thereon to the date of redemption.
(b) At any time on or after July 15, 2003, 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
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any, thereon to the applicable redemption date, if redeemed on or after
July 15 of each of the years indicated below:
Date Percentage
---- ----------
2003......................................................... 107.5%
2004......................................................... 105.0%
2005......................................................... 102.5%
2006 and thereafter.......................................... 100.000%
(c) In addition, on or prior to July 15, 2002, Holdings may, at its
option on any one or more occasions, redeem up to 35% of the aggregate
principal amount of Notes originally issued under this Indenture, with the
proceeds of one or more Equity Offerings, at a redemption price equal to
115% of the Accreted Value thereof, plus Liquidated Damages, if any,
thereon to the date of redemption; provided that at least 65% of the
aggregate principal amount of Notes originally issued under this Indenture
would remain outstanding immediately after giving effect to any such
redemption. In order to effect the foregoing redemption with the net cash
proceeds of any Equity Offering, Holdings shall make such redemption not
more than 90 days after the consummation of any such Equity Offering.
SECTION 3.08. Mandatory Redemption.
Upon receipt of a notice from DLJMB pursuant to Section 4.3(a) of the
Stockholders Agreement stating that DLJMB is exercising its option thereunder.
Unless DLJMB withdraws such option in accordance with the terms of the
Stockholders Agreement, Holdings shall be required to redeem all, but not less
than all, of the Notes at the Year Two Redemption Price. Any such redemption
shall be effected no later than October 9, 2002.
ARTICLE 4
COVENANTS
SECTION 4.01. Payment of Notes.
Holdings shall pay or cause to be paid the principal of, premium, if any,
redemption price and Liquidated Damages, if any, and cash interest on the Notes
on the dates and in the manner provided in the Notes and this Indenture.
Principal, premium, if any, and cash interest shall be considered paid on the
date due if the Paying Agent, if other than Holdings or a Subsidiary thereof,
holds as of 10:00 a.m. Eastern Time on the due date money deposited by Holdings
in immediately available funds and designated for and sufficient to pay all
principal, premium, if any, and interest then due. Holdings shall pay all
Liquidated Damages, if any, in cash on each Interest Payment Date on which
Liquidated Damages are due and payable pursuant to the Registration Rights
Agreement. Holdings' Obligations under the Notes, this Indenture, the
Registration Rights Agreement, the Securities Pledge Agreement and the other
Collateral Documents are referred to herein as the "Holdings Obligations."
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Holdings shall pay interest (including Accrued Bankruptcy Interest in any
proceeding under any Bankruptcy Law) on overdue Accreted Value or principal, as
the case may be, at the rate equal to 2% per annum in excess of the then
applicable interest rate on the Notes to the extent lawful; it shall pay
interest (including Accrued Bankruptcy Interest in any proceeding under any
Bankruptcy Law) on overdue installments of interest and Liquidated Damages
(without regard to any applicable grace period) at the rate equal to 2% per
annum in excess of the then applicable interest rate on the Notes to the extent
lawful.
SECTION 4.02. Maintenance of Office or Agency.
Holdings shall maintain in the Borough of Manhattan, the City of New York,
an office or agency (which may be an office of the Trustee or an affiliate of
the Trustee, Registrar or co-registrar) where Notes may be surrendered for
registration of transfer or for exchange and where notices and demands to or
upon Holdings in respect of the Notes and this Indenture may be served. Holdings
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 Holdings 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.
Holdings may also from time to time designate one or more other offices or
agencies where the 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 Holdings of
its obligation to maintain an office or agency in the Borough of Manhattan, the
City of New York for such purposes. Holdings 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.
Holdings hereby designates the Corporate Trust Office of the Trustee as one
such office or agency of Holdings in accordance with Section 2.03 hereof.
SECTION 4.03. Change of Control.
Upon the occurrence of a Change of Control, each Holder of Notes will have
the right to require Holdings to repurchase all or any part of such Holder's
Notes pursuant to the offer described below (the "Change of Control Offer") at
an offer price in cash equal to 101% of Accreted Value (or, if after July 15,
1999, 101% of the aggregate principal amount of such Notes, plus accrued and
unpaid interest) and, in each case, Liquidated Damages, if any, thereon (the
"Change of Control Payment") to the date of purchase. Within 30 days following
any Change of Control, Holdings will mail a notice to each Holder describing the
transaction or transactions that constitute the Change of Control and offering
to repurchase Notes on the Change of Control Purchase Date pursuant to the
procedures required by this Indenture and described in such notice. Holdings
will comply with the requirements of Rule 14e-1 under the Exchange Act and any
other securities laws and regulations thereunder to the extent such laws and
regulations are applicable in connection with the repurchase of the Notes as a
result of a Change of Control.
The Change of Control Offer will remain open for a period of 20 Business
Days following the date of its mailing, except to the extent that a longer
period is required by applicable law
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(the "Change of Control Offer Period"). No later than five Business Days after
the termination of the Change of Control Offer Period (the "Change of Control
Purchase Date"), Holdings will purchase all Notes tendered in response to the
Change of Control Offer. Payment for any Notes so purchased will be made in the
same manner as interest payments are made.
If the Change of Control Purchase Date is on or after an interest record
date and on or before the related interest payment date, any accrued and unpaid
interest will be paid to the Person in whose name a Note is registered at the
close of business on such record date, and no additional interest will be
payable to Holders who tender Notes pursuant to the Change of Control Offer.
Upon the commencement of a Change of Control Offer, Holdings shall send, by
first class mail, a notice to each of the Holders, with a copy of each such
notice to the Trustee. The notice shall contain all instructions and materials
necessary to enable such Holders to tender Notes pursuant to the Change of
Control Offer. The Change of Control Offer shall be made to all Holders. The
notice, which shall govern the terms of the Change of Control Offer, shall
state:
(a) that the Change of Control Offer is being made pursuant to this
Section and the length of time the Change of Control Offer shall remain
open;
(b) the purchase price and the Change of Control Purchase Date;
(c) that any Note not tendered or accepted for payment shall continue
to accrue interest;
(d) that, unless Holdings defaults in making such payment, any Note
accepted for payment pursuant to the Change of Control Offer shall cease to
accrue interest after the Change of Control Purchase Date;
(e) that Holders electing to have a Note purchased pursuant to any
Change of Control Offer shall be required to surrender the Note, with the
form entitled "Option of Holder to Elect Purchase" on the reverse of the
Note completed, or transfer by book-entry transfer, to Holdings, a
Depositary, if appointed by Holdings, or a Paying Agent at the address
specified in the notice at least three days before the Change of Control
Purchase Date; and
(f) that Holders shall be entitled to withdraw their election if
Holdings, the Depositary or the Paying Agent, as the case may be, receives,
not later than the expiration of the Change of Control Offer Period, a
facsimile transmission or letter setting forth the name of the Holder, the
principal amount of the Note the Holder delivered for purchase and a
statement that such Holder is withdrawing his election to have such Note
purchased.
On the Change of Control Purchase Date, Holdings will, to the extent
lawful:
(1) accept for payment all 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 Notes or portions thereof so tendered;
and
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(3) deliver or cause to be delivered to the Trustee the Notes so
accepted together with an Officers' Certificate stating the aggregate
principal amount of Notes or portions thereof being purchased by Holdings.
The Paying Agent will promptly mail to each Holder of Notes so tendered the
Change of Control Payment for such Notes, and the Trustee will promptly
authenticate and mail (or cause to be transferred by book-entry) to each Holder
a new Note equal in principal amount to any unpurchased portion of the Notes
surrendered, if any; provided that each such new Note will be in a principal
amount of $1,000 or an integral multiple thereof.
Holdings will publicly announce the results of the Change of Control Offer
on or as soon as practicable after the Change of Control Purchase Date.
The Change of Control provisions described above will be applicable whether
or not any other provisions of this Indenture are applicable. Except as
described above with respect to a Change of Control, this Indenture does not
contain provisions that permit the Holders of the Notes to require that Holdings
repurchase or redeem the Notes in the event of a takeover, recapitalization or
similar transaction.
Holdings will not be required to make a Change of Control Offer upon a
Change of Control if a third party makes the Change of Control Offer in the
manner, at the times and otherwise in compliance with the requirements set forth
in this Indenture applicable to a Change of Control Offer made by Holdings and
purchases all Notes validly tendered and not withdrawn under such Change of
Control Offer.
SECTION 4.04. Asset Sales.
(a) Holdings will not engage in any Asset Sales.
(b) Holdings will not permit any of its Subsidiaries to engage in an Asset
Sale unless:
(1) such Subsidiary receives consideration at the time of such Asset
Sale at least equal to the fair market value (evidenced in each case by a
resolution of the board of directors of such entity set forth in an
Officers' Certificate delivered to the Trustee) of the assets or Equity
Interests sold or otherwise disposed of in such Asset Sale;
(2) at least 80% of the consideration therefor received by such
Subsidiary is in the form of cash or Cash Equivalents; provided that each
of the following shall be deemed to be cash for purposes of this provision:
(a) the amount of any liabilities (as shown on such Subsidiary's
most recent balance sheet or in the notes thereto, excluding
contingent liabilities and trade payables) of any Subsidiary (other
than liabilities that are by their terms subordinated to, or equal in
right of payment with, the Notes) that are assumed by the transferee
of any such assets; and
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(b) any securities, notes or other obligations received by any
Subsidiary from such transferee that are converted by such Subsidiary
into cash within 60 days; and
(3) such Subsidiary applies the Net Proceeds as provided in the
following paragraph.
The applicable Subsidiary may, at its option, apply any such Net Proceeds
within 360 days of the related Asset Sale as follows:
(a) to the acquisition of another business or the acquisition of other
long-term assets, in each case, in the same or a similar, complementary,
ancillary or related line of business as any of Holdings' Subsidiaries was
engaged in on the Issue Date or any reasonable extensions or expansions
thereof ("Replacement Assets");
(b) to reimburse the Company or its Subsidiaries for expenditures
made, and costs incurred, to repair, rebuild, replace or restore property
subject to loss, damage or taking to the extent that the Net Proceeds
consist of Net Insurance Proceeds (as defined in the Company's Indenture)
received on account of such loss, damage or taking; or
(c) to the repayment of Indebtedness of any Subsidiary of Holdings
permitted hereunder.
If such Subsidiary does not use any portion of the Net Proceeds as
described above within such 360-day period and such unused portion of the Net
Proceeds is not required to be held as collateral pursuant to the Company's
Indenture, such unused portion of the Net Proceeds period shall constitute
"Excess Proceeds" subject to disposition as provided below. When the aggregate
amount of Excess Proceeds exceeds $10.0 million, Holdings will be required to
cause such Subsidiary to make an offer to all Holders of Notes (an "Asset Sale
Offer") to purchase the maximum principal amount of Notes that may be purchased
out of the aggregate amount of Excess Proceeds. The offer price of any Asset
Sale Offer will be equal to 100% of Accreted Value plus accrued and unpaid
interest thereon, if any, and Liquidated Damages, if any, to the date of
purchase, and will be payable in cash in accordance with the procedures set
forth in this Indenture. To the extent that the aggregate amount of Notes
tendered pursuant to an Asset Sale Offer is less than the Excess Proceeds,
remaining Excess Proceeds shall be released to the Subsidiary and may be used
for general corporate purposes. Upon completion of such Asset Sale Offer, the
amount of Excess Proceeds shall be reset at zero.
The Asset Sale Offer will remain open for a period of 20 Business Days
following the mailing of the Asset Sale Offer, except to the extent that a
longer period is required by applicable law (the "Asset Sale Offer Period"). No
later than five Business Days after the termination of the Asset Sale Offer
Period (the "Asset Sale Purchase Date"), Holdings will cause the applicable
Subsidiary to purchase the principal amount of Notes required to be purchased
pursuant to this covenant (the "Asset Sale Offer Amount") or, if less than the
Asset Sale Offer Amount has been tendered, all Notes tendered in response to the
Asset Sale Offer. Payment for any Notes so purchased will be made in the same
manner as interest payments are made.
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If the Asset Sale Purchase Date is on or after an interest record date and
on or before the related interest payment date, any accrued and unpaid interest
will be paid to the Person in whose name a Note is registered at the close of
business on such record date, and no additional interest will be payable to
Holders who tender Notes pursuant to the Asset Sale Offer.
Upon the commencement of an Asset Sale Offer, Holdings 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 Notes pursuant to the Asset Sale Offer. The Asset
Sale Offer shall be made to all Holders. The notice, which shall govern the
terms of the Asset Sale Offer, shall state:
(a) that the Asset Sale Offer is being made pursuant to this covenant
and the length of time the Asset Sale Offer shall remain open;
(b) the Asset Sale Offer Amount, the purchase price and the Asset Sale
Purchase Date;
(c) that any Note not tendered or accepted for payment shall continue
to accrue interest;
(d) that, unless Holdings defaults in making such payment, any Note
accepted for payment pursuant to the Asset Sale Offer shall cease to accrue
interest after the Asset Sale Purchase Date;
(e) that Holders electing to have a Note purchased pursuant to any
Asset Sale Offer shall be required to surrender the Note, with the form
entitled "Option of Holder to Elect Purchase" on the reverse of the Note
completed, or transfer by book-entry transfer, to Holdings, the Depositary,
if appointed by Holdings, or a Paying Agent at the address specified in the
notice at least three days before the Asset Sale Purchase Date;
(f) that Holders shall be entitled to withdraw their election if
Holdings, the Trustee or the Paying Agent, as the case may be, receives,
not later than the expiration of the Asset Sale Offer Period, a facsimile
transmission or letter setting forth the name of the Holder, the principal
amount of the Note the Holder delivered for purchase and a statement that
such Holder is withdrawing his election to have such Note Purchased;
(g) that, if the aggregate principal amount of Notes surrendered by
Holders exceeds the Asset Sale Offer Amount, Holdings shall select the
Notes to be purchased on a pro rata basis (with such adjustments as may be
deemed appropriate by Holdings so that only Notes in denominations of
$1,000, or integral multiples thereof, shall be purchased); and
(h) that Holders whose Notes were purchased only in part shall be
issued new Notes equal in principal amount to the unpurchased portion of
the Notes surrendered (or transferred by book-entry transfer).
On or before the Asset Sale Purchase Date, Holdings will, to the extent
lawful, accept for payment, on a pro rata basis to the extent necessary, the
Asset Sale Offer Amount of Notes or portions thereof tendered pursuant to the
Asset Sale Offer, or if less than the Asset Sale Offer Amount has
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been tendered, all Notes tendered, and will deliver to the Trustee an Officers'
Certificate stating that such Notes or portions thereof were accepted for
payment by Holdings in accordance with the terms of this covenant. Holdings, the
Depositary or the Paying Agent, as the case may be, will promptly (but in any
case not later than five days after the Asset Sale Purchase Date) mail or
deliver to each tendering Holder an amount equal to the purchase price of the
Notes tendered by such Holder and accepted by Holdings for purchase, and
Holdings will promptly issue a new Note, and the Trustee, upon delivery of an
Authentication Order from Holdings, will authenticate and mail or deliver such
new Note to such Holder, in a principal amount equal to any unpurchased portion
of the Note surrendered. Any Note not so accepted will be promptly mailed or
delivered by Holdings to the Holder thereof. Holdings will publicly announce the
results of the Asset Sale Offer on the Asset Sale Purchase Date.
Holdings will comply with the requirements of Rule 14e-1 under the Exchange
Act and any other securities laws and regulations thereunder to the extent such
laws and regulations are applicable in connection with the repurchase of the
Notes as a result of an Asset Sale. To the extent that the provisions of any
securities laws or regulations conflict with the Asset Sale provisions of this
Section 4.04, Holdings shall comply with the applicable securities laws and
regulations and shall not be deemed to have breached its obligations under this
Section 4.04 by virtue thereof.
Notwithstanding the foregoing, in no event shall Holdings be required to
cause any Subsidiary to make an Asset Sale Offer under this Indenture if such
action would cause a default or event of default under the Company's Indenture
as in effect on the Issue Date.
SECTION 4.05. Restricted Payments.
Holdings will not, and will not permit any of its Subsidiaries to, directly
or indirectly:
(1) declare or pay any dividend or make any distribution on account of
Holdings or any of its Subsidiaries' Equity Interests (including, without
limitation, any payment in connection with any merger or consolidation
involving Holdings) other than dividends or distributions payable in Equity
Interests (other than Disqualified Stock) of Holdings or dividends or
distributions payable to Holdings or any Wholly Owned Subsidiary of
Holdings;
(2) purchase, redeem or otherwise acquire or retire for value any
Equity Interests of Holdings or any direct or indirect parent of Holdings
or Subsidiary of Holdings (other than any such Equity Interests owned by
Holdings or any Wholly Owned Subsidiary of Holdings that is a Subsidiary);
(3) make any principal payment on, or purchase, redeem, defease or
otherwise acquire or retire for value, prior to any scheduled maturity,
scheduled repayment or scheduled sinking fund payment, any Indebtedness
that is subordinated to the Notes, other than through the purchase or
acquisition by Holdings of Indebtedness through the issuance in exchange
therefor of Equity Interests (other than Disqualified Stock); or
(4) make any Restricted Investment,
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(all such payments and other actions set forth in clauses (1) through (4) 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;
(b) Holdings would, at the time of such Restricted Payment and after
giving pro forma effect thereto as if such Restricted Payment had been made
at the beginning of the applicable four-quarter period, have been permitted
to incur at least $1.00 of additional Indebtedness pursuant to the Fixed
Charge Coverage Ratio test set forth in the first paragraph of Section
4.06; and
(c) such Restricted Payment, together with the aggregate of all other
Restricted Payments made by Holdings and its Subsidiaries after the Issue
Date (excluding Restricted Payments permitted by clauses (2), (3) and (4)
of the next succeeding paragraph), is less than the sum of:
(i) 50% of the Consolidated Net Income of Holdings for the period
(taken as one accounting period) from the beginning of the first
fiscal quarter commencing after the Issue Date, to the end of
Holdings' 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) to the extent not included in the amount described in clause
(i) above, 100% of the aggregate net cash proceeds received after the
Issue Date by Holdings from the issue or sale of, or from additional
capital contributions in respect of, Equity Interests of Holdings or
of debt securities of Holdings or any Subsidiary that have been
converted into, or canceled in exchange for, Equity Interests of
Holdings or of any direct or indirect parent of Holdings or from the
issue or sale of convertible or exchangeable Disqualified Stock that
has been converted into or exchanged for such Equity Interests (other
than Equity Interests (or convertible debt securities) sold to a
Subsidiary of Holdings and other than Disqualified Stock or debt
securities that have been converted into Disqualified Stock), plus the
aggregate net cash proceeds received by Holdings upon any such
conversion or exchange; plus
(iii) 100% of the cash proceeds realized upon the sale of any
Unrestricted Subsidiary (less the amount of any reserve established
for purchase price adjustments and less the maximum amount of any
indemnification or similar contingent obligation for the benefit of
the purchaser, any of its Affiliates or any other third party in such
sale, in each case as adjusted for any permanent reduction in any such
amount on or after the date of such sale, other than by virtue of a
payment made to such Person) following the Issue Date not in excess of
the original amount of the Investment in such Unrestricted Subsidiary;
plus
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(iv) without duplication of amounts in clause (iii) above, to the
extent that any Restricted Investment that was made after the Issue
Date is sold for cash or otherwise liquidated or repaid for cash, the
amount of net cash proceeds received with respect to such Restricted
Investment not in excess of the original amount of such Restricted
Investment.
The foregoing provisions will not prohibit:
(1) 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;
(2) the making of any Restricted Investment in exchange for, or out of
the proceeds of, the substantially concurrent sale (other than to a
Subsidiary of Holdings) of, or from substantially concurrent additional
capital contributions in respect of, Equity Interests of Holdings (other
than Disqualified Stock); provided that any net cash proceeds that are
utilized for any such Restricted Investment, and any Net Income resulting
therefrom, will be excluded from clauses (c)(i) and (c)(ii) of the
preceding paragraph;
(3) the redemption, repurchase, retirement or other acquisition of any
Equity Interests of Holdings or any direct or indirect parent of Holdings
in exchange for, or out of the proceeds of, the substantially concurrent
sale (other than to a Subsidiary of Holdings) of, or from substantially
concurrent capital contributions in respect of, other Equity Interests of
Holdings (other than any Disqualified Stock); provided that any net cash
proceeds that are utilized for any such redemption, repurchase, retirement
or other acquisition, and any Net Income resulting therefrom, will be
excluded from clauses (c)(i) and (c)(ii) of the preceding paragraph;
(4) the defeasance, redemption or repurchase of subordinated
Indebtedness with the net cash proceeds from an incurrence of Permitted
Refinancing Indebtedness or the substantially concurrent sale (other than
to a Subsidiary of Holdings) of, or from substantially concurrent
additional capital contributions in respect of, Equity Interests of
Holdings (other than Disqualified Stock); provided that any net cash
proceeds that are utilized for any such defeasance, redemption or
repurchase, and any Net Income resulting therefrom, will be excluded from
clauses (c)(i) and (c)(ii) of the preceding paragraph;
(5) Permitted Tax Payments;
(6) the acquisition by a Receivables Subsidiary in connection with a
Qualified Receivables Transaction of Equity Interests of a trust or other
Person established by such Receivables Subsidiary to effect such Qualified
Receivables Transaction;
(7) the repurchase, redemption, retirement for value or other
acquisition of any Equity Interests of Holdings or a Subsidiary of Holdings
from employees, officers or directors (or their nominees) of Holdings or
any of its Subsidiaries or their authorized representatives upon such
Person's cessation of employment with Holdings or any such Subsidiary or
death pursuant to the terms of an employee benefit, employment agreement or
similar ar-
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rangement in an aggregate amount not to exceed $500,000 in any fiscal year,
plus the aggregate net cash proceeds from any issuance during such fiscal
year of Equity Interests by Holdings to employees, officers or directors of
Holdings or any of its Subsidiaries;
(8) pro rata dividends or other distributions made by a Subsidiary of
Holdings to minority shareholders (or owners of an equivalent interest in
the case of a Subsidiary that is not a corporation);
(9) the acquisition by Holdings or a Wholly Owned Subsidiary of
Holdings of any Equity Interest in a Subsidiary of Holdings from a minority
shareholder of such Subsidiary of Holdings; and
(10) the repurchase of Equity Interests of Holdings deemed to occur
upon the exercise of stock options if such Equity Interests represent a
portion of the exercise price thereof.
The Board of Directors may designate any Subsidiary of Holdings (including
a newly acquired Subsidiary) to be an Unrestricted Subsidiary if such
designation would not cause a Default. For purposes of making such
determination, all outstanding Investments by Holdings and its Subsidiaries 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
fair market value of such Investments at the time of such designation. Such
designation will only be permitted if such Restricted Payment would be permitted
at such time and if such Subsidiary otherwise meets the definition of an
Unrestricted Subsidiary.
The amount of all Restricted Payments (other than cash) will be the fair
market value (evidenced by a resolution of the Board of Directors set forth in
an Officers' Certificate delivered to the Trustee) on the date of the Restricted
Payment of the asset(s) proposed to be transferred by Holdings or such
Subsidiary, as the case may be, pursuant to the Restricted Payment. Not later
than the date of making any Restricted Payment, Holdings will 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 covenant were computed, which calculations may be based upon Holdings'
latest available financial statements. The Trustee shall have no duty or
obligation to verify the calculations in such Officers' Certificate or to
determine its accuracy, and it shall be fully protected and shall incur no
liability in relying on such Officers' Certificate with respect to the
permissiveness of such Restricted Payments.
SECTION 4.06. Incurrence of Indebtedness and Issuance of Preferred Stock.
Holdings will not, and will not permit any of its 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 Indebtedness) and
Holdings will not issue any Disqualified Stock and will not permit any of its
Subsidiaries to issue any shares of preferred stock; provided, however, that
Holdings may incur Indebtedness (including Acquired Indebtedness) or issue
shares of preferred stock or Disqualified Stock and Holdings' Subsidiaries may
incur Indebtedness and issue shares of preferred stock if:
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(1) the Fixed Charge Coverage Ratio for Holdings' 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 or such preferred stock or Disqualified Stock is
issued would have been at least 2.00 to 1 on or prior to the second
anniversary of the Issue Date and 2.25 to 1 at any time thereafter,
determined on a pro forma basis (including a pro forma application of the
net proceeds therefrom), as if the additional Indebtedness had been
incurred, or the preferred stock or Disqualified Stock had been issued, as
the case may be, at the beginning of such four-quarter period; and
(2) no Default or Event of Default will have occurred and be
continuing or would occur as a consequence thereof;
provided that no Guarantee may be incurred pursuant to this paragraph unless the
guaranteed Indebtedness is incurred by Holdings or a Subsidiary in compliance
with this paragraph.
The foregoing provisions of this Section 4.06 will not apply to:
(1) the incurrence by Holdings or any of its Subsidiaries of
Indebtedness under the Revolving Credit Facility and reimbursement
obligations in respect of letters of credit (and Guarantees thereof by
Subsidiaries) in an aggregate principal amount at any time outstanding
(with letter of credit obligations being deemed to have a principal amount
equal to the maximum potential liability of Holdings and its Subsidiaries
with respect thereto) not to exceed an amount equal to $100.0 million less
any mandatory repayments or prepayments of the Revolving Credit Facility
with the proceeds of Asset Sales;
(2) Existing Indebtedness;
(3) Indebtedness represented by the Notes, the Company's Notes, the
Subsidiary Guarantees, this Indenture and the Company's Indenture;
(4) the incurrence by Holdings or any of its Subsidiaries of
Indebtedness represented by Capital Lease Obligations 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 used in the business of Holdings or such Subsidiary, in an
aggregate principal amount not to exceed $20.0 million at any one time
outstanding;
(5) the incurrence by Holdings or any of its Subsidiaries of Permitted
Refinancing Indebtedness;
(6) the incurrence by Holdings or any of its Wholly Owned Subsidiaries
of intercompany Indebtedness between or among Holdings and any of its
Wholly Owned Subsidiaries or between or among any Wholly Owned Subsidiaries
and the issuance of preferred stock by any of Holdings' Wholly Owned
Subsidiaries to Holdings or any other Wholly Owned Subsidiary; provided,
however, that (a) any subsequent issuance or transfer of Equity Interests
that results in any such Indebtedness or preferred stock being held by a
Person other than Holdings or a Wholly Owned Subsidiary and (b) any sale or
other transfer of any such Indebtedness or preferred stock to a Person that
is not either Holdings or a Wholly
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Owned Subsidiary will be deemed, in each case, to constitute an incurrence
of Indebtedness by Holdings or such Subsidiary, as the case may be, not
permitted pursuant to this clause (6);
(7) the incurrence by Holdings or any of its Subsidiaries of Hedging
Obligations;
(8) Non-Recourse Debt;
(9) Indebtedness of Holdings or any of its Subsidiaries solely in
respect of bankers' acceptances, letters of credit and performance bonds or
similar arrangements, in each case in the ordinary course of business;
(10) Indebtedness arising from agreements of Holdings or a Subsidiary
of Holdings providing for indemnification, adjustment of purchase price or
similar obligations, in each case, incurred or assumed in connection with
the disposition of any business, assets or a Subsidiary, other than
guarantees of Indebtedness incurred by any Person acquiring all or any
portion of such business, assets or a Subsidiary for the purpose of
financing such acquisition; provided, however, that:
(a) such Indebtedness is not reflected on the balance sheet of
Holdings or any Subsidiary of Holdings (contingent obligations
referred to in a footnote to financial statements and not otherwise
reflected on the balance sheet will not be deemed to be reflected on
such balance sheet for purposes of this clause (a)); and
(b) the maximum assumable liability in respect of all such
Indebtedness shall at no time exceed the gross proceeds including
proceeds other than Cash or Cash Equivalents (the fair market value of
such non-cash proceeds being determined by the Board of Directors and
measured at the time it is received and without giving effect to any
subsequent changes in value) actually received by Holdings and its
Subsidiaries in connection with such disposition;
(11) the incurrence by Holdings or any of its Subsidiaries of
Indebtedness (in addition to Indebtedness permitted by any other clause of
this paragraph) in an aggregate principal amount at any time outstanding
not to exceed the sum of $10.0 million; and
(12) the incurrence by a Receivables Subsidiary of Indebtedness in an
amount not to exceed $25.0 million in a Qualified Receivables Transaction
that is without recourse to Holdings or to any Subsidiary of Holdings or
their assets (other than such Receivables Subsidiary and its assets), and
is not guaranteed by any such Person.
Notwithstanding any other provision of this covenant, a Guarantee of
Indebtedness permitted by the terms of this Indenture at the time such
Indebtedness was incurred will not constitute a separate incurrence of
Indebtedness.
Indebtedness or preferred stock of any Person which is outstanding at the
time such Person becomes a Subsidiary of Holdings or is merged with or into or
consolidated with Holdings or a Subsidiary of Holdings shall be deemed to have
been incurred at the time such Person becomes such a
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Subsidiary of Holdings or is merged with or into or consolidated with Holdings
or a Subsidiary of Holdings, as applicable.
Notwithstanding any other provisions of this covenant, the maximum amount
of Indebtedness that Holdings or a Subsidiary may incur shall not be deemed to
be exceeded solely as a result of fluctuations in the exchange rates of
currencies.
For purposes of determining compliance with this Section 4.06, in the event
that an item of Indebtedness meets the criteria of more than one of the
categories of Permitted Indebtedness described in clauses (1) through (12) above
or is entitled to be incurred pursuant to the Fixed Charge Coverage Ratio
provisions of this covenant, Holdings 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, the
payment of interest on any Indebtedness in the form of additional Indebtedness
with the same terms, and the payment of dividends on Disqualified Stock in the
form of additional shares of the same class of Disqualified Stock will not be
deemed to be an incurrence of Indebtedness or an issuance of Disqualified Stock
for purposes of this Section 4.06.
SECTION 4.07. Liens.
Holdings will not, and will not permit any of its Subsidiaries to, directly
or indirectly, create, incur, assume or suffer to exist any Lien except:
(1) with respect to any property or asset constituting Collateral,
Liens created by this Indenture and the Collateral Documents, or
(2) with respect to any property or asset (other than Collateral) now
owned or hereafter acquired, Permitted Liens.
SECTION 4.08. Dividend and Other Payment Restrictions Affecting Subsidiaries.
Holdings will not, and will not permit any of its 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 Subsidiary to:
(1) (a) pay dividends or make any other distributions to Holdings or
any of its Subsidiaries (x) on its Capital Stock or (y) with respect to any
other interest or participation in, or measured by, its profits, or (b) pay
any Indebtedness owed to Holdings or any of its Subsidiaries;
(2) make loans or advances to Holdings or any of its Subsidiaries; or
(3) transfer any of its properties or assets to Holdings or any of its
Subsidiaries,
except for such encumbrances or restrictions existing under or by reason of:
(a) Existing Indebtedness (including, without limitation, pursuant to
the Boise Agreement and the Existing Mortgage Loans) and any documents or
agreements entered into pursuant thereto or securing obligations
thereunder, all as in effect on the Issue Date;
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(b) the Revolving Credit Facility and any documents or agreements
entered into pursuant thereto or securing obligations thereunder, all as in
effect as of the Issue Date, and any amendments, modifications,
restatements, renewals, increases, supplements, refundings, replacements or
refinancings thereof; provided that such amendments, modifications,
restatements, renewals, increases, supplements, refundings, replacement or
refinancings are no more restrictive with respect to such dividend and
other payment restrictions than those contained in the agreements governing
the Revolving Credit Facility as in effect on the Issue Date;
(c) this Indenture, the Notes, the Company's Indenture, the Company's
Notes, the Subsidiary Guarantees and the Company Collateral Documents;
(d) applicable law;
(e) any instrument governing Acquired Indebtedness or Capital Stock of
a Person acquired by Holdings or any of its Subsidiaries as in effect at
the time of such acquisition (except to the extent such Acquired
Indebtedness was incurred in connection with or in contemplation of such
acquisition), which encumbrance or restriction is not applicable to any
Person, or the properties or assets of any Person, other than the Person,
or the property or assets of the Person, so acquired;
(f) by reason of customary non-assignment or subletting provisions in
leases and licenses entered into in the ordinary course of business and
consistent with past practices;
(g) Purchase Money Obligations for property acquired in the ordinary
course of business that impose restrictions of the nature described in
clause (3) above on the property so acquired;
(h) agreements relating to the financing of the acquisition of real or
tangible personal property acquired after the Issue Date; provided that
such encumbrance or restriction relates only to the property which is
acquired and in the case of any encumbrance or restriction that constitutes
a Lien, such Lien constitutes a Purchase Money Lien;
(i) Indebtedness or other contractual requirements of a Receivables
Subsidiary in connection with a Qualified Receivables Transaction; provided
that such restrictions apply only to such Receivables Subsidiary;
(j) any restriction or encumbrance contained in contracts for sale or
other conveyance of assets permitted by this Indenture in respect of the
assets being sold or conveyed pursuant to such contract;
(k) Permitted Refinancing Indebtedness; provided that the restrictions
contained in the agreements governing such Permitted Refinancing
Indebtedness are no more restrictive than those contained in the agreements
governing the Indebtedness being refinanced; or
(l) contracts with customers entered into in the ordinary course of
business in the nature of restrictions on cash, other deposits or net
worth, which restrictions are imposed by such customers.
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Nothing contained in this Section 4.08 shall prevent Holdings or any
Subsidiary of Holdings from creating, incurring, assuming or suffering to exist
any Liens otherwise not prohibited by Section 4.07.
SECTION 4.09. Transactions with Affiliates.
Holdings will not, and will not permit any of its Subsidiaries to, 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 any contract,
agreement, understanding, loan, advance or guarantee with, or for the benefit
of, any Affiliate (each of the foregoing, an "Affiliate Transaction"), unless:
(1) such Affiliate Transaction is on terms that are no less favorable
to Holdings or the relevant Subsidiary than those that would have been
obtained in a comparable transaction by Holdings or such Subsidiary with an
unrelated Person; and
(2) Holdings delivers to the Trustee (a) with respect to any Affiliate
Transaction entered into after the Issue Date involving aggregate
consideration in excess of $1.0 million, a Board Resolution set forth in an
Officers' Certificate certifying that such Affiliate Transaction complies
with clause (1) 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 involving aggregate
consideration in excess of $5.0 million, an opinion as to the fairness to
Holdings or such Subsidiary of such Affiliate Transaction from a financial
point of view issued by an independent accounting, appraisal or investment
banking firm of recognized standing;
provided that the following will not be deemed to be Affiliate Transactions:
(a) the provision of administrative or management services by Holdings
or any of its Officers or directors to any of its Subsidiaries in the
ordinary course of business consistent with past practice;
(b) any employment agreement entered into by Holdings or any of its
Subsidiaries in the ordinary course of business and consistent with the
past practice of the Company or such Subsidiary;
(c) transactions between or among Holdings and/or its Wholly Owned
Subsidiaries or transactions between a Receivables Subsidiary and any
Person in which the Receivables Subsidiary has an Investment;
(d) transactions not restricted by Section 4.05 (including, without
limitation, Permitted Investments);
(e) reasonable fees and compensation paid to, and indemnity provided
on behalf of, Officers, directors, employees, agents or consultants of
Holdings or any of its Subsidiaries as determined in good faith by the
Board of Directors of Holdings; and
(f) any sale or other issuance of Equity Interests (other than
Disqualified Stock) of Holdings.
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SECTION 4.10. Calculation of Original Issue Discount.
Holdings shall file with the Trustee promptly at the end of each calendar
year through December 31, 2003 (i) a written notice specifying the amount of
original issue discount (including daily rates and accrual periods) accrued on
outstanding Notes as of the end of such year and (ii) such other specific
information relating to such original issue discount as may then be relevant
under the Internal Revenue Code of 1986, as amended from time to time.
SECTION 4.11. Impairment of Security Interests.
Neither Holdings nor any of its Subsidiaries will take or omit to take any
action which action or omission could reasonably be expected to have the result
of adversely affecting or impairing the Lien in favor of the Collateral Agent
for its benefit and for the benefit of the other Secured Parties in the
Collateral, other than as expressly contemplated by this Indenture, the
Securities Pledge Agreement and the other Collateral Documents.
SECTION 4.12. Line of Business.
Holdings (i) will not engage in any business other than holding the Capital
Stock of the Company and (ii) will not permit any of its Subsidiaries to engage
in any business other than the owning, operating or managing of pulp and paper
manufacturing and converting businesses, the purchase, refurbishment and sale of
pulp, paper and converting Equipment and similar, complementary, ancillary or
related lines of business.
SECTION 4.13. Payments for Consent.
Neither Holdings nor any of its Subsidiaries will, directly or indirectly,
pay or cause to be paid any consideration, whether by way of interest, fee or
otherwise, to any Holder of any Notes for or as an inducement to any consent,
waiver or amendment of any of the terms or provisions of this Indenture or the
Notes unless such consideration is offered to be paid or is paid to all Holders
of the 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.
SECTION 4.14. Reports.
Whether or not required by the rules and regulations of the SEC, so long as
any Notes are outstanding, Holdings will furnish to the Trustee and all Holders
of Notes (1) all quarterly and annual financial information that would be
required to be contained in a filing with the SEC on Forms 10-Q and 10-K if
Holdings were required to file such Forms, including a "Management's Discussion
and Analysis of Financial Condition and Results of Operations" and, with respect
to the annual information only, a report thereon by Holdings' certified
independent accountants and (2) all current reports that would be required to be
filed with the SEC on Form 8-K if Holdings were required to file such reports,
in each case within the time periods specified in the SEC's rules and
regulations.
In addition, following the consummation of the Exchange Offer, whether or
not required by the rules and regulations of the SEC, Holdings will file a copy
of all such information and reports with the SEC for public availability within
the time periods specified in the SEC's rules and
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regulations (unless the SEC will not accept such a filing) and make such
information available to securities analysts and prospective investors in the
Notes upon request. In addition, Holdings and the Subsidiaries agree that, for
so long as any Notes remain outstanding, they will furnish to the Trustee,
Holders and to securities analysts and prospective investors in the Notes, upon
their request, the information required to be delivered pursuant to Rule
144A(d)(4) under the Securities Act.
SECTION 4.15. Taxes.
Holdings shall pay or discharge or shall cause each of its Subsidiaries to
pay or discharge, before the same shall become delinquent, (1) all material
Taxes levied or imposed upon Holdings or any of the Subsidiaries or upon their
or any of the Subsidiaries' income, profits or property and (2) all lawful
material claims for labor, materials and supplies which, in each case, if
unpaid, might by law become a Lien upon the property of Holdings or any of the
Subsidiaries; provided, however, that, subject to the terms of the applicable
Company Collateral Documents, neither Holdings nor any of the Subsidiaries shall
be required to pay or discharge or cause to be paid or discharged any such tax,
assessment, charge or claim whose amount, applicability or validity is being
contested in good faith by appropriate proceedings and for which disputed
amounts adequate reserves have been made in accordance with GAAP. Holdings and
each of its Subsidiaries shall prepare and timely file with the appropriate
governmental agencies all Tax Returns required to be filed for any period (or
portion thereof), taking into account any extension of time to file granted to
or obtained on behalf of Holdings and/or such Subsidiary, and each such Tax
Return shall be complete and accurate in all respects.
SECTION 4.16. Maintenance of Properties; Insurance, Books and Records.
(1) Subject to, and in compliance with, the provisions of Article 10
and to the provisions of the applicable Collateral Documents and the
provisions of the applicable Company Collateral Documents, Holdings shall
cause all properties used or useful in the conduct of its business or the
business of any of the Subsidiaries to be maintained and kept in good
condition, repair and working order (ordinary wear and tear excepted) and
supplied with all necessary Equipment and shall cause to be made all
necessary repairs, renewals, replacements, betterments and improvements
thereto.
(2) Holdings shall maintain, and shall cause its Subsidiaries to
maintain, subject to the provisions of the applicable Collateral Documents
and the provisions of the applicable Company Collateral Documents,
insurance with responsible carriers against such risks and in such amounts,
and with such deductibles, retentions, self-insured amounts and
co-insurance provisions, as are customarily carried by similar businesses
of similar size, including property and casualty loss, workers'
compensation and interruption of business insurance.
(3) Holdings shall, and shall cause each of its Subsidiaries to, keep
proper books of record and account, in which full and correct entries shall
be made of all financial transactions and the assets and business of
Holdings and each of its Subsidiaries, in accordance with GAAP.
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SECTION 4.17. Statement as to Compliance.
Holdings will deliver to the Trustee within 120 days after the end of each
fiscal year of Holdings (which on the date hereof ends on January 31), a written
statement signed by the principal executive officer, principal financial officer
or principal accounting officer stating that (i) a review of the activities of
Holdings during such year and of performance under this Indenture has been made
under his supervision and (ii) to the best of his knowledge, based on such
review, Holdings has fulfilled all of its obligations under this Indenture
throughout such year, or, if there has been a default in the fulfillment of any
such obligation, specifying each such default known to him and the nature and
status thereof.
ARTICLE 5
SUCCESSORS
SECTION 5.01. Merger, Consolidation or Sale of Assets.
Holdings will not, in a single transaction or series of related
transactions, consolidate or merge with or into (whether or not Holdings 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 Person unless:
(1) Holdings is the surviving entity or the Person formed by or
surviving any such consolidation or merger (if other than Holdings) or to
which such sale, assignment, transfer, lease, conveyance or other
disposition will have been made (such surviving corporation, entity or
transferee Person, the "Surviving Entity") is an entity organized or
existing under the laws of the United States, any state thereof or the
District of Columbia;
(2) the Surviving Entity assumes all the obligations of Holdings under
the Notes, this Indenture and the Collateral Documents pursuant to a
supplemental indenture and supplemental collateral documents, each in a
form reasonably satisfactory to the Trustee and the Collateral Agent;
(3) the Surviving Entity causes such amendments, supplements or other
instruments to be filed and recorded in such jurisdictions as may be
required by applicable law to preserve and protect the Lien of the
Collateral Documents on the Collateral owned by or transferred to the
Surviving Entity, together with such financing statements as may be
required to perfect any security interests in such Collateral which maybe
perfected by the filing of a financing statement under the Uniform
Commercial Code of the relevant states;
(4) the Collateral owned by or transferred to the Surviving Entity
shall:
(a) continue to constitute Collateral under this Indenture and
the Collateral Documents,
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(b) be subject to the Lien in favor of the Collateral Agent (for
its benefit and for the benefit of the other Secured Parties); and
(c) not be subject to any Liens;
(5) immediately after giving pro forma effect to such transaction, no
Default or Event of Default exists;
(6) Holdings or the entity or Person formed by or surviving any such
consolidation or merger (if other than Holdings), 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 Holdings immediately
preceding the transaction and (b) will, at the time of such transaction and
after giving pro forma effect thereto as if such transaction had occurred
at the beginning of the applicable four-quarter period, be permitted to
incur at least $1.00 of additional Indebtedness pursuant to the Fixed
Charge Coverage Ratio test set forth in the first paragraph of Section
4.06; and
(7) Holdings will have delivered to the Trustee an Officers'
Certificate and an opinion of counsel addressed to the Trustee, each
stating that such consolidation, merger, sale, assignment, transfer, lease,
conveyance or disposition and such supplemental indenture, if any, comply
with this Indenture and that such supplemental indenture is enforceable
and, with respect to the opinion of counsel, subject to customary
enforceability exceptions.
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
Holdings in accordance with Section 5.01 hereof, the successor corporation
formed by such consolidation or into or with which Holdings 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 "Holdings" shall refer instead to the
successor corporation and not to Holdings), and may exercise every right and
power of Holdings under this Indenture with the same effect as if such successor
Person had been named as Holdings herein; provided, however, that the
predecessor of Holdings shall not be relieved from the obligation to pay the
principal of and interest on the Notes except in the case of a sale of all of
Holdings' assets that meets the requirements of Section 5.01 hereof.
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ARTICLE 6
DEFAULTS AND REMEDIES
SECTION 6.01. Events of Default.
An "Event of Default" wherever used herein means any one of the following
events:
(1) default for 30 days in the payment when due of interest on, or
Liquidated Damages, if any, with respect to, the Notes;
(2) default in payment when due of the Accreted Value or the principal
of or premium, if any, on the Notes (including, without limitation,
pursuant to Section 3.07);
(3) failure by Holdings or any of its Subsidiaries to comply with the
provisions described in Section 4.03, 4.04, 4.05 or 4.06;
(4) continuance of a default in the performance, or breach, of any
other covenant or warranty of Holdings in this Indenture for a period of 30
days after there has been given to Holdings by the Trustee, or to Holdings
and the Trustee by the Holders of at least 25% in principal amount of the
Outstanding Notes, a written notice specifying such default or breach and
requiring it to be remedied and stating that such notice is a "Notice of
Default" hereunder;
(5) default under any mortgage, security agreement, indenture or
instrument under which there may be issued or by which there may be secured
or evidenced any Indebtedness for money borrowed by Holdings or any of its
Significant Subsidiaries (or the payment of which is guaranteed by Holdings
or any of its Subsidiaries) whether such Indebtedness or guarantee now
exists, or is created after the Issue Date, which default:
(a) is caused by a failure to pay principal of or premium, if
any, or interest on such Indebtedness, after the expiration of any
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 $10.0 million or more;
(6) failure by Holdings or any of its Significant Subsidiaries to pay
final judgments aggregating in excess of $10.0 million, which judgments are
not paid, discharged or stayed for a period of 60 days;
(7) except as permitted by this Indenture, default by Holdings in the
performance of or breach of any covenants or warranty in the Securities
Pledge Agreement or any
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other Collateral Document which adversely affects the enforceability or the
validity of the Collateral Agent's Lien on the Collateral or which
adversely affects the condition or value of the Collateral, taken as a
whole, in any material respect, repudiation or disaffirmation by Holdings
of its obligations under the Securities Pledge Agreement or any other
Collateral Document or the determination in a judicial proceeding that the
Securities Pledge Agreement or any other Collateral Document is
unenforceable or invalid against Holdings for any reason;
(8) the Company or any of its Significant Subsidiaries or any group of
Subsidiaries that, taken together, would constitute a Significant
Subsidiary pursuant to or within the meaning of any Bankruptcy Law:
(a) commences a voluntary case,
(b) consents to the entry of an order for relief against it in an
involuntary case,
(c) consents to the appointment of a Custodian of it or for all
or substantially all of its property,
(d) makes a general assignment for the benefit of its creditors,
or
(e) generally is not paying its debts as they become due; and
(9) a court of competent jurisdiction enters an order or decree under
any Bankruptcy Law that:
(a) is for relief against Holdings or any Significant Subsidiary
in an involuntary case,
(b) appoints a Custodian of Holdings or any Significant
Subsidiary or for all or substantially all of the property of Holdings
or any Significant Subsidiary, or (c) orders the liquidation of
Holdings or any Subsidiary,
and the order or decree remains unstayed and in effect for 60 consecutive
days.
The term "Bankruptcy Law" means Title 11, U.S. Code or any similar federal
or state law for the relief of debtors. The term "Custodian" means any receiver,
trustee, assignee, liquidator or similar official under any Bankruptcy Law.
An Event of Default shall not be deemed to have occurred under clause (3),
(5) or (6) until the Trustee shall have received written notice from Holdings or
any of the Holders or unless a Responsible Officer shall have knowledge of such
Event of Default.
If any Event of Default occurs and is continuing, the Trustee or the
Holders of at least 25% in principal amount of then outstanding Notes may
declare all the Notes to be due and payable im-
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mediately by a notice in writing to Holdings (and to the Trustee if by the
Holders). Notwithstanding the foregoing, in the case of an Event of Default
arising from certain events of bankruptcy or insolvency with respect to
Holdings, any Significant Subsidiary or any group of Subsidiaries that, taken
together, would constitute a Significant Subsidiary, all outstanding Notes will
become due and payable without further action or notice. In addition to
acceleration of the Notes, if an Event of Default occurs and is continuing, the
Trustee and the Collateral Agent will have the right to exercise remedies with
respect to the Collateral, such as foreclosure, as are available under this
Indenture, the Securities Pledge Agreement and the other Collateral Documents
and at law. Holders of the Notes may not enforce this Indenture or the Notes or
exercise remedies with respect to the Collateral except as expressly provided in
this Indenture. Subject to certain limitations, Holders of a majority in
principal amount of the then outstanding Notes may direct the Trustee in its
exercise of any trust or power. The Trustee may withhold from Holders of the
Notes notice of any continuing Default or Event of Default (except a Default or
Event of Default relating to the payment of principal or interest) if it
determines that withholding notice is in their interest.
SECTION 6.02. Acceleration.
If an Event of Default (other than an Event of Default specified in clauses
(8) and (9) of Section 6.01 relating to Holdings or any Significant Subsidiary)
occurs and is continuing, the Trustee by notice to Holdings, or the Holders of
at least 25% in principal amount of the then outstanding Notes by written notice
to Holdings and the Trustee may declare the unpaid principal of and any accrued
interest on all the Notes (or, if prior to July 15, 2003, the Accreted Value of
all the Notes) to be due and payable. Upon such declaration, such Accreted Value
or the principal and interest shall be due and payable immediately (together
with the premium referred to in Section 6.01, if applicable). If an Event of
Default specified in clause (8) or (9) of Section 6.01 relating to Holdings or
any Significant Subsidiary occurs, such unpaid principal of and any accrued
interest (together with the premium referred to in Section 6.01(2), if
applicable) on the Notes (or, if prior to July 15, 2003, the Accreted Value of
all the Notes) shall ipso facto become and be immediately due and payable
without any declaration or other act on the part of the Trustee or any Holder.
The Holders of a majority in principal amount of the then outstanding Notes by
written notice to the Trustee may rescind an acceleration and its consequences
if the rescission would not conflict with any judgment or decree, Holdings has
paid or deposited with the Trustee a sum sufficient to pay all sums paid or
advanced by the Trustee hereunder and the reasonable compensation, expenses,
disbursements and advances of the Trustee, its agent and counsel, and if all
existing Events of Default (except nonpayment of Accreted Value or principal or
interest that has become due solely because of the acceleration) have been cured
or waived.
SECTION 6.03. Other Remedies.
If an Event of Default occurs and is continuing, the Trustee or the
Collateral Agent, as the case may be, may pursue any available remedy to collect
the payment of principal, premium, if any, and interest on the Notes or to
enforce the performance of any provision of the Notes, this Indenture, the
Securities Pledge Agreement or the other Collateral Documents.
The Trustee may maintain a proceeding even if it does not possess any of
the Notes or does not produce any of them in the proceeding. A delay or omission
by the Trustee, the Collateral Agent or any Holder of a 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
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Default. All remedies are cumulative to the extent permitted by law.
SECTION 6.04. Waiver of Past Defaults.
Holders of not less than a majority in aggregate principal amount of the
then outstanding Notes by notice to the Trustee may on behalf of the Holders of
all of the 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, premium and Liquidated Damages, if any, or interest
on, the 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 Notes may rescind an acceleration and its consequences,
including any related payment default that resulted from such acceleration) or
in respect of a covenant or provision hereof which under Article 9 cannot be
modified or amended without the consent of the holder of each outstanding Note.
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 Notes may
direct the time, method and place of conducting any proceeding for exercising
any remedy available to the Trustee or exercising any trust or power conferred
on the Trustee. 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 Notes or that may involve the
Trustee in personal liability.
SECTION 6.06. Limitation on Suits.
A Holder of a Note may pursue a remedy with respect to this Indenture or
the Notes only if:
(a) the Holder of a Note gives to the Trustee written notice of a
continuing Event of Default;
(b) the Holders of at least 25% in principal amount of the then
outstanding Notes make a written request to the Trustee to institute
proceedings in respect of such Event of Default in its own name as Trustee
hereunder;
(c) such Holder of a Note or Holders of Notes offer and, if requested,
provide to the Trustee indemnity satisfactory to the Trustee against any
cost, loss, liability or expense;
(d) the Trustee does not comply with such request within 60 days after
receipt of the request and the offer and, if requested, the provision of
indemnity; and
(e) during such 60-day period the Holders of a majority in principal
amount of the then outstanding Notes do not give the Trustee a direction
inconsistent with such request.
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A Holder of a Note may not use this Indenture or the Securities Pledge Agreement
or any other Collateral Documents to prejudice the rights of another Holder of a
Note or to obtain a preference or priority over another Holder of a Note.
SECTION 6.07. Rights of Holders of Notes To Receive Payment.
Notwithstanding any other provision of this Indenture, the right of any
Holder of a Note to receive payment of Accreted Value or principal, as the case
may be, premium and Liquidated Damages, if any, and interest on the Note, on or
after the respective due dates expressed in the 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(1) or (2) occurs and is
continuing, the Trustee is authorized to recover judgment in its own name and as
trustee of an express trust against Holdings for the whole amount of principal
of, premium and Liquidated Damages, if any, and interest remaining unpaid on the
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 and/or the Collateral Agent is authorized to file such proofs
of claim and other papers or documents as may be necessary or advisable in order
to have the claims of the Trustee and/or the Collateral Agent (including any
claim for the reasonable compensation, expenses, disbursements and advances of
the Trustee and/or the Collateral Agent, its agents and counsel) and the Holders
of the Notes allowed in any judicial proceedings relative to Holdings (or any
other obligor upon the Notes), its creditors or its property and shall be
entitled and empowered 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/or the Collateral Agent, and in the event that the Trustee
and/or the Collateral Agent shall consent to the making of such payments
directly to the Holders, to pay to the Trustee and/or the Collateral Agent any
amount due to it for the reasonable compensation, expenses, disbursements and
advances of the Trustee and/or the Collateral Agent, its agents and counsel, and
any other amounts due the Trustee and/or the Collateral Agent under Section 7.07
hereof and under the Collateral Documents. To the extent that the payment of any
such compensation, expenses, disbursements and advances of the Trustee and/or
the Collateral Agent, its agents and counsel, and any other amounts due the
Trustee and/or the Collateral Agent under Section 7.07 hereof and under the
Collateral Documents 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. Nothing herein contained shall be deemed to authorize the Trustee
and/or the Collateral Agent to authorize or consent to or accept or adopt on
behalf of any Holder any plan of reorganization, ar-
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rangement, adjustment or composition affecting the Notes or the rights of any
Holder, or to authorize the Trustee and/or the Collateral Agent 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 Article, it shall pay
out the money in the following order:
First: to the Trustee, its agents and attorneys for all 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 Notes for amounts due and unpaid on the Notes for
principal and Liquidated Damages, if any, and interest, ratably, without
preference or priority of any kind, according to the amounts due and
payable on the Notes for principal, premium and Liquidated Damages, if any,
and interest, respectively; and
Third: to Holdings 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 Notes pursuant to this Section 6.10.
If the Collateral Agent collects any money pursuant to the provisions of
the Collateral Documents, it shall pay out the money in the manner set forth in
Section 11 of the Securities Pledge Agreement.
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 Note for the
enforcement of the payment of the principal of (or premium, if any) or interest
on any Note on or after the respective maturity or payment dates expressed in
such Note pursuant to Section 6.07 hereof, or a suit by Holders of more than 10%
in principal amount of the then outstanding Notes.
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ARTICLE 7
TRUSTEE
SECTION 7.01. Duties of Trustee.
(a) If an Event of Default has occurred and is continuing, the Trustee
shall exercise such of the rights and powers vested in it by this Indenture, and
use the same degree of care and skill in its exercise, as a prudent man would
exercise or use under the circumstances in the conduct of his own affairs.
(b) Except during the continuance of an Event of Default:
(i) the duties of the Trustee shall be determined solely by the
express provisions of this Indenture and the Collateral Documents and the
Trustee need perform only those duties that are specifically set forth in
this Indenture and the Collateral Documents and no others, and no implied
covenants or obligations shall be read into this Indenture or the
Collateral Documents against the Trustee; and
(ii) in the absence of bad faith on its part, the Trustee may
conclusively rely, as to the truth of the statements and the correctness of
the opinions expressed therein, upon certificates or opinions furnished to
the Trustee and conforming to the requirements of this Indenture or the
Collateral Documents. However, the Trustee shall examine such certificates
and opinions to determine whether or not they conform to the requirements
of this Indenture or the Collateral Documents.
(c) The Trustee may not be relieved from liabilities for its own negligent
action, its own negligent failure to act, or its own willful misconduct, except
that:
(i) this paragraph does not limit the effect of paragraph (b) of this
Section;
(ii) the Trustee shall not be liable for any error of judgment made in
good faith by a Responsible Officer, unless it is proved that the Trustee
was negligent in ascertaining the pertinent facts; and
(iii) the Trustee shall not be liable with respect to any action it
takes or omits to take in good faith in accordance with a direction
received by it pursuant to Section 6.05 hereof or in exercising any trust
or power conferred upon the Trustee under this Indenture.
(d) Whether or not therein expressly so provided, every provision of this
Indenture that in any way relates to the Trustee is subject to this Section 7.01
and Section 7.02.
(e) No provision of this Indenture or the Collateral Documents shall
require the Trustee to expend or risk its own funds or incur any liability. The
Trustee shall be under no obligation to exercise any of its rights and powers
under this Indenture or the Collateral Documents at the request of any Holders,
unless such Holder shall have offered to the Trustee security and indemnity
satisfactory to it against any loss, liability or expense.
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(f) The Trustee shall not be liable for interest on any money received by
it except as the Trustee may agree in writing with Holdings. 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) In connection with the Trustee's rights and duties under this Indenture
or the Securities Pledge Agreement or any other Collateral Documents, the
Trustee may conclusively rely upon and shall be protected from acting or
refraining from acting upon any document or instrument 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 under this Indenture or
the Collateral Documents, it may require an Officers' Certificate or an Opinion
of Counsel or both. The Trustee shall not be liable for any action it takes or
omits to take in good faith in reliance on such Officers' Certificate or Opinion
of Counsel. The Trustee may consult with counsel and the written advice of such
counsel or any Opinion of Counsel shall be full and complete authorization and
protection from liability in respect of any action taken, suffered or omitted by
it hereunder or pursuant to the Collateral Documents in good faith and in
reliance thereon.
(c) The Trustee may act through its attorneys and agents and shall not be
responsible for the misconduct or negligence of any agent appointed with due
care.
(d) The Trustee shall not be liable for any action it takes or omits to
take in good faith that it believes to be authorized or within the rights or
powers conferred upon it by this Indenture or the Collateral Documents.
(e) Unless otherwise specifically provided in this Indenture or the
Collateral Documents, any demand, request, direction or notice from Holdings
shall be sufficient if signed by an Officer of Holdings.
(f) The Trustee shall be under no obligation to exercise any of the rights
or powers vested in it by this Indenture or the Collateral Documents at the
request or direction of any of the Holders unless such Holders shall have
offered to the Trustee reasonable security or indemnity against the costs,
expenses and liabilities that might be incurred by it in compliance with such
request or direction.
(g) Except with respect to Section 4.01 hereof, the Trustee shall have no
duty to inquire as to the performance of Holdings' covenants in Article 4
hereof. In addition, the Trustee shall not be deemed to have knowledge of any
Default or Event of Default except (i) any Event of Default occurring pursuant
to Sections 6.01(1), 6.01(2) and 4.01 or (ii) any Default or Event of Default of
which the Trustee shall have received written notification or obtained actual
knowledge.
(h) The Trustee shall not be bound to make any investigation into the facts
or matters stated in any resolution, certificate, statement, instrument,
opinion, report, notice, request, direction, consent, order, bond, debenture,
note, other evidence of indebtedness or other paper or document, but the Trustee
may, in its discretion, make such further inquiry or investigation into
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such facts or matters as it may see fit and if the Trustee shall determine to
make such further inquiry or investigation, it shall be entitled to examine the
books, records and premises of Holdings personally or by agent or attorney.
(i) To the extent any provisions of the Collateral Documents conflict with
or are silent with respect to the matters set forth in this Article 7, the
Collateral Documents shall be deemed to include such provisions set forth herein
as if stated therein.
SECTION 7.03. Individual Rights of Trustee.
The Trustee in its individual or any other capacity may become the owner or
pledgee of Notes and may otherwise deal with Holdings or any Affiliate of
Holdings with the same rights it would have if it were not Trustee. However, in
the event that the Trustee acquires any conflicting interest (as defined in the
TIA) 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 Notes, it shall not be
accountable for Holdings' use of the proceeds from the Notes or any money paid
to Holdings or upon Holdings' 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 Notes or any other document
in connection with the sale of the Notes or pursuant to 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 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, or
interest on any 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 Notes.
SECTION 7.06. Reports by Trustee to Holders of the Notes.
Within 60 days after each May 15 beginning with the May 15 following the
date of this Indenture, and for so long as Notes remain outstanding, the Trustee
shall mail to the Holders of the 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)(2). 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 Notes
shall be mailed to Holdings and filed with the SEC and each stock exchange on
which the Notes are listed in
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accordance with TIA ss. 313(d). Holdings shall promptly notify the Trustee when
the Notes are listed on any stock exchange.
SECTION 7.07. Compensation and Indemnity.
Holdings shall pay to the Trustee from time to time reasonable compensation
for its acceptance of this Indenture and the Collateral Documents and services
rendered by it hereunder and thereunder. The Trustee's compensation shall not be
limited by any law in regard to the law of compensation of a trustee of an
express trust. Holdings 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. Such expenses shall include the
reasonable compensation, disbursements and expenses of the Trustee's agents and
counsel.
Holdings shall indemnify the Trustee and its officers, directors,
employees, agents and affiliates against any and all losses, liabilities or
expenses (including reasonable attorneys' fees) incurred by it arising out of or
in connection with the acceptance or administration of its duties under or any
authorized or permitted activity under this Indenture and the Collateral
Documents, including the costs and expenses of enforcing this Indenture against
Holdings (including this Section 7.07) and defending itself against any claim
(whether asserted by Holdings 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 Holdings
promptly of any claim for which it may seek indemnity. Failure by the Trustee to
so notify Holdings shall not relieve Holdings of its obligations hereunder or
under the Collateral Documents. Holdings shall defend the claim and the Trustee
shall cooperate in the defense. The Trustee may have separate counsel and
Holdings shall pay the reasonable fees and expenses of such counsel. Holdings
need not pay for any settlement made without its consent, which consent shall
not be unreasonably withheld.
The obligations of Holdings under this Section 7.07 shall survive the
satisfaction and discharge of this Indenture and the termination of the
Collateral Documents.
To secure Holdings' payment obligations in this Section, the Trustee shall
have a Lien prior to the Notes on all money and property held or collected by
the Trustee, except money held in trust to pay principal, premium, if any, and
interest on particular Notes. Such Lien shall survive the satisfaction and
discharge of this Indenture and the termination of the Collateral Documents.
When the Trustee incurs expenses or renders services after an Event of
Default specified in Sections 6.01(1) or 6.01(2) 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.
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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.
The Trustee may resign in writing at any time and be discharged from the
trust hereby created by so notifying Holdings. The Holders of a majority in
principal amount of the then outstanding Notes may remove the Trustee by so
notifying the Trustee and Holdings in writing. Holdings 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 or public officer takes charge of the Trustee or its
property; or
(d) the Trustee becomes incapable of acting.
If the Trustee resigns or is removed or if a vacancy exists in the office
of Trustee for any reason, Holdings 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 Notes may appoint a
successor Trustee to replace the successor Trustee appointed by Holdings.
If a successor Trustee does not take office within 60 days after the
retiring Trustee resigns or is removed, the retiring Trustee, Holdings, or the
Holders of Notes of at least 10% in principal amount of the then outstanding
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 Note who has been
a Holder of a Note for at least six months, fails to comply with Section 7.10,
such Holder of a 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 Holdings. Thereupon, the resignation or removal
of the retiring Trustee shall become effective, and the successor Trustee shall
have all the rights, powers, trusts and duties of the retiring Trustee under
this Indenture. The successor Trustee shall mail a notice of its succession to
Holders of the Notes. The retiring Trustee shall promptly transfer all property
held by it as Trustee to the successor Trustee, provided 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, Holdings' obligations under Section 7.07 hereof shall continue for the
benefit of the retiring Trustee.
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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 entity, the
successor entity 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 an entity organized
and doing business under the laws of the United States of America or of any
state thereof or an entity permitted to act as trustee by the SEC that is
authorized under such laws to exercise corporate trust power, that is subject to
supervision or examination by federal or state authorities and that has a
combined capital and surplus of at least $50,000,000 as set forth in its most
recent published annual report of condition.
This Indenture shall always have a Trustee who satisfies the requirements
of TIAss. 310(a)(1), (2) and (5). The Trustee is subject to TIAss. 310(b).
SECTION 7.11. Preferential Collection of Claims Against Holdings.
The Trustee is subject to 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
DISCHARGE OF INDENTURE; LEGAL DEFEASANCE AND COVENANT DEFEASANCE
SECTION 8.01. Satisfaction and Discharge.
This Indenture will be discharged and will cease to be of further effect
(except as to surviving rights or registration of transfer or exchange of Notes)
as to all outstanding Notes when either:
(1) all Notes theretofore authenticated and delivered (except lost,
stolen or destroyed Notes which have been replaced or paid and Notes for
whose payment money has theretofore been deposited in trust or segregated
and held in trust by Holdings and thereafter repaid to Holdings or
discharged from such trust) have been delivered to the Trustee for
cancellation; or
(2) (a) all Notes not theretofore delivered to the Trustee for
cancellation have or will (upon the mailing of a notice or notices
deposited with the Trustee together with irrevocable instructions to mail
such notice or notices to holders of the Notes) become due and payable and
Holdings has irrevocably deposited or caused to be deposited with the
Trustee as trust funds in the trust for the purpose an amount of money
sufficient to pay and discharge the entire indebtedness on the Notes not
theretofore delivered to the Trustee for can-
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cellation, for principal, premium, if any, and accrued interest to the date
of such deposit; (b) Holdings has paid all sums payable by it under this
Indenture; and (c) Holdings has delivered irrevocable instructions to the
Trustee to apply the deposited money toward the payment of the Notes at
maturity or the redemption date, as the case may be.
In addition, Holdings must deliver an Officers' Certificate and an Opinion of
Counsel stating that all conditions precedent to satisfaction and discharge have
been complied with.
Notwithstanding the foregoing paragraphs, Holdings' obligations in Sections
2.05, 2.06, 2.07, 2.08, 4.01, 4.02, 7.07, 7.08, 8.07 and 8.08 shall survive
until the Notes are no longer outstanding. After the Notes are no longer
outstanding, the Company's obligations in Sections 7.07, 8.07 and 8.08 shall
survive.
After such delivery or irrevocable deposit the Trustee upon request shall
acknowledge in writing the discharge of the Company's obligations under the
Notes and this Indenture except for those surviving obligations specified above.
SECTION 8.02. Option to Effect Legal Defeasance or Covenant Defeasance.
Holdings 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 8.03 or 8.04 hereof be applied to all outstanding Notes upon
compliance with the conditions set forth below in this Article 8.
SECTION 8.03. Legal Defeasance and Discharge.
Upon Holdings' exercise under Section 8.02 hereof of the option applicable
to this Section 8.03, Holdings shall, subject to the satisfaction of the
conditions set forth in Section 8.05 hereof, be deemed to have been discharged
from its obligations with respect to all outstanding Notes on the date the
conditions set forth below are satisfied (hereinafter, "Legal Defeasance"). For
this purpose, Legal Defeasance means that Holdings shall be deemed to have paid
and discharged the entire Indebtedness represented by the outstanding Notes,
which shall thereafter be deemed to be "outstanding" only for the purposes of
Section 8.06 hereof and the other Sections of this Indenture referred to in (1)
and (2) below, and to have satisfied all its other obligations under such Notes
and this Indenture (and the Trustee, on demand of and at the expense of
Holdings, shall execute proper instruments acknowledging the same), except for
the following provisions which shall survive until otherwise terminated or
discharged hereunder: (1) the rights of Holders of outstanding Notes to receive
solely from the trust fund described in Section 8.05 hereof, and as more fully
set forth in such Section, payments in respect of the principal of, premium, if
any, and interest on such Notes when such payments are due, (2) Holdings'
obligations with respect to such Notes under Article 2 and Section 4.02 hereof,
(3) the rights, powers, trusts, duties and immunities of the Trustee hereunder
and Holdings' obligations in connection therewith and (4) this Article 8.
Subject to compliance with this Article 8, Holdings may exercise its option
under this Section 8.03 notwithstanding the prior exercise of its option under
Section 8.04 hereof.
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SECTION 8.04. Covenant Defeasance.
Upon Holdings' exercise under Section 8.02 hereof of the option applicable
to this Section 8.04, Holdings shall, subject to the satisfaction of the
conditions set forth in Section 8.05 hereof, be released from its obligations
under the covenants contained in Section 4.03, 4.04, 4.05, 4.06, 4.07, 4.08,
4.09, 4.10, 4.11, 4.12 or 4.13 hereof with respect to the outstanding Notes on
and after the date the conditions set forth below are satisfied (hereinafter,
"Covenant Defeasance"), and the 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 Notes shall not be deemed outstanding
for accounting purposes). For this purpose, Covenant Defeasance means that, with
respect to the outstanding Notes, Holdings 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 Notes shall be unaffected thereby. In addition, upon
Holdings' exercise under Section 8.02 hereof of the option applicable to this
Section 8.04 hereof, subject to the satisfaction of the conditions set forth in
Section 8.05 hereof, Sections 6.01(3) and 6.01(5) through 6.01(8) hereof shall
not constitute Events of Default.
SECTION 8.05. Conditions to Legal or Covenant Defeasance.
The following shall be the conditions to the application of either Section
8.03 or 8.04 hereof to the outstanding Notes:
In order to exercise either Legal Defeasance or Covenant Defeasance:
(1) Holdings must irrevocably deposit with the Trustee, in trust, for
the benefit of the Holders, cash in United States 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 (without reinvestment) the principal of, premium
and Liquidated Damages, if any, and interest on the outstanding Notes on
the stated date for payment thereof or on the applicable redemption date,
as the case may be, and Holdings must specify whether the Notes are being
defeased to maturity or to a particular redemption date;
(2) in the case of an election under Section 8.03 hereof, Holdings
shall have delivered to the Trustee an Opinion of Counsel in the United
States reasonably acceptable to the Trustee confirming that (a) Holdings
has received from, or there has been published by, the Internal Revenue
Service a ruling or (b) since the Issue Date, there has been a change in
the applicable federal income tax law, in either case to the effect that,
and based thereon such Opinion of Counsel shall confirm that, the Holders
of the outstanding 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
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and at the same times as would have been the case if such Legal Defeasance
had not occurred;
(3) in the case of an election under Section 8.04 hereof, Holdings
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 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;
(4) no Default or Event of Default shall have occurred and be
continuing on the date of such deposit (other than a Default or Event of
Default resulting from the incurrence of Indebtedness all or a portion of
the proceeds of which will be used to defease the Notes pursuant to this
Article 8 concurrently with such incurrence) or insofar as Sections 6.01(9)
or 6.01(10) hereof is concerned, at any time in the period ending on the
91st day after the date of deposit;
(5) such Legal Defeasance or Covenant Defeasance shall not result in a
breach or violation of, or constitute a default under, any material
agreement or instrument (other than this Indenture, the Notes and the
Registration Rights Agreement) to which Holdings or any of its Subsidiaries
is a party or by which Holdings or any of its Subsidiaries is bound;
(6) Holdings shall have delivered to the Trustee an Opinion of Counsel
to the effect that on 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;
(7) Holdings shall have delivered to the Trustee an Officers'
Certificate stating that the deposit was not made by Holdings with the
intent of preferring the Holders over any other creditors of Holdings or
with the intent of defeating, hindering, delaying or defrauding any other
creditors of Holdings; and
(8) Holdings shall have delivered to the Trustee an Officers'
Certificate and an Opinion of Counsel, each stating that all conditions
precedent provided for or relating to the Legal Defeasance or the Covenant
Defeasance have been complied with.
SECTION 8.06. Deposited Money and Government Securities To Be Held in Trust;
Other Miscellaneous Provisions.
Subject to Section 8.07 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 8.06, the
"Trustee") pursuant to Section 8.05 hereof in respect of the outstanding Notes
shall be held in trust and applied by the Trustee, in accordance with the
provisions of such Notes and this Indenture, to the payment, either directly or
through any Paying Agent (including Holdings acting as Paying Agent) as the
Trustee may determine, to the Holders of such Notes of all sums due and to
become due thereon in respect of principal, premium, if any, and in-
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terest, but such money need not be segregated from other funds except to the
extent required by law.
Holdings 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 8.05 hereof or the principal and
interest received in respect thereof.
Anything in this Article 8 to the contrary notwithstanding, the Trustee
shall deliver or pay to Holdings from time to time upon the request of Holdings
any money or non-callable Government Securities held by it as provided in
Section 8.05 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
8.05(1) hereof), are in excess of the amount thereof that would then be required
to be deposited to effect an equivalent Legal Defeasance or Covenant Defeasance.
SECTION 8.07. Repayment to Holdings.
Any money deposited with the Trustee or any Paying Agent, or then held by
Holdings, in trust for the payment of the principal of, premium, if any,
Liquidated Damages or interest on any Note and remaining unclaimed for two years
after such principal, and premium, if any, Liquidated Damages, if any, or
interest has become due and payable shall be paid to Holdings on its request or
(if then held by Holdings) shall be discharged from such trust; and the Holder
of such Note shall thereafter, as a creditor, look only to Holdings for payment
thereof, and all liability of the Trustee or such Paying Agent with respect to
such trust money, and all liability of Holdings as trustee thereof, shall
thereupon cease; provided, however, that the Trustee or such Paying Agent,
before being required to make any such repayment, may (but shall not be
obligated to) at the expense of Holdings 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 Holdings.
SECTION 8.08. Reinstatement.
If the Trustee or Paying Agent is unable to apply any United States dollars
or non-callable Government Securities in accordance with Section 8.03 or 8.04
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 Holdings' obligations under this Indenture and the Notes shall
be revived and reinstated as though no deposit had occurred pursuant to Section
8.03 or 8.04 hereof until such time as the Trustee or Paying Agent is permitted
to apply all such money in accordance with Section 8.03 or 8.04 hereof, as the
case may be; provided, however, that, if Holdings makes any payment of principal
of, premium, if any, or interest on any Note following the reinstatement of its
obligations, Holdings shall be subrogated to the rights of the Holders of such
Notes to receive such payment from the money held by the Trustee or Paying
Agent.
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ARTICLE 9
AMENDMENT, SUPPLEMENT AND WAIVER
SECTION 9.01. Without Consent of Holders of Notes.
Notwithstanding Section 9.02 of this Indenture, Holdings and the Trustee
may amend or supplement this Indenture or the Notes without the consent of any
Holder of a Note to:
(a) cure any ambiguity, defect or inconsistency;
(b) provide for uncertificated Notes in addition to or in place of
certificated Notes;
(c) provide for the assumption of Holdings' obligations to the Holders
of the Notes in the case of a merger or consolidation pursuant to Section
5.01 hereof or a sale of all or substantially all of Holdings' or any
Subsidiary's assets;
(d) make any change that would provide any additional rights or
benefits to the Holders of Notes or that does not adversely affect the
rights hereunder of any Holder of the Notes; or
(e) comply with requirements of the SEC in order to effect or maintain
the qualification of this Indenture under the TIA.
Upon the request of Holdings accompanied by a Board Resolution authorizing
the execution of any such amended or supplemental Indenture, and upon receipt by
the Trustee of the documents described in Section 7.02 hereof, the Trustee shall
join with Holdings 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 Notes.
Except as provided below in this Section 9.02, Holdings and the Trustee may
amend or supplement this Indenture (including Sections 4.03 and 4.04 hereof) and
the Notes may be amended or supplemented with the consent of the Holders of at
least a majority in aggregate principal amount of the Notes then outstanding
(including consents obtained in connection with a tender offer or exchange offer
for the 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, premium, if any, or interest on the Notes, except a
payment default resulting from an acceleration that has been rescinded) or
compliance with any provision of this Indenture or the Notes may be waived with
the consent of the Holders of a majority in principal amount of the then
outstanding Notes (including consents obtained in connection with a tender offer
or exchange offer for the Notes).
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Upon the request of Holdings 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 Notes as aforesaid, and upon receipt by
the Trustee of the documents described in Section 7.02 hereof, the Trustee shall
join with Holdings 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 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 becomes
effective, Holdings shall mail to the Holders of Notes affected thereby a notice
briefly describing the amendment, supplement or waiver. Any failure of Holdings
to mail such notice, or any defect therein, shall not, however, in any way
impair or affect the validity of any such amended or supplemental Indenture or
waiver. Subject to Sections 6.04 and 6.07 hereof, the Holders of a majority in
aggregate principal amount of the Notes then outstanding may waive compliance in
a particular instance by Holdings with any provision of this Indenture or the
Notes. However, without the consent of each Holder affected, an amendment or
waiver may not (with respect to any Notes held by a non-consenting Holder):
(1) reduce the principal amount of Notes whose Holders must consent to
an amendment, supplement or waiver of this Indenture, the Notes, the
Registration Rights Agreement or the Securities Pledge Agreement;
(2) reduce the Accreted Value or principal of or change the fixed
maturity of any Note or alter the provisions with respect to the redemption
of the Notes (other than the covenants described in Sections 4.03 and
4.04);
(3) reduce the rate of or change the time for payment of interest on
any Note or change or have the effect of changing the Accreted Value;
(4) waive a Default or Event of Default in the payment of principal of
or premium, if any, or interest or Liquidated Damages, if any, on the Notes
(except a rescission of acceleration of the Notes by the Holders of at
least a majority in aggregate principal amount of the Notes and a waiver of
the payment default that resulted from such acceleration);
(5) make any Note payable in money other than that stated in the
Notes;
(6) make any change in the provisions of this Indenture, the Notes or
the Securities Pledge Agreement relating to waivers of past Defaults or the
rights of Holders of Notes to receive payments of principal of or premium,
if any, or interest or Liquidated Damages, if any, on the Notes;
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(7) waive a redemption payment with respect to any Note (other than a
payment required by one of the covenants described in clause (2) above or
Section 3.07); or
(8) make any change in the foregoing amendment and waiver provisions.
SECTION 9.03. Compliance with Trust Indenture Act.
Every amendment or supplement to this Indenture or the Notes shall be set
forth in a 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 Note is a continuing consent by the Holder of a Note and every
subsequent Holder of a Note or portion of a Note that evidences the same debt as
the consenting Holder's Note, even if notation of the consent is not made on any
Note. However, any such Holder of a Note or subsequent Holder of a Note may
revoke the consent as to its 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 Notes.
The Trustee may (but shall not be obligated to) place an appropriate
notation about an amendment, supplement or waiver on any Note thereafter
authenticated. Holdings in exchange for all Notes may issue and the Trustee upon
receipt of an Authentication Order, shall authenticate new Notes that reflect
the amendment, supplement or waiver.
Failure to make the appropriate notation or issue a new 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 9 if the amendment or supplement does not adversely
affect the rights, duties, liabilities or immunities of the Trustee. Holdings
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 indemnity reasonably satisfactory to it and 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.
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ARTICLE 10
COLLATERAL
SECTION 10.01. Collateral Documents.
(a) In order to secure the due and punctual payment of the principal or
premium, if any, and interest and Liquidated Damages, if any, on the Notes (or,
if prior to July 15, 2003, the Accreted Value of all the Notes) when and as the
same shall be due and payable, whether on an Interest Payment Date, at maturity,
on any Asset Sale Purchase Date or Change of Control Purchase Date, or by
acceleration, redemption or otherwise, and interest on the overdue principal of
and (to the extent permitted by law) interest, if any, on the Notes and the
performance of all other obligations of Holdings and its Subsidiaries to the
Holders or the Trustee under this Indenture, the Notes and any other documents
contemplated hereby, as the case may be, Holdings and the Collateral Agent have
simultaneously with the execution of this Indenture entered into the Securities
Pledge Agreement to create the security interests and for related matters. The
Trustee, the Collateral Agent, Holdings and its Subsidiaries each hereby agree
that the Collateral Agent holds its interest in the Collateral in trust for its
benefit, for the benefit of the Trustee and for the benefit of the Holders and
the other Secured Parties pursuant to the terms of the Collateral Documents.
Each of Holdings and its Subsidiaries covenants and agrees that it will execute,
acknowledge and deliver to the Collateral Agent such further assignments,
transfers, assurances or other instruments and will do or cause to be done all
such acts and things as may be necessary or proper to assure and confirm to the
Collateral Agent its interest in the Collateral, or any part thereof, as from
time to time constituted, and the right, title and interest in and to the
Securities Pledge Agreement and any other Collateral Document so as to render
the same available for the security and benefit of this Indenture and of the
Notes.
(b) Each Holder, by accepting a Note, agrees to all the terms and
provisions of the Collateral Documents, including any additional Collateral
Documents described in paragraph (a) of this Section 10.01, as the same may be
amended or supplemented from time to time pursuant to the provisions of the
Collateral Documents (including such additional Collateral Documents) and this
Indenture.
SECTION 10.02. Recording, Registration and Opinions.
(a) Holdings and its Subsidiaries shall take or cause to be taken all
action required to perfect, maintain, preserve and protect the Lien on and
security interest in the Collateral granted by the Collateral Documents,
including without limitation, the filing of financing statements, continuation
statements and any instruments of further assurance, in such manner and in such
places as may be required by law fully to preserve and protect the rights of the
Holders, the Trustee and the Collateral Agent under this Indenture and the
Collateral Documents to all property comprising the Collateral. Holdings and its
Subsidiaries shall from time to time promptly pay all financing, continuation
statement and registration and/or filing fees, charges and taxes relating to
this Indenture and the Collateral Documents, any amendments thereto and any
other instruments of further assurance required hereunder or pursuant to the
Collateral Documents. Neither the Trustee nor the Col-
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lateral Agent shall have any obligation to, or shall be responsible for any
failure to, so register, file or record.
(b) Holdings shall furnish to the Trustee promptly, but in no event later
than 30 days after the execution and delivery of this Indenture, an Opinion of
Counsel required by TIA ss. 314(b)(1).
(c) The Company shall furnish to the Trustee and the Collateral Agent on
the anniversary of the Issue Date in each year, beginning with 2000, Opinions of
Counsel, dated as of such date, which complies with TIA ss. 314(b)(2), either
(i)(x) stating that, in the opinion of such counsel, such action has been taken
with respect to the recording, registrations, filings, re-recordings,
re-registrations and refilings of this Indenture and all supplemental
indentures, financing statements, continuation statements and other instruments
of further assurance as are necessary to maintain the perfected Liens of the
Collateral Documents under the UCC or the applicable law in those items of
Collateral that can be affected by filings, recordings or registrations and
reciting with respect to the Liens on and security interests in the Collateral
the details of such action or referring to prior Opinions of Counsel in which
such details are given, and (y) stating that, based on relevant laws as in
effect on the date of such Opinion of Counsel, all financing statements,
continuation statements and other documents have been executed and filed that
are necessary as of such date and during the succeeding 24 months fully to
maintain the perfection of the security interests of the Holders, the Trustee
and the Collateral Agent hereunder and under the Collateral Documents with
respect to the Collateral; provided that if there is a required filing of a
continuation statement within such 24 month period and such continuation
statement is not effective if filed at the time of the opinion, such opinion may
so state and in that case Holdings shall cause a continuation statement to be
timely filed so as to maintain such Liens and security interests and shall
provide a further Opinion of Counsel to the effect of this clause (i) upon the
filing of the relevant continuation statement; or (ii) stating that, in the
opinion of such counsel, no such action is necessary to maintain such Liens or
security interests.
SECTION 10.03. Release of Collateral.
Upon payment in full of all principal, premium, if any, interest and
Liquidated Damages, if any, on the Notes and of all Obligations for the payment
of money due and owing to the Trustee, the Collateral Agent or the Holders, or
upon compliance with the conditions precedent set forth in Article 8 for Legal
Defeasance or Covenant Defeasance, Holdings shall be entitled to obtain a full
release of all of the Collateral from the Liens of this Indenture and the Liens
of the Collateral Documents to the extent such Liens secure such obligations.
Upon delivery by Holdings to the Trustee and the Collateral Agent of an
Officers' Certificate and an Opinion of Counsel, each to the effect that such
conditions precedent have been complied with (and which may be the same
Officers' Certificate and Opinion of Counsel required by Article 8), together
with such documentation, if any, as may be required by the Trustee, the
Collateral Agent or the TIA (including, without limitation, TIA ss. 314(d))
prior to the release of such Collateral, the Trustee and the Collateral Agent
shall forthwith take all necessary action (at the request of and the expense of
Holdings) to release and reconvey to Holdings without recourse all of the
Collateral, and shall deliver such Collateral in its possession to Holdings,
including, without limitation, the execution and delivery of releases and
satisfactions wherever required.
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SECTION 10.04. Authorization of Actions To Be Taken by the Collateral Agent
Under the Collateral Documents.
Subject to the provisions of the Collateral Documents:
(a) the Collateral Agent may, in its sole discretion and without the
consent of the Holders, take all actions it deems necessary or appropriate
in order to (i) enforce any of the terms of the Collateral Documents and
(ii) collect and receive any and all amounts payable in respect of the
Obligations of Holdings hereunder and under the Collateral Documents; and
(b) the Collateral Agent shall have power to institute and to maintain
such suits and proceedings as it may deem expedient to prevent any
impairment of the Collateral by any act that may be unlawful or in
violation of the Collateral Documents or this Indenture, and such suits and
proceedings as the Collateral Agent may deem expedient to preserve or
protect its interests and the interests of the Trustee and the Holders in
the Collateral (including the power to institute and maintain suits or
proceedings to restrain the enforcement of or compliance with any
legislative or other governmental enactment, rule or order that may be
unconstitutional or otherwise invalid if the enforcement of, or compliance
with, such enactment, rule or order would impair the security interest
thereunder or be prejudicial to the interests of the Collateral Agent or of
the Holders or of the Trustee).
SECTION 10.05. Authorization of Receipt of Funds by the
Collateral Agent Under the Collateral Documents.
The Collateral Agent is authorized to receive any funds for the benefit of
Holders distributed under the Collateral Documents and to apply such funds as
provided in the Collateral Documents.
SECTION 10.06. Powers Exercisable by Receiver or Trustee.
In case the Collateral shall be in the possession of a receiver or trustee,
lawfully appointed, the powers conferred in this Article 10 upon Holdings with
respect to the release, sale or other disposition of such property may be
exercised by such receiver or trustee, and an instrument signed by such receiver
or trustee shall be deemed the equivalent of any similar instrument of Holdings
or of any officer or officers thereof required by the provisions of this Article
10.
SECTION 10.07. Purchaser Protected.
No purchaser or grantee of any property or rights purporting to be released
shall be bound to ascertain the authority of the Collateral Agent to execute the
release or to inquire as to the existence of any conditions herein prescribed
for the exercise of such authority.
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ARTICLE 11
APPLICATION OF TRUST MONIES
SECTION 11.01. Collateral Account.
On the date of this Indenture there shall be established and, at all times
hereafter until this Indenture shall have terminated, there shall be maintained
with the Collateral Agent the Collateral Account. The Collateral Account shall
be established and maintained by the Collateral Agent at its Corporate Trust
Office. All Trust Monies which are received by the Collateral Agent shall be
deposited in the Collateral Account and thereafter shall be held by and under
the sole dominion and control of the Collateral Agent for its benefit and for
the benefit of the Secured Parties as a part of the Collateral and, upon any
entry upon or sale or other disposition of the Collateral or any part thereof
pursuant to the Collateral Documents, said Trust Monies shall be applied in
accordance with Section 11 of the Securities Pledge Agreement; but prior to such
application, all or any part of the Trust Monies may be applied by the
Collateral Agent in accordance with the terms of this Article.
SECTION 11.02. Investment of Trust Monies.
So long as no Default or Event of Default shall have occurred and is
continuing, all or any part of any Trust Monies held by the Collateral Agent
shall from time to time be invested or reinvested by the Collateral Agent in any
Cash Equivalents pursuant to a Company Order, which shall specify the Cash
Equivalents in which such Trust Monies shall be invested and shall certify that
such investments constitute Cash Equivalents and the Trustee shall sell any such
Cash Equivalent only upon receipt of a Company Order specifying the particular
Cash Equivalent to be sold. Such Cash Equivalents shall be held by the
Collateral Agent as a part of the Collateral, subject to the same provisions
hereof as the cash used by it to purchase such Cash Equivalents.
The Trustee shall not be liable or responsible for any loss resulting from
such investments or sales except only for its own negligent action, its own
negligent failure to act or its own willful misconduct in complying with this
Section 11.02.
ARTICLE 12
MISCELLANEOUS
SECTION 12.01. 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.
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SECTION 12.02. Notices.
Any notice or communication by Holdings 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 Holdings:
Middle American Tissue Inc.
155 Engineers Road
Hauppauge, New York 11788
Attention: Chief Financial Officer
Telephone No.: (516) 435-9000
Telecopier No.: (516) 435-8980
with a copy to:
Mandel & Resnik P.C.
220 East 42nd Street
New York, New York 10017
Attention: Nicholas Kaiser, Esq.
Telephone No.: (212) 573-0093
Telecopier No.: (212) 573-0067
If to the Trustee or the Collateral Agent:
The Chase Manhattan Bank
450 West 33rd Street
15th Floor
New York, New York 10001
Attention: Capital Market Fiduciary Services
Telephone No.: (212) 946-3083
Telecopier No.: (212) 946-8161/8162
Holdings 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; when answered back, if telexed; when receipt acknowledged, if
telecopied; and the next Business Day after timely delivery to the courier, if
sent by overnight air courier guaranteeing next day delivery.
Any notice or communication to a Holder shall be mailed by first class
mail, certified or registered, return receipt requested, or by overnight air
courier guaranteeing next day delivery to its address shown on the register kept
by the Registrar. Any notice or communication shall also be so mailed to any
Person described in TIA ss. 313(c), to the extent required by the TIA. Fail-
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<PAGE>
ure 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 Holdings mails a notice or communication to Holders, it shall mail a
copy to the Trustee and each Agent at the same time.
SECTION 12.03. Communication by Holders of Notes with Other Holders of Notes.
Holders may communicate pursuant to TIA ss. 312(b) with other Holders with
respect to their rights under this Indenture or the Notes. Holdings, the
Trustee, the Registrar and anyone else shall have the protection of TIA ss.
312(c).
SECTION 12.04. Certificate and Opinion as to Conditions Precedent.
Upon any request or application by Holdings to the Trustee to take any
action under this Indenture, Holdings 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 13.05 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 13.05 hereof) stating that, in the opinion of such counsel, all
such conditions precedent and covenants have been satisfied.
SECTION 12.05. 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.
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<PAGE>
SECTION 12.06. 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 12.07. No Personal Liability of Directors, Officers, Employees and
Stockholders.
No past, present or future director, officer, employee, incorporator or
stockholder of Holdings or any of its Subsidiaries, as such, will have any
liability for any obligations of Holdings under the Notes, this Indenture, the
Registration Rights Agreement or the Securities Pledge Agreement or for any
claim based on, in respect of, or by reason of, such obligations or their
creation. Each Holder of Notes by accepting a Note waives and releases all such
liability. The waiver and release are part of the consideration for issuance of
the Notes. Such waiver may not be effective to waive liabilities under the
federal securities laws and it is the view of the SEC that such a waiver is
against public policy.
SECTION 12.08. Governing Law.
THE INTERNAL LAW OF THE STATE OF NEW YORK SHALL GOVERN AND BE USED TO
CONSTRUE THIS INDENTURE AND THE NOTES WITHOUT REGARD TO CONFLICTS OF LAW RULES.
SECTION 12.09. No Adverse Interpretation of Other Agreements.
This Indenture may not be used to interpret any other indenture, loan or
debt agreement of Holdings or its Subsidiaries or of any other Person. Any such
indenture, loan or debt agreement may not be used to interpret this Indenture.
SECTION 12.10. Successors.
All agreements of Holdings in this Indenture and the Notes shall bind its
successors. All agreements of the Trustee in this Indenture shall bind its
successors.
SECTION 12.11. Severability.
In case any provision in this Indenture or in the 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 12.12. 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.
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<PAGE>
SECTION 12.13. 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 pages]
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<PAGE>
SIGNATURES
Dated as of July 9, 1999 MIDDLE AMERICAN TISSUE INC.
By: /s/ Medhi Gabayzadeh
---------------------------
Name:
Title:
Attest:
/s/ Nourollah Elghanayan
- -----------------------------
Title: Chairman
Dated as of July 9, 1999 THE CHASE MANHATTAN BANK, as Trustee
By: /s/ Kathleen Perry
---------------------------
Name: Kathleen Perry
Title:Vice President
Attest:
/s/ John J. Mazzuca
- -----------------------------
Name: John J. Mazzuca
Title: Vice President
<PAGE>
Dated as of July 9, 1999 THE CHASE MANHATTAN BANK, as Collateral
Agent
By: /s/ Kathleen Perry
---------------------------
Name:
Title:
Attest:
/s/ John J. Mazzuca
- -----------------------------
Name: John J. Mazzuca
Title:Vice Presient
Face of Note
CUSIP No:
15% Series B Senior Secured Discount Notes due 2007
No. 1 $35,755,788
MIDDLE AMERICAN TISSUE INC.
promises to pay to Cede & Co. or registered assigns, the principal sum of Thirty
Five Million Seven Hundred Fifty Five Thousand Seven Hundred and Eighty Eight
Dollars on July 15, 2007.
Interest Payment Dates: January 15 and July 15
Record Dates: January 1 and July 1
Dated:
MIDDLE AMERICAN TISSUE INC.
By:
----------------------------------
Name:
Title:
By:
----------------------------------
Name:
Title:
(SEAL)
Certificate of Authentication:
This is one of the Global Notes referred to in the within-mentioned Indenture:
THE CHASE MANHATTAN BANK
By:
------------------------------
Authorized Signatory
Dated:
<PAGE>
A-3 [THIS GLOBAL NOTE IS HELD BY THE DEPOSITARY (AS DEFINED IN THE
INDENTURE GOVERNING THIS NOTE) 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 2.06 OF THIS 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.]
[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 HOLDINGS OR ITS AGENT FOR REGISTRATION OF TRANSFER, EXCHANGE OR PAYMENT, AND
ANY CERTIFICATE ISSUED IS REGISTERED IN THE NAME OF CEDE & CO. OR SUCH OTHER
NAME AS MAY BE REQUESTED BY AN AUTHORIZED REPRESENTATIVE OF DTC (AND ANY PAYMENT
IS MADE TO CEDE & CO. OR SUCH OTHER ENTITY AS MAY BE REQUESTED BY AN AUTHORIZED
REPRESENTATIVE OF DTC), ANY TRANSFER, PLEDGE OR OTHER USE HEREOF FOR VALUE OR
OTHERWISE BY OR TO ANY PERSON IS WRONGFUL INASMUCH AS THE REGISTERED OWNER
HEREOF, CEDE & CO., HAS AN INTEREST HEREIN.]1
FOR PURPOSES OF SECTIONS 1272, 1273 AND 1275 OF THE INTERNAL REVENUE CODE
OF 1986, AS AMENDED, AND THE RULES AND REGULATIONS THEREUNDER, THIS SECURITY IS
BEING ISSUED WITH ORIGINAL ISSUE DISCOUNT; FOR EACH $1,000 PRINCIPAL AMOUNT OF
THIS SECURITY, (1) THE ISSUE PRICE IS $447.48; (2) THE AMOUNT OF ORIGINAL ISSUE
DISCOUNT IS $1,152.52; (3) THE ISSUE DATE IS JULY 9, 1999; AND (4) THE YIELD TO
MATURITY (COMPOUNDED SEMI-ANNUALLY) IS 18.385%.
<PAGE>
(Back of Note)
15% Series B Senior Secured Discount Notes due 2007
Capitalized terms used herein shall have the meanings assigned to them in
the Indenture referred to below unless otherwise indicated.
1. Interest. Middle American Tissue Inc., a Delaware corporation
("Holdings"), promises to pay cash interest on the principal amount of this Note
at 15% per annum from July 9, 1999 until maturity and shall pay the Liquidated
Damages, if any, payable pursuant to Section 5 of the Registration Rights
Agreement referred to below. Holdings will pay interest and Liquidated Damages,
if any, semi-annually on January 15 and July 15 of each year commencing on
January 15, 2004, or if any such day is not a Business Day, on the next
succeeding Business Day (each an "Interest Payment Date"). Interest on the Notes
will accrue from the most recent date to which interest has been paid or, if no
interest has been paid, from July 15, 2003; provided that if there is no
existing Default in the payment of interest, and if this Note is authenticated
between a record date referred to on the face hereof and the next succeeding
Interest Payment Date, interest shall accrue from such next succeeding Interest
Payment Date. Interest on this Note shall accrete from the date of issuance
until July 15, 2003 at the rate of 15% per annum, compounded semi-annually.
Holdings shall pay interest (including Accrued Bankruptcy 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 2% per annum in excess of the rate
then in effect; it shall pay interest (including Accrued Bankruptcy 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. Holdings will pay interest on the Notes (except
defaulted interest) and Liquidated Damages to the Persons who are registered
Holders of Notes at the close of business on the January 1 or July 1 next
preceding the Interest Payment Date, even if such Notes are cancelled after such
record date and on or before such Interest Payment Date, except as provided in
Section 2.12 of the Indenture (as defined below) with respect to defaulted
interest. The Notes will be payable as to principal, premium, interest and
Liquidated Damages at the office or agency of Holdings maintained for such
purpose within or without the City and State of New York, or, at the option of
Holdings, payment of interest and Liquidated Damages 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 and Liquidated
Damages on all Global Notes and all other Notes the Holders of more than $1,000
in aggregate principal amount of Notes which shall have provided wire transfer
instructions to Holdings 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 Chase Manhattan Bank, the
Trustee under the Indenture, will act as Paying Agent and Registrar. Holdings
may change any Paying Agent or Registrar without notice to any Holder. Holdings
or any of its Subsidiaries may act in any such capacity.
4. Indenture. Holdings issued the Notes under an Indenture dated as of July
9, 1999 ("Indenture") between Holdings and the Trustee. The terms of the 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 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 Note conflicts with the express provisions of the Indenture,
the provisions of the Indenture shall govern and be controlling. The Notes are
secured obligations of Holdings limited to $35,755,788 in aggregate face amount.
5. Optional Redemption. Holdings may redeem the Notes as follows:
(a) At any time on or after the first anniversary of the Issue
Date and on or prior to the second anniversary of the Issue Date, in
whole but not in part, upon not less than 30 nor more than 60 days'
notice, at the Year Two Redemption Price. The "Year Two Redemption
Price" shall equal 105% of Accreted Value as of the date of
redemption, plus Liquidated Damages, if any, thereon to the date of
redemption.
(b) At any time on or after July 15, 2003, in whole or in part,
upon not less than 30 nor more than 60 days' notice, at the redemption
prices (expressed as percentages of Accreted Value) set forth below
plus accrued and unpaid interest and Liquidated Damages, if any,
thereon to the applicable redemption date, if redeemed after July 15
of each of the years indicated below:
Date Percentage
---- ----------
2003................................................ 107.5%
2004................................................ 105.0%
2005................................................ 102.5%
2006 and thereafter................................. 100.000%
In addition, on or prior to July 15, 2002, Holdings may, at its option on
any one or more occasions, redeem up to 35% of the aggregate principal amount of
Notes originally issued under this Indenture, with the proceeds of one or more
Equity Offerings, at a redemption price equal to 115% of the Accreted Value
thereof, plus Liquidated Damages, if any, thereon to the date of redemption;
provided that at least 65% of the aggregate principal amount of Notes originally
issued under this Indenture would remain outstanding immediately after giving
effect to any such redemption.
6. Mandatory Redemption. Upon receipt of a notice from DLJMB pursuant to
Section 4.3(a) of the Stockholders Agreement stating that DLJMB is exercising
its option thereunder. Unless DLJMB withdraws such option in accordance with the
terms of the Stockholders Agreement, Holdings shall be required to redeem all,
but not less than all, of the Notes at the Year Two Redemption Price. Any such
redemption shall be effected no later than October 9, 2002.
7. Repurchase Offers.
(a) Change of Control Offer. Upon the occurrence of a Change of
Control, Holdings shall offer to repurchase all or any part (equal to
$1,000 or an integral multiple thereof) of such Holder's Notes
pursuant to the offer described below (the "Change of Control Offer")
at an offer price in cash equal to 101% of Accreted Value (or, if
after July 15, 1999, 101% of the aggregate principal amount thereof
plus accrued and unpaid interest thereon) and, in each case,
Liquidated Damages, if any, to the date of purchase (the "Change of
Control Payment"). Within 30 days following any Change of Control,
Holdings shall mail a notice to each Holder describing the transaction
or transactions that constitute the Change of Control and offering to
repurchase Notes pursuant to the procedures required by the Indenture
and described in such notice. Holdings 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
Notes as a result of a Change of Control.
(b) Asset Sale Offer. Holdings will not engage in any Asset
Sales. Holdings will not permit any of its Subsidiaries to engage in
an Asset Sale unless:
(1) the Subsidiary receives consideration at the time of such Asset
Sale at least equal to the fair market value (evidenced in each case by a
resolution of the board of directors of such entity set forth in an
Officers' Certificate delivered to the Trustee) of the assets or Equity
Interests sold or otherwise disposed of in such Asset Sale;
(2) at least 80% of the consideration therefor received by such
Subsidiary is in the form of cash or Cash Equivalents; provided that each
of the following shall be deemed to be cash for purposes of this provision:
(a) the amount of any liabilities (as shown on such Subsidiary's
most recent balance sheet or in the notes thereto, excluding
contingent liabilities and trade payables) of any Subsidiary (other
than liabilities that are by their terms subordinated to, or equal in
right of payment with, the Notes) that are assumed by the transferee
of any such assets; and
(b) any securities, notes or other obligations received by any
Subsidiary from such transferee that are converted by such Subsidiary
into cash within 60 days; or
(3) such Subsidiary applies the Net Proceeds as provided in the
following paragraph.
The applicable Subsidiary may, at its option, apply any such Net Proceeds
within 360 days of the related Asset Sale as follows:
(a) to the acquisition of another business or the acquisition of
other long-term assets, in each case, in the same or a similar,
complementary, ancillary or related line of business as any of
Holdings' Subsidiaries was engaged in on the Issue Date or any
reasonable extensions or expansions thereof ("Replacement Assets"); or
(b) to the repayment of Indebtedness of any Subsidiary of
Holdings.
If such Subsidiary does not use any portion of the Net Proceeds as
described above within such 360-day period and if such unused portion of the Net
Proceeds is not required to be held as collateral under the Company's Indenture,
such unused portion of the Net Proceeds period shall constitute "Excess
Proceeds" subject to disposition as provided below. When the aggregate amount of
Excess Proceeds exceeds $10.0 million, Holdings will be required to cause such
Subsidiary make an offer to all Holders of Notes (an "Asset Sale Offer") to
purchase the maximum principal amount of Notes that may be purchased out of the
aggregate amount of Excess Proceeds. The offer price of any Asset Sale Offer
will be equal to 100% of Accreted Value, plus accrued and unpaid interest, if
any, and Liquidated Damages, if any, thereon to the date of purchase, and will
be payable in cash in accordance with the procedures set forth in the Indenture.
To the extent that the aggregate amount of Notes tendered pursuant to an Asset
Sale Offer is less than the Excess Proceeds, remaining Excess Proceeds shall be
released to the Subsidiary and may be used for general corporate purposes. Upon
completion of such Asset Sale Offer, the amount of Excess Proceeds shall be
reset at zero.
8. Denominations, Transfer, Exchange. The Notes are in registered form
without coupons. The transfer of Notes may be registered and 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 Holdings may require a Holder to pay any taxes and fees
required by law or permitted by the Indenture. Holdings need not exchange or
register the transfer of any Note or portion of a Note selected for redemption,
except for the unredeemed portion of any Note being redeemed in part. Also, it
need not exchange or register the transfer of any Notes for a period of 15 days
before a selection of Notes to be redeemed or during the period between a record
date and the corresponding Interest Payment Date.
9. Persons Deemed Owners. The registered Holder of a Note may be treated as
its owner for all purposes.
10. Amendment, Supplement and Waiver. Subject to certain exceptions, the
Indenture or the Notes may be amended or supplemented with the consent of the
Holders of at least a majority in principal amount of the then outstanding
Notes, and any existing Default or compliance with any provision of the
Indenture or the Notes may be waived with the consent of the Holders of a
majority in principal amount of the then outstanding Notes. Without the consent
of any Holder of a Note, the Indenture or the Notes may be amended or
supplemented to cure any ambiguity, defect or inconsistency, to provide for
uncertificated Notes in addition to or in place of certificated Notes, to
provide for the assumption of the Company's obligations to Holders of the Notes
in case of a merger or consolidation, to make any change that would provide any
additional rights or benefits to the Holders of the Notes or that does not
adversely affect the legal rights under this Indenture of any such Holder, or to
comply with the requirements of the SEC in order to effect or maintain the
qualification of the Indenture under the TIA.
Notwithstanding the foregoing, Collateral may be released with the consent
of the Holders of at least 75% in aggregate principal amount of the then
outstanding Notes in addition to releases of Collateral expressly permitted by
the Collateral Documents.
11. Defaults and Remedies. Each of the following constitutes an Event of
Default under the Indenture:
(1) default for 30 days in the payment when due of interest on, or
Liquidated Damages, if any, with respect to, the Notes;
(2) default in payment when due of the Accreted Value or the principal
of or premium, if any, on the Notes;
(3) failure by Holdings or any of its Subsidiaries to comply with the
provisions described in Section 4.03, 4.04, 4.05 or 4.06 of the Indenture;
(4) continuance of a default in the performance, or breach, of any
other covenant or warranty of Holdings in the Indenture for a period of 30
days after there has been given to Holdings by the Trustee, or to Holdings
and the Trustee by the Holders of at least 25% in principal amount of the
Outstanding Notes, a written notice specifying such default or breach and
requiring it to be remedied and stating that such notice is a "Notice of
Default" hereunder;
(5) default under any mortgage, security agreement, indenture or
instrument under which there may be issued or by which there may be secured
or evidenced any Indebtedness for money borrowed by Holdings or any of its
Significant Subsidiaries (or the payment of which is guaranteed by Holdings
or any of its Subsidiaries) whether such Indebtedness or guarantee now
exists, or is created after the Issue Date, which default:
(a) is caused by a failure to pay principal of or premium, if
any, or interest on such Indebtedness, after the expiration of any
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 $10.0 million or
more;
(6) failure by Holdings or any of its Significant Subsidiaries to pay
final judgments aggregating in excess of $10.0 million, which judgments are
not paid, discharged or stayed for a period of 60 days;
(7) except as permitted by the Indenture, default by Holdings in the
performance of the Securities Pledge Agreement which adversely affects the
enforceability or the validity of the Trustee's Lien on the Collateral or
which adversely affects the condition or value of the Collateral, taken as
a whole, in any material respect, repudiation or disaffirmation by Holdings
of its obligations under the Securities Pledge Agreement or the
determination in a judicial proceeding that the Securities Pledge Agreement
is unenforceable or invalid against Holdings for any reason; and
(8) certain events of bankruptcy or insolvency with respect to
Holdings or any of its Significant Subsidiaries or any group of
Subsidiaries that, taken together, would constitute a Significant
Subsidiary.
If any Event of Default occurs and is continuing, the Trustee or the
Holders of at least 25% in principal amount of the then outstanding Notes may
declare all the Notes to be due and payable immediately. Notwithstanding the
foregoing, in the case of an Event of Default arising from certain events of
bankruptcy or insolvency with respect to Holdings, any Significant Subsidiary or
any group of Subsidiaries that, taken together, would constitute a Significant
Subsidiary, all outstanding Notes will become due and payable without further
action or notice. In addition to acceleration of the Notes, if an Event of
Default occurs and is continuing, the Trustee will have the right to exercise
remedies with respect to the Collateral as are available under the Indenture and
the Securities Pledge Agreement and at law. Holders of the Notes may not enforce
the Indenture or the Notes or exercise remedies with respect to the Collateral
except as expressly provided in the Indenture. Subject to certain limitations,
Holders of a majority in principal amount of the then outstanding Notes may
direct the Trustee in its exercise of any trust or power. The Trustee may
withhold from Holders of the Notes notice of any continuing Default or Event of
Default (except a Default or Event 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 Notes then
outstanding by notice to the Trustee may on behalf of the Holders of all of the
Notes waive any existing Default or Event of Default and its consequences under
the Indenture, the Notes and the Securities Pledge Agreement, except a
continuing Default or Event of Default in the payment of interest on, or the
principal of, the Notes.
Holdings is required to deliver to the Trustee annually a statement
regarding compliance with the Indenture, and Holdings 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.
12. Ranking and Security. The Notes will be senior obligations of Holdings
and will rank equal in right of payment with all existing and future
unsubordinated Indebtedness of Holdings and senior in right of payment to any
Indebtedness of Holdings that is subordinated to the Notes.
13. Trustee Dealings with Holdings. The Trustee, in its individual or any
other capacity, may make loans to, accept deposits from, and perform services
for Holdings or its Affiliates, and may otherwise deal with Holdings or its
Affiliates, as if it were not the Trustee.
14. No Recourse Against Others. A director, officer, employee, incorporator
or stockholder, of Holdings, as such, shall not have any liability for any
obligations of Holdings under the Notes or the Indenture or for any claim based
on, in respect of, or by reason of, such obligations or their creation. Each
Holder by accepting a Note waives and releases all such liability. The waiver
and release are part of the consideration for the issuance of the Notes.
15. Authentication. This Note shall not be valid until authenticated by the
manual signature of the Trustee or an authenticating agent.
16. Abbreviations. Customary abbreviations may be used in the name of a
Holder or an assignee, such as: TEN COM (= tenants in common), TEN ENT (=
tenants by the entireties), JT TEN (= joint tenants with right of survivorship
and not as tenants in common), CUST (= Custodian), and U/G/M/A (= Uniform Gifts
to Minors Act).
17. Additional Rights of Holders of Transfer Restricted Notes. In addition
to the rights provided to Holders of Notes under the Indenture, Holders of
Transferred Restricted Notes shall have all the rights set forth in the
Registration Rights Agreement dated as of the date of the Indenture, between
Holdings and the Initial Purchasers (the "Registration Rights Agreement").
18. CUSIP Numbers. Pursuant to a recommendation promulgated by the
Committee on Uniform Security Identification Procedures, Holdings has caused
CUSIP numbers to be printed on the 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 Notes or as
contained in any notice of redemption and reliance may be placed only on the
other identification numbers placed thereon.
Holdings will furnish to any Holder upon written request and without charge
a copy of the Indenture, the Securities Pledge Agreement and/or the Registration
Rights Agreement. Requests may be made to:
Middle American Tissue Inc.
135 Engineers Road
Hauppauge, New York 11788
Attention: Chief Financial Officer
Telephone No.: (516) 435-9000
<PAGE>
Assignment Form
To assign this Note, fill in the form below: (I) or (we) assign and transfer
this Note to
- ------------------------------------------------------------------------------
(Insert assignee's soc. sec. or tax I.D. no.)
- ------------------------------------------------------------------------------
- ------------------------------------------------------------------------------
- ------------------------------------------------------------------------------
- ------------------------------------------------------------------------------
(Print or type assignee's name, address and zip code)
and irrevocably
appoint_____________________________________________________________ to transfer
this Note on the books of Holdings. The agent may substitute another to act for
him.
Date:______________________
Your Signature:_____________________________________________________________
(Sign exactly as your name appears on the face of this Note)
Signature Guarantee.
15% Series A Senior Secured Discount Notes Due 2007 and Warrants
of MIDDLE AMERICAN TISSUE INC.
PURCHASE AGREEMENT
July 9, 1999
To the Initial Purchasers
named on Schedule 1 hereto
Dear Ladies and Gentlemen:
Middle American Tissue Inc., a Delaware corporation ("Holdings"), proposes
to issue and sell to the initial purchasers named on Schedule 1 hereto
(together, the "Initial Purchasers") $35,755,788 aggregate principal amount of
its 15% Series A Senior Secured Discount Notes due 2007 (the "Series A Notes")
and 24 warrants (the "Warrants," and together with the Series A Notes, the
"Securities") to purchase at an exercise price of $0.01, shares of common stock,
par value $0.01 per share, of Holdings (the "Holdings Common Stock")
representing an aggregate of twelve percent (12%) of the Holdings Common Stock
outstanding on a fully diluted basis as of the date hereof, subject to the terms
and conditions set forth herein. The Holdings Common Stock issuable upon
exercise of the Warrants is referred to herein as the "Warrant Shares." The
Series A Notes are to be issued pursuant to the provisions of an indenture (the
"Indenture"), to be dated as of the Closing Date (as defined), among Holdings
and The Chase Manhattan Bank, as trustee (the "Trustee"). The Warrants are to be
issued in the form contained in the Warrant Agreement (the "Warrant Agreement")
attached hereto as Exhibit A and will be exercisable for Holdings Common Stock
having the rights, restrictions, privileges and preferences set forth in the
Certificate of Incorporation of Holdings in the form of Exhibit B attached
hereto (the "Certificate of Incorporation"). The Warrants will have the benefit
of the registration rights set forth in the Stockholders Agreement, dated as of
July 9, 1999 by and among Holdings and the other signatories thereto (the
"Stockholders Agreement") attached hereto as Exhibit C. The Series A Notes and
the Series B Notes (as defined) issuable in exchange therefor are collectively
referred to herein as the "Notes." The term "Designated Subsidiaries" as used
herein refers to each of the entities listed on Schedule 2 hereto. Capitalized
<PAGE>
terms used but not defined herein shall have the meanings given to such terms in
the Indenture.
1. Offering Memorandum. The Series A Notes will be offered and sold to the
Initial Purchasers pursuant to one or more exemptions from the registration
requirements under the Securities Act of 1933, as amended (the "Act"). American
Tissue Inc. (the "Company") and the other Designated Subsidiaries have prepared
a preliminary offering memorandum, dated June 8, 1999 (the "Preliminary Offering
Memorandum"), and a final offering memorandum, dated July 9, 1999 (the "Offering
Memorandum"), relating to the $165,000,000 12 1/2 % Series A Senior Secured
Notes Due 2006 ("Series A Company Notes" and together with Series B Company
Notes (as defined), the "Company Notes") and the related subsidiary guarantees.
Upon original issuance thereof, and until such time as the same is no
longer required pursuant to the Indenture, the Securities (and all securities
issued in exchange therefor, in substitution thereof or upon conversion thereof)
shall bear the following legend:
"THIS SECURITY (OR ITS PREDECESSOR) HAS NOT BEEN REGISTERED UNDER THE U.S.
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 SECOND SENTENCE HEREOF. BY ITS
ACQUISITION HEREOF OR OF A BENEFICIAL INTEREST HEREIN, THE HOLDER (1)
REPRESENTS THAT (A) IT IS A 'QUALIFIED INSTITUTIONAL BUYER' (AS DEFINED IN
RULE 144A UNDER THE SECURITIES ACT) (A 'QIB'), OR (B) IT IS ACQUIRING 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) UNDER THE SECURITIES ACT), (2)
AGREES THAT IT WILL NOT, WITHIN THE TIME PERIOD REFERRED TO UNDER RULE
144(k) (TAKING INTO ACCOUNT THE PROVISIONS OF RULE 144(d) UNDER THE
SECURITIES ACT, IF APPLICABLE) UNDER THE SECURITIES ACT AS IN EFFECT ON THE
DATE OF THE TRANSFER OF THIS SECURITY, RESELL OR OTHERWISE TRANSFER THIS
NOTE, EXCEPT (A) TO HOLDINGS OR ANY OF ITS SUBSIDIARIES, (B) TO A PERSON
WHO 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 OFF-
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<PAGE>
SHORE 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 INSTITUTIONAL 'ACCREDITED INVESTOR' (AS
DEFINED IN RULE 501(a)(1), (2), (3) OR (7) OF REGULATION D UNDER THE
SECURITIES ACT) THAT, PRIOR TO SUCH TRANSFER, FURNISHES THE TRUSTEE A
SIGNED LETTER CONTAINING CERTAIN REPRESENTATIONS AND AGREEMENTS RELATING TO
THE TRANSFER OF THIS SECURITY (THE FORM OF WHICH 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 HOLDINGS THAT SUCH TRANSFER IS IN COMPLIANCE WITH THE SECURITIES ACT,
(F) IN ACCORDANCE WITH ANOTHER EXEMPTION FROM THE REGISTRATION REQUIREMENTS
OF THE SECURITIES ACT (AND BASED UPON AN OPINION OF COUNSEL ACCEPTABLE TO
HOLDINGS) 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 (3) 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 NOTE IN VIOLATION OF THE FOREGOING."
2. Agreements to Sell and Purchase. On the basis of the representations,
warranties and covenants contained in this Agreement, and subject to the terms
and conditions contained herein, Holdings agrees to issue and sell to each
Initial Purchaser, and each Initial Purchaser agrees to purchase from Holdings,
the Securities set forth opposite the name of such Initial Purchaser on Schedule
1 hereto at the purchase price set forth opposite such name equal to $447.48 for
each $1,000 principal amount of Series A Notes and $166,666.67 for each Warrant.
Holdings and the Initial Purchasers agree to use an aggregate purchase price of
$16 million for the Notes and $4 million for the Warrants in determining issue
prices for U.S. federal income tax purposes.
3
<PAGE>
3. Terms of Offering. The Initial Purchasers have advised Holdings that the
Initial Purchasers may make offers (the "Exempt Resales") of the Securities
purchased hereunder, solely (i) to persons whom the Initial Purchasers
reasonably believe to be "qualified institutional buyers" as defined in Rule
144A under the Act ("QIBs"), (ii) to persons permitted to purchase the Series A
Notes in offshore transactions in reliance upon Regulation S under the Act
(each, a "Regulation S Purchaser") and (iii) to a limited number of
institutional "accredited investors" as defined in Rule 501(a)(1), (2), (3) or
(7) ("Accredited Investors") (such persons specified in clauses (i), (ii) and
(iii) being referred to herein as the "Eligible Purchasers").
Holders (including subsequent transferees) of the Series A Notes will have
the registration rights set forth in the registration rights agreement (the
"Registration Rights Agreement"), to be dated the Closing Date, in substantially
the form of Exhibit D hereto, for so long as such Series A Notes constitute
"Transfer Restricted Securities" (as defined in the Registration Rights
Agreement). Pursuant to the Registration Rights Agreement, Holdings will agree
to file with the Securities and Exchange Commission (the "Commission") under the
circumstances set forth therein, (i) a registration statement under the Act (the
"Exchange Offer Registration Statement") relating to Holdings' 15% Series B
Senior Discount Notes Due 2007 (the "Series B Notes"), to be offered in exchange
for the Series A Notes (such offer to exchange being referred to as the
"Exchange Offer") and (ii) a shelf registration statement pursuant to Rule 415
under the Act (the "Shelf Registration Statement" and, together with the
Exchange Offer Registration Statement, the "Registration Statements") relating
to the resale by certain holders of the Series A Notes and to use its
commercially reasonable best efforts to cause such Registration Statements to be
declared and remain effective and usable for the periods specified in the
Registration Rights Agreement and to consummate the Exchange Offer.
The Securities are being offered and sold by Holdings in part to finance
the transactions contemplated by that certain Asset Purchase Agreement, dated as
of March 24, 1999 (the "Asset Purchase Agreement"), by and among Crown Paper
Co., Crown Vantage New Hampshire Electric, Inc. and Berlin Mills Railway, Inc.,
as sellers (collectively, "Crown"), Pulp & Paper of America LLC ("PPA") and the
Company, pursuant to which PPA and/or its designees will, upon the terms and
subject to the conditions set forth therein, acquire certain assets of Crown,
including, without limitation, the Burgess Pulp Mill in Berlin, New Hampshire
and the Cascade Paper Mill in Gorham, New Hampshire (together, the
"Berlin-Gorham Mills"). In connection with these transactions, the Company
entered into a Purchase Agreement ("Company Notes Purchase Agreement") dated as
of July 1, 1999 among the Company, the other Designated Subsidiaries and
Donaldson, Lufkin & Jenrette Securities Corporation ("Company Notes Purchaser")
and will enter into on the date hereof (a) an indenture (the "Company Notes
Indenture") pursuant to which the Series A Company Notes will be issued, (b) a
registration rights agreement (the "Company
4
<PAGE>
Notes Registration Rights Agreement") providing certain registration rights to
the holders of Series A Company Notes, (c) the Collateral Documents (as defined
in the Company Notes Indenture) pursuant to which the Company and the other
Designated Subsidiaries have agreed, among other things, to grant (i) a first
priority security interest in their respective property, plant and equipment as
set forth in the Collateral Documents and (ii) a second priority security
interest in their respective property, accounts receivable and inventory as set
forth in the Collateral Documents, in the case of each of clauses (i) and (ii)
subject to certain exceptions and otherwise in accordance with the terms of the
Company Notes Indenture and the Collateral Documents, and (d) a Revolving Credit
Facility (as defined in the Company Indenture).
The Initial Purchasers and their direct and indirect transferees of the
Securities will also be entitled to the benefits of the Securities Pledge
Agreement dated as of the Closing Date made by Holdings in favor of the Initial
Purchasers (the "Securities Pledge Agreement") pursuant to which Holdings has
agreed to grant to the Trustee a first priority security interest in all the
Company's capital stock to secure Holdings' obligations under the Indenture and
certain obligations under the Stockholders Agreement.
This Agreement, the Indenture, the Notes, the Warrants, the Warrant Shares,
the Warrant Agreement, the Registration Rights Agreement, the Securities Pledge
Agreement, the Stockholders Agreement, the Company Notes Purchase Agreement, the
Company Notes Indenture, the Company Notes, the Company Notes Registration
Rights Agreement, the Subsidiary Guarantees (as defined in the Company Notes
Purchase Agreement) and the Collateral Documents are hereinafter sometimes
referred to collectively as the "Operative Documents."
4. Delivery and Payment.
(a) Delivery of, and payment of the Purchase Price for, the Series A Notes
and the Warrants shall be made at the offices of Cahill Gordon & Reindel at 80
Pine Street, New York, New York 10005, or such other location as may be mutually
acceptable to the parties hereto. Such delivery and payment shall be made at
9:00 a.m. New York City time, on July 9, 1999 or at such other time as shall be
agreed upon by the Initial Purchasers and Holdings. The time and date of such
delivery and the payment are herein called the "Closing Date."
(b) One or more of the Series A Notes in definitive global form, registered
in the name of Cede & Co., as nominee of The Depository Trust Company ("DTC"),
having an aggregate principal amount corresponding to the aggregate principal
amount of the Series A Notes (collectively, the "Global Note") and one or more
certificates representing the Warrants shall be delivered by Holdings to the
Initial Purchasers (or as the Initial Purchasers direct) in each case with any
transfer taxes thereon duly paid by Holdings
5
<PAGE>
against payment by the Initial Purchasers of the aggregate purchase price
therefor by wire transfer in immediately available funds to the order of
Holdings. The Global Note shall be made available to the Initial Purchasers for
inspection not later than 9:30 a.m., New York City time, on the business day
immediately preceding the Closing Date.
5. Agreements of Holdings. Holdings hereby agrees with the Initial
Purchasers as follows:
(a) To advise the Initial Purchasers promptly and, if requested by the
Initial Purchasers, confirm such advice in writing, (i) of the issuance by
any state securities commission of any stop order suspending the
qualification or exemption from qualification of the Securities for
offering or sale in any jurisdiction designated by the Initial Purchasers
pursuant to Section 5(e) hereof, or the initiation of any proceeding by any
state securities commission or any other federal or state regulatory
authority for such purpose and (ii) of the happening of any event during
the period referred to in Section 5(c) below that makes any statement of a
material fact made in the Preliminary Offering Memorandum or the Offering
Memorandum untrue or that requires any additions to or changes in the
Preliminary Offering Memorandum or the Offering Memorandum in order to make
the statements therein not misleading. Holdings shall use its commercially
reasonable best efforts to prevent the issuance of any stop order or order
suspending the qualification or exemption of the Securities under any state
securities or Blue Sky laws and, if at any time any state securities
commission or other federal or state regulatory authority shall issue an
order suspending the qualification or exemption of the Securities under any
state securities or Blue Sky laws, Holdings shall use its commercially
reasonable best efforts to obtain the withdrawal or lifting of such order
at the earliest possible time.
(b) To furnish the Initial Purchasers and those persons identified by
the Initial Purchasers to Holdings as many copies of the Preliminary
Offering Memorandum and the Offering Memorandum, and any amendments or
supplements thereto, as the Initial Purchasers may reasonably request.
Subject to the Initial Purchasers' compliance with its representations and
warranties and agreements set forth in Section 7 hereof, Holdings consents
to the use of the Preliminary Offering Memorandum and the Offering
Memorandum, and any amendments and supplements thereto required pursuant
hereto, by the Initial Purchasers in connection with Exempt Resales.
(c) During such period as in the opinion of counsel for the Initial
Purchasers an Offering Memorandum is required by law to be delivered in
connection with Exempt Resales by the Initial Purchasers, (i) not to make
any amendment or supplement to the Offering Memorandum which the Initial
Purchasers shall not pre-
6
<PAGE>
viously have been advised of and shall have reasonably objected to after
being so advised (except to the extent any such amendment or supplement is
necessary, in the judgment of counsel to Holdings, in order to make the
statements in the Offering Memorandum not misleading) and (ii) to prepare
promptly upon the Initial Purchasers' reasonable request, any amendment or
supplement to the Offering Memorandum which may be necessary or advisable
in connection with such Exempt Resales (except to the extent any such
amendment or supplement requested would, in the judgment of counsel to
Holdings, render the statements made in the Offering Memorandum, as
proposed to be amended or supplemented, misleading).
(d) If, during the period referred to in Section 5(c) above, any event
shall occur or condition shall exist as a result of which, in the opinion
of counsel to the Initial Purchasers, it becomes necessary to amend or
supplement the Offering Memorandum in order to make the statements therein,
in the light of the circumstances when such Offering Memorandum is
delivered to an Eligible Purchaser, not misleading, or if, in the opinion
of counsel to the Initial Purchasers, it is necessary to amend or
supplement the Offering Memorandum to comply with any applicable law,
forthwith to prepare an appropriate amendment or supplement to such
Offering Memorandum so that the statements therein, as so amended or
supplemented, will not, in the light of the circumstances when it is so
delivered, be misleading, or so that such Offering Memorandum will comply
with applicable law, and to furnish to the Initial Purchasers and such
other persons as the Initial Purchasers may designate such number of copies
thereof as the Initial Purchasers may reasonably request.
(e) Prior to the sale of all Securities pursuant to Exempt Resales as
contemplated hereby, to cooperate with the Initial Purchasers and counsel
to the Initial Purchasers in connection with the registration or
qualification of the Securities pursuant to Exempt Resales under the
securities or Blue Sky laws of such jurisdictions as the Initial Purchasers
may reasonably request and to continue such qualification in effect so long
as required for Exempt Resales and to file such consents to service of
process or other documents as may be necessary in order to effect such
registration or qualification; provided, however, that Holdings shall not
be required in connection therewith to register or qualify as a foreign
corporation or limited liability company in any jurisdiction in which it is
not now so qualified or to take any action that would subject it to general
consent to service of process or taxation other than as to matters and
transactions relating to the Preliminary Offering Memorandum, the Offering
Memorandum or Exempt Resales, in any jurisdiction in which it is not now so
subject.
(f) So long as the Securities are outstanding, (i) to mail and make
generally available as soon as practicable after the end of each fiscal
year to the record
7
<PAGE>
holders of the Securities a financial report of Holdings and its
subsidiaries on a consolidated basis (and a similar financial report of all
unconsolidated subsidiaries, if any), all such financial reports to include
a consolidated balance sheet, a consolidated statement of operations, a
consolidated statement of cash flows and a consolidated statement of
shareholders' equity as of the end of and for such fiscal year, together
with comparable information as of the end of and for the preceding year,
certified by Holdings' independent public accountants and (ii) to mail and
make generally available as soon as practicable after the end of each
quarterly period (except for the last quarterly period of each fiscal year)
to such holders, a consolidated balance sheet, a consolidated statement of
operations and a consolidated statement of cash flows (and similar
financial reports of all unconsolidated subsidiaries, if any) as of the end
of and for such period, and for the period from the beginning of such year
to the close of such quarterly period, together with comparable information
for the corresponding periods of the preceding year. In addition, so long
as the Initial Purchasers or their affiliates hold Securities, Holdings
shall furnish the Initial Purchasers or their affiliates with financial
information on a monthly basis. Each Initial Purchaser on behalf of itself
and its affiliates which become Holders of the Securities, agrees to
maintain the confidentiality of the information referred to in the
preceding sentence and shall not be used other than in connection with its
holding of Securities, except that such information may be disclosed (a) to
its and its affiliates' directors, officers, employees and agents,
including accountants, legal counsel and other advisors in connection with
matters concerning the Securities (it being understood that the Persons to
whom such disclosure is made will be informed of the confidential nature of
such information and instructed to keep such information confidential), (b)
to the extent requested by any regulatory authority, (c) to the extent
required by applicable laws or regulations or by any subpoena or similar
legal process, (d) in connection with the exercise of any remedies
hereunder or any suit, action or proceeding relating to this Agreement or
any other Operative Document or the enforcement of rights hereunder or
thereunder, (e) with the consent of Holdings or (f) to the extent such
information (i) becomes publicly available other than as a result of a
breach of this Section or (ii) becomes available to the Initial Purchasers
or their affiliates on a nonconfidential basis from a source other than
Holdings or any Designated Subsidiary.
(g) For a period of five years following the date of this Agreement,
to furnish to the Initial Purchasers as soon as available copies of all
reports or other communications furnished by Holdings or any of the
Designated Subsidiaries to its security holders or furnished to or filed
with the Commission or any national securities exchange on which any class
of securities of Holdings or any of the Designated Subsidiaries is listed
and such other publicly available information concerning Holdings and/or
its subsidiaries as the Initial Purchasers may reasonably request.
8
<PAGE>
(h) So long as any of the Securities remain outstanding and during any
period in which Holdings is not subject to Section 13 or 15(d) of the
Securities Exchange Act of 1934, as amended (the "Exchange Act"), to make
available to any holder of Securities in connection with any sale thereof
and any prospective purchaser of such Securities from such holder, the
information ("Rule 144A Information") required by Rule 144A(d)(4) under the
Act.
(i) Whether or not the transactions contemplated in this Agreement are
consummated or this Agreement is terminated, to pay or cause to be paid all
expenses incurred in connection with the performance of the obligations by
Holdings under this Agreement, including: (i) the fees, disbursements and
expenses of counsel to Holdings and accountants of Holdings in connection
with the sale and delivery of the Securities to the Initial Purchasers and
pursuant to Exempt Resales, and all other fees or expenses (other than the
fees and disbursements of counsel for the Initial Purchasers) in connection
with the preparation, printing, filing, if any, and distribution of the
Preliminary Offering Memorandum, the Offering Memorandum and all amendments
and supplements to any of the foregoing (including financial statements)
specified in Section 5(b), 5(c) and 5(d) prior to or during the period
specified in Section 5(c), including the mailing and delivering of copies
thereof to the Initial Purchasers and persons designated by it in the
quantities specified herein, (ii) all costs and expenses related to the
transfer and delivery of the Securities to the Initial Purchasers and
pursuant to Exempt Resales, including any transfer or other taxes payable
thereon, (iii) all costs, if any, of copying this Agreement, the other
Operative Documents and any other agreements or documents in connection
with the offering, purchase, sale or delivery of the Securities, (iv) all
expenses in connection with the registration or qualification of the
Securities for offer and sale under the securities or Blue Sky laws of the
several states and all costs of printing or producing any preliminary and
supplemental Blue Sky memoranda in connection therewith (including the
filing fees in connection with such registration or qualification and
memoranda relating thereto but excluding any fees and disbursements of
counsel), (v) the cost of printing certificates representing the
Securities, (vi) all expenses and listing fees in connection with the
application for quotation of the Securities in the National Association of
Securities Dealers, Inc. ("NASD") Automated Quotation System - PORTAL
("PORTAL"), (vii) the fees and expenses of the Trustee and the Trustee's
counsel in connection with the Indenture and the Notes, (viii) the fees and
expenses of the Trustee and its counsel in connection with the Securities
Pledge Agreement and any intercreditor agreements, (ix) the costs and
charges of any transfer agent, registrar and/or depositary (including DTC),
(x) any fees charged by rating agencies for the rating of the Notes, (xi)
all costs and expenses of the Exchange Offer and any Registration Statement
required to be borne by Holdings, as set forth in the Registration Rights
Agreement, and (xii) all other costs and expenses as set
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<PAGE>
forth in the Engagement Letter dated as of March 1, 1999 by and between the
Company Notes Purchaser and the Company. Notwithstanding the foregoing,
other than as set forth in the first sentence of the third paragraph of
Section 11, Holdings shall not be obligated to pay any fees or
disbursements of counsel for the Initial Purchasers.
(j) To use its commercially reasonable best efforts to effect the
inclusion of the Notes in PORTAL and to maintain the listing of the Notes
on PORTAL for so long as the Notes are outstanding.
(k) To use its commercially reasonable best efforts (i) to obtain the
approval of DTC for "book-entry" transfer of the Notes and (ii) to comply
in all material respects with all of its agreements set forth in the
representation letters of Holdings to DTC relating to the approval of the
Notes by DTC for "book-entry" transfer.
(l) During the period beginning on the date hereof and continuing to
and including the Closing Date, not to offer, sell, contract to sell or
otherwise transfer or dispose of any debt securities of Holdings, or any
warrants, rights or options to purchase or otherwise acquire debt
securities of Holdings substantially similar to the Securities (other than
the Securities), without the prior written consent of the Initial
Purchasers).
(m) Not to sell, offer for sale or solicit offers to buy or otherwise
negotiate in respect of any security (as defined in the Act) that would be
integrated with the sale of the Securities to the Initial Purchasers or
pursuant to Exempt Resales in a manner that would require the registration
of any such sale of the Securities under the Act.
(n) Not to voluntarily claim, and to actively resist any attempts to
claim, the benefit of any usury laws against the holders of any Securities.
(o) To cause the Exchange Offer to be made in the appropriate form to
permit Exchange Notes registered pursuant to the Act to be offered in
exchange for the Notes to comply with all applicable federal and state
securities laws in connection with the Exchange Offer.
(p) To comply in all material respects with all of its agreements set
forth in the Registration Rights Agreement, the Stockholders Agreement and
the Warrant Agreement.
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(q) To use the proceeds received from the sale of the Securities in
the manner specified in the Offering Memorandum under the heading "Use of
Proceeds."
(r) Prior to the Closing Date, to furnish to the Initial Purchasers,
as soon as practicable after they have been prepared, a copy of any
unaudited interim consolidated financial statements of the Company for any
period subsequent to the period covered by the most recent financial
statements appearing in the Offering Memorandum.
(s) To use commercially reasonable best efforts to do and perform all
things required or necessary to be done and performed under this Agreement
by it prior to the Closing Date and to satisfy all conditions precedent to
the delivery of the Securities.
6. Representations, Warranties and Agreements of Holdings. As of the date
hereof Holdings represents and warrants to, and agrees with, the Initial
Purchasers that:
(a) The Preliminary Offering Memorandum as of its date does not, and
the Offering Memorandum as of its date and the Closing Date does not, and
any supplement or amendment to them will not, contain any untrue statement
of a material fact or omit to state any 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, except that the
representations and warranties contained in this paragraph (a) shall not
apply to statements in or omissions from the Preliminary Offering
Memorandum or the Offering Memorandum (or any supplement or amendment
thereto) based upon information relating to the Company Notes Purchaser
furnished to Holdings or the Company in writing by the Company Notes
Purchaser expressly for use therein. No stop order preventing the use of
the Preliminary Offering Memorandum or the Offering Memorandum, or any
amendment or supplement thereto, or any order asserting that any of the
transactions contemplated by this Agreement are subject to the registration
requirements of the Act, has been issued.
(b) Each of Holdings and the Designated Subsidiaries has been duly
organized, is validly existing as a corporation or limited liability
company in good standing under the laws of its jurisdiction of organization
and has the requisite power and authority to carry on its business as
described in the Preliminary Offering Memorandum and the Offering
Memorandum and to own, lease, license and operate its properties, and each
is duly qualified and is in good standing as a foreign corporation or
limited liability company, as applicable, authorized to do business in each
11
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jurisdiction in which the nature of its business or its ownership or
leasing of property requires such qualification, except where the failure
to be so qualified would not (i) have a material adverse effect on the
business, prospects, condition (financial or otherwise) or results of
operations of Holdings and the Designated Subsidiaries, taken as a whole,
or (ii) draw into question the validity of this Agreement or any of the
other Operative Documents (a "Material Adverse Effect").
(c) All outstanding shares of capital stock of Holdings have been duly
authorized and validly issued and are fully paid, non-assessable and not
subject to any preemptive or similar rights and are free and clear of any
security interest, claim, lien, encumbrance or adverse interest of any
nature (each, a "Lien") created by it, except as set forth in the
Stockholders Agreement, dated as of July 9, 1999, by and among the Company
and the parties named therein and in the Stockholders Agreement entered
into as of July 9, 1999 among the stockholders of Super American Tissue
Inc. The authorized, issued and outstanding capital stock of the Company
is, and as of the Closing Date will be, as set forth under the caption
"Capitalization" in the Offering Memorandum and in the financial
statements, and the related notes, included in the Offering Memorandum and
Holdings will have authorized, issued and outstanding capitalization set
forth in Exhibit E hereto.
(d) The entities listed on Schedule A hereto will be the only
subsidiaries, direct or indirect, of Holdings on the Closing Date. All of
the outstanding shares of capital stock or other equity interests
(including, without limitation, membership interests in limited liability
companies) of each of the Designated Subsidiaries have been duly authorized
and validly issued and are fully paid and non-assessable, except for those
of the Designated Subsidiaries that are New York corporations, as provided
in Section 630 of the New York Business Corporation Law, are not subject to
any preemptive or similar rights, except for those Designated Subsidiaries
(other than Gilpin Realty Corp.) that are New York corporations, as
provided in Section 622 of the New York Business Corporation Law, and are
owned by Holdings, directly or indirectly, through one or more
subsidiaries, free and clear of any Liens, except for the Liens to be
created on the Closing Date by the Collateral Documents and the Securities
Pledge Agreement.
(e) This Agreement has been duly authorized, executed and delivered by
Holdings.
(f) The Indenture has been duly authorized by Holdings and, on the
Closing Date, will have been validly executed and delivered by Holdings.
When the Indenture has been duly executed and delivered by Holdings
(assuming the due authorization and execution thereof by the Trustee), the
Indenture will be a valid and binding obligation of Holdings, enforceable
against Holdings in accordance with its
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<PAGE>
terms, except as (A) the enforceability thereof may be limited by the
effect of (i) bankruptcy, insolvency, reorganization, fraudulent transfer,
moratorium and other or similar laws now in effect relating to or affecting
the rights and remedies of creditors and (ii) general principles of equity,
whether enforcement is considered in a proceeding at law or in equity, and
the discretion of the court before which any proceeding therefor may be
brought, (B) rights of acceleration and the availability of equitable
remedies may be limited by equitable principles of general applicability
and (C) rights of indemnification may be limited by public policy
considerations. On the Closing Date, the Indenture will conform in all
material respects to the requirements of the Trust Indenture Act of 1939,
as amended (the "TIA" or "Trust Indenture Act"), and the rules and
regulations of the Commission applicable to an indenture which is qualified
thereunder.
(g) The Notes have been duly authorized and, on the Closing Date, will
have been validly executed and delivered by Holdings. When the Notes have
been issued, executed and authenticated in accordance with the terms of the
Indenture and delivered to and paid for by the Initial Purchasers in
accordance with the terms of this Agreement, the Notes will be entitled to
the benefits of the Indenture and will be valid and binding obligations of
Holdings, enforceable against Holdings in accordance with their terms,
except as (A) the enforceability thereof may be limited by the effect of
(i) bankruptcy, insolvency, reorganization, fraudulent transfer, moratorium
and other similar laws affecting the rights and remedies of creditors and
(ii) general principles of equity, whether enforcement is considered in a
proceeding at law or in equity, and the discretion of the court before
which any proceeding therefor may be brought and (B) rights of acceleration
and the availability of equitable remedies may be limited by equitable
principles of general applicability.
(h) On the Closing Date, the Exchange Notes will have been duly
authorized by Holdings. When the Exchange Notes are issued, executed and
authenticated in accordance with the terms of the Exchange Offer and the
Indenture, the Exchange Notes will be entitled to the benefits of the
Indenture and will be valid and binding obligations of Holdings,
enforceable against Holdings in accordance with their terms, except as (A)
the enforceability thereof may be limited by the effect of (i) bankruptcy,
insolvency, reorganization, fraudulent transfer, moratorium and other
similar laws affecting the rights and remedies of creditors and (ii)
general principles of equity, whether enforcement is considered in a
proceeding at law or in equity, and the discretion of the court before
which any proceeding therefor may be brought and (B) rights of acceleration
and the availability of equitable remedies may be limited by equitable
principles of general applicability.
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<PAGE>
(i) The Warrant Agreement has been duly authorized by Holdings, and,
on the Closing Date, will have been duly executed and delivered by
Holdings. When the Warrant Agreement has been duly executed and delivered
by Holdings, the Warrant Agreement will be a valid and binding obligation
of Holdings, enforceable against Holdings in accordance with its terms,
except as (A) the enforceability thereof may be limited by the effect of
(i) bankruptcy, insolvency, reorganization, fraudulent transfer, moratorium
and other similar laws affecting the rights and remedies of creditors and
(ii) general principles of equity, whether enforcement is considered in a
proceeding at law or in equity, and the discretion of the court before
which any proceeding therefor may be brought and (B) the availability of
equitable remedies may be limited by equitable principles of general
applicability.
(j) The Securities Pledge Agreement has been duly authorized by
Holdings, and, on the Closing Date, will have been duly executed and
delivered by Holdings. When the Securities Pledge Agreement has been duly
executed and delivered, the Securities Pledge Agreement will (assuming the
due authorization and execution by the other parties thereto) be a valid
and binding obligation of Holdings, enforceable against Holdings in
accordance with its terms, except as (A) the enforceability thereof may be
limited by the effect of (i) bankruptcy, insolvency, reorganization,
fraudulent transfer, moratorium or other similar laws affecting the rights
and remedies of creditors and (ii) general principles of equity, whether
enforcement is considered in a proceeding at law or in equity, and the
discretion of the court before which any proceeding therefor may be brought
and (B) rights of acceleration and the availability of equitable remedies
may be limited by equitable principles of general applicability.
(k) The Registration Rights Agreement has been duly authorized by
Holdings and, on the Closing Date, will have been duly executed and
delivered by Holdings. When the Registration Rights Agreement has been duly
executed and delivered, the Registration Rights Agreement will be a valid
and binding obligation of Holdings, enforceable against Holdings in
accordance with its terms, except as (A) the enforceability thereof may be
limited by the effect of (i) bankruptcy, insolvency, reorganization,
fraudulent transfer, moratorium and other similar laws affecting the rights
and remedies of creditors and (ii) general principles of equity, whether
enforcement is considered in a proceeding at law or in equity, and the
discretion of the court before which any proceeding therefor may be
brought, (B) the availability of equitable remedies may be limited by
equitable principles of general applicability and (C) rights of
indemnification and contribution may be limited by federal and state
securities laws and public policy considerations.
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<PAGE>
(l) The Warrants have been duly authorized by Holdings and when
executed by Holdings in accordance with the provisions of the Warrant
Agreement, and delivered and paid for by the Initial Purchasers, will be
entitled to the benefits of the Warrant Agreement and will constitute valid
and binding obligations of Holdings, enforceable against Holdings in
accordance with their terms, except as (A) the enforceability thereof may
be limited by the effect of (i) bankruptcy, insolvency, reorganization,
fraudulent transfer, moratorium and other similar laws affecting the rights
and remedies of creditors and (ii) general principles of equity, whether
enforcement is considered in a proceeding at law or in equity, and the
discretion of the court before which any proceeding therefor may be brought
and (B) the availability of equitable remedies may be limited by equitable
principles of general applicability.
(m) When issued and paid for in accordance with the terms and
conditions contained in the Warrant Agreement upon exercise of the
Warrants, the Warrant Shares will be duly authorized, validly issued, fully
paid and non-assessable and will not be subject to any preemptive or
similar rights. The Warrant Shares have been duly reserved for issuance in
accordance with the terms of the Warrants and the Warrant Agreement.
(n) The Stockholders Agreement has been duly authorized by Holdings
and, on the Closing Date, will have been duly authorized, executed and
delivered by Holdings. When the Stockholders Agreement has been duly
executed and delivered by all of the parties thereto, the Stockholders
Agreement will be a valid and binding obligation of Holdings, enforceable
against Holdings in accordance with its terms, except as (A) the
enforceability thereof may be limited by the effect of (i) bankruptcy,
insolvency, reorganization, fraudulent transfer, moratorium and other
similar laws affecting the rights and remedies of creditors and (ii)
general principles of equity, whether enforcement is considered in a
proceeding at law or in equity, and the discretion of the court before
which any proceeding therefor may be brought, (B) the availability of
equitable remedies may be limited by equitable principles of general
applicability and (C) rights of indemnification and contribution may be
limited by federal and state securities laws and public policy
considerations.
(o) Neither Holdings nor any of the Designated Subsidiaries is (i) in
violation of its respective charter, by-laws or other organizational
document, (ii) to the best knowledge of Holdings after due inquiry, in
violation of any applicable law, statute, rule, regulation, judgment,
order, writ or decree of any government, government instrumentality or
court, domestic or foreign, that is applicable to Holdings or any of the
Designated Subsidiaries or (iii) to the best knowledge of Holdings after
due inquiry, in default in the performance of any obligation, agreement,
covenant or condition contained in any indenture, loan agreement, mortgage,
lease or other
15
<PAGE>
agreement or instrument that is material to Holdings and any of the
Designated Subsidiaries, taken as a whole, to which Holdings or any of the
Designated Subsidiaries is a party or by which Holdings or any of the
Designated Subsidiaries or their respective property is bound (each, a
"Contract" and collectively the "Contracts") that, in the case of clauses
(i), (ii) and (iii) above, would be reasonably expected, in the aggregate,
to have a Material Adverse Effect.
(p) Holdings and Designated Subsidiaries, as applicable, have all
requisite corporate power and authority to execute, deliver and perform
each of its obligations, if any, under this Agreement and the other
Operative Documents and to perform its obligations under the Asset Purchase
Agreement.
(q) The execution, delivery and performance of this Agreement and the
other Operative Documents (other than the Securities and Warrant Shares) by
Holdings and each of the Designated Subsidiaries which is a party thereto,
the issuance, authentication, sale and delivery of the Securities and the
Warrant Shares upon the exercise of the Warrants against payment therefor
and compliance by Holdings and each of the Designated Subsidiaries with the
terms thereof and the consummation of the transactions contemplated hereby
and thereby (including, without limitation, consummation of the
transactions contemplated by the Asset Purchase Agreement) will not (i)
require any consent, approval, authorization or other order of, or
qualification with, any court or governmental body or agency (except such
as will have been obtained by the Closing Date, as may be required under
the securities or Blue Sky laws of the various states or filings and
recordings with certain governmental bodies to perfect Liens under the
Collateral Documents and Securities Pledge Agreement), (ii) conflict with
or constitute a breach of any of the terms or provisions of, or a default
under, the charter, by-laws or other organizational document of Holdings or
any of the Designated Subsidiaries or any Contract to which Holdings or any
of the Designated Subsidiaries is a party, (iii) violate or conflict with
any applicable law or any rule, regulation, judgment, order or decree of
any court or any governmental body or agency having jurisdiction over
Holdings, any of the Designated Subsidiaries or their respective property,
(iv) result in the imposition or creation of (or the obligation to create
or impose) a Lien under any agreement or instrument to which Holdings or
any of the Designated Subsidiaries is a party or by which Holdings or any
of the Designated Subsidiaries or their respective property is bound (other
than any Liens created by the Collateral Documents and Securities Pledge
Agreement), or (v) result in the termination or revocation of any
Authorization (as defined) of Holdings or any of the Designated
Subsidiaries or result in any other impairment of the rights of the holder
of any such Authorization, except insofar as any such violation, conflict,
default, Lien, termination, revocation or impairment would not reasonably
be expected to result in a Material Adverse Effect.
16
<PAGE>
(r) There are no legal or governmental proceedings pending or, to the
best knowledge of Holdings after due inquiry, threatened to which Holdings
or any of the Designated Subsidiaries is or could be a party or to which
any of their respective property is or could be subject, which would
reasonably be expected to result, singly or in the aggregate, in a Material
Adverse Effect.
(s) There is no (i) significant unfair labor practice complaint
pending or threatened against Holdings or any of the Designated
Subsidiaries nor, to the best knowledge of Holdings, threatened against any
of them, before the National Labor Relations Board, any state or local
labor relations board or any foreign labor relations board, (ii)
significant grievance or significant arbitration proceeding arising out of
or under any collective bargaining agreement is so pending against Holdings
or any of the Designated Subsidiaries or, to the best knowledge of
Holdings, threatened against Holdings or any of the Designated Subsidiaries
and (iii) significant strike, labor dispute, slowdown or stoppage is
pending against Holdings or any of the Designated Subsidiaries or
threatened against Holdings or any of the Designated Subsidiaries, except
in each case of clause (i), (ii) or (iii) such as would not result in a
Material Adverse Effect. Neither Holdings nor any of the Designated
Subsidiaries has violated any federal, state or local law or foreign law
relating to discrimination in hiring, promotion or pay of employees, nor
any applicable wage or hour laws, which would result in a Material Adverse
Effect.
(t) In the ordinary course of business, Holdings and the Designated
Subsidiaries conduct a periodic review of the effect of Environmental Laws
(as defined) on the business, operations and properties of Holdings and the
Designated Subsidiaries, taken as a whole in the course of which it
identifies and evaluates associated costs and liabilities (including,
without limitation, capital and operating expenditures required for
response and corrective actions, closure of properties, permits, licenses
and approvals, related constraints on operating activities and all
potential liabilities to third parties). On the basis of such review,
except as set forth in the Offering Memorandum, Holdings has reasonably
concluded that such associated costs and liabilities would not, singly or
in the aggregate, have a Material Adverse Effect. Except as described in
the Offering Memorandum, to the knowledge of Holdings, Holdings and the
Designated Subsidiaries are in compliance with all applicable existing
Environmental Laws, except for such instances of non-compliance which would
not have a Material Adverse Effect or which are being contested in good
faith by appropriate proceedings by Holdings or the Designated Subsidiaries
affected thereby. For the purposes of this Agreement, "Environmental Laws"
means any Federal, state and local laws, rules or regulations, any orders,
decrees, judgments or injunctions and the common law relating to pollution
or protection of human health, safety or the environment, including,
without limitation, ambient air, indoor air,
17
<PAGE>
soil, surface water, ground water, wetlands, land or subsurface strata to
which Holdings or the Designated Subsidiaries are subject, including,
without limitation, those relating to releases or threatened releases of
Hazardous Materials into the environment, or otherwise relating to the
manufacture, processing, generation, distribution, use, treatment, storage,
disposal, transport or handling of Hazardous Materials. For the purposes of
this Agreement, "Hazardous Material" shall mean any pollutant, contaminant,
toxic, hazardous or extremely hazardous substance, constituent or waste, or
any other constituent, waste, material, compound or substance (including,
without limitation, petroleum including crude oil and any fraction thereof,
or any petroleum product), subject to regulation under any Environmental
Law.
(u) Each of Holdings and the Designated Subsidiaries has such permits,
licenses, consents, exemptions, franchises, authorizations and other
approvals (each, an "Authorization") of, and has made all filings with and
notices to, all governmental or regulatory authorities and self-regulatory
organizations and all courts and other tribunals, including without
limitation, under any applicable Environmental Laws, as are necessary to
own, lease, license and operate its respective properties and to conduct
its business, except where the failure to have any such Authorization or to
make any such filing or notice would not, singly or in the aggregate, have
a Material Adverse Effect. Each such Authorization is valid and in full
force and effect and each of Holdings and the Designated Subsidiaries is in
compliance with all the terms and conditions thereof and with the rules and
regulations of the authorities and governing bodies having jurisdiction
with respect thereto; and no event has occurred (including, without
limitation, the receipt of any notice from any authority or governing body)
which allows or, after notice or lapse of time or both, would allow
revocation, suspension or termination of any such Authorization or results
or, after notice or lapse of time or both, would result in any other
impairment of the rights of the holder of any such Authorization; and such
Authorizations contain no restrictions that are burdensome to Holdings and
the Designated Subsidiaries taken as a whole, except where such failure to
be valid and in full force and effect or to be in compliance, the
occurrence of any such event or the presence of any such restriction would
not, in the aggregate, have a Material Adverse Effect.
(v) The accountants Arthur Andersen LLP, Holtz Rubenstein & Co., LLP
and Ernst & Young LLP have each certified certain of the financial
statements, the related notes and supporting schedules included in the
Preliminary Offering Memorandum and the Offering Memorandum. Arthur
Andersen LLP are, and Holtz Rubenstein & Co., LLP were, independent public
accountants with respect to the Company and the other Designated
Subsidiaries, as required by the Act and the Exchange Act. To the knowledge
of Holdings, Ernst & Young LLP are independ-
18
<PAGE>
ent public accountants with respect to the Berlin-Gorham Mills, as required
by the Act and the Exchange Act. The unaudited consolidated historical
financial statements, together with related schedules and notes, set forth
in the Preliminary Offering Memorandum and the Offering Memorandum comply
as to form in all material respects, with the requirements applicable to
registration statements on Form S-1 under the Act.
(w) The historical financial statements of the Company and its
subsidiaries together with related schedules and notes forming part of the
Offering Memorandum (and any amendment or supplement thereto), present
fairly, in all material respects, the consolidated financial position,
results of operations and cash flows of the Company and its subsidiaries on
the basis stated in the Offering Memorandum at the respective dates or for
the respective periods to which they apply and such statements and related
schedules and notes have been prepared in accordance with generally
accepted accounting principles consistently applied throughout the periods
involved, except as otherwise disclosed therein; and the other financial
and statistical information and data pertaining to the Company and its
subsidiaries set forth in the Offering Memorandum (and any amendment or
supplement thereto) are, in all material respects, accurately presented and
prepared on a basis consistent with such financial statements and the books
and records of the Company (except as otherwise noted therein or in the
Offering Memorandum).
(x) The pro forma financial statements, and the related notes,
included in the Offering Memorandum have been prepared on a basis
consistent with the historical financial statements of the Company and its
subsidiaries and give effect to assumptions used in the preparation thereof
on a reasonable basis and in good faith and present fairly, in all material
respects, the historical and proposed transactions contemplated by the
Offering Memorandum; and such pro forma financial statements comply as to
form, in all material respects, with the requirements applicable to pro
forma financial statements included in registration statements on Form S-1
under the Act. The other pro forma financial and statistical information
and data included in the Offering Memorandum are, in all material respects,
accurately presented and prepared on a basis consistent with the pro forma
financial statements.
(y) The statistical and market-related data included in the Offering
Memorandum are based on or derived from sources which Holdings believes to
be reliable and accurate.
(z) The execution and delivery of this Agreement, the other Operative
Documents and the sale of the Securities will not involve any prohibited
transaction within the meaning of Section 406 of ERISA or Section 4975 of
the Internal Reve-
19
<PAGE>
nue Code of 1986, as amended. The representation made by Holdings in the
preceding sentence is made solely in reliance upon and subject to the
accuracy of, and compliance with, the representations and covenants made or
deemed made by the prospective investors as set forth in the Offering
Memorandum under "Notices to Investors."
(aa) Neither Holdings nor any Designated Subsidiaries is and, after
giving effect to the offering and sale of the Securities and the
application of the net proceeds thereof as described in the Offering
Memorandum, neither Holdings nor any Designated Subsidiaries will be, an
"investment company" or an entity "controlled" by an "investment company,"
as such terms are defined in the Investment Company Act of 1940, as
amended.
(bb) The present fair salable value of the assets of Holdings and the
Designated Subsidiaries exceeds the amount that will be required to be paid
on or in respect of the existing debts and other liabilities (including the
maximum amount of liability that may be reasonably expected to result from
contingent liabilities) of each such person as they become absolute and
matured. The assets of each of Holdings and the Designated Subsidiaries do
not constitute unreasonably small capital to carry out such person's
businesses as conducted or as proposed to be conducted. Holdings and the
Designated Subsidiaries do not intend to, nor do any of them believe that
they will, incur debts beyond their ability to pay such debts as they
mature. Upon the issuance of the Securities and the consummation of the
other transactions contemplated in the Offering Memorandum, the present
fair salable value of the assets of each of Holdings and the Designated
Subsidiaries will exceed the amount that will be required to be paid on or
in respect of the existing debts and other liabilities (including the
maximum amount of liability that may reasonably be expected to result from
contingent liabilities) of each such person as they become absolute and
matured. The assets of each of Holdings and the Designated Subsidiaries,
upon the issuance of the Securities and the consummation of the other
transactions contemplated in the Offering Memorandum, will not constitute
unreasonably small capital to carry out such person's business as now
conducted, including the capital needs of each of Holdings and the
Designated Subsidiaries, taking into account the projected capital
requirements and capital availability of each of Holdings and the
Designated Subsidiaries.
(cc) Except for the Operative Documents, there are no contracts,
agreements or understandings between Holdings or any of the Designated
Subsidiaries and any person granting such person the right to require
Holdings or any of the Designated Subsidiaries to file a registration
statement under the Act with respect to any securities of Holdings or any
of the Designated Subsidiaries or to require Hold-
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<PAGE>
ings or any of the Designated Subsidiaries to include such securities with
Notes registered pursuant to any Registration Statement.
(dd) Neither Holdings nor any Designated Subsidiaries nor any agent
thereof acting on the behalf of them has taken, and none of them will take,
any action that might cause this Agreement or the issuance or sale of
Securities to violate Regulation T (12 C.F.R. Part 220), Regulation U (12
C.F.R. Part 221) or Regulation X (12 C.F.R. Part 224) of the Board of
Governors of the Federal Reserve System.
(ee) Since the respective dates as of which information is given in
the Offering Memorandum, other than as set forth in the Offering Memorandum
(exclusive of any amendments or supplements thereto subsequent to the date
of this Agreement), (i) there has not occurred any material adverse change
or any development involving a prospective material adverse change in the
condition (financial or otherwise), earnings, business, management or
operations of Holdings and its subsidiaries, taken as a whole, (ii) there
has not been any material adverse change or any development involving a
prospective material adverse change in the capital stock or in the
long-term debt of Holdings or any of its subsidiaries and (iii) neither
Holdings nor any of its subsidiaries has incurred any material liability or
obligation, direct or contingent, which is material to Holdings and its
subsidiaries taken as a whole.
(ff) Each of the Preliminary Offering Memorandum and the Offering
Memorandum, as of its date, contains all the information specified in, and
meeting the requirements of, Rule 144A(d)(4) under the Act.
(gg) When the Securities are issued and delivered pursuant to this
Agreement and the Warrant Shares are issued upon exercise of the Warrants,
neither the Securities nor Warrant Shares will be of the same class (within
the meaning of Rule 144A under the Act) as any security of Holdings or the
Designated Subsidiaries that is listed on a national securities exchange
registered under Section 6 of the Exchange Act or that is quoted in a
United States automated inter-dealer quotation system.
(hh) No form of general solicitation or general advertising (as
defined in Regulation D under the Act) was used by Holdings, the Designated
Subsidiaries or any of their respective representatives (other than the
Initial Purchasers, as to which Holdings and the Designated Subsidiaries
make no representation) in connection with the offer and sale of the
Securities contemplated hereby, including, but not limited to, articles,
notices or other communications published in any newspaper, magazine, or
similar medium or broadcast over television or radio, or any seminar or
meeting whose attendees have been invited by any general solicitation or
general
21
<PAGE>
advertising. No securities of the same class as the Securities have been
issued and sold by Holdings within the six-month period immediately prior
to the date hereof.
(ii) Prior to the effectiveness of any Registration Statement, the
Indenture is not required to be qualified under the TIA.
(jj) None of Holdings, Designated Subsidiaries nor any of their
respective affiliates or any person acting on its or their behalf (other
than the Initial Purchasers, as to which Holdings and Designated
Subsidiaries make no representation) has engaged or will engage in any
directed selling efforts within the meaning of Regulation S under the Act
("Regulation S") with respect to the Securities.
(kk) The Securities offered and sold in reliance on Regulation S have
been and will be offered and sold only in offshore transactions.
(ll) The sale of the Securities pursuant to Regulation S is not part
of a plan or scheme to evade the registration provisions of the Act.
(mm) No registration under the Act of the Securities is required for
the sale of the Securities to the Initial Purchasers as contemplated hereby
or for the Exempt Resales, assuming the accuracy of the Initial Purchasers'
representations and warranties and agreements set forth in Section 7
hereof.
(nn) No "nationally recognized statistical rating organization," as
such term is defined for purposes of Rule 436(g)(2) under the Act, (i) has
imposed (or has informed Holdings or any Designated Subsidiary that it is
considering imposing) any condition on Holdings or any Designated
Subsidiary retaining any rating assigned to Holdings, any Designated
Subsidiary or any securities of Holdings or any Designated Subsidiary or
(ii) has indicated to Holdings or any Designated Subsidiary that it is
considering (a) the downgrading, suspension or withdrawal of, or any review
for a possible change that does not indicate the direction of the possible
change in, any rating so assigned or (b) any change in the outlook for any
rating of Holdings or any Designated Subsidiary or any securities of
Holdings or any Designated Subsidiary.
(oo) Each certificate signed by any officer of Holdings or any
Designated Subsidiary and delivered to the Initial Purchasers or counsel
for the Initial Purchasers shall be deemed to be a representation and
warranty by Holdings or such Designated Subsidiary to the Initial
Purchasers as to the matters covered thereby.
(pp) Holdings and each Designated Subsidiary has good and marketable
title in fee simple to all real property it purports to own, including,
without limita-
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tion, all Mortgaged Property (as defined in the Notes Indenture) and good
and legal title to all personal property it purports to own, whether owned,
leased or licensed, including, without limitation, all Collateral (as
defined in the Notes Indenture) owned by them which is material to the
business of Holdings and its subsidiaries, taken as a whole, and described
in the Offering Memorandum, in each case free and clear of all Liens,
except (i) such as are described in the Offering Memorandum, (ii) such as
do not materially affect the value of such property and do not interfere
with the use made and proposed to be made of such property by Holdings and
its subsidiaries and (iii) Liens permitted by the Notes Indenture,
Collateral Documents and Securities Pledge Agreement; and any real
property, including, without limitation, all Mortgaged Property personal
property, including, without limitation, all Pledged Collateral and
buildings held under lease by Holdings and each Designated Subsidiary are
held by them under valid, subsisting and enforceable leases with such
exceptions as are not material and do not interfere with the use made and
proposed to be made of such real property, personal property and buildings
by Holdings and each Designated Subsidiary, in each case except as
described in the Offering Memorandum.
(qq) Holdings and each Designated Subsidiary owns or possesses, or has
the right to use, all patents, patent rights, licenses, inventions,
copyrights, know-how (including trade secrets and other unpatented and/or
unpatentable proprietary or confidential information, systems or
procedures), trademarks, service marks and trade names ("intellectual
property") currently employed by them in connection with the business now
operated by them except where the failure to own or possess or otherwise be
able to acquire or use such intellectual property would not, singly or in
the aggregate, have a Material Adverse Effect; and neither Holdings nor any
of the Designated Subsidiaries has received any notice of infringement of
or conflict with asserted rights of others with respect to any of such
intellectual property which, singly or in the aggregate, if the subject of
an unfavorable decision, ruling or finding, would have a Material Adverse
Effect.
(rr) Holdings and each Designated Subsidiary will carry or are covered
by insurance issued by insurers of recognized financial responsibility in
such amounts and covering such risks for the conduct of its business and
the value of their properties as is customary for companies engaged in
similar businesses in the areas in which such business is located and, in
the case of its properties, as would be maintained by a prudent operator of
properties similar in use and configuration to such properties and located
in the locality where such properties are located; and neither Holdings nor
any of the Designated Subsidiaries (i) has received notice from any insurer
or agent of such insurer that substantial capital improvements or other
material expenditures will have to be made in order to continue such
insurance or (ii) has any
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<PAGE>
reason to believe that it will not be able to renew its existing insurance
coverage as and when such coverage expires or to obtain similar coverage
from similar insurers at a cost that would not have a Material Adverse
Effect.
(ss) Except as disclosed in the Offering Memorandum, no relationship,
direct or indirect, exists between or among Holdings or any of its
subsidiaries on the one hand, and the directors, officers, stockholders,
customers or suppliers of Holdings or any of its subsidiaries on the other
hand, which would be required by the Act to be described in the Offering
Memorandum if the Offering Memorandum were a prospectus included in a
registration statement on Form S-1 filed with the Commission.
(tt) Except as disclosed in the Offering Memorandum, Holdings and each
of its subsidiaries maintains a system of internal accounting controls
sufficient to provide reasonable assurance that (i) transactions are
executed in accordance with management's general or specific
authorizations; (ii) transactions are recorded as necessary to permit
preparation of financial statements in conformity with generally accepted
accounting principles and to maintain asset accountability; (iii) access to
assets is permitted only in accordance with management's general or
specific authorization; and (iv) the recorded accountability for assets is
compared with the existing assets at reasonable intervals and appropriate
action is taken with respect to any differences.
(uu) All material tax returns required to be filed by Holdings and
each of the Designated Subsidiaries in any jurisdiction have been filed,
other than those filings or failures to have filed being contested in good
faith, and all material taxes, including withholding taxes, penalties and
interest, assessments, fees and other charges due pursuant to such returns
or pursuant to any assessment received by Holdings or any of its
subsidiaries have been paid or provided for, other than those being
contested in good faith and for which adequate reserves have been provided.
(vv) To the knowledge of Holdings and the Designated Subsidiaries, no
action has been taken and no law, statute, rule or regulation or order has
been enacted, adopted or issued by any governmental agency or body which
prevents the execution, delivery and performance of any of the Operative
Documents, the issuance of the Securities or the issuance of the Warrant
Shares upon exercise of the Warrants, or suspends the sale of the
Securities or the issuance of the Warrant Shares upon exercise of the
Warrants in any jurisdiction referred to in Section 5(e); and no
injunction, restraining order or other order or relief of any nature by a
federal or state court or other tribunal of competent jurisdiction has been
issued with respect to Holdings or the Designated Subsidiaries which would
prevent or suspend
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<PAGE>
the issuance or sale of Securities or the issuance of the Warrant Shares
upon exercise of the Warrants in any jurisdiction referred to in Section
5(e).
(ww) The Securities Pledge Agreement, once executed and delivered,
will create, in favor of the Trustee for the benefit of the Trustee and the
holders of the Securities, a valid and enforceable, and upon filing or
recording with the appropriate governmental authorities (including payment
of the appropriate filing or recording fees and any applicable taxes) and
delivery of the applicable documents to Trustee, including, without
limitation, the certificates representing the outstanding capital stock of
the Company, the Trustee will have a perfected security interest in and
Lien upon all of the Pledged Securities (as defined in the Securities
Pledge Agreement), and subject to no other Liens except for Liens expressly
permitted to exist on such Pledged Securities by the terms of the
Securities Pledge Agreement. (A) The enforceability of the obligations of
Holdings under the Securities Pledge Agreement may be limited by the effect
of (i) bankruptcy, insolvency, reorganization, fraudulent transfer,
moratorium or other similar laws affecting the rights and remedies of
creditors and (ii) general principles of equity, whether enforcement is
considered in a proceeding at law or in equity, and the discretion of the
court before which any proceeding therefor may be brought, and (B) rights
of acceleration and the availability of equitable remedies may be limited
by equitable principles of general applicability.
(xx) Holdings and each of the Designated Subsidiaries have reviewed
its respective operations and that of its respective subsidiaries to
evaluate the extent to which the business or operations of it or its
subsidiaries will be affected by the Year 2000 Problem (that is, any
significant risk that computer hardware or software applications used by
such person and its respective subsidiaries will not, in the case of dates
or time periods occurring after December 31, 1999, function at least as
effectively as in the case of dates or times periods occurring prior to
January 1, 2000); as a result of such review, Holdings and each of
Designated Subsidiaries do not believe, except as disclosed in the Offering
Memorandum, that (A) there are any issues related to this preparedness to
address the Year 2000 Problem that are of a character required to be
described or referred to in the Offering Memorandum which have not been
accurately described in the Offering Memorandum and (B) the Year 2000
Problem will have a Material Adverse Effect.
(yy) Holdings has delivered to counsel for the Initial Purchasers a
true and correct copy of the Asset Purchase Agreement, together with all
related agreements and all schedules and exhibits thereto, and there shall
have been no material amendments, alterations, modifications or waivers of
any of the provisions of any such documents since their respective dates of
execution, other than any such
25
<PAGE>
amendments, alterations, modifications and waivers as to which the Initial
Purchasers has been advised in writing and which would be required to be
disclosed in the Offering Memorandum. To the best knowledge of Holdings,
there exists no event or condition which would constitute a default or an
event of default under the Asset Purchase Agreement or such ancillary
agreements which would result in a Material Adverse Effect or materially
adversely affect the ability of the Company or Pulp & Paper of America LLC
to consummate the transactions contemplated thereby.
Holdings and the Designated Subsidiaries acknowledge that the Initial
Purchasers and counsel to the Initial Purchasers will rely upon the accuracy and
truth of the foregoing representations and hereby consent to such reliance.
7. Initial Purchasers' Representations and Warranties. Each Initial
Purchaser represents and warrants to, and agrees with, Holdings and the
Designated Subsidiaries that:
(a) Such Initial Purchaser is either a QIB or a Regulation S Purchaser
or an institutional Accredited Investor, in any case, with such knowledge
and experience in financial and business matters as is necessary in order
to evaluate the merits and risks of an investment in the Securities.
(b) Such Initial Purchaser (A) is not acquiring the Securities with a
view to any distribution thereof or with any present intention of offering
or selling any of the Securities in a transaction that would violate the
Act or the securities laws of any state of the United States or any other
applicable jurisdiction and (B) will be reoffering and reselling the
Securities only (x) to QIBs in reliance on the exemption from the
registration requirements of the Act provided by Rule 144A, (y) to
Regulation S Purchasers in offshore transactions in reliance upon
Regulation S under the Act, and (z) to a limited number of institutional
Accredited Investors that prior to their purchase of the Securities deliver
to the Initial Purchasers a letter containing representations and
agreements satisfactory to the Initial Purchasers.
(c) Such Initial Purchaser agrees that no form of general solicitation
or general advertising (within the meaning of Regulation D under the Act)
has been or will be used by such Initial Purchaser or any of its
representatives in connection with the offer and sale of the Securities
pursuant hereto, including, but not limited to, articles, notices or other
communications published in any newspaper, magazine or similar medium or
broadcast over television or radio, or any seminar or meeting whose
attendees have been invited by any general solicitation or general
advertising.
(d) Such Initial Purchaser agrees that, in connection with Exempt
Resales, such Initial Purchaser will solicit offers to buy the Securities
only from, and
26
<PAGE>
will offer to sell the Securities only to, Eligible Purchasers. It further
agrees that it will offer to sell the Securities only to, and will solicit
offers to buy the Securities only from (A) Eligible Purchasers that such
Initial Purchaser reasonably believes are QIBs or institutional Accredited
Investors and (B) Regulation S Purchasers, in each case, that agree that
(x) the Securities purchased by them may be resold, pledged or otherwise
transferred within the time period referred to under Rule 144(k) (taking
into account the provisions of Rule 144(d) under the Act, if applicable)
under the Act, as in effect on the date of the transfer of such Securities,
only (I) to Holdings or any of its subsidiaries, (II) 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
under the Act, (III) in an offshore transaction (as defined in Rule 902
under the Act) meeting the requirements of Rule 904 of the Act, (IV) in a
transaction meeting the requirements of Rule 144 under the Act, (V) in
accordance with another exemption from the registration requirements of the
Act (and based upon an opinion of counsel acceptable to Holdings), (VI) to
an institutional Accredited Investor that, prior to such transfer,
furnishes to the Trustee, a signed letter containing certain
representations and agreements relating to the restrictions on transfer of
the Securities or (VII) 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 (y)
they will deliver to each person to whom such Securities or an interest
therein is transferred a notice substantially to the effect of the
foregoing.
(e) None of such Initial Purchaser nor any of its affiliates or any
person acting on its or their behalf has engaged or will engage in any
directed selling efforts within the meaning of Regulation S with respect to
the Securities.
(f) The Securities offered and sold by such Initial Purchaser pursuant
hereto in reliance on Regulation S have been and will be offered and sold
only in offshore transactions.
(g) The sale of the Securities offered and sold by such Initial
Purchasers pursuant hereto in reliance on Regulation S is not part of a
plan or scheme to evade the registration provisions of the Act.
(h) Such Initial Purchaser agrees that it will not offer, sell or
deliver any of the Securities in any jurisdiction outside the United States
except under circumstances that will result in compliance with the
applicable laws thereof, and that it will take at its own expense whatever
action is required to permit its purchase and resale of the Securities in
such jurisdictions. Such Initial Purchaser understands that no action has
been taken to permit a public offering in any jurisdiction outside the
United States where action would be required for such purpose.
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<PAGE>
(i) Such Initial Purchaser acknowledges that Holdings and the
Designated Subsidiaries and, for purposes of the opinions to be delivered
to the Initial Purchasers pursuant to Section 9 hereof, counsel to Holdings
and the Designated Subsidiaries and counsel to the Initial Purchasers will
rely upon the accuracy and truth of the foregoing representations and the
Initial Purchasers hereby consents to such reliance.
8. Indemnification.
(a) Holdings agrees to indemnify and hold harmless the Initial Purchasers,
their directors, their officers and each person, if any, who controls (within
the meaning of Section 15 of the Act or Section 20 of the Exchange Act) any of
the Initial Purchasers, from and against any and all losses, claims, damages,
liabilities and judgments (including, without limitation, any legal or other
expenses incurred in connection with investigating or defending any matter,
including any action, that could give rise to any such losses, claims, damages,
liabilities or judgments) caused by any untrue statement or alleged untrue
statement of a material fact contained in the Offering Memorandum (or any
amendment or supplement thereto), the Preliminary Offering Memorandum or any
Rule 144A Information provided by Holdings or any of its subsidiaries to any
holder or prospective purchaser of Securities pursuant to Section 5(h) or caused
by any omission or alleged omission to state therein a material fact required to
be stated therein or necessary to make the statements therein not misleading,
except insofar as such losses, claims, damages, liabilities or judgments are
caused by any such untrue statement or omission or alleged untrue statement or
omission based upon information relating to the Company Notes Purchaser
furnished in writing to Holdings by such Company Notes Purchaser expressly for
use in the Preliminary Offering Memorandum or the Offering Memorandum; provided
that with respect to any such untrue statement in or omission from the
Preliminary Offering Memorandum, the indemnity agreement contained in this
Section 8(a) shall not inure to the benefit of the Initial Purchasers or any
other person indemnified under this Section 8(a) to the extent that any such
loss, claim, damage, liability or judgment results from the fact that both (A) a
copy of the Offering Memorandum was not sent or given to such person at or prior
to the written confirmation of the sale of Securities to such person and (B) the
untrue statement in or omission from the Preliminary Offering Memorandum was
corrected in the Offering Memorandum, unless, in either case, such failure to
deliver the Offering Memorandum was a result of non-compliance by Holdings with
Section 5(b).
(b) [Intentionally Omitted]
(c) In case any action shall be commenced involving any person in respect
of which indemnity may be sought pursuant to Section 8(a) (the "indemnified
party"), the indemnified party shall promptly notify the person against whom
such indemnity may be
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<PAGE>
sought (the "indemnifying party") in writing and the indemnifying party shall
assume the defense of such action, including the employment of counsel
reasonably satisfactory to the indemnified party and the payment of all fees and
expenses of such counsel, as incurred. Any indemnified party shall have the
right to employ separate counsel in any such action and participate in the
defense thereof, but the fees and expenses of such counsel shall be at the
expense of the indemnified party unless (i) the employment of such counsel shall
have been specifically authorized in writing by the indemnifying party, (ii) the
indemnifying party shall have failed to assume the defense of such action or
employ counsel reasonably satisfactory to the indemnified party or (iii) the
named parties to any such action (including any impleaded parties) include both
the indemnified party and the indemnifying party, and the indemnified party
shall have been advised by such counsel that there may be one or more legal
defenses available to it which are different from or additional to those
available to the indemnifying party (in which case the indemnifying party shall
not have the right to assume the defense of such action on behalf of the
indemnified party) (and except in the case of clause (ii) hereof, such counsel
shall be reasonably satisfactory to the indemnifying party). In any such case,
the indemnifying party shall not, in connection with any one action or separate
but substantially similar or related actions in the same jurisdiction arising
out of the same general allegations or circumstances, be liable for the fees and
expenses of more than one separate firm of attorneys (in addition to any local
counsel) for all indemnified parties and all such fees and expenses shall be
reimbursed as they are incurred. Such firm shall be designated in writing by DLJ
Merchant Banking Partners, L.P. The indemnifying party shall indemnify and hold
harmless the indemnified party from and against any and all losses, claims,
damages, liabilities and judgments by reason of any settlement of any action (i)
effected with its written consent or (ii) effected without its written consent
if the settlement is entered into more than twenty business days after the
indemnifying party shall have received a request from the indemnified party for
reimbursement for the fees and expenses of counsel (in any case where such fees
and expenses are at the expense of the indemnifying party) and, prior to the
date of such settlement, the indemnifying party shall have failed to comply with
such reimbursement request. Except as set forth in the immediately preceding
sentence, the indemnifying party shall not be liable for any settlement entered
into by an indemnified party without the prior written consent, which consent
shall not be unreasonably withheld, of the indemnifying party. No indemnifying
party shall, without the prior written consent of the indemnified party, effect
any settlement or compromise of, or consent to the entry of judgment with
respect to, any pending or threatened action in respect of which the indemnified
party is or could have been a party and indemnity or contribution may be or
could have been sought hereunder by the indemnified party, unless such
settlement, compromise or judgment (i) includes an unconditional release of the
indemnified party from all liability on claims that are or could have been the
subject matter of such action and (ii) does not include a statement as to or an
admission of fault, culpability or a failure to act, by or on behalf of the
indemnified party.
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<PAGE>
(d) To the extent the indemnification provided for in this Section 8 is
unavailable to an indemnified party or insufficient in respect of any losses,
claims, damages, liabilities or judgments referred to therein, then each
indemnifying party, in lieu of indemnifying such indemnified party, shall
contribute to the amount paid or payable by such indemnified party as a result
of such losses, claims, damages, liabilities and judgments (i) in such
proportion as is appropriate to reflect the relative benefits received by
Holdings, on the one hand, and the Initial Purchasers, on the other hand, from
the offering of the Securities or (ii) if the allocation provided by clause
8(d)(i) above is not permitted by applicable law, in such proportion as is
appropriate to reflect not only the relative benefits referred to in clause
8(d)(i) above but also the relative fault of Holdings, on the one hand, and the
Initial Purchasers, on the other hand, in connection with the statements or
omissions which resulted in such losses, claims, damages, liabilities or
judgments, as well as any other relevant equitable considerations. The relative
benefits received by Holdings, on the one hand, and the Initial Purchasers, on
the other hand, shall be deemed to be in the same proportion as the total net
proceeds from the offering of the Securities (before deducting expenses)
received by Holdings, and the total discounts and commissions received by the
Initial Purchasers bear to the total price to investors of the Securities, in
each case as set forth in the table on the cover page of the Offering
Memorandum. The relative fault of Holdings, on the one hand, and the Initial
Purchasers, on the other hand, shall be determined by reference to, among other
things, whether the untrue or alleged untrue statement of a material fact or the
omission or alleged omission to state a material fact relates to information
supplied by Holdings, on the one hand, or the Initial Purchasers, on the other
hand, and the parties' relative intent, knowledge, access to information and
opportunity to correct or prevent such statement or omission.
Holdings and the Initial Purchasers agree that it would not be just and
equitable if contribution pursuant to this Section 8(d) were determined by pro
rata allocation or by any other method of allocation which does not take account
of the equitable considerations referred to in the immediately preceding
paragraph. The amount paid or payable by an indemnified party as a result of the
losses, claims, damages, liabilities or judgments referred to in the immediately
preceding paragraph shall be deemed to include, subject to the limitations set
forth above, any legal or other expenses incurred by such indemnified party in
connection with investigating or defending any matter, including any action,
that could have given rise to such losses, claims, damages, liabilities or
judgments. Notwithstanding the provisions of this Section 8, the Initial
Purchasers shall not be required to contribute any amount in excess of the
amount by which the total price of the Securities purchased by it were sold to
investors in Exempt Resales exceeds the amount of any damages which the Initial
Purchasers has otherwise been required to pay by reason of such untrue or
alleged untrue statement or omission or alleged omission. 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.
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(e) The remedies provided for in this Section 8 are not exclusive and shall
not limit any rights or remedies which may otherwise be available to any
indemnified party at law or in equity.
9. Conditions of Initial Purchasers' Obligations. The obligations of the
Initial Purchasers to purchase the Securities under this Agreement are subject
to the satisfaction of each of the following conditions:
(a) All the representations and warranties of Holdings contained in
this Agreement shall be true and correct in all material respects on the
Closing Date after giving effect to the Transactions, with the same force
and effect as if made on and as of the Closing Date.
(b) On or after the date hereof, (i) there shall not have occurred any
downgrading, suspension or withdrawal of, nor shall any notice have been
given of any potential or intended downgrading, suspension or withdrawal
of, or of any review (or of any potential or intended review) for a
possible change that does not indicate the direction of the possible change
in, any rating of Holdings or any Designated Subsidiary or any securities
of Holdings or any Designated Subsidiary (including, without limitation,
the placing of any of the foregoing ratings on credit watch with negative
or developing implications or under review with an uncertain direction) by
any "nationally recognized statistical rating organization" as such term is
defined for purposes of Rule 436(g)(2) under the Act and (ii) there shall
not have occurred any change, nor shall any notice have been given of any
potential or intended change, in the outlook for the rating of Holdings or
any Designated Subsidiary or any securities of Holdings or any Designated
Subsidiary by any such rating organization
(c) The Initial Purchasers shall have received on the Closing Date a
certificate dated the Closing Date, signed by the President and the Chief
Financial Officer of Holdings, confirming the matters set forth in Sections
9(a), 9(b) and 9(d).
(d) [Intentionally omitted.]
(e) The Initial Purchasers shall have received on the Closing Date an
opinion (satisfactory to you and counsel for the Initial Purchasers), dated
the Closing Date, of Mandel & Resnik P.C., counsel for Holdings and the
Designated Subsidiaries, to the effect that:
(i) each of Holdings and the Designated Subsidiaries has been
duly organized, is validly existing as a corporation or limited
liability company in good standing under the laws of its jurisdiction
of organization
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<PAGE>
and has the requisite power and authority to carry on its business as
described in the Offering Memorandum and to own, lease, license and
operate its properties;
(ii) each of Holdings and the Designated Subsidiaries is duly
qualified and is in good standing as a foreign corporation or limited
liability company, as applicable, authorized to do business in each
jurisdiction in which the nature of its business or its ownership or
leasing of property requires such qualification, except where the
failure to be so qualified would not have a Material Adverse Effect;
(iii) all the outstanding shares of capital stock of Holdings
have been duly authorized and validly issued and are fully paid,
non-assessable and not subject to any preemptive or similar rights and
are free and clear of any Liens created by it;
(iv) all of the outstanding shares of capital stock or other
equity interests (including, without limitation, membership interests
in limited liability companies) of each of the Designated Subsidiaries
has been duly authorized and validly issued and are fully paid and
non-assessable, except, in the case of those guarantors of the Company
Notes that are New York corporations, as provided in Section 630 of
the New York Business Corporation Law, are not subject to any
preemptive or similar rights, except, in the case of the Designated
Subsidiaries (other than Gilpin Realty Corp.) that are New York
corporations, as provided in Section 622 of the New York Business
Corporation Law; and are owned by Holdings free and clear of any
Liens, except for Liens to be created on the Closing Date by the
Securities Pledge Agreement;
(v) the Notes have been duly authorized and, when executed and
authenticated in accordance with the provisions of the Indenture and
delivered to and paid for by the Initial Purchasers in accordance with
the terms of this Agreement, will be entitled to the benefits of the
Indenture and will be valid and binding obligations of Holdings,
enforceable against Holdings in accordance with their terms;
(vi) the Indenture has been duly authorized, executed and
delivered by Holdings and is a valid and binding obligation of
Holdings, enforceable against Holdings in accordance with its terms;
(vii) this Agreement has been duly authorized, executed and
delivered by Holdings;
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<PAGE>
(viii) the Securities Pledge Agreement has been duly authorized,
executed and delivered by Holdings and the Securities Pledge Agreement
constitutes a valid and binding obligation of Holdings, enforceable
against Holdings in accordance with its terms;
(ix) the Registration Rights Agreement has been duly authorized,
executed and delivered by Holdings and is a valid and binding
obligation of Holdings, enforceable against Holdings in accordance
with its terms;
(x) the Exchange Notes have been duly authorized by Holdings, and
when issued, executed and authenticated in accordance with the terms
of the Registration Rights Agreement, the Exchange Offer and the
Indenture, will be entitled to the benefits of the Indenture and will
be valid and binding obligations of Holdings, enforceable against
Holdings in accordance with their terms;
(xi) the Warrant Agreement has been duly authorized, executed and
delivered by Holdings and constitutes a valid and legally binding
agreement of Holdings, enforceable against Holdings in accordance with
its terms;
(xii) the Warrants have been duly and validly authorized,
executed and delivered by Holdings and constitute valid and binding
obligations of Holdings enforceable in accordance with their terms;
(xiii) when issued and paid for in accordance with the terms and
conditions in the Warrant Agreement upon exercise of the Warrants, the
Warrant Shares will be duly authorized, validly issued, fully paid and
non-assessable and will not be subject to any preemptive or similar
rights. The Warrant Shares have been duly reserved for issuance in
accordance with the terms of the Warrants and the Warrant Agreement;
(xiv) the Stockholders Agreement has been duly authorized,
executed and delivered by Holdings and constitutes a valid and legally
binding agreement of Holdings, enforceable against Holdings in
accordance with its terms;
(xv) the statements under the captions "Description of Notes" and
"Plan of Distribution" in the Offering Memorandum, insofar as such
statements constitute a summary of the legal matters, documents or
proceedings referred to therein, fairly present in all material
respects such legal matters, documents and proceedings;
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<PAGE>
(xvi) such counsel is of the opinion ascribed to it in the
Offering Memorandum under the caption "Certain United States Federal
Income Tax Considerations";
(xvii) to the best of such counsel's knowledge after due inquiry,
neither Holdings nor any of the Designated Subsidiaries is in
violation of its respective charter, by-laws or other organizational
document and, to the best of such counsel's knowledge after due
inquiry, neither the Company nor any of its subsidiaries is (i) in
violation of any applicable law, statute, rule, regulation, judgment,
order, writ or decree of any government, government instrumentality or
court, domestic or foreign, that is applicable to Holdings nor any of
the Designated Subsidiaries or (ii) except as disclosed in the
Offering Memorandum, in default in the performance of any obligation,
agreement, covenant or condition contained in any Contract that in the
case of clauses (i) and (ii) would have a Material Adverse Effect;
(xviii) Holdings and the Designated Subsidiaries, as applicable,
has the requisite corporate power and authority to execute, deliver
and perform each of its obligations under this Agreement and the other
Operative Documents;
(xix) to the best of such counsel's knowledge after due inquiry,
the execution, delivery and performance of this Agreement and the
other Operative Documents (other than Securities and Warrant Shares)
by Holdings and each of the Designated Subsidiaries a party thereto,
the issuance, authentication, sale and delivery of the Securities and
the Warrant Shares upon the exercise of the Warrants and compliance by
Holdings and each of the Designated Subsidiaries with terms thereof
and the consummation of the transactions contemplated hereby and
thereby (including, without limitation, consummation of the
transactions contemplated by the Asset Purchase Agreement) will not,
as of the date hereof (i) require any consent, approval, authorization
or other order of, or qualification with, any court or governmental
body or agency (except such as have been obtained, as may be required
under any applicable federal or state securities law or filings and
recordings with certain government bodies to perfect Liens under the
Collateral Documents and the Securities Pledge Agreement), (ii)
conflict with or constitute a breach of any of the terms or provisions
of, or a default under, the charter, by-laws or other organizational
document of Holdings or any Designated Subsidiaries or any Contract to
which Holdings or any Designated Subsidiary is a party, (iii) violate
any existing applicable law or any rule, regulation, judgment, order
or decree of any court or any governmental body or
34
<PAGE>
agency having jurisdiction over Holdings, any of the Designated
Subsidiaries or their respective property, (iv) result in the
imposition or creation of (or the obligation to create or impose) a
Lien under, any agreement or instrument to which Holdings or any of
the Designated Subsidiaries is a party or by which the Company or any
of its subsidiaries or their respective property is bound (other than
any Liens created by the Notes Indenture, the Collateral Documents and
the Securities Pledge Agreement), or (v) result in the termination or
revocation of any Authorization of Holdings or any of the Designated
Subsidiaries or result in any other impairment of the rights of the
holder of any such Authorization, except insofar as any such
violation, conflict, default, Liens, termination, revocation or
impairment would not reasonably be expected to result in a Material
Adverse Effect; provided that counsel's opinion in this paragraph need
not address any impact Holdings or any of the Designated Subsidiaries'
actions may have under any financial covenants or tests in the
Contracts specified in clause (ii) above, any consequences a default
by Holdings under the Purchase Agreement, the Registration Rights
Agreement, the Warrant Agreement or the Indenture may have under any
Contract specified in clause (ii) above, or any cross-default
provisions in the Contracts specified in the clause (ii) above;
(xx) to the knowledge of such counsel, there is no pending or
threatened action, suit or proceeding before any court or other
governmental authority to which Holdings or any Designated Subsidiary
is a party that is required to be disclosed in the Offering Memorandum
and which is not adequately disclosed therein;
(xxi) to the best of such counsel's knowledge after due inquiry,
each of Holdings and the Designated Subsidiaries has such
Authorizations of, and has made all filings with and notices to, all
governmental or regulatory authorities and self-regulatory
organizations and all courts and other tribunals, including without
limitation, under any applicable Environmental Laws, as are necessary
to own, lease, license and operate its respective properties and to
conduct its business, except where the failure to have any such
Authorization or to make any such filing or notice would not, singly
or in the aggregate, have a Material Adverse Effect. Each such
Authorization is valid and in full force and effect and each of
Holdings and its subsidiaries is in compliance with all the terms and
conditions thereof and with the rules and regulations of the
authorities and governing bodies having jurisdiction with respect
thereto; and to the best of such counsel's knowledge after due
inquiry, no event has occurred (including the receipt of any notice
from any authority or governing body) which allows or, after notice or
lapse of time or
35
<PAGE>
both, would allow, revocation, suspension or termination of any such
Authorization or results or, after notice or lapse of time or both,
would result in any other impairment of the rights of the holder of
any such Authorization; and to the best of such counsel's knowledge
after due inquiry, such Authorizations contain no restrictions that
are burdensome to Holdings and the Designated Subsidiaries taken as a
whole; except where such failure to be valid and in full force and
effect or to be in compliance, the occurrence of any such event or the
presence of any such restriction would not, singly or in the
aggregate, have a Material Adverse Effect;
(xxii) to the best of such counsel's knowledge after due inquiry,
neither Holdings nor any Designated Subsidiary is and, after giving
effect to the offering and sale of the Securities and the application
of the net proceeds thereof as described in the Offering Memorandum,
neither Holdings nor any Designated Subsidiary will be, an "investment
company" or an entity "controlled" by an "investment company", as such
terms are defined in the Investment Company Act of 1940, as amended;
(xxiii) to the best of such counsel's knowledge after due
inquiry, there are no contracts, agreements or understandings between
Holdings or any Designated Subsidiary and any person granting such
person the right to require Holdings or such Designated Subsidiary to
file a registration statement under the Act with respect to any
securities of Holdings or to require Holdings to include such
securities with the Notes or Warrants registered pursuant to any
Registration Statement, except as provided in the Operative Documents;
(xxiv) assuming the proceeds from the issuance of the Securities
are applied as provided in the Offering Memorandum, neither the
consummation of the transactions contemplated by this Agreement nor
the sale, issuance, execution or delivery of the Securities, nor the
application of the proceeds therefrom (applied as described in the
Offering Memorandum under the caption "Use of Proceeds"), will violate
Regulation T (12 C.F.R. Part 220), Regulation U (12 C.F.R. Part 221)
or Regulation X (12 C.F.R. Part 224) of the Board of Governors of the
Federal Reserve System;
(xxv) each of the Preliminary Offering Memorandum and the
Offering Memorandum, as of its date (except for the financial
statements and the notes thereto and other financial and accounting
data included therein, as to which no opinion need be expressed),
complied in all material respects with the informational requirements
specified in and meeting the requirements of Rule 144A(d)(4) under the
Act;
36
<PAGE>
(xxvi) the Indenture complies in all material respects to the
requirements of the TIA, and the rules and regulations of the
Commission applicable to an indenture which is qualified thereunder.
It is not necessary in connection with the offer, sale and delivery of
the Securities to the Initial Purchasers in the manner contemplated by
this Agreement or in connection with the Exempt Resales to qualify the
Indenture under the TIA;
(xxvii) assuming the accuracy of and compliance with the
representations and warranties and agreements of Holdings and the
Initial Purchasers in the Purchase Agreement, no registration under
the Act of the Securities is required for the sale of the Securities
to the Initial Purchasers as contemplated by this Agreement or for the
Exempt Resales assuming the accuracy of, and compliance with, the
Initial Purchasers' representations and agreements contained in
Section 7 of this Agreement;
(xxviii) to the best of such counsel's knowledge after due
inquiry, except as disclosed in the Offering Memorandum, no
relationship, direct or indirect, exists between or among Holdings or
any of its subsidiaries on the one hand, and the directors, officers,
stockholders, customers or suppliers of Holdings or any of its
subsidiaries on the other hand, which would be required by the Act to
be described in the Offering Memorandum if the Offering Memorandum
were a prospectus included in a registration statement on Form S-1
filed with the Commission;
(xxix) after giving effect to the delivery of the certificates
representing the Pledged Shares (as defined in the Securities Pledge
Agreement) listed on Schedule 1 to the Securities Pledge Agreement,
together with undated stock powers, duly endorsed in blank, and
assuming the continued possession and control by the Trustee of such
Pledged Shares in the State of New York, the security interest created
in favor of the Trustee under the Securities Pledge Agreement
constitutes a valid and perfected security interest in such Pledged
Shares in favor of the Trustee, and no filings or recordings in the
State of New York under the UCC as in effect in the State of New York
("UCC") are required to perfect (or maintain perfection of) such
security interests so long as such Pledged Shares continue to be
"certificated securities" as defined in the UCC;
(xxx) the execution, delivery, filing, recordation and
performance by Holdings of the Operative Documents to which it is a
party do not, and the payment of the indebtedness evidenced by the
Notes will not, result in any violation of the law of the United
States or New York State, or any rule or regulation thereunder;
37
<PAGE>
(xxxi) the Trustee is permitted under the laws of New York State,
without naming all of the Initial Purchasers in the applicable legal
proceeding, to apply to a court of competent jurisdiction to seek to
exercise remedies under the applicable Operative Documents in respect
of any of the Collateral in its own name, as collateral agent for the
Initial Purchasers;
(xxxii) no taxes or other charges, including, without limitation,
intangible or documentary stamp taxes, mortgage or recording taxes,
transfer taxes or similar charges, are payable to New York State on
account of the execution and delivery of the Operative Documents or
the creation of the indebtedness evidenced or secured by any of the
Operative Documents or the filing of the Securities Pledge Agreement,
except for nominal filing or recording fees; and
(xxxiii) the transfer of all or any portion of the Collateral in
connection with the exercise of any remedy under the Securities Pledge
Agreement, including, without limitation, by way of judicial
foreclosure, will not restrict, affect or impair the liability of
Holdings with respect to the indebtedness secured thereby or the
beneficiary's rights or remedies to the foreclosure or enforcement of
any other security interest or liens securing such indebtedness.
In addition, such counsel shall state that it has participated in
conferences with directors and other representatives of Holdings and the
Designated Subsidiaries, representatives of the independent certified
public accountants for Holdings and the Designated Subsidiaries, the
Initial Purchasers and its representatives and counsel, at which the
contents of the Offering Memorandum and related matters were discussed and,
although such counsel is not passing upon, and does not assume any
responsibility for, the accuracy, completeness or fairness of the
statements contained in the Offering Memorandum and has not made any
independent check or verification thereof (other than as expressly
described in paragraphs (xv) and (xvi) above), during the course of such
participation (relying as to materiality to the extent they have deemed
appropriate upon the statements of officers and other representatives of
Holdings and the Designated Subsidiaries), no facts came to such counsel's
attention that caused such counsel to believe that the Offering Memorandum,
as of its date or as of the date hereof, contained or contains an untrue
statement of a material fact or omitted or omits to state a material fact
necessary to make the statements therein, in the light of the circumstances
under which they were made, not misleading; it being understood that such
counsel need express no belief with respect to the financial statements,
including the notes thereto, pro forma financial statements and other
financial and statistical data included in the Offering Memorandum.
38
<PAGE>
In rendering such opinion, counsel for Holdings and the Designated
Subsidiaries will opine only as to the Delaware General Corporation Law,
the laws of the State of New York and the federal laws of the United
States. Such counsel will be permitted to except from its opinions with
respect to enforceability: (A) the effect of bankruptcy, insolvency,
reorganization, fraudulent transfer, moratorium and other similar laws now
or hereafter in effect relating to or affecting the rights and remedies of
creditors; (B) the effect of general equitable principles, whether such
enforceability is considered in a proceeding in equity or at law, and the
discretion of the court before which any proceeding therefor may be
brought; (C) that rights of acceleration and the availability of equitable
remedies may be limited by equitable principles of general applicability;
(D) with respect to the Registration Rights Agreement, rights of
indemnification and contribution may be limited by federal and state
securities laws and public policy considerations; (E) the unenforceability
of any provision requiring the payment of attorney's fees (except to the
extent that a court determines such fees to be reasonable) or liquidated
damages; (F) compliance with laws relating to permissible rates of
interest; and (G) the application by a court of competent jurisdiction of
principles of due process and public policy considerations may limit or
restrict certain right and remedies provided for in Indenture. In
determining whether any matters would have a Material Adverse Effect, such
counsel may rely on statements of officers and responsible employees and
consultants of Holdings and/or the Designated Subsidiaries without
independently attempting to verify the accuracy of such statements.
The opinion of Mandel & Resnik P.C. described in this Section 9(e)
shall be rendered to you and the Trustee at the request of Holdings and
shall so state therein.
(f) The Initial Purchasers shall have received on the Closing Date an
opinion, dated the Closing Date, of Cahill Gordon & Reindel, counsel for
the Initial Purchasers, in form and substance reasonably satisfactory to
the Initial Purchasers.
(g) The Initial Purchasers shall have received, on or prior to the
Closing Date, letters in form and substance reasonably satisfactory to the
Initial Purchasers from each of Arthur Andersen LLP, Ernst & Young LLP and
Holtz Rubenstein & Co., LLP, independent public accountants, containing the
information and statements of the type ordinarily included in accountants'
"comfort letters" to the Initial Purchasers with respect to the applicable
financial statements and certain financial information contained in the
Offering Memorandum.
(h) The Notes shall have been approved by the NASD for trading and
duly listed in PORTAL.
39
<PAGE>
(i) Holdings and the Trustee shall have executed the Indenture and the
Initial Purchasers shall have received an original copy thereof, duly
executed by Holdings and the Trustee.
(j) Holdings shall have executed the Registration Rights Agreement,
Warrant Agreement and Securities Pledge Agreement and the Initial
Purchasers shall have received an original copy of each thereof, duly
executed by Holdings.
(k) Holdings shall have executed the Warrants and each Initial
Purchaser shall have received an original copy thereof, duly executed by
Holdings.
(l) Holdings shall have executed the Stockholders Agreement and each
Initial Purchaser shall have received an original copy thereof, duly
executed by Holdings and each of the other parties thereto.
(m) Holdings and the Designated Subsidiaries shall not have failed at
or prior to the Closing Date to perform or comply in any material respect
with any of the agreements herein contained and required to be performed or
complied with by Holdings and the Designated Subsidiaries at or prior to
the Closing Date.
(n) The Notes shall have been duly executed and delivered by Holdings
and duly authenticated by the Trustee.
(o) The consummation of the transactions contemplated by the Asset
Purchase Agreement shall occur on the Closing Date.
(p) On the Closing Date, all related party debt of the Company and its
subsidiaries shall have been assumed by a newly formed indirect parent
company of the Company, Super American Tissue Inc. ("Super American
Tissue"), as described in the Offering Memorandum, and the terms and
conditions of such assumed debt shall be reasonably satisfactory to the
Initial Purchasers in all respects.
(q) On the Closing Date, the Company shall have consummated the sale
of $165,000,000 of its 12 1/2% Senior Secured Notes due 2006 and Super
American Tissue Inc. shall have contributed as equity $5.0 million in cash
to Holdings, in each case as described in the Offering Memorandum, and the
terms and conditions of such investments shall be reasonably satisfactory
to the Initial Purchasers in all respects.
(r) Holdings shall have paid to Donaldson, Lufkin & Jenrette
Securities Corporation a fee of 2.75% of the gross proceeds of the
Securities.
40
<PAGE>
(s) On the Closing Date, the Initial Purchasers and counsel for the
Initial Purchasers shall have received such further documents, opinions,
certificates and schedules or instruments relating to the business,
corporate, legal and financial affairs of Holdings and the Designated
Subsidiaries as they shall have heretofore reasonably requested from
Holdings and the Designated Subsidiaries.
10. Effectiveness of Agreement and Termination. This Agreement shall become
effective upon the execution and delivery of this Agreement by the parties
hereto.
This Agreement may be terminated at any time prior to the Closing Date by
the Initial Purchasers by written notice to Holdings if any of the following has
occurred: (i) any outbreak or escalation of hostilities or other national or
international calamity or crisis or change in economic conditions or in the
financial markets of the United States or elsewhere that, in the Initial
Purchasers' judgment, is material and adverse and, in the Initial Purchasers'
judgment, makes it impracticable to market the Securities on the terms and in
the manner contemplated in the Offering Memorandum, (ii) the suspension or
material limitation of trading in securities or other instruments on the New
York Stock Exchange, the American Stock Exchange, the Chicago Board of Options
Exchange, the Chicago Mercantile Exchange, the Chicago Board of Trade or the
Nasdaq National Market or limitation on prices for securities or other
instruments on any such exchange or the Nasdaq National Market, (iii) the
suspension of trading of any securities of Holdings or any Designated Subsidiary
on any exchange or in the over-the-counter market, (iv) the enactment,
publication, decree or other promulgation of any federal or state statute,
regulation, rule or order of any court or other governmental authority which in
the Initial Purchasers' opinion materially and adversely affects, or will
materially and adversely affect, the business, prospects, condition (financial
or otherwise) or results of operations of Holdings and its subsidiaries, taken
as a whole, (v) the declaration of a banking moratorium by either federal or New
York State authorities or (vi) the taking of any action by any federal, state or
local government or agency in respect of its monetary or fiscal affairs which in
your opinion has a material adverse effect on the financial markets in the
United States.
11. Miscellaneous. Notices given pursuant to any provision of this
Agreement shall be addressed as follows: (i) if to Holdings, to American Tissue
Holdings, Inc., 135 Engineers Road, Hauppauge, New York 11788 Attention:
President and Chief Executive Officer, with a copy to Mandel & Resnik P.C., 220
East 42nd Street, New York, New York 10017, Attention: Nicholas J. Kaiser, Esq.,
and (ii) if to the Initial Purchasers, to the respective addresses set forth on
Schedule 1 hereto, in each case with a copy to Cahill Gordon & Reindel, 80 Pine
Street, New York, New York 10005, Attention: John Schuster, Esq., or in any case
to such other address as the person to be notified may have requested in
writing.
41
<PAGE>
The respective indemnities, contribution agreements, representations,
warranties and other statements of Holdings and the Initial Purchasers set forth
in or made pursuant to this Agreement shall remain operative and in full force
and effect, and will survive delivery of and payment for the Securities,
regardless of (i) any investigation, or statement as to the results thereof,
made by or on behalf of the Initial Purchasers, the officers or directors of the
Initial Purchasers, any person controlling the Initial Purchasers, Holdings, the
officers or directors of Holdings, or any person controlling Holdings, (ii)
acceptance of the Securities and payment for them hereunder and (iii)
termination of this Agreement.
If for any reason the Securities are not delivered by or on behalf of
Holdings as provided herein (other than as a result of any termination of this
Agreement pursuant to Section 10), Holdings agrees to reimburse the Initial
Purchasers only for all out-of-pocket expenses (including the fees and
disbursements of counsel) incurred by them; provided, further the Initial
Purchasers shall not be entitled to receive any other amount. Notwithstanding
any termination of this Agreement, Holdings shall be liable for all expenses
which it has agreed to pay pursuant to Section 5(i) hereof. Holdings agrees to
reimburse the Initial Purchasers and their officers, directors and each person,
if any, who controls any Initial Purchasers within the meaning of Section 15 of
the Act or Section 20 of the Exchange Act for any and all fees and expenses
(including without limitation the fees and expenses of counsel) incurred by them
in connection with enforcing their rights under this Agreement (including
without limitation their rights under this Section 11).
Except as otherwise provided, this Agreement has been and is made solely
for the benefit of and shall be binding upon Holdings, the Initial Purchasers,
the Initial Purchasers' directors and officers, any controlling persons referred
to herein, the directors of Holdings and its respective successors and assigns,
all as and to the extent provided in this Agreement, and no other person shall
acquire or have any right under or by virtue of this Agreement. The term
"successors and assigns" shall not include a purchaser of any of the Securities
from the Initial Purchasers merely because of such purchase.
This Agreement shall be governed and construed in accordance with the laws
of the State of New York, without giving effect to the choice of law rules
thereof.
This Agreement may be signed in various counterparts which together shall
constitute one and the same instrument.
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<PAGE>
Please confirm that the foregoing correctly sets forth the agreement among
Holdings and the Initial Purchasers.
Very truly yours,
MIDDLE AMERICAN TISSUE INC.
By: /s/ N. Elghanayan
---------------------
Nourollah Elghanayan
Chairman of the Board
By: /s/ Mehdi Gabayzadeh
---------------------
Mehdi Gabayzadeh
President
Initial Purchasers:
DLJMB Funding II, Inc.
By: DLJMB Funding, Inc.
/s/ Andrew Rush
-----------------------------
Name:
Title:
DLJ Merchant Banking Partners II, L.P.
By: DLJ Merchant Banking II, Inc. Managing
General Partner
/s/ Andrew Rush
-----------------------------
Name:
Title:
S-1
<PAGE>
DLJ Merchant Banking Partners II-A, L.P.
By: DLJ Merchant Banking II, Inc.
Managing General Partner
/s/ Andrew Rush
-----------------------------
Name:
Title:
DLJ FIRST ESC L.P.
By: DLJ LBO PLANS MANAGEMENT
CORPORATION
General Partner
/s/ Andrew Rush
-----------------------------
Name:
Title:
DLJ OFFSHORE PARTNERS II, C.V.
By: DLJ MERCHANT BANKING II, INC.
Managing General Partner
/s/ Andrew Rush
-----------------------------
Name:
Title:
DLJ EAB PARTNERS, L.P.
By: DLJ LBO PLANS MANAGEMENT
CORPORATION
General Partner
/s/ Andrew Rush
-----------------------------
Name:
Title:
S-2
<PAGE>
DLJ ESC II L.P.
By: DLJ LBO PLANS MANAGEMENT
CORPORATION
General Partner
/s/ Andrew Rush
-----------------------------
Name:
Title:
DLJ DIVERSIFIED PARTNERS, L.P.
By: DLJ DIVERSIFIED PARTNERS, INC.
Managing General Partner
/s/ Andrew Rush
-----------------------------
Name:
Title:
DLJ DIVERSIFIED PARTNERS-A, L.P.
By: DLJ DIVERSIFIED PARTNERS, INC.
Managing General Partner
/s/ Andrew Rush
-----------------------------
Name:
Title:
DLJ MILLENNIUM PARTNERS, L.P.
By: DLJ MERCHANT BANKING II, INC.
Managing General Partner
/s/ Andrew Rush
-----------------------------
Name:
Title:
S-3
<PAGE>
DLJ MILLENNIUM PARTNERS-A, L.P.
By: DLJ MERCHANT BANKING II, INC.
Managing General Partner
/s/ Andrew Rush
-----------------------------
Name:
Title:
S-4
This Registration Rights Agreement (this "Agreement") is made and entered
into as of July 9, 1999, by and among Middle American Tissue Inc., a Delaware
corporation (the "Company"), and the parties listed on the signature pages
hereof (the "Initial Purchasers") which have agreed to purchase the Company's
15% Series A Senior Discount Notes due 2007 (the "Series A Notes") pursuant to
the Purchase Agreement (as defined).
This Agreement is made pursuant to the Purchase Agreement, dated July 9,
1999 (the "Purchase Agreement"), by and among the Company and the Initial
Purchasers. In order to induce the Initial Purchasers to purchase the Series A
Notes, the Company has agreed to provide the registration rights set forth in
this Agreement. The execution and delivery of this Agreement is a condition to
the obligations of the Initial Purchasers set forth in Section 3 of the Purchase
Agreement. Capitalized terms used herein and not otherwise defined shall have
the meaning assigned to them in the Indenture (the "Indenture"), dated as of
July 9, 1999, by and between the Company and The Chase Manhattan Bank, as
Trustee, relating to the Series A Notes and the Series B Notes (as defined).
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 of the Act.
Affiliated Market Maker: A Broker-Dealer who is deemed to be an Affiliate
of the Company.
Board of Directors: Means the Board of Directors of the Company, or any
authorized committee of the Board of Directors of the Company.
Broker-Dealer: Any broker or dealer registered under the Exchange Act.
Certificated Securities: Definitive Notes, as defined in the Indenture.
Closing Date: July 9, 1999.
Commission: The Securities and Exchange Commission.
Consummate: An Exchange Offer shall be deemed "Consummated" for purposes of
this Agreement upon the occurrence of (a) the filing and effectiveness under the
Act of the Exchange Offer Registration Statement relating to the Series B Notes
to be issued in the Exchange Offer, (b) 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 period required pursuant to Section
3(b) hereof and (c) the delivery by the Company to the Registrar under the
Indenture of Series B Notes in the same aggregate principal amount as the
aggregate principal amount of Series A Notes tendered by Holders thereof
pursuant to the Exchange Offer.
Effectiveness Deadline: As defined in Section 3(a) and 4(a) hereof.
<PAGE>
-2-
Exchange Act: The Securities Exchange Act of 1934, as amended.
Exchange Offer: The exchange and issuance by the Company of a principal
amount of Series B Notes (which shall be registered pursuant to the Exchange
Offer Registration Statement) equal to the outstanding principal amount of
Series A Notes that are tendered by such Holders in connection with such
exchange and issuance.
Exchange Offer Registration Statement: The Registration Statement relating
to the Exchange Offer, including the related Prospectus.
Exempt Resales: The transactions in which the Initial Purchasers may sell
the Series A Notes to (i) certain "qualified institutional buyers," as such term
is defined in Rule 144A under the Act and (ii) persons permitted to purchase the
Series A Notes in offshore transactions in reliance upon Regulation S under the
Act.
Filing Deadline: As defined in Sections 3(a) and 4(a) hereof.
Holders: As defined in Section 2 hereof.
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.
Recommencement Date: As defined in Section 6(d) hereof.
Registration Default: As defined in Section 5 hereof.
Registration Statement: Any registration statement of the Company relating
to (a) an offering of Series B Notes pursuant to an Exchange Offer or (b) the
registration for resale of Transfer Restricted Notes 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.
Restricted Broker-Dealer: Any Broker-Dealer that holds Series B Notes that
were acquired in the Exchange Offer in exchange for Series A Notes that such
Broker-Dealer acquired for its own account as a result of market making
activities or other trading activities (other than Series A Notes acquired
directly from the Company or any of its affiliates).
Rule 144: Rule 144 promulgated under the Act.
Series B Notes: The Company's 15% Series B Senior Discount Notes due 2007
to be issued pursuant to the Indenture: (i) in the Exchange Offer or (ii) as
contemplated by Section 4 hereof.
Shelf Registration Statement: As defined in Section 4 hereof.
Suspension Notice: As defined in Section 6(d) hereof.
<PAGE>
-3-
TIA: The Trust Indenture Act of 1939 (15 U.S.C. Section 77aaa-77bbbb) as in
effect on the date of the Indenture.
Transfer Restricted Notes: Each Series A Note until (1) the date on which
such Series A Note has been exchanged by a person other than a broker-dealer for
a Series B Note in the Exchange Offer, (2) following the exchange by a
broker-dealer in the Exchange Offer of a Series A Note for a Series B Note, the
date on which such Series B Note is sold to a purchaser who receives from such
broker-dealer on or prior to the date of such sale a copy of the prospectus
contained in the Exchange Offer Registration Statement, (3) the date on which
such Series A Note has been effectively registered under the Securities Act and
disposed of in accordance with the Shelf Registration Statement or (4) the date
on which such Series A Note is distributed to the public pursuant to Rule 144
under the Act or may be sold under Rule 144(k) under the Act.
SECTION 2. HOLDERS
A Person is deemed to be a holder of Transfer Restricted Notes (each, a
"Holder") whenever such Person owns Transfer Restricted Notes.
SECTION 3. REGISTERED EXCHANGE OFFER
(a) Unless the Exchange Offer shall not be permitted by applicable federal
law (after the procedures set forth in Section 6(a)(i) below have been complied
with), the Company shall (i) cause the Exchange Offer Registration Statement to
be filed with the Commission as soon as practicable after the Closing Date (the
"Exchange Offer Filing Date"), but in no event later than 110 days after the
Closing Date (for purposes of this Section 3, such 110th day being the "Filing
Deadline"), (ii) use its commercially reasonable best efforts to cause such
Exchange Offer Registration Statement to become effective at the earliest
possible time, but in no event later than 210 days after the Closing Date (for
purposes of this Section 3, such 210th 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
it to become effective, (B) file, if applicable, a post-effective amendment to
such Exchange Offer Registration Statement pursuant to Rule 430A under the Act
and (C) cause all necessary filings, if any, in connection with the registration
and qualification of the Series B Notes to be made under the Blue Sky laws of
such jurisdictions as are necessary to permit Consummation of the Exchange
Offer, provided, however, that the Company shall not be required in connection
therewith to register or qualify as a foreign corporation in any jurisdiction
where such registration would result in any adverse effect to the Company, and
(iv) upon the effectiveness of such Exchange Offer Registration Statement,
commence and Consummate the Exchange Offer. The Exchange Offer shall be on the
appropriate form permitting registration of the Series B Notes to be offered in
exchange for the Series A Notes that are Transfer Restricted Notes and to permit
resales of Series B Notes by Broker-Dealers that tendered into the Exchange
Offer Series A Notes that such Broker-Dealer acquired for its own account as a
result of market making activities or other trading activities (other than
Series A Notes acquired directly from the Company or any of its Affiliates) as
contemplated by Section 3(c) below.
(b) The Company shall use its commercially reasonable best efforts to 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
in all material respects with applicable federal and state securities laws. No
securities other than the Series B Notes (and the subsidiary guarantees thereof)
shall be included in the Exchange Offer Registration Statement. The Company
shall use its commercially reasonable
<PAGE>
-4-
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 35 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 Transfer Restricted Notes that were
acquired for the account of such Broker-Dealer as a result of market-making
activities or other trading activities (other than Transfer Restricted Notes
acquired directly from the Company or any Affiliate of the Company), may
exchange such Transfer Restricted Notes pursuant to the Exchange Offer; however,
such Broker-Dealer may be deemed to be an "underwriter" within the meaning of
the Act and must, therefore, deliver a prospectus meeting the requirements of
the Act in connection with any sale of Series B Notes received by such
Broker-Dealer in the Exchange Offer and that the Prospectus contained in the
Exchange Offer Registration Statement may be used to satisfy such prospectus
delivery requirement. 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 Notes 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.
To the extent necessary to ensure that the Exchange Offer Registration
Statement is available for sales of Series B Notes by Broker-Dealers, the
Company agrees to use its commercially reasonable best efforts to keep the
Exchange Offer Registration Statement continuously effective, supplemented and
amended as required by the provisions of Section 6(c) hereof and in conformity
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
one year from the date on which the Exchange Offer is Consummated, or such
shorter period as will terminate when all Transfer Restricted Notes covered by
such Registration Statement have been sold pursuant thereto. The Company shall
promptly provide copies of the latest version of such Prospectus to such
Broker-Dealers promptly upon request, in such amounts as may be reasonably
requested and in no event later than two Business Days after such request, at
any time during such period.
SECTION 4. SHELF REGISTRATION
(a) Shelf Registration. If (i) the Exchange Offer is not permitted by
applicable law (after the Company has complied with the procedures set forth in
Section 6(a)(i) below) or (ii) if any Holder of Transfer Restricted Notes shall
notify the Company within 20 Business Days following the Consummation of the
Exchange Offer that (A) such Holder was prohibited by law or Commission policy
from participating in the Exchange Offer or (B) such Holder may not resell the
Series B Notes acquired by it in the Exchange Offer to the public without
delivering a prospectus and the Prospectus contained in the Exchange Offer
Registration Statement is not appropriate or available for such resales by such
Holder or (C) such Holder is a Broker-Dealer and holds Series A Notes acquired
directly from the Company or any of its Affiliates, then the Company shall use
its commercially reasonably best efforts to:
(x) cause to be filed, on or prior to 60 days after the earlier of (i)
the date on which the Company determines that the Exchange Offer
Registration Statement cannot be filed as a result of clause (a)(i) above
and (ii) the date on which the Company receives the notice specified in
clause (a) (ii) above (for purposes of this Section 4, such earlier date,
the "Filing Deadline", but in no event shall such Filing Deadline be
earlier than 110 days after the Closing Date), a shelf registration
statement pursuant to Rule 415 under the Act (which may be an amendment to
the Exchange Offer Registration
<PAGE>
-5-
Statement (the "Shelf Registration Statement")), relating to all Transfer
Restricted Notes the holders of which have provided the information
required by Section 4(b) hereof, and
(y) to cause such Shelf Registration Statement to become effective on
or prior to the 60th day after the Filing Deadline (for purposes of this
Section 4, such 60th day the "Effectiveness Deadline", but in no event
shall such Effective Deadline be earlier than 210 days after the Closing
Date).
If, after the Company has filed an Exchange Offer Registration Statement
that satisfies the requirements of Section 3(a) above, the Company is required
to file and make effective a Shelf Registration Statement solely because the
Exchange Offer is not permitted under applicable federal law, then the filing of
the Exchange Offer Registration Statement shall be deemed to satisfy the
requirements of clause (x) above; provided that, in such event, the Company
shall remain obligated to meet the Effectiveness Deadline set forth in clause
(y).
The Company shall use its commercially reasonable best efforts to keep any
Shelf Registration Statement required by this Section 4(a) continuously
effective, supplemented and amended as required by and subject to the provisions
of Sections 6(b) and (c) hereof to the extent necessary to ensure that it is
available for resales of Transfer Restricted Notes 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 (x) (1) other than
as set forth in clause (2), for a period of at least two years (as extended
pursuant to Section 6(d)) following the date on which such Shelf Registration
Statement first became effective under the Act, and (2) if and for as long as
the Initial Purchaser is deemed to be an Affiliate of the Company, but in no
event less than a period of at least two years, or such shorter period as will
terminate when all Transfer Restricted Notes covered by such Shelf 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 Notes may include
any of its Transfer Restricted Notes in any Shelf Registration Statement
pursuant to this Agreement unless and until such Holder furnishes to the Company
in writing, within 10 Business Days after receipt of a request therefor, the
information specified in Item 507 or 508 of Regulation S-K, as applicable, or
such other information as the Company may reasonably request of the Act for use
in connection with any Shelf Registration Statement or Prospectus or preliminary
Prospectus included therein or in any application to NASD. No Holder of Transfer
Restricted Notes shall be entitled to liquidated damages pursuant to Section 5
hereof unless and until such Holder shall have provided all such information.
Each selling Holder agrees to promptly furnish additional information required
to be disclosed in order to make the information previously furnished to the
Company by such Holder not materially misleading.
SECTION 5. LIQUIDATED DAMAGES
If (i) any Registration Statement required by this Agreement is not filed
with the Commission on or prior to the applicable Filing Deadline, (ii) any such
Registration Statement has not been declared effective by the Commission on or
prior to the applicable Effectiveness Deadline, (iii) the Exchange Offer has not
been Consummated within 35 Business Days after the Exchange Offer Registration
Statement is first declared effective by the Commission or (iv), subject to
Section 6(c)(i) hereof, 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 (but
in any event within 5 Business Days thereafter) by
<PAGE>
-6-
a post-effective amendment to such Registration Statement that cures such
failure and that is itself declared effective immediately (each such event
referred to in clauses (i) through (iv), a "Registration Default"), then the
Company hereby agrees to pay to each Holder of Transfer Restricted Notes
affected thereby liquidated damages in an amount equal to $.05 per week per
$1,000 in principal amount of Transfer Restricted Notes held by such Holder for
each week or portion thereof that the Registration Default continues for the
first 90-day period immediately following the occurrence of such Registration
Default. The amount of the liquidated damages shall increase by an additional
$.05 per week per $1,000 in principal amount of Transfer Restricted Notes with
respect to each subsequent 90-day period until all Registration Defaults have
been cured, up to a maximum amount of liquidated damages of $.50 per week per
$1,000 in principal amount of Transfer Restricted Notes; provided that the
Company shall in no event be required to pay liquidated damages for more than
one Registration Default at any given time. Notwithstanding anything to the
contrary set forth herein, (1) upon filing of the Exchange Offer Registration
Statement (and/or, if applicable, the Shelf Registration Statement), in the case
of (i) above, (2) upon the effectiveness of the Exchange Offer Registration
Statement (and/or, if applicable, the Shelf Registration Statement), in the case
of (ii) above, (3) upon Consummation of the Exchange Offer, in the case of (iii)
above, or (4) upon the filing of a post-effective amendment to the Registration
Statement or an additional Registration Statement that causes the Exchange Offer
Registration Statement (and/or, if applicable, the Shelf Registration Statement)
to again be declared effective or made usable in the case of (iv) above, the
liquidated damages payable with respect to the Transfer Restricted Notes as a
result of such clause (i), (ii), (iii) or (iv), as applicable, shall cease to
accrue.
All accrued liquidated damages shall be paid to the Holders entitled
thereto, in cash, on each Interest Payment Date, as more fully set forth in the
Indenture and the Notes. All obligations of the Company set forth in the
preceding paragraph that are outstanding with respect to any Transfer Restricted
Security at the time such security ceases to be a Transfer Restricted Security
shall survive until such time as all such obligations with respect to such
security shall have been satisfied in full.
SECTION 6. REGISTRATION PROCEDURES
(a) Exchange Offer Registration Statement. In connection with the Exchange
Offer, the Company shall comply with all applicable provisions of Section 6(c)
below, shall use its commercially reasonable best efforts to effect such
exchange and to permit the resale of Series B Notes by Broker-Dealers that
tendered in the Exchange Offer Series A Notes that such Broker-Dealer acquired
for its own account as a result of its market making activities or other trading
activities (other than Series A Notes acquired directly from the Company or any
of its Affiliates) being sold in accordance with the intended method or methods
of distribution thereof, and shall comply with all of the following provisions:
(i) If, following the date hereof there has been announced a change in
Commission policy with respect to exchange offers such as the Exchange
Offer, that in the reasonable opinion of counsel to the Company raises a
substantial question as to whether the Exchange Offer is permitted by
applicable federal law or Commission Policy, the Company hereby agrees 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 Notes. The Company hereby agrees to pursue the issuance of such
a decision to the Commission staff level but shall not be required to take
commercially unreasonable action to effect changes in Commission policy. In
connection with the foregoing, the Company hereby agrees to take all such
other actions as may be requested by the Commission or otherwise reasonably
required in connection with the issuance of such decision, including
without limitation (A) participating in telephonic conferences with the
Commission, (B) delivering to the Commission staff an analysis prepared by
counsel to the Company setting forth the legal bases, if any, upon which
such
<PAGE>
-7-
counsel has concluded that such an Exchange Offer should be permitted and
(C) diligently pursuing a resolution (which need not be favorable) by the
Commission staff.
(ii) As a condition to its participation in the Exchange Offer, each
Holder of Transfer Restricted Notes (including, without limitation, any
Holder who is a Broker Dealer) shall furnish, upon the request of the
Company, prior to the Consummation of the Exchange Offer, a written
representation to the Company (which may be contained in the letter of
transmittal contemplated by the Exchange Offer Registration Statement) to
the effect that (A) it is not an Affiliate of the Company, (B) it is not
engaged in, and does not intend to engage in, and has no arrangement or
understanding with any Person to participate in, a distribution of the
Series B Notes to be issued in the Exchange Offer and (C) it is acquiring
the Series B Notes in its ordinary course of business. As a condition to
its participation in the Exchange Offer each Holder using the Exchange
Offer to participate in a distribution of the Series B Notes shall
acknowledge and agree that, if the resales are of Series B Notes obtained
by such Holder in exchange for Series A Notes acquired directly from the
Company or an Affiliate thereof, it (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 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 must 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.
(iii) To the extent required by the Commission, 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 Corporation (available May 13,
1988), Morgan Stanley and Co., Inc. (available June 5, 1991) as interpreted
in the Commission's letter to Shearman & Sterling dated July 2, 1993, and,
if applicable, any no-action letter obtained pursuant to clause (i) above,
(B) including a representation that the Company has not entered into any
arrangement or understanding with any Person to distribute the Series B
Notes to be received in the Exchange Offer and that, to the best of the
Company's information and belief, each Holder participating in the Exchange
Offer is acquiring the Series B Notes in its ordinary course of business
and has no arrangement or understanding with any Person to participate in
the distribution of the Series B Notes received in the Exchange Offer and
(C) any other undertaking or representation required by the Commission as
set forth in any no-action letter obtained pursuant to clause (i) above, if
applicable.
(b) Shelf Registration Statement. In connection with the Shelf Registration
Statement, the Company shall comply in all material respects with all the
provisions of Section 6(c) below and shall use its commercially reasonable best
efforts to effect such registration to permit the sale of the Transfer
Restricted Notes 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 Notes in accordance with the
intended method or methods of distribution thereof within the time periods and
otherwise in accordance with the provisions hereof.
<PAGE>
-8-
(c) General Provisions. In connection with any Registration Statement and
any related Prospectus required by this Agreement, the Company shall:
(i) use its commercially reasonable best efforts to keep such
Registration Statement continuously effective and provide all requisite
financial statements 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 Notes during the period required
by this Agreement, the Company shall file promptly an appropriate amendment
to such Registration Statement curing such defect, and, if Commission
review is required, use its commercially reasonable best efforts to cause
such amendment to be declared effective as soon as practicable, thereafter.
Notwithstanding the foregoing, if (A) the Board of Directors of the Company
determines in good faith that it is in the best interests of the Company
not to disclose the existence of or facts surrounding any proposed or
pending material corporate transaction involving the Company and (B) the
Company notifies the Holders within two Business Days after the Board of
Directors makes such determination, the Company may allow the Shelf
Registration Statement to fail to be effective and usable as a result of
such nondisclosure for up to 40 days during the two-year period of
effectiveness required by Section 4 hereof, but in no event for a period in
excess of 30 consecutive days; provided that the two-year period referred
to in Section 4 hereof during which the Shelf Registration Statement is
required to be effective and usable shall be extended by the number of days
during which such registration statement was not effective or usable
pursuant to the foregoing provisions;
(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 the case may be;
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, in all material respects, with Rules 424, 430A and
462, as applicable, 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 selling Holders, the underwriter(s), if any, and any
Affiliated Market Maker promptly and, if requested by such Persons, 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 Notes 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 in order to make
the statements therein not misleading, or that requires the making of any
additions to or changes in the Prospectus in order to make the statements
therein, in the light of the circumstances under which they were made, not
misleading. If at any time the Commission shall issue any stop order
<PAGE>
-9-
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 Notes under state securities or Blue Sky laws, the
Company shall use its commercially reasonable best efforts to obtain the
withdrawal or lifting of such order at the earliest possible time;
(iv) subject to Section 6(c)(i), if any fact or event contemplated by
Section 6(c)(iii)(D) above 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 Notes, 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;
(v) furnish to the Initial Purchaser, any Affiliated Market Maker and
each selling Holder named in any Registration Statement or Prospectus and
each of the underwriter(s) in connection with such exchange or 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 and
comment of such selling Holders and each of the underwriter(s) in
connection with such sale, if any, for a period of at least five Business
Days, and the Company will not file any such Registration Statement or
Prospectus or any amendment or supplement to any such Registration
Statement or Prospectus (including all such documents incorporated by
reference) to which such selling Holders or the underwriter(s) shall
reasonably object in writing within five Business Days after the receipt
thereof. A selling Holder or the underwriter(s) 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 comply with
the applicable requirements of the Act specified in such written objection;
(vi) 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, the underwriter(s)
and Affiliated Market Makers in connection with such exchange or sale, if
any, make the Company's representatives available for discussion of such
document and other customary due diligence matters, and include such
information in such document prior to the filing thereof as such Persons
may reasonably request;
(vii) make available upon reasonable advance notice and at reasonable
times for inspection by the selling Holders, underwriters, if any, and any
Affiliated Market Maker participating in any disposition pursuant to such
Registration Statement and any attorney or accountant retained by such
selling Holders or any of such underwriter(s), all financial and other
records, pertinent corporate documents of the Company and cause the
Company's officers, directors and employees to supply all information
reasonably requested by any such selling Holder, Affiliated Market Maker,
underwriter, attorney or accountant in connection with such Registration
Statement or any post-effective amendment thereto subsequent to the filing
thereof and prior to its effectiveness; provided that any information that
is reasonably and in good faith designated by the Company in writing as
confidential at the time of delivery of such information shall be kept
confidential by such Persons, unless (i) disclosure of such information is
required by court or administrative order or is necessary to respond to
inquiries of
<PAGE>
-10-
regulatory authorities, (ii) disclosure of such information is required by
law (including any disclosure requirements pursuant to federal securities
laws in connection with the filing of such Registration Statement or the
use of any Prospectus, except if the Company obtains "confidential
treatment" for any document or information in accordance with the rules of
the Commission), (iii) such information becomes generally available to the
public other than as a result of a disclosure or failure to safeguard such
information by such Person or (iv) such information becomes available to
such Person from a source other than the Company and its subsidiaries and
such source is not known, after due inquiry, by such Person to be bound by
a confidentiality agreement;
(viii) if reasonably requested by any selling Holders, the
underwriter(s), if any, or any Affiliated Market Maker, in connection with
such exchange or sale, promptly include in any Registration Statement or
Prospectus, pursuant to a supplement or post-effective amendment if
necessary, such information as such selling Holders, underwriter(s), if
any, and any Affiliated Market Maker may reasonably request to have
included therein, including, without limitation, information relating to
the "Plan of Distribution" of the Transfer Restricted Notes and the use of
the Registration Statement or Prospectus for market making activities; 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 included in such Prospectus supplement or post-effective
amendment;
(ix) furnish to each selling Holder, each of the underwriter(s), if
any, and each Affiliated Market Maker in connection with such exchange or
sale, without charge, at least one copy of the Registration Statement, as
first filed with the Commission, and of each amendment thereto, including
all documents incorporated by reference therein and all exhibits (including
exhibits incorporated therein by reference);
(x) deliver to each selling Holder, each of the underwriter(s), if
any, and each Affiliated Market Maker 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 (in accordance with law) of the Prospectus and
any amendment or supplement thereto by each of the selling Holders and each
of the underwriter(s) in connection with the offering and the sale of the
Transfer Restricted Notes covered by the Prospectus or any amendment or
supplement thereto and all market making activities of such Affiliated
Market Maker, as the case may be;
(xi) enter into such agreements (including underwriting agreements)
and make such representations and warranties and take all such other
reasonable actions in connection therewith in order to expedite or
facilitate the disposition of the Transfer Restricted Notes pursuant to any
applicable Registration Statement contemplated by this Agreement as may be
reasonably requested by any selling Holder of Transfer Restricted Notes in
connection with any sale or resale pursuant to any applicable Registration
Statement. In such connection, and also in connection with market making
activities by any Affiliated Market Maker, the Company shall:
(A) upon the reasonable request of any selling Holder, furnish
(or in the case of paragraphs (2) and (3) below, use its commercially
reasonable best efforts to cause to be furnished) to each selling
Holder and each underwriter, if any, upon the effectiveness of the
Shelf Registration Statement or upon Consummation of the Exchange
Offer, as the case may be:
<PAGE>
-11-
(1) a certificate, dated such date, signed on behalf of the
Company by (x) the President or any Vice President and (y) a
principal financial or accounting officer of the Company,
confirming, as of the date thereof, the matters set forth in
paragraphs (a), (b) and (d) of Section 9 of the Purchase
Agreement and such other similar matters as the selling Holders
and/or underwriter(s) 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 matters similar to those set forth in paragraph
(e) of Section 9 of the Purchase Agreement and such other matters
as the selling Holder and/or underwriter(s) 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 the extent such
counsel deems appropriate upon the statements of officers and
other representatives of the Company and without independent
check or verification), no facts came to such counsel's attention
that caused such counsel to believe that the applicable
Registration Statement, at the time such Registration Statement
or any post-effective amendment thereto became effective and, in
the case of the Exchange Offer Registration Statement, as of the
date of Consummation of the Exchange Offer, contained an untrue
statement of a material fact or omitted to state a material fact
required to be stated therein or necessary to make the statements
therein not misleading, or that the Prospectus contained in such
Registration Statement as of its date and, in the case of the
opinion dated the date of Consummation of the Exchange Offer, as
of the date of Consummation, contained an untrue statement of a
material fact or omitted to state a material fact necessary in
order to make the statements therein, in the 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 or information included therein as to any
selling Holder or underwriter which information was provided in
writing to the Company or its counsel by such selling Holder or
underwriter for inclusion therein; and
(3) a customary comfort letter, dated the date of
Consummation of the Exchange Offer, or as of the date of
effectiveness of the Shelf Registration Statement, as the case
may be, from the Company's independent accountants, in the
customary form and covering matters of the type customarily
covered in comfort letters to underwriters in connection with
underwritten offerings, and affirming the matters set forth in
the comfort letters delivered pursuant to paragraph (g) of
Section 9 of the Purchase Agreement; and
<PAGE>
-12-
(B) set forth in full or incorporate by reference in the
underwriting agreement, if any, in connection with any sale or resale
pursuant to any Shelf Registration Statement 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 the selling Holders and the underwriter(s), if
any, to evidence compliance with clause (A) above and with any
customary conditions contained in the any agreement entered into by
the Company pursuant to this clause (xi);
The above shall be done at each closing under such underwriting or
similar agreement, as and to the extent required thereunder, and if at any
time the representations and warranties of the Company contemplated in
(A)(1) above cease to be true and correct, the Company shall so advise the
underwriter(s), if any, and the selling Holders promptly and if reasonably
requested by such Persons, shall confirm such advice in writing;
(xii) prior to any public offering of Transfer Restricted Notes,
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 Notes under the securities or Blue Sky laws of such
jurisdictions as the selling Holders or the underwriter(s), if any, may
reasonably request and do any and all other acts or things reasonably
necessary or advisable to enable the disposition in such jurisdictions of
the Transfer Restricted Notes 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) issue, upon the request of any Holder of Series A Notes covered
by any Shelf Registration Statement contemplated by this Agreement, Series
B Notes having an aggregate principal amount equal to the aggregate
principal amount of Series A Notes surrendered to the Company by such
Holder in exchange therefor or being sold by such Holder, such Series B
Notes to be registered in the name of such Holder or in the name of the
purchaser(s) of such Series B Notes, as the case may be; in return, the
Series A Notes held by such Holder shall be surrendered to the Company for
cancellation;
(xiv) in connection with any sale of Transfer Restricted Notes that
will result in such securities no longer being Transfer Restricted Notes,
cooperate with the selling Holders and the underwriter(s), if any, to
facilitate the timely preparation and delivery of certificates representing
Transfer Restricted Notes to be sold and not bearing any restrictive
legends; and to register such Transfer Restricted Notes in such
denominations and such names as the selling Holders may reasonably request
at least two Business Days prior to such sale of Transfer Restricted Notes;
(xv) use its commercially reasonable best efforts to cause the
disposition of the Transfer Restricted Notes covered by the Registration
Statement to be registered with or approved by such other U.S. 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 Notes, subject to the proviso contained in clause
(xii) above;
<PAGE>
-13-
(xvi) provide a CUSIP number for all Transfer Restricted Notes not
later than the effective date of a Registration Statement covering such
Transfer Restricted Notes and provide the Trustee under the Indenture with
printed certificates for the Transfer Restricted Notes which are in a form
eligible for deposit with The Depository Trust Company;
(xvii) otherwise use its commercially reasonable best efforts to
comply in all material respects with all applicable rules and regulations
of the Commission, and make generally available to its security holders
with regard to any applicable Registration Statement, as soon as
practicable, a consolidated earnings statement meeting the requirements of
Rule 158 (which need not be audited) covering a twelve-month period
beginning after the effective date of the Registration Statement (as such
term is defined in paragraph (c) of Rule 158 under the Act);
(xviii) make appropriate officers of the Company reasonably available
to the selling Holders for meetings with prospective purchasers of the
Transfer Restricted Notes and prepare and present to potential investors
customary "road show" material in a manner consistent with other new
issuances of other securities similar to the Transfer Restricted Notes;
(xix) 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 their respective commercially reasonable best efforts to
cause such Registration Statement to become effective and approved by such
U.S. governmental agencies or authorities as may be necessary to enable the
Holders selling Transfer Restricted Notes to consummate the disposition of
such Transfer Restricted Notes; provided that the Company shall not take
any position during review by the NASD that would, in any manner, create
the implication that the offering of the Series A Notes on the Closing Date
by the Company should be or is subject to the rules and regulations of the
NASD;
(xx) cause the Indenture to be qualified under the TIA not later than
the effective date of the first Registration Statement required by this
Agreement and, in connection therewith, cooperate with the Trustee and the
Holders to effect such changes to the Indenture as may be required for such
Indenture to be so qualified in accordance with the terms of the TIA; and
execute and use its commercially reasonable best efforts to cause the
Trustee to execute, all documents that may be required to effect such
changes and all other forms and documents required to be filed with the
Commission to enable such Indenture to be so qualified in a timely manner;
and
(xxi) provide promptly to each Holder, the Initial Purchaser and each
Affiliated Market Maker upon request each document filed with the
Commission pursuant to the requirements of Section 13 or Section 15(d) of
the Exchange Act.
(d) Restrictions on Holders. Each Holder agrees by acquisition of a
Transfer Restricted Security that, and each Affiliated Market Maker agrees that,
upon receipt of the notice referred to in Section 6(c)(iii)(C) 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 Notes pursuant to the
applicable Registration Statement until (i) such Holder has received copies of
the supplemented or amended Prospectus contemplated by Section 6(c)(iv) 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
<PAGE>
-14-
case, the "Recommencement Date"). Each Holder receiving a Suspension Notice
hereby agrees that it will either (i) destroy any Prospectuses, other than
permanent file copies, then in such Holder's possession which have been replaced
by the Company with more recently dated Prospectuses and, if requested by the
Company, deliver a certificate to the Company executed by an executive officer
or other responsible representative of such Holder certifying as to such
destruction or (ii) 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 Notes that was current at the
time of receipt of the Suspension 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 a number of days equal to the number of days
in the period from and including the date of delivery of the Suspension Notice
to the date of delivery of 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; (ii) all fees and expenses of
compliance with federal securities and state Blue Sky or securities laws; (iii)
all expenses of printing (including printing certificates for the Series B Notes
to be issued in the Exchange Offer and printing of Prospectuses, whether for
exchanges, sales, market making or otherwise), messenger and delivery services
and telephone; (iv) all fees and disbursements of counsel for the Company and
the Holders of Transfer Restricted Notes; (but limited in accordance with
Section 7(b)); (v) all application and filing fees in connection with listing
the Series B Notes on a national securities exchange or automated quotation
system pursuant to the requirements hereof; and (vi) all fees and disbursements
of independent certified public accountants of the Company (including the
expenses of any special audit and comfort letters required by or incident to
such performance). Notwithstanding the foregoing or anything in this Agreement
to the contrary, each Holder of Transfer Restricted Notes being registered shall
pay all commissions, placement agent fees and underwriting discounts and
commissions with respect to any Transfer Restricted Notes sold by it.
The Company will, in any event, bear its internal expenses (including,
without limitation, all salaries and expenses of its officers and employees
performing legal or accounting duties), the expenses of any annual audit and the
fees and expenses of any Person, including special experts, retained by the
Company.
(b) In connection with any Registration Statement required by this
Agreement (including, without limitation, the Exchange Offer Registration
Statement and the Shelf Registration Statement), the Company will reimburse the
Initial Purchasers and the Holders of Transfer Restricted Notes being tendered
in the Exchange Offer and/or resold pursuant to the "Plan of Distribution"
contained in the Exchange Offer Registration Statement or registered pursuant to
the Shelf Registration Statement, as applicable, for the reasonable fees and
disbursements of not more than one counsel, who shall be Cahill Gordon & Reindel
or such other counsel as selected by the Holders of a majority in principal
amount of the Transfer Restricted Notes for whose benefit such Registration
Statement is being prepared; provided, however, that in the event the Initial
Purchasers hold a majority in principal amount of the Transfer Restricted Notes,
Cahill Gordon & Reindel shall be selected as counsel to the Holders and the fees
and disbursements of Cahill Gordon & Reindel paid by the Initial Purchasers
shall not be reimbursed.
SECTION 8. INDEMNIFICATION
(a) The Company agrees to indemnify and hold harmless each Holder (each
such Holder, an "Indemnified Holder"), its directors, its officers and each
Person, if any, who controls such Holder (within
<PAGE>
-15-
the meaning of Section 15 of the Act or Section 20 of the Exchange Act), from
and against any and all losses, claims, damages, liabilities, judgments,
(including without limitation, any legal or other expenses incurred in
connection with investigating or defending any matter, including any action that
could give rise to any such losses, claims, damages, liabilities or judgments)
caused by any untrue statement or alleged untrue statement of a material fact
contained in any Registration Statement, preliminary Prospectus or Prospectus
(or any amendment or supplement thereto) provided by the Company to any holder
or any prospective purchaser of Series B Notes, or caused by any omission or
alleged omission to state therein a material fact required to be stated therein
or necessary to make the statements therein not misleading, except insofar as
such losses, claims, damages, liabilities or judgments are caused by an untrue
statement or omission or alleged untrue statement or omission that is based upon
information relating to any of the Holders furnished in writing to the Company
by any of the Holders expressly for use therein; provided, that with respect to
any such untrue statement in or omission from the Preliminary Prospectus, the
indemnity agreement contained in this Section 8(a) shall not inure to the
benefit of the Initial Purchaser to the extent that any such loss, claim,
damage, liability or judgment results from the fact that both (A) a copy of the
Prospectus was not sent or given to such Person at or prior to the written
confirmation of the sale of Series A Notes to such Person and (B) the untrue
statement in or omission from the Preliminary Prospectus was corrected in the
Prospectus.
(b) Each Holder of Transfer Restricted Notes agrees, severally and not
jointly, to indemnify and hold harmless the Company, and its directors,
officers, and each Person, if any, who controls (within the meaning of Section
15 of the Act or Section 20 of the Exchange Act) the Company to the same extent
as the foregoing indemnity from the Company to each of the Indemnified Holders,
but only with reference to information relating to such Indemnified Holder
furnished in writing to the Company by such Indemnified Holder expressly for use
in any Registration Statement. In no event shall any Indemnified Holder be
liable or responsible for any amount in excess of the amount by which the total
amount received by such Indemnified Holder with respect to its sale of Transfer
Restricted Notes pursuant to a Registration Statement exceeds (i) the amount
paid by such Indemnified Holder for such Transfer Restricted Notes and (ii) the
amount of any damages that such Indemnified Holder has otherwise been required
to pay by reason of such untrue or alleged untrue statement or omission or
alleged omission.
(c) In case any action or proceeding (including any governmental or
regulatory proceeding) 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"), the indemnified party shall promptly notify in writing the Person
against whom such indemnity may be sought (the "indemnifying person") and the
indemnifying party shall assume the defense of such action, including the
employment of counsel reasonably satisfactory to the indemnified party and the
payment of all fees and expenses of such counsel, as incurred (except that in
the case of any action in respect of which indemnity may be sought pursuant to
both Sections 8(a) and 8(b), an Indemnified Holder shall not be required to
assume the defense of such action pursuant to this Section 8(c), but may employ
separate counsel and participate in the defense thereof, but the fees and
expenses of such counsel, except as provided below, shall be at the expense of
the Indemnified Holder); provided, that failure to give any such notice of
indemnity will not relieve the indemnifying party from its obligations pursuant
to this Agreement, except to the extent that such indemnifying party has been
materially prejudiced by such failure. Any indemnified party shall have the
right to employ separate counsel in any such action and participate in the
defense thereof, but the fees and expenses of such counsel shall be at the
expense of the indemnified party unless (i) the employment of such counsel shall
have been specifically authorized in writing by the indemnifying party, (ii) the
indemnifying party shall have failed to assume the defense of such action or
employ counsel reasonably satisfactory to the indemnified party or (iii) the
named parties to any such action (including any impleaded parties) include both
the indemnified party and the indemnifying party, and the indemnified party
shall have been advised by such counsel that there may be one or more legal
defenses available to it which are different
<PAGE>
-16-
from or additional to those available to the indemnifying party (in which case
the indemnifying party shall not have the right to assume the defense of such
action on behalf of the indemnified party). In any such case, the indemnifying
party shall not, in connection with any one action or separate but substantially
similar or related actions in the same jurisdiction arising out of the same
general allegations or circumstances, be liable for the fees and expenses of
more than one separate firm of attorneys (in addition to any local counsel) for
all indemnified parties and all such fees and expenses shall be reimbursed as
they are incurred. Such firm shall be designated in writing by a majority of the
Indemnified Holders, in the case of the parties indemnified pursuant to Section
8(a), and by the Company, in the case of parties indemnified pursuant to Section
8(b). The indemnifying party shall indemnify and hold harmless the indemnified
party from and against any and all losses, claims, damages, liabilities and
judgments by reason of any settlement of any action (i) effected with its
written consent or (ii) effected without its written consent if the settlement
is entered into more than twenty Business Days after the indemnifying party
shall have received a request from the indemnified party for reimbursement for
the fees and expenses of counsel (in any case where such fees and expenses are
at the expense of the indemnifying party) and, prior to the date of such
settlement, the indemnifying party shall have failed to comply with such
reimbursement request. Except as set forth in the immediately preceding
sentence, the indemnifying party shall not be liable for any settlement entered
into by an indemnified party without the prior written consent, which consent
shall not be unreasonably withheld, of the indemnifying party. No indemnifying
party shall, without the prior written consent of the indemnified party, effect
any settlement or compromise of, or consent to the entry of judgment with
respect to, any pending or threatened action in respect of which the indemnified
party is or could have been a party and indemnity or contribution may be or
could have been sought hereunder by the indemnified party, unless such
settlement, compromise or judgment (i) includes an unconditional release of the
indemnified party from all liability on claims that are or could have been the
subject matter of such action and (ii) does not include a statement as to or an
admission of fault, culpability or a failure to act, by or on behalf of the
indemnified party.
(d) To the extent that the indemnification provided for in this Section 8
is unavailable to an indemnified party in respect of any losses, claims,
damages, liabilities or judgments referred to therein (other than by reason of
the proviso in Section 8(a)), then each indemnifying party, in lieu of
indemnifying such indemnified party, shall contribute to the amount paid or
payable by such indemnified party as a result of such losses, claims, damages,
liabilities or judgments (i) in such proportion as is appropriate to reflect the
relative benefits received by the Company, on the one hand, and the Indemnified
Holders, on the other hand, from their sale of Transfer Restricted Notes or (ii)
if the allocation provided by clause 8(d)(i) is not permitted by applicable law,
in such proportion as is appropriate to reflect not only the relative benefits
referred to in clause 8(d)(i) above but also the relative fault of the Company,
on the one hand, and of the Indemnified Holders, on the other hand, in
connection with the statements or omissions which resulted in such losses,
claims, damages, liabilities or judgments, as well as any other relevant
equitable considerations. The relative fault of the Company, on the one hand,
and of the Indemnified Holders, on the other hand, shall be determined by
reference to, among other things, whether the untrue or alleged untrue statement
of a material fact or the omission or alleged omission to state a material fact
relates to information supplied by the Company, on the one hand, or by the
Indemnified Holders, on the other hand, and the parties' relative intent,
knowledge, access to information and opportunity to correct or prevent such
statement or omission.
The Company and each Holder agree that it would not be just and equitable
if contribution pursuant to this Section 8(d) were determined by pro rata
allocation (even if the Holders were treated as one entity for such purpose) or
by any other method of allocation which does not take account of the equitable
considerations referred to in the immediately preceding paragraph. The amount
paid or payable by an indemnified party as a result of the losses, claims,
damages, liabilities or judgments referred to in the immediately preceding
paragraph shall be deemed to include, subject to the limitations set forth
above, any legal or other expenses reasonably
<PAGE>
-17-
incurred by such indemnified party in connection with investigating or defending
any matter, including any action that could have given rise to such losses,
claims, damages, liabilities or judgments. Notwithstanding the provisions of
this Section 8, no Holder or its related Indemnified Holders shall be required
to contribute, in the aggregate, any amount in excess of the amount by which the
total received by such Holder with respect to the sale of its Transfer
Restricted Notes pursuant to a Registration Statement exceeds the sum of (A) the
amount paid by such Holder for such Transfer Restricted Notes plus (B) 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. 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. The Holders'
obligations to contribute pursuant to this Section 8(d) are several in
proportion to the respective principal amount of Transfer Restricted Notes held
by each of the Holders hereunder and not joint.
SECTION 9. RULE 144 and RULE 144A
The Company agrees with each Holder, for so long as any Transfer Restricted
Notes remain outstanding and during any period in which the Company (i) is not
subject to Section 13 or 15(d) of the Exchange Act, to make available, upon
request of any Holder of Transfer Restricted Notes, to any Holder or beneficial
owner of Transfer Restricted Notes in connection with any sale thereof and any
prospective purchaser of such Transfer Restricted Notes designated by 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 Notes pursuant to
Rule 144A, and (ii) is subject to Section 13 or 15(d) of the Exchange Act, to
make all filings required thereby in a timely manner in order to permit resales
of such Transfer Restricted Notes pursuant to Rule 144.
SECTION 10. UNDERWRITTEN REGISTRATIONS
No Holder may participate in any underwritten registration hereunder unless
such Holder (a) agrees to sell such Holder's Transfer Restricted Notes on the
basis provided in customary underwriting arrangements entered into in connection
therewith and (b) completes and executes all reasonable questionnaires, powers
of attorney, and other documents required under the terms of such underwriting
arrangements.
SECTION 11. SELECTION OF UNDERWRITERS
For any underwritten offering, the investment banker or investment bankers
and manager or managers for any underwritten offering that will administer such
offering will be selected by the Holders of a majority in aggregate principal
amount of the Transfer Restricted Notes included in such offering; provided that
such investment bankers and managers must be reasonably acceptable to the
Company. Such investment bankers and managers are referred to herein as the
"underwriters."
SECTION 12. MISCELLANEOUS
(a) Remedies. The Company acknowledges and 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, any Affiliated Market
Maker 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, any Affiliated Market Maker 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 further agrees
to waive the defense in any action for specific performance that a remedy at law
would be adequate.
<PAGE>
-18-
(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. The rights granted to the Holders hereunder do not in
any way conflict with and are not inconsistent with the rights granted to the
holders of the Company's securities under any agreement in effect on the date
hereof.
(c) 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 (i) in the case of Section 5
hereof and this Section 12(c)(i), the Company has obtained the written consent
of Holders of all outstanding Transfer Restricted Notes and (ii) in the case of
all other provisions hereof, the Company has obtained the written consent of
Holders of a majority of the outstanding principal amount of Transfer Restricted
Notes (excluding Transfer Restricted Notes held by the Company or its
Affiliates). Notwithstanding the foregoing, a waiver or consent to departure
from the provisions hereof that relates exclusively to the rights of Holders
whose securities are being tendered pursuant to the Exchange Offer and that does
not affect directly or indirectly the rights of other Holders whose securities
are not being tendered pursuant to such Exchange Offer may be given by the
Holders of a majority of the outstanding principal amount of Transfer Restricted
Notes subject to such Exchange Offer.
(d) Third Party Beneficiary. The Holders and Affiliated Market Makers shall
be third party beneficiaries to the agreements made hereunder between the
Company, on the one hand, and the Initial Purchaser, on the other hand, and
shall have the right to enforce such agreements directly to the extent they may
deem such enforcement necessary or advisable to protect its rights or the rights
of Holders hereunder.
(e) Notices. All notices and other communications provided for or permitted
hereunder shall be made in writing by hand-delivery, first-class mail
(registered or certified, return receipt requested), telex, telecopier, or air
courier guaranteeing overnight delivery:
(i) if to a Holder, at the address set forth on the records of the
Registrar under the Indenture, with a copy to the Registrar under the
Indenture; and
(ii) if to the Company:
Middle American Tissue Inc.
135 Engineers Road
Hauppauge, New York 11788
Telecopier No.: (516) 435-8980
Attention: President and Chief Executive Officer
With a copy to:
Mandel & Resnik P.C.
220 East 42nd Street
New York, New York 10017
Telecopier No.: (212) 573-0067
Attention: Nicholas J. Kaiser, Esq.
<PAGE>
-19-
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 receipt
acknowledged, if telecopied; and on the next Business Day, if timely delivered
to an air courier guaranteeing overnight delivery.
Copies of all such notices, demands or other communications shall be
concurrently delivered by the Person giving the same to the Trustee at the
address specified in the Indenture.
Upon the date of filing of the Exchange Offer or a Shelf Registration
Statement, as the case may be, notice shall be delivered to Donaldson, Lufkin &
Jenrette Securities Corporation (in the form attached hereto as Exhibit A) and
shall be addressed to: Attention: Louise Guarneri (Compliance Department), 277
Park Avenue, New York, New York 10172.
(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 Notes; provided, that nothing herein shall be
deemed to permit any assignment, transfer or other disposition of Transfer
Restricted Notes in violation of the terms hereof or of the Purchase Agreement
or the Indenture. If any transferee of any Holder shall acquire Transfer
Restricted Notes in any manner, whether by operation of law or otherwise, such
Transfer Restricted Notes shall be held subject to all of the terms of this
Agreement, and by taking and holding such Transfer Restricted Notes such Person
shall be conclusively deemed to have agreed to be bound by and to perform all of
the terms and provisions of this Agreement, including the restrictions on resale
set forth in this Agreement and, if applicable, the Purchase Agreement, and such
Person shall be entitled to receive the benefits hereof.
(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 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 with respect to the Transfer
Restricted Notes. This Agreement supersedes all prior agreements and
understandings between the parties with respect to such subject matter.
<PAGE>
IN WITNESS WHEREOF, the parties have executed this Agreement as of the date
first written above.
MIDDLE AMERICAN TISSUE INC.
By: /s/ Nourollah Elghanayan
------------------------
Nourollah Elghanayan
Chairman of the Board
By: /s/ Mehdi Gabayzadeh
------------------------
Mehdi Gabayzadeh
President
<PAGE>
IN WITNESS WHEREOF, the parties have executed this Agreement as of the date
first written above.
DLJMB Funding II, Inc.
By: DLJMB Funding, Inc.
/s/ Andrew Rush
----------------------------
Name:
Title:
DLJ Merchant Banking Partners II, L.P.
By: DLJ Merchant Banking II, Inc.
Managing General Partner
/s/ Andrew Rush
----------------------------
Name:
Title:
DLJ Merchant Banking Partners II-A, L.P.
By: DLJ Merchant Banking II, Inc.
Managing General Partner
/s/ Andrew Rush
----------------------------
Name:
Title:
DLJ FIRST ESC L.P.
By: DLJ LBO PLANS MANAGEMENT
CORPORATION
General Partner
By: /s/ Andrew Rush
----------------------------
Name:
Title:
<PAGE>
DLJ OFFSHORE PARTNERS II, C.V.
By: DLJ MERCHANT BANKING II, INC.
Managing General Partner
By: /s/ Andrew Rush
----------------------------
Name:
Title:
DLJ EAB PARTNERS, L.P.
By: DLJ LBO PLANS MANAGEMENT
CORPORATION
General Partner
By: /s/ Andrew Rush
----------------------------
Name:
Title:
DLJ ESC II L.P.
By: DLJ LBO PLANS MANAGEMENT
CORPORATION
General Partner
By: /s/ Andrew Rush
----------------------------
Name:
Title:
DLJ DIVERSIFIED PARTNERS, L.P.
By: DLJ DIVERSIFIED PARTNERS, INC.
Managing General Partner
By: /s/ Andrew Rush
----------------------------
Name:
Title:
DLJ DIVERSIFIED PARTNERS-A, L.P.
By: DLJ DIVERSIFIED PARTNERS, INC.
Managing General Partner
By: /s/ Andrew Rush
----------------------------
Name:
Title:
<PAGE>
DLJ MILLENNIUM PARTNERS, L.P.
By: DLJ MERCHANT BANKING II, INC.
Managing General Partner
By: /s/ Andrew Rush
----------------------------
Name:
Title:
DLJ MILLENNIUM PARTNERS-A, L.P.
By: DLJ MERCHANT BANKING II, INC.
Managing General Partner
By: /s/ Andrew Rush
----------------------------
Name:
Title:
SECURITIES PLEDGE AGREEMENT
SECURITIES PLEDGE AGREEMENT (the "Agreement"), dated as of July 9, 1999,
made by and among MIDDLE AMERICAN TISSUE INC., a Delaware corporation having an
office at 135 Engineers Road, Hauppauge, New York 11788, as pledgor, assignor
and debtor (together with its successors, "Pledgor"), THE CHASE MANHATTAN BANK,
having an office at 450 West 33rd Street, New York, New York 10001, in its
capacity as collateral agent, pledgee, assignee and secured party (in such
capacity and, together with its successors in such capacity, the "Collateral
Agent"), the WARRANT HOLDERS listed on the signature pages hereto (together with
their successors and assigns, the "Warrant Holders") and THE CHASE MANHATTAN
BANK, having an office at 450 West 33rd Street, New York, New York 10001, as
trustee (in such capacity and, together with its successors in such capacity,
the "Trustee") with respect to the Notes (as hereinafter defined) issued
pursuant to the Indenture (as hereinafter defined).
RECITALS:
A. In connection with the execution and delivery of this Agreement, the
Trustee and Pledgor have entered into that certain indenture, dated as of July
9, 1999 (as amended, amended and restated, supplemented or otherwise modified
from time to time, the "Indenture"), pursuant to which Pledgor has issued its
15% senior secured discount notes due July 9, 2007 (the "Series A Notes").
B. It is contemplated that Pledgor may, after the date hereof, issue
exchange notes pursuant to the Indenture ("Series B Notes"; together with the
Series A Notes, the "Notes").
C. Pursuant to a certain Warrant Agreement, dated as of July 9, 1999 (as
amended, restated, supplemented or otherwise modified from time to time, the
"Warrant Agreement"), Pledgor has, inter alia, issued its warrants (the
"Warrants") to the Warrant Holders in order that the Warrant Holders may
purchase 12% of the capital stock of Pledgor.
D. Pursuant to a certain Stockholders Agreement, dated as of July 9, 1999
(as amended, restated, supplemented or otherwise modified from time to time, the
"Stockholders Agreement"), Pledgor has, inter alia, agreed to repurchase the
Warrants and redeem the Notes, under certain circumstances.
E. Pledgor is or will be the legal and beneficial owner of the Securities
Collateral (as hereinafter defined) to be pledged by it hereunder.
<PAGE>
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F. Pledgor has requested that the Collateral Agent act, and the Collateral
Agent has agreed to act, as the agent of (i) the Trustee, for the benefit of
itself (in its capacity as Trustee) and the holders of the Notes (the "Note
Holders") and (ii) the Warrant Holders.
G. This Agreement is given by Pledgor in favor of the Collateral Agent, for
its benefit, and for the benefit of the Trustee (for its benefit and the benefit
of the Note Holders) and the Warrant Holders (collectively, the "Secured
Parties") to secure the payment and performance of all of the Secured
Obligations (as hereinafter defined).
Capitalized terms used herein and not defined shall have the meanings
assigned to them in the Indenture or the Stockholders Agreement.
AGREEMENT:
NOW, THEREFORE, in consideration of the foregoing premises and other good
and valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, the parties hereby agree as follows:
Section 1. Appointment of Collateral Agent. The Warrant Holders and the
Trustee, on its behalf and on behalf of the Note Holders, hereby designate and
appoint the Collateral Agent, and the Collateral Agent hereby accepts such
designation and appointment to serve as Collateral Agent for the Trustee and the
Warrant Holders in the manner and upon the terms and conditions set forth
herein. The Warrant Holders and the Trustee, on its behalf and on behalf of the
Note Holders, hereby irrevocably authorize the Collateral Agent to take such
action on their behalf as shall be permitted to be taken under the provisions
hereof to enforce their rights in respect of the Securities Collateral and to
initiate, prosecute and defend any and all legal proceedings against the Pledgor
relating to the Securities Collateral.
Section 2. Pledge. As collateral security for the payment and performance
when due of all the Secured Obligations, Pledgor hereby pledges, assigns,
transfers and grants to the Collateral Agent for its benefit and the benefit of
the other Secured Parties, a continuing first priority security interest in and
to all of the right, title and interest of Pledgor in, to and under the
following property, wherever located, whether now existing or hereafter arising
or acquired from time to time (collectively, the "Securities Collateral"):
(a) the issued and outstanding shares of capital stock of American
Tissue Inc. (the "Company") owned by the Pledgor described in Schedule I
hereto, all additional shares of capital stock of whatever class of the
Company from time to time acquired by Pledgor in any manner (the "Pledged
Shares") (which are and shall remain at all times until this Agreement
terminates, certificated shares);
<PAGE>
-3-
(b) all options, warrants, rights, agreements, or other interests
relating to the Company, including, without limitation, any right relating
to the equity in the Company (collectively, the "Additional Interests")
from time to time acquired by Pledgor in any manner and the certificates,
instruments and agreements, if any, representing the Additional Interests;
(c) without affecting the obligations of Pledgor under any provision
prohibiting such action hereunder or under the Indenture or the
Stockholders Agreement, in the event of any consolidation or merger in
which the Company is not the surviving entity, all shares of each class of
the capital stock of the successor corporation or interests or certificates
of the successor limited liability company or partnership owned by Pledgor
(unless such successor is Pledgor itself) formed by or resulting from such
consolidation or merger (collectively, the "Successor Interests"; together
with the Pledged Shares and the Additional Interests, the "Pledged
Securities");
(d) subject to the provisions of Section 7(b)(i)(B), all dividends,
cash, options, warrants, rights, instruments, distributions, returns of
capital or principal, income, interest, profits and other property,
interests (debt or equity) or proceeds, including as a result of a split,
revision, reclassification or other like change of the Pledged Securities,
from time to time received, receivable or otherwise distributed to such
Pledgor in respect of or in exchange for any or all of the Pledged
Securities (collectively, "Distributions"); and
(e) all "proceeds", as such term is defined in the Uniform Commercial
Code, as in effect from time to time in any applicable jurisdiction (the
"UCC") or under other relevant law, and in any event shall include, without
limitation, any and all (i) proceeds of any insurance (except payments made
to a Person which is not a party to this Agreement), indemnity, warranty,
guaranty or claim payable to the Collateral Agent or to Pledgor from time
to time with respect to any of the Securities Collateral, (ii) payments (in
any form whatsoever) made or due and payable to Pledgor from time to time
in connection with any requisition, confiscation, condemnation, seizure or
forfeiture of all or any part of the Securities Collateral by any
Governmental Authority (or any Person acting on behalf of a Governmental
Authority), (iii) instruments representing obligations to pay amounts in
respect of the Securities Collateral, (iv) products of the Securities
Collateral and (v) other amounts from time to time paid or payable under or
in connection with any of the Securities Collateral.
Section 3. Secured Obligations. This Agreement secures, and the Securities
Collateral is collateral security for, the payment and performance in full when
due, whether at stated maturity, by acceleration or otherwise (including,
without limitation, the payment of interest and other amounts which would accrue
and become due but for the filing of a petition
<PAGE>
-4-
in bankruptcy or the operation of the automatic stay under Section 362(a) of the
Bankruptcy Code, 11 U.S.C. ss. 362(a)), of (i) all obligations of Pledgor now
existing or hereafter arising under or in respect of the Indenture and the Notes
(including, without limitation, the obligations of the Pledgor to pay principal,
interest and all other charges, fees, expenses, commissions, reimbursements,
premiums, indemnities and other payments related to or in respect of the
Indenture and the Notes), (ii) all obligations of Pledgor now existing or
hereafter arising under or in respect of Section 4.3(a) of the Stockholders
Agreement, and (iii) without duplication of the amounts described in clauses (i)
and (ii) all obligations of Pledgor now existing or hereafter arising under or
in respect of this Agreement or any other Collateral Document including, without
limitation, all charges, fees, expenses, commissions, reimbursements, premiums,
indemnities and other payments related to or in respect of the obligations
contained in this Agreement or in any other Collateral Document, in each case
whether in the regular course of business or otherwise (the obligations
described in clauses (i), (ii) and (iii) of this Section, collectively, the
"Secured Obligations").
Section 4. No Release. Except to the extent set forth herein, in the
Indenture or the Stockholders Agreement, nothing set forth in this Agreement
shall relieve Pledgor from the performance of any term, covenant, condition or
agreement on Pledgor's part to be performed or observed under or in respect of
any of the Securities Collateral or from any liability to any Person under or in
respect of any of the Securities Collateral or shall impose any obligation on
the Collateral Agent or any Secured Party to perform or observe any such term,
covenant, condition or agreement on Pledgor's part to be so performed or
observed or shall impose any liability on the Collateral Agent or any Secured
Party for any act or omission on the part of Pledgor relating thereto or for any
breach of any representation or warranty on the part of Pledgor contained in
this Agreement, the Indenture or the Stockholders Agreement or under or in
respect of the Securities Collateral or made in connection herewith or
therewith. The provisions of this Section 4 shall survive the termination of
this Agreement and the discharge of Pledgor's other obligations under this
Agreement, the Indenture or the Stockholders Agreement.
Section 5. Perfection; Supplements; Further Assurances; Use of Securities
Collateral.
(a) Delivery of Certificated Securities Collateral. All certificates,
agreements or instruments representing or evidencing the Securities Collateral,
to the extent not previously delivered to the Collateral Agent, shall, following
the receipt thereof by Pledgor, be delivered in accordance with Section 7(a) to
and held by or on behalf of the Collateral Agent pursuant hereto. All
certificated Securities Collateral shall be in suitable form for transfer by
delivery or shall be accompanied by duly executed instruments of transfer or
assignment in blank, all in form and substance reasonably satisfactory to the
Collateral Agent. The Collateral Agent shall have the right (but shall have no
obligation), at any time upon the
<PAGE>
-5-
occurrence and during the continuance of any event of default under the
Indenture or a breach of Section 4.3(a) of the Stockholders Agreement (an "Event
of Default") and without notice to Pledgor, to endorse, assign or otherwise
transfer to or to register in the name of the Collateral Agent or any of its
nominees or endorse for negotiation any or all of the Securities Collateral,
without any indication that such Securities Collateral is subject to the
security interest hereunder. In addition, the Collateral Agent shall have the
right at any time to exchange certificates representing or evidencing Pledged
Securities for certificates of smaller or larger denominations.
(b) Perfection of Uncertificated Securities Collateral. If any of the
Pledged Securities are at any time not evidenced by certificates of ownership,
then Pledgor shall, to the extent permitted by applicable law, cause such pledge
to be recorded on the equityholder register or securities transfer books of the
issuer, cause the issuer to execute and deliver to the Collateral Agent an
acknowledgment of the pledge of such Pledged Securities substantially in the
form of Exhibit 1 hereto, execute any customary pledge forms or other documents
necessary or reasonably appropriate to complete the pledge and give the
Collateral Agent the right to transfer such Pledged Securities under the terms
hereof and provide to the Collateral Agent an opinion of counsel (which may be
counsel to the Pledgor), in form and substance reasonably satisfactory to the
Collateral Agent, confirming such pledge.
(c) Financing Statements and Other Filings. The only filings, registrations
and recordings necessary to perfect the security interest granted by Pledgor to
the Collateral Agent pursuant to this Agreement in respect of the Securities
Collateral are listed in Annex A annexed hereto to the extent that a security
interest in the Securities Collateral under Article 9 of the Uniform Commercial
Code of the State of New York (as in effect on the date hereof) can be perfected
by such filing, registration or recording. All such filings, registrations and
recordings will be filed, registered and recorded contemporaneously with or as
soon as possible following the execution of the Indenture and the Stockholders
Agreement. Pledgor agrees that at any time and from time to time, it will
execute and, at the sole cost and expense of Pledgor, file and refile, or permit
the Collateral Agent to file and refile, such financing statements, continuation
statements and other documents (including, without limitation, this Agreement),
in form acceptable to the Collateral Agent, in such offices as the Collateral
Agent may deem necessary or reasonably appropriate, wherever required or
permitted by law in order to perfect and continue a valid, enforceable, first
priority security interest in the Securities Collateral as provided herein and,
as against third parties, with respect to any Securities Collateral. Without
limiting Pledgor's obligation to make such filings, following the occurrence and
during the continuance of an Event of Default, Pledgor authorizes the Collateral
Agent to file, upon notice to Pledgor, at the sole cost and expense of Pledgor,
any such financing or continuation statement or other document without the
signature of Pledgor to the fullest extent permitted by law.
<PAGE>
-6-
(d) Supplements; Further Assurances. Pledgor agrees to do such further acts
and things, and to execute and deliver to the Collateral Agent such additional
assignments, agreements, supplements, powers and instruments, as shall be
required or permitted by law and as shall from time to time be reasonably
requested by Collateral Agent in writing, in order to perfect, preserve and
protect the security interest in the Securities Collateral as provided herein
and the rights and interests granted to the Collateral Agent hereunder, to carry
into effect the purposes of this Agreement or better to assure and confirm unto
the Collateral Agent or permit the Collateral Agent to exercise and enforce its
respective rights, powers and remedies hereunder with respect to any Securities
Collateral.
Section 6. Representations, Warranties and Covenants. Pledgor represents,
warrants and covenants as follows:
(a) Perfection Actions Upon the completion of the deliveries, filings
and other actions contemplated in Sections 5(a) through 5(c) hereof, the
security interest granted to the Collateral Agent for the benefit of the
Secured Parties pursuant to this Agreement in and to the Securities
Collateral will constitute a perfected security interest therein, superior
and prior to the rights of all other Persons therein.
(b) No Liens. Pledgor is as of the date hereof, and, as to Securities
Collateral acquired by it from time to time after the date hereof, Pledgor
will be, the sole direct beneficial owner of all Securities Collateral
pledged by it hereunder free from any Lien or other right, title or
interest of any Person, other than the Lien and security interest created
by this Agreement and Pledgor shall defend the Securities Collateral
pledged by it hereunder against all claims and demands of all Persons at
any time claiming any interest therein adverse to the Collateral Agent or
any Secured Party. Other than this Agreement, the Stockholders Agreement
and the shareholders agreement, as amended as of July 9, 1999, among Super
American Tissue Inc., and its shareholders named therein, there is no
agreement, and Pledgor shall not enter into any agreement or take any other
action, that would result in the imposition of any other Lien, restrict the
transferability of any of the Securities Collateral or otherwise impair or
conflict with Pledgor's obligations or the rights of the Collateral Agent
hereunder.
(c) Chief Executive Office; Records. The chief executive office or
principal place of business of Pledgor is located at the address indicated
next to its name on Annex B hereto. Pledgor shall not establish a new
location for its chief executive office or principal place of business,
other than those listed on Annex B or change its name, identity or
structure until (i) it shall have given the Collateral Agent not less than
15 days' prior written notice of its intention so to do, clearly describing
such new location or name and providing such other information in
connection therewith as the Collateral Agent may reasonably request, and
(ii) with respect to such new location or
<PAGE>
-7-
name, Pledgor shall have taken all action reasonably satisfactory to the
Collateral Agent to maintain the perfection and priority of the security
interest of the Collateral Agent for the benefit of the Secured Parties in
the Securities Collateral intended to be granted hereby.
(d) Due Authorization and Issuance. All of the Pledged Shares have
been, and to the extent hereafter issued will be upon such issuance, duly
authorized, validly issued and fully paid and nonassessable.
(e) No Violations, etc. The pledge of the Pledged Securities pursuant
to this Agreement does not violate Regulation T, U or X of the Federal
Reserve Board.
(f) No Options, Warrants, etc. Other than as provided in the
Stockholders Agreement, there are no options, warrants, calls, rights,
commitments or agreements of any character to which Pledgor is a party or
by which it is bound obligating Pledgor to issue, deliver or sell or cause
to be issued, delivered or sold, additional Pledged Securities or
obligating Pledgor to grant, extend or enter into any such option, warrant,
call, right, commitment or agreement. Other than as provided in the
Stockholders Agreement, there are no voting trusts or other agreements or
understandings to which Pledgor is a party with respect to the transfer,
voting or exercise of any other right of the equity interests of any issuer
of the Pledged Securities.
(g) Authorization, Enforceability. Pledgor has the requisite
organizational power, authority and legal right to pledge and grant a
security interest in all the Securities Collateral pledged by it pursuant
to this Agreement, and this Agreement constitutes the legal, valid and
binding obligation of Pledgor, enforceable against Pledgor in accordance
with its terms, except as such enforceability may be limited by (i) the
effect of bankruptcy, insolvency, reorganization, fraudulent transfer,
moratorium or similar laws relating to or limiting rights and remedies of
creditors generally, by (ii) the effect of the application of general
equitable principles (whether applied in a proceeding at law or in equity),
and the discretion of the court where such proceeding is brought or (iii)
the effect of the application of due process and public policy
considerations and the availability of certain equitable remedies may be
limited by equitable principles of general applicability.
(h) No Conflicts, Consents, etc. Neither the execution and delivery of
this Agreement by Pledgor nor the consummation of the transactions herein
contemplated nor the fulfillment of the terms hereof (i) violates the
certificate of incorporation or by-laws of Pledgor or the issuer of the
Pledged Securities, (ii) violates the terms of any agreement, indenture,
mortgage, deed of trust, equipment lease, instrument or other document to
which Pledgor is a party, or by which it may be bound or to which any of
<PAGE>
-8-
its properties or assets may be subject, which violation or conflict would
have a material adverse effect on the value of the Securities Collateral
taken as a whole or an adverse effect on the Lien and security interests
granted hereunder (a "Material Adverse Effect"), (iii) violates any law,
order, rule or regulation applicable to Pledgor of any Governmental
Authority having jurisdiction over Pledgor or its property, which conflict
would have a Material Adverse Effect, or (iv) results in or requires the
creation or imposition of any Lien (other than the Lien created hereby)
upon or with respect to any of Securities Collateral now owned or hereafter
acquired by Pledgor. No consent of any party (including, without
limitation, equityholders or creditors of Pledgor) and no consent,
authorization, approval, license or other action by, and no notice to or
filing with, any Governmental Authority or regulatory body or other Person
is required for (x) the pledge by Pledgor of the Securities Collateral
pledged by it pursuant to this Agreement or for the execution, delivery or
performance of this Agreement by Pledgor, (y) the exercise by the
Collateral Agent of the rights provided for in this Agreement or (z) the
exercise by the Collateral Agent of the remedies in respect of the
Securities Collateral pursuant to this Agreement, other than such consents
as have been obtained and the filing of financing statements with filing
offices listed in Annex A hereto. In the event that the Collateral Agent
desires to exercise any remedies, voting or consensual rights or
attorney-in-fact powers set forth in this Agreement and determines it
necessary to obtain any approvals or consents of any approvals or consents
of any Governmental Authority or any other Person therefor, then, upon the
reasonable request of the Collateral Agent, Pledgor agrees to use its
commercially reasonable efforts to assist and aid the Collateral Agent to
obtain as soon as practicable any necessary approvals for the exercise of
any such remedies, rights and powers.
(i) Securities Collateral. All information set forth herein by
Pledgor, including the schedules and annexes attached hereto, and all
information contained in any documents, schedules and lists heretofore
delivered by Pledgor to any Secured Party in connection with this
Agreement, in each case, relating to the Securities Collateral, is accurate
and complete in all material respects.
Section 7. Concerning Securities Collateral.
(a) Pledge of Additional Securities. Pledgor shall, upon obtaining any
Pledged Securities of the Company, accept the same in trust for the benefit of
the Collateral Agent and promptly (and in any event within five Business Days)
deliver to the Collateral Agent a pledge amendment, duly executed by Pledgor, in
substantially the form of Exhibit 2 hereto (each, a "Pledge Amendment"), and the
certificates and other documents required under subsections 5(a) and 5(b) in
respect of the additional Pledged Securities which are to be pledged pursuant to
this Agreement, confirming the attachment of the Lien hereby created on and in
respect of such additional property. Pledgor hereby authorizes the Collateral
Agent to
<PAGE>
-9-
attach each Pledge Amendment to this Agreement and agrees that all Pledged
Securities listed on any Pledge Amendment delivered to the Collateral Agent
shall for all purposes hereunder be considered Securities Collateral.
(b) Voting Rights; Distributions; etc.
(i) So long as no Event of Default shall have occurred and be continuing:
(A) Pledgor shall be entitled to exercise any and all voting and
other consensual rights pertaining to the Securities Collateral or any
part thereof for any purpose not inconsistent with the terms or
purposes of this Agreement, the Shareholders Agreement or the
Indenture and; provided, however, that Pledgor shall not in any event
exercise such rights in any manner which is likely to have a Material
Adverse Effect.
(B) Subject to the terms of the Indenture and the Stockholders
Agreement, Pledgor shall be entitled to receive and retain, and to
utilize free and clear of the Lien of this Agreement, any and all
Distributions, but only if and to the extent made in accordance with
the provisions of the Indenture and the Stockholders Agreement;
provided, however, that any and all such Distributions consisting of
rights or interests in the form of securities shall be delivered to
the Collateral Agent to hold as Securities Collateral as provided in
Section 7(a) and shall, if received by Pledgor, be received in trust
for the benefit of the Collateral Agent, be segregated from the other
property or funds of Pledgor and be forthwith delivered to the
Collateral Agent as Securities Collateral in the same form as so
received (with any necessary endorsement).
(C) The Collateral Agent shall be deemed without further action
or formality to have granted to Pledgor all necessary consents
relating to voting rights and shall, if necessary, upon written
request of Pledgor and at the sole cost and expense of Pledgor, from
time to time execute and deliver (or cause to be executed and
delivered) to Pledgor all such instruments as Pledgor may reasonably
request in order to permit Pledgor to exercise the voting and other
rights which it is entitled to exercise pursuant to Section 7(b)(i)(A)
hereof and to receive the Distributions which it is authorized to
receive and retain pursuant to Section 7(b)(i)(B) hereof.
(ii) Upon the occurrence and during the continuance of any Event of
Default:
<PAGE>
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(A) All rights of Pledgor to exercise the voting and other
consensual rights it would otherwise be entitled to exercise pursuant
to Section 7(b)(i)(A) hereof upon the giving of notice by the
Collateral Agent shall cease, and all such rights shall thereupon
become vested in the Collateral Agent, which shall thereupon have the
sole right to exercise such voting and other consensual rights.
(B) All rights of Pledgor to receive Distributions which it would
otherwise be authorized to receive and retain pursuant to Section
7(b)(i)(B) hereof shall cease and all such rights shall thereupon
become vested in the Collateral Agent, which shall thereupon have the
sole right to receive and hold as Securities Collateral such
Distributions.
(iii) Pledgor shall, at its sole cost and expense, from time to time
execute and deliver to the Collateral Agent appropriate instruments as the
Collateral Agent may reasonably request in order to permit the Collateral
Agent to exercise the voting and other rights which it may be entitled to
exercise pursuant to Section 7(b)(ii)(A) hereof and to receive all
Distributions which it may be entitled to receive under Section 7(b)(ii)(B)
hereof.
(iv) All Distributions which are received by Pledgor contrary to the
provisions of Section 7(b)(ii)(B) hereof shall be received in trust for the
benefit of the Collateral Agent, shall be segregated from other funds of
Pledgor and shall immediately be paid over to the Collateral Agent as
Securities Collateral in the same form as so received (with any necessary
endorsement).
(c) No New Securities. Pledgor shall cause the Company not to issue any
stock or other securities or equity interests in addition to or in substitution
for the Pledged Securities issued by the Company, except to Pledgor.
(d) Defaults, etc. Pledgor is not in default in the payment of any portion
of any mandatory capital contribution, if any, required to be made under any
agreement to which Pledgor is a party relating to the Pledged Securities, and
Pledgor is not in violation of any other material provisions of any such
agreement to which Pledgor is a party. No Pledged Securities pledged by Pledgor
are subject to any defense, offset or counterclaim, nor have any of the
foregoing been asserted or alleged against Pledgor by any Person with respect
thereto, and as of the date hereof, there are no certificates, instruments,
documents or other writings which represent any Pledged Securities of Pledgor
(other than certificates representing the Pledged Securities delivered to the
Collateral Agent pursuant hereto).
Section 8. Transfers and Other Liens. Pledgor shall not (a) sell, convey,
assign or otherwise dispose of, or grant any option with respect to, any of the
Securities Collateral
<PAGE>
-11-
pledged by it hereunder except as permitted by the Indenture, the Stockholders
Agreement or this Agreement, (b) create or permit to exist any Lien upon or with
respect to any of the Securities Collateral pledged by it hereunder other than
the Lien and security interest granted to the Collateral Agent under this
Agreement or (c) permit any issuer of the Pledged Securities to merge,
consolidate or change its legal form, unless all of the outstanding equity
interests of the surviving or resulting entity are, upon such merger or
consolidation, pledged hereunder and no cash, securities or other property is
distributed in respect of the outstanding equity interests of any other
constituent entity that was merged into or consolidated with such issuer, unless
such cash, securities or other property is deposited in the Collateral Account
(as defined in the Indenture) or otherwise pledged to the Collateral Agent and
such Pledgor has otherwise complied with all applicable provisions of the
Indenture.
Section 9. Reasonable Care. The Collateral Agent shall be deemed to have
exercised reasonable care in the custody and preservation of the Securities
Collateral in its possession if such Securities Collateral is accorded treatment
substantially equivalent to that which the Collateral Agent, in its individual
capacity, accords its own property consisting of similar instruments or
interests, it being understood that neither the Collateral Agent nor any of the
Secured Parties shall have responsibility for (i) ascertaining or taking action
with respect to calls, conversions, exchanges, maturities, tenders or other
matters relating to any Securities Collateral, whether or not the Collateral
Agent or any other Secured Party has or is deemed to have knowledge of such
matters, or (ii) taking any necessary steps to preserve rights against any
Person with respect to any Securities Collateral.
Section 10. Exercise of Remedies upon Default; Obtaining the Securities
Collateral upon Event of Default.
(a) Notices. If the Trustee, on behalf of the Note Holders, has notice of
an Event of Default under the Indenture, the Trustee shall promptly give notice
in writing to the Collateral Agent and to the Warrant Holders. If any Warrant
Holder has notice of a breach of Section 4.3(a) of the Stockholders Agreement,
such Warrant Holder shall promptly give notice in writing to the Collateral
Agent and the Trustee. Absent notice given in accordance with the foregoing
provision, the Collateral Agent shall not be deemed to have knowledge of any
such Event of Default. The Collateral Agent, upon receipt of any written notice
from the Trustee or the Warrant Holders provided to it under this subsection,
shall immediately provide a copy thereof to the other parties hereto.
The Collateral Agent shall give notice to each other party hereto of any
legal action or proceeding of which it has been notified in writing naming the
Collateral Agent as party relating to this Agreement, the Securities Collateral
or the Collateral Agent's duties hereunder.
<PAGE>
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(b) Remedies; Disposition.
(i) Upon the occurrence and during the continuance of any Event of Default,
then and in every such case, the Collateral Agent may (A) retain and apply the
Distributions to the Secured Obligations as provided in Section 11 hereof and
(B) exercise any and all rights as beneficial and legal owner of the Securities
Collateral including, without limitation, perfecting assignment of and
exercising any and all voting, consensual and other rights and powers with
respect to any Securities Collateral.
Upon the occurrence and during the continuance of any Event of Default, the
Collateral Agent may from time to time exercise in respect of the Securities
Collateral, in addition to the other rights and remedies provided for herein or
otherwise available to it, all the rights and remedies of a secured party on
default under the UCC, and the Collateral Agent may also in its sole discretion,
without notice except as specified below, sell, assign or grant a license to use
the Securities Collateral or any part thereof in one or more parcels at public
or private sale, at any exchange, broker's board or at any of the Collateral
Agent's offices or elsewhere, for cash, on credit or for future delivery, and at
such price or prices and upon such other terms as the Collateral Agent may deem
commercially reasonable. The Collateral Agent or any other Secured Party or any
of their respective Affiliates may be the purchaser, licensee, assignee or
recipient of any or all of the Securities Collateral at any such sale and shall
be entitled, for the purpose of bidding and making settlement or payment of the
purchase price for all or any portion of the Securities Collateral sold,
assigned or licensed at such sale, to use and apply any of the Secured
Obligations owed to such Person as a credit on account of the purchase price of
any Securities Collateral payable by such Person at such sale. Each purchaser,
assignee, licensee or recipient at any such sale shall acquire the property
sold, assigned or licensed absolutely free from any claim or right on the part
of Pledgor, and Pledgor hereby waives, to the fullest extent permitted by law,
all rights of redemption, stay and/or appraisal which it now has or may at any
time in the future have under any rule of law or statute now existing or
hereafter enacted. The Collateral Agent shall not be obligated to make any sale
of Securities Collateral regardless of notice of sale having been given. The
Collateral Agent may adjourn any public or private sale from time to time by
announcement at the time and place fixed therefor, and such sale may, without
further notice, be made at the time and place to which it was so adjourned.
Pledgor hereby waives, to the fullest extent permitted by law, any claims
against the Collateral Agent arising by reason of the fact that the price at
which any Securities Collateral may have been sold, assigned or licensed at such
a private sale was less than the price which might have been obtained at a
public sale, even if the Collateral Agent accepts the first offer received and
does not offer such Securities Collateral to more than one offeree.
(ii) Pledgor acknowledges and agrees that, to the extent notice of sale
shall be required by law, ten days' notice to Pledgor of the time and place of
any public sale or of
<PAGE>
-13-
the time after which any private sale or other intended disposition is to take
place shall be commercially reasonable notification of such matters. No
notification need be given to Pledgor if it has signed, after the occurrence of
an Event of Default, a statement renouncing or modifying any right to
notification of sale or other intended disposition.
(c) Waiver of Notices and Claims.
Pledgor hereby waives, to the fullest extent permitted by applicable law,
notice or judicial hearing in connection with the Collateral Agent's taking
possession or the Collateral Agent's disposition of any of the Securities
Collateral, including, without limitation, any and all prior notice and hearing
for any prejudgment remedy or remedies and any such right which such Pledgor
would otherwise have under law, and each Pledgor hereby further waives, to the
fullest extent permitted by applicable law: (i) all damages occasioned by such
taking of possession, (ii) all other requirements as to the time, place and
terms of sale or other requirements with respect to the enforcement of the
Collateral Agent's rights hereunder, and (iii) all rights of redemption,
appraisal, valuation, stay, extension or moratorium now or hereafter in force
under any applicable law. The Collateral Agent shall not be liable for any
incorrect or improper payment made pursuant to this Section 10(c) in the absence
of gross negligence or willful misconduct. Except to the extent not permitted by
law, any sale of, or the grant of options to purchase, or any other realization
upon, any Securities Collateral shall operate to divest all right, title,
interest, claim and demand, either at law or in equity, of the applicable
Pledgor therein and thereto, and shall be a perpetual bar both at law and in
equity against such Pledgor and against any and all Persons claiming or
attempting to claim the Securities Collateral so sold, optioned or realized
upon, or any part thereof, from, through or under such Pledgor.
(d) Pledgor recognizes that, by reason of certain prohibitions contained in
the Securities Act of 1933, as amended (the "Securities Act"), and applicable
state securities laws, the Collateral Agent may be compelled, with respect to
any sale of all or any part of the Securities Collateral, to limit purchasers to
Persons who will agree, among other things, to acquire such Securities
Collateral for their own account, for investment and not with a view to the
distribution or resale thereof. Pledgor acknowledges that any such private sales
may be at prices and on terms less favorable to the Collateral Agent than those
obtainable through a public sale without such restrictions (including, without
limitation, a public offering made pursuant to a registration statement under
the Securities Act), and, notwithstanding such circumstances, agrees that any
such private sale shall be deemed to have been made in a commercially reasonable
manner and that the Collateral Agent shall have no obligation to engage in
public sales and no obligation to delay the sale of any Securities Collateral
for the period of time necessary to permit the issuer thereof to register it for
a form of public sale requiring registration under the Securities Act or under
applicable state securities laws, even if such issuer would agree to do so.
<PAGE>
-14-
(e) Notwithstanding the foregoing, Pledgor shall, upon the occurrence and
during the continuance of any Event of Default, at the request of the Collateral
Agent, for the benefit of the Collateral Agent, cause any registration,
qualification under or compliance with any federal or state securities law or
laws to be effected with respect to all or any part of the Securities Collateral
as soon as practicable and at the sole cost and expense of Pledgor. Pledgor will
use its best efforts to cause such registration to be effected (and be kept
effective) and will use its best efforts to cause such qualification and
compliance to be effected (and be kept effective) as may be so requested and as
would permit or facilitate the sale and distribution of such Securities
Collateral, including, without limitation, registration under the Securities Act
(or any similar statute then in effect), appropriate qualifications under
applicable blue sky or other state securities laws and appropriate compliance
with any other government requirements. Pledgor shall cause the Collateral Agent
to be kept advised in writing as to the progress of each such registration,
qualification or compliance and as to the completion thereof, shall furnish to
the Collateral Agent such number of prospectuses, offering circulars or other
documents incident thereto as the Collateral Agent from time to time may
request, and shall indemnify and shall cause the issuer of the Securities
Collateral to indemnify the Collateral Agent and all others participating in the
distribution of such Securities Collateral against all claims, losses, damages
and liabilities caused by any untrue statement (or alleged untrue statement) of
a material fact contained therein (or in any related registration statement,
notification or the like) or by any omission (or alleged omission) to state
therein (or in any related registration statement, notification or the like) a
material fact required to be stated therein or necessary to make the statements
therein not misleading. For purposes of clarification, the parties hereto agree
that this Section 10(e) shall not require Pledgor to register securities of any
subsidiary of the Company.
(f) If the Collateral Agent determines to exercise its right to sell any or
all of the Securities Collateral, upon written request, Pledgor shall from time
to time furnish to the Collateral Agent all such information as the Collateral
Agent may reasonably request in order to determine the number of securities
included in the Securities Collateral which may be sold by the Collateral Agent
as exempt transactions under the Securities Act and the rules of the Securities
and Exchange Commission thereunder, as the same are from time to time in effect.
Section 11. Application of Proceeds. The proceeds received by the
Collateral Agent in respect of any sale of, collection from or other realization
upon all or any part of the Securities Collateral pursuant to the exercise by
the Collateral Agent of its remedies as a secured creditor as provided in
Section 10 hereof shall be applied, together with any other sums then held by
the Collateral Agent pursuant to this Agreement, promptly by the Collateral
Agent as follows:
<PAGE>
-15-
First, to the payment of all costs and expenses, fees, commissions and
taxes of such sale, collection or other realization, including, without
limitation, compensation to the Collateral Agent and its agents and
counsel, and all expenses, liabilities and advances made or incurred by the
Collateral Agent in connection therewith, together with interest on each
such amount at the highest rate then in effect under the Indenture from and
after the date such amount is due, owing or unpaid until paid in full;
Second, without duplication of amounts applied pursuant to clause
First above, to the indefeasible payment in full in cash, pro rata, of (i)
interest, principal and other amounts constituting Secured Obligations
under or in respect of the Indenture and the Notes in accordance with the
terms of the Indenture and (ii) the amounts constituting Secured
Obligations under or in respect of Section 4.3(a) of the Stockholder's
Agreement owing to the Warrant Holders in accordance with the terms of the
Stockholders Agreement; and
Third, the balance, if any, to the Person lawfully entitled thereto
(including Pledgor or their respective successors or assigns).
In the event that any such proceeds are insufficient to pay in full the
items described in clauses First and Second of this Section 11, Pledgor shall
remain liable for any deficiency.
Section 12. Concerning Collateral Agent
(a) Nature of Duties of Collateral Agent. The Collateral Agent shall be
responsible for taking only such actions as are expressly set forth herein or in
any written instructions received from any Secured Party (subject to Sections 10
and 19 hereof) pursuant to the terms hereof (and the Collateral Agent shall be
entitled to presume that any such instructions are given in compliance with the
provisions hereof) and no implied duties or obligations shall be read into this
Agreement or any such instructions. Neither the Collateral Agent nor any of its
officers, directors, employees, agents or affiliates shall be liable for any
claims, losses, damages, penalties, actions, judgments, suits, liabilities,
obligations, costs or expenses of any kind or nature whatsoever resulting from
any action the Collateral Agent takes or omits to take under this Agreement or
in connection herewith, unless caused by its or their gross negligence, bad
faith or willful misconduct. The Collateral Agent may perform any of its duties
hereunder by or through its agents or employees.
(b) Compensation and Expenses. Pledgor agrees to pay, without duplication,
to the Collateral Agent, from time to time upon demand, reasonable compensation
for its acceptance of this Agreement and services rendered by it hereunder and
all reasonable disbursements, advances and expenses of the Collateral Agent in
addition to the compensation
<PAGE>
-16-
for its services (including, without limitation, the reasonable expenses, fees
and disbursements of counsel, agents and experts of the Collateral Agent upon
presentation of a statement describing their services) incurred by the
Collateral Agent or arising in connection with (i) the preparation, execution,
delivery, administration, modification, amendment or termination of this
Agreement or the enforcement of any of the provisions hereof, (ii) the custody
or preservation and protection of, or the sale of, collection from, or other
realization upon, any of the Securities Collateral pursuant to this Agreement,
(iii) the preservation, protection, defense, exercise or enforcement of any of
the rights of the Collateral Agent under this Agreement and in and to the
Securities Collateral or (iv) the failure by a Pledgor to perform or observe any
of the provisions of this Agreement.
(c) Stamp and Other Taxes. Pledgor hereby agrees to pay or to indemnify the
Collateral Agent for, and hold each of them harmless against, any present or
future claim for liability for any stamp, transfer or other similar tax and any
penalties or interest with respect thereto, which may be assessed, levied or
collected by any jurisdiction in connection with this Agreement or any
Securities Collateral.
(d) Filing Fees; Excise Taxes, etc. Pledgor hereby agrees to pay or to
reimburse the Collateral Agent for any and all amounts in respect of all search,
filing, recording and registration fees, taxes (including, without limitation,
any franchise taxes imposed upon the Collateral Agent in any jurisdiction),
excise taxes and other similar imposts which may be payable or determined to be
payable in respect of the execution, delivery, performance and enforcement of
this Agreement.
(e) Indemnification. Pledgor agrees to indemnify, pay and hold harmless the
Collateral Agent and each of the other Secured Parties and the officers,
directors, employees, agents and affiliates of the Collateral Agent and each of
the other Secured Parties (collectively, the "Indemnitees") from and against any
and all other liabilities, obligations, losses, damages, penalties, actions,
judgments, suits, claims, costs (including, without limitation, settlement
costs), reasonable expenses or disbursements of any kind or nature whatsoever
(including, without limitation, the reasonable fees and disbursements of counsel
for such Indemnitees in connection with any investigative, administrative or
judicial proceeding commenced or threatened, whether or not such Indemnitee
shall be designated a party thereto) which may be imposed on, incurred by, or
asserted against that Indemnitee, in any manner relating to or arising out of
this Agreement or any other Collateral Document (including, without limitation,
any misrepresentation by Pledgor in this Agreement, the Indenture or any other
Collateral Document) (the "indemnified liabilities"); provided, however, that
Pledgor shall not have any obligation to an Indemnitee hereunder with respect to
indemnified liabilities if it has been determined by a final decision (after all
appeals and the expiration of time to appeal) of a court of competent
jurisdiction that such indemnified liability arose from the gross negligence or
willful misconduct of that Indemnitee. To the extent that the undertaking
<PAGE>
-17-
to indemnify, pay and hold harmless set forth in the preceding sentence may be
unenforceable because it is violative of any law or public policy, Pledgor shall
contribute the maximum portion which it is permitted to pay and satisfy under
applicable law to the payment and satisfaction of all indemnified liabilities
incurred by the Indemnitees or any of them to the extent such right of
contribution is not in violation of any law or public policy. Any amounts paid
by any Indemnitee as to which such Indemnitee has the right to reimbursement
shall constitute Secured Obligations secured by the Securities Collateral.
(f) Survival of Obligations. All obligations set forth in this Section 12
shall survive the execution, delivery and termination of this Agreement and the
payment of all Secured Obligations.
Section 13. Collateral Agent's Dealings with Pledgor. The Collateral Agent
may accept deposits from, lend money to, or generally engage in any kind of
banking, trust or other business with Pledgor or any of its Affiliates, in each
case as if it were not the Collateral Agent hereunder.
Section 14. Resignation by or Removal of the Collateral Agent.
(a) Resignation, Removal. The Collateral Agent may resign in writing from
the performance of all its functions and duties hereunder by so notifying the
Pledgor. A majority of the Warrant Holders may, at any time, remove the
Collateral Agent by prior written notice to the Collateral Agent, the Trustee
and Pledgor. Notwithstanding the giving of any notice provided for in this
Section 14(a), such resignation or removal shall take effect upon the acceptance
of appointment of a successor Collateral Agent pursuant to clauses (b) or (c)
below or as otherwise provided below.
(b) Appointment of Successor. Upon any such notice of resignation or
removal, Pledgor shall appoint a successor Collateral Agent hereunder, which
shall be an Acceptable Bank. Within one year after the successor Collateral
Agent takes office, a majority of the Warrant Holders or Trustee (acting at the
direction of a majority in principal amount of the then outstanding Notes) may
appoint a successor Collateral Agent to replace the successor Collateral Agent
appointed by Pledgor. If no successor Collateral Agent takes office within 60
days after the retiring Collateral Agent resigns or is removed, the retiring
Collateral Agent, Pledgor or the Warrant Holders of at least 10% of Warrants or
the Trustee (acting at the direction of the Note Holders of at least 10% in
principal amount of the then outstanding Notes) may petition any court of
competent jurisdiction for the appointment of a successor Collateral Agent. If
the Collateral Agent, after written request by any Warrant Holder who has been a
Warrant Holder for at least six months, fails (a) to comply with Sections
310(a)(1), (2) and (5) and Section 310(b) of the Trust Indenture Act of 1939 as
amended, and (b) to have a combined capital and surplus of at least $50,000,000
as set forth in its most recent published annual
<PAGE>
-18-
report of condition, such Warrant Holder may petition any court of competent
jurisdiction for the removal of the Collateral Agent and the appointment of a
successor Collateral Agent.
"Acceptable Bank" means an entity 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 trust powers, that is subject to
supervision or examination by federal or state authorities and that has a
combined capital and surplus of at least $50,000,000 as set forth in its most
recent published annual report of condition.
(c) Effectiveness of Resignation or Removal. A successor Collateral Agent
shall deliver a written acceptance of its appointment to the retiring Collateral
Agent, to Pledgor and to the Trustee and the Warrant Holders. Immediately
thereafter, the retiring Collateral Agent shall transfer all property held by it
as Collateral Agent to the successor Collateral Agent, and shall execute and
deliver to the successor Collateral Agent such documents as are necessary to
perfect or maintain the security interests, including any documents necessary to
assign or transfer all interests of the retiring Collateral Agent in the
Securities Collateral to the successor Collateral Agent, in the form or forms
adequate for proper filing or recording in such offices and such jurisdictions
as are necessary to put the successor Collateral Agent in the same position as
was the retiring Collateral Agent with respect to the Securities Collateral. All
expenses incurred in connection with the resignation or removal of any
Collateral Agent shall be borne by Pledgor. Thereafter, the resignation or
removal of the retiring Collateral Agent shall become effective and the
successor Collateral Agent shall have all the rights, powers and duties of the
Collateral Agent under this Agreement and the resigning or removed Collateral
Agent shall thereupon be discharged from its duties and obligations under this
Agreement. Any successor Collateral Agent shall give or cause to be given notice
of its succession to the Trustee and the Warrant Holders as of the date of such
succession.
(d) Consolidation, Merger, etc. If the Collateral Agent consolidates with,
merges or converts into, or transfers all or substantially all of its corporate
trust business to, another entity, the resulting, surviving or transferee entity
without any further act shall, if such resulting, surviving or transferee entity
is an Acceptable Bank, be the successor Collateral Agent. The transferring,
merging or converting Collateral Agent shall have all documents necessary to
perfect or maintain the security interests, including any documents necessary to
assign or transfer all interests of the transferring, merging or converting
Collateral Agent in the Securities Collateral, executed and delivered to it in
the form or forms adequate for proper filing or recording in such offices and
such jurisdictions as are necessary to put the successor Collateral Agent in the
same position as the transferring, merging or converting Collateral Agent with
respect to the Securities Collateral.
<PAGE>
-19-
(e) Compensation and Indemnification Continuing. Any Acceptable Bank acting
as Collateral Agent shall continue to be entitled to receive compensation and
indemnification as provided in Section 12 hereof so long as such Acceptable Bank
acts as Collateral Agent hereunder.
Section 15. No Waiver; Cumulative Remedies. (a) No failure on the part of
the Collateral Agent to exercise, no course of dealing with respect to, and no
delay on the part of the Collateral Agent in exercising, any right, power or
remedy hereunder shall operate as a waiver thereof; nor shall any single or
partial exercise of any such right, power or remedy hereunder preclude any other
or further exercise thereof or the exercise of any other right, power or remedy;
nor shall the Collateral Agent be required to look first to, enforce or exhaust
any other security, collateral or guaranties. The remedies herein provided are
cumulative and are not exclusive of any remedies provided by law.
(b) In the event that the Collateral Agent shall have instituted any
proceeding to enforce any right, power or remedy under this Agreement by
foreclosure, sale, entry or otherwise, and such proceeding shall have been
discontinued or abandoned for any reason or shall have been determined adversely
to the Collateral Agent, then and in every such case, Pledgor, the Collateral
Agent and each Secured Party shall be restored to their respective former
positions and rights hereunder with respect to the Securities Collateral, and
all rights, remedies and powers of the Collateral Agent and the Secured Parties
shall continue as if no such proceeding had been instituted.
Section 16. The Collateral Agent May Perform; the Collateral Agent
Appointed Attorney-in-Fact. If Pledgor shall fail in any material respect to do
any act or thing that it has covenanted to do hereunder or if any warranty on
the part of Pledgor contained herein shall be breached such that the effect of
such failure or breach would have a Material Adverse Effect, the Collateral
Agent may (but shall not be obligated to) do the same or cause it to be done or
remedy any such breach, and may expend funds for such purpose. Any and all
amounts so expended by the Collateral Agent shall be paid by Pledgor promptly
upon demand therefor, with interest at the highest rate then in effect under the
Indenture during the period from and including the date on which such funds were
so expended to the date of repayment. Pledgor's obligations under this Section
16 shall survive the termination of this Agreement and the discharge of
Pledgor's other obligations under this Agreement, the Indenture and the
Stockholders Agreement. Pledgor hereby appoints the Collateral Agent its
attorney-in-fact, with full authority in the place and stead of Pledgor and in
the name of Pledgor, or otherwise, from time to time in the Collateral Agent's
discretion to take any action and to execute any instrument consistent with the
terms of this Agreement, the Indenture and the Stockholders Agreement which the
Collateral Agent may deem necessary or advisable to accomplish the purposes of
this Agreement. The foregoing grant of authority is a power of attorney coupled
with an interest and such appointment shall be irrevocable for the term of this
Agreement.
<PAGE>
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Pledgor hereby ratifies all that such attorney shall lawfully do or cause to be
done by virtue hereof.
Section 17. Modification in Writing. No amendment, modification,
supplement, termination or waiver of or to any provision of this Agreement, nor
consent to any departure by Pledgor therefrom, shall be effective unless the
same shall be made in accordance with the terms of the Indenture and unless in
writing and signed by the Collateral Agent. Any amendment, modification or
supplement of or to any provision of this Agreement, any waiver of any provision
of this Agreement and any consent to any departure by Pledgor from the terms of
any provision of this Agreement shall be effective only in the specific instance
and for the specific purpose for which made or given. Except where notice is
specifically required by this Agreement, the Indenture or the Stockholders
Agreement, no notice to or demand on Pledgor in any case shall entitle Pledgor
to any other or further notice or demand in similar or other circumstances.
Section 18. Termination; Release. When all the Secured Obligations have
been paid in full this Agreement shall terminate. Upon termination of this
Agreement or any release of Securities Collateral in accordance with the
provisions of the Indenture or the Stockholders Agreement, the Collateral Agent
shall, upon the request and at the sole cost and expense of Pledgor, forthwith
assign, transfer and deliver to Pledgor, against receipt and without recourse to
or warranty by the Collateral Agent, such of the Securities Collateral to be
released (in the case of a release) as may be in possession of the Collateral
Agent and as shall not have been sold or otherwise applied pursuant to the terms
hereof, and, with respect to any other Securities Collateral, proper documents
and instruments (including UCC-3 termination statements) acknowledging the
termination of this Agreement or the release of such Securities Collateral, as
the case may be.
Section 19. 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 the Collateral Agent:
The Chase Manhattan Bank
450 West 33rd Street
New York, New York 10001
Telecopier No.: (212) 946-8161 or 8162
Attention: Kathleen Perry
<PAGE>
-21-
(ii) If to Pledgor:
c/o American Tissue Inc.
135 Engineers Road
Hauppauge, New York 11788
Telecopier No.: (516) 435-8980
Attention: President and Chief Executive Officer
with a copy to:
Mandel & Resnik P.C.
220 East 42nd Street
New York, New York 10017
Telecopier No.: (212) 573-0067
Attention: Nicholas J. Kaiser, Esq.
(iii) If to the Trustee:
The Chase Manhattan Bank
450 West 33rd Street
New York, New York 10001
Telecopier No.: (212) 946-8161 or 8162
Attention: Kathleen Perry
(iv) If to the Warrant Holders, to the respective addresses
set forth on Schedule II, in each case,
With a copy to:
Cahill Gordon & Reindel
80 Pine Street
New York, New York 10005
Telecopier No.: (212) 269-5420
Attention: John Schuster, Esq.
Upon any change in ownership of the Warrants, the new Warrant Holder must notify
the Collateral Agent and the Trustee of its address and telecopy number.
Notice may be provided in each case at such other address as shall be
designated by such party in a written notice to the other party complying as to
delivery with the terms of this Section 19; provided that notices to the
Collateral Agent shall not be effective until received by the Collateral Agent.
<PAGE>
-22-
Section 20. Continuing Security Interest; Assignment. This Agreement shall
create a continuing security interest in the Securities Collateral and shall (i)
be binding upon Pledgor, its respective successors and assigns and (ii) inure,
together with the rights and remedies of the Collateral Agent hereunder, to the
benefit of the Collateral Agent and the other Secured Parties and each of their
respective successors, transferees and assigns; no other Persons (including,
without limitation, any other creditor of Pledgor) shall have any interest
herein or any right or benefit with respect hereto. Without limiting the
generality of the foregoing clause (ii), any Secured Party may assign or
otherwise transfer any indebtedness held by it secured by this Agreement to any
other Person, and such other Person shall thereupon become vested with all the
benefits in respect thereof granted to such Secured Party, herein or otherwise,
subject however, to the provisions of the Indenture and the Stockholders
Agreement.
Section 21. GOVERNING LAW; TERMS. THIS AGREEMENT SHALL BE GOVERNED BY, AND
SHALL BE CONSTRUED AND ENFORCED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW
YORK, EXCLUDING (TO THE GREATEST EXTENT PERMITTED BY LAW) ANY RULE OF LAW THAT
WOULD CAUSE THE APPLICATION OF THE LAWS OF ANY JURISDICTION OTHER THAN THE STATE
OF NEW YORK, EXCEPT TO THE EXTENT THAT THE VALIDITY OR PERFECTION OF THE
SECURITY INTEREST HEREUNDER, OR REMEDIES HEREUNDER, IN RESPECT OF ANY PARTICULAR
SECURITIES COLLATERAL, ARE GOVERNED BY THE LAWS OF A JURISDICTION OTHER THAN THE
STATE OF NEW YORK.
Section 22. CONSENT TO JURISDICTION AND SERVICE OF PROCESS; WAIVER OF JURY
TRIAL. ALL JUDICIAL PROCEEDINGS BROUGHT AGAINST PLEDGOR OR THE COLLATERAL AGENT
WITH RESPECT TO THIS AGREEMENT MAY BE BROUGHT IN THE SUPREME COURT OF THE STATE
OF NEW YORK SITTING IN NEW YORK COUNTY, THE COURTS OF THE UNITED STATES OF
AMERICA FOR THE SOUTHERN DISTRICT OF NEW YORK AND APPELLATE COURTS OF ANY
THEREOF, AND BY EXECUTION AND DELIVERY OF THIS AGREEMENT, EACH OF PLEDGOR AND
THE COLLATERAL AGENT ACCEPTS FOR ITSELF AND IN CONNECTION WITH ITS PROPERTIES,
GENERALLY AND UNCONDITIONALLY, THE NONEXCLUSIVE JURISDICTION OF THE AFORESAID
COURTS AND IRREVOCABLY AGREES TO BE BOUND BY ANY JUDGMENT RENDERED THEREBY IN
CONNECTION WITH THIS AGREEMENT. PLEDGOR AND THE COLLATERAL AGENT AGREE THAT
SERVICE OF PROCESS IN ANY PROCEEDING MAY BE EFFECTED BY MAILING A COPY THEREOF
BY REGISTERED OR CERTIFIED MAIL (OR ANY SUBSTANTIALLY SIMILAR FORM OF MAIL),
POSTAGE PREPAID, TO PLEDGOR AND THE COLLATERAL AGENT AT ITS ADDRESS SET FORTH
HEREIN
<PAGE>
-23-
OR AT SUCH OTHER ADDRESS OF WHICH THE COLLATERAL AGENT SHALL HAVE BEEN NOTIFIED
PURSUANT THERETO. IF ANY AGENT APPOINTED BY ANY PLEDGOR OR THE COLLATERAL AGENT
REFUSES TO ACCEPT SERVICE, SUCH PLEDGOR HEREBY AGREES THAT SERVICE UPON IT BY
MAIL SHALL CONSTITUTE SUFFICIENT NOTICE. NOTHING HEREIN SHALL AFFECT THE RIGHT
TO SERVE PROCESS IN ANY OTHER MANNER PERMITTED BY LAW OR SHALL LIMIT THE RIGHT
OF THE COLLATERAL AGENT OR PLEDGOR TO BRING PROCEEDINGS AGAINST PLEDGOR OR THE
COLLATERAL AGENT IN THE COURTS OF ANY OTHER JURISDICTION. PLEDGOR HEREBY
IRREVOCABLY WAIVES ALL RIGHT TO A TRIAL BY JURY IN ANY ACTION, PROCEEDING OR
COUNTERCLAIM ARISING OUT OF OR RELATING TO THIS AGREEMENT OR THE TRANSACTIONS
CONTEMPLATED HEREBY.
Section 23. Severability of Provisions. Any provision of this Agreement
which is prohibited or unenforceable in any jurisdiction shall, as to such
jurisdiction, be ineffective to the extent of such prohibition or
unenforceability without invalidating the remaining provisions hereof or
affecting the validity or enforceability of such provision in any other
jurisdiction.
Section 24. Execution in Counterparts. This Agreement and any amendments,
waivers, consents or supplements hereto may be executed in any number of
counterparts and by different parties hereto in separate counterparts, each of
which when so executed and delivered shall be deemed to be an original, but all
such counterparts together shall constitute one and the same agreement.
Section 25. Headings. The Section headings used in this Agreement are for
convenience of reference only and shall not affect the construction of this
Agreement.
Section 26. Obligations Absolute. All obligations of Pledgor hereunder
shall be absolute and unconditional irrespective of:
(i) any bankruptcy, insolvency, reorganization, arrangement,
readjustment, composition, liquidation or the like of Pledgor;
(ii) any lack of validity or enforceability of the Indenture, the
Stockholders Agreement or any other agreement or instrument relating
thereto;
(iii) any change in the time, manner or place of payment of, or in any
other term of, all or any of the Secured Obligations, or any other
amendment or waiver of or any consent to any departure from the Indenture
or any other agreement or instrument relating thereto;
<PAGE>
-24-
(iv) any pledge, exchange, release or non-perfection of any other
collateral, or any release or amendment or waiver of or consent to any
departure from any guarantee, for all or any of the Secured Obligations;
(v) any exercise, non-exercise or waiver of any right, remedy, power
or privilege under or in respect of this Agreement, the Indenture or the
Stockholders Agreement except as specifically set forth in a waiver granted
pursuant to the provisions of Section 19 hereof; or
(vi) any other circumstances which might otherwise constitute a
defense available to, or a discharge of, Pledgor.
<PAGE>
IN WITNESS WHEREOF, Pledgor, the Collateral Agent, the Trustee and the
Warrant Holders have caused this Agreement to be duly executed and delivered by
their duly authorized officers as of the date first above written.
MIDDLE AMERICAN TISSUE INC.,
as Pledgor
/s/ Nourollah Elghanayan
By : ----------------------------
Name: Nourollah Elghanayan
Title: Chairman of the Board
By: /s/ Mehdi Gabayzadeh
----------------------------
Name: Mehdi Gabayzadeh
Title: President
THE CHASE MANHATTAN BANK,
as Collateral Agent
By:
----------------------------
Name:
Title:
By:
----------------------------
Name:
Title:
THE CHASE MANHATTAN BANK,
as Trustee
By:
----------------------------
Name:
Title:
<PAGE>
IN WITNESS WHEREOF, Pledgor, the Collateral Agent, the Trustee and the
Warrant Holders have caused this Agreement to be duly executed and delivered by
their duly authorized officers as of the date first above written.
MIDDLE AMERICAN TISSUE INC.,
as Pledgor
By : ----------------------------
Name:
Title:
THE CHASE MANHATTAN BANK,
as Collateral Agent
/s/ Kathleen Perry
By: ----------------------------
Name: Kathleen Perry
Title: Vice President
/s/ Sheik Wiltshire
By: ----------------------------
Name: Sheik Wiltshire
Title: Second Vice President
THE CHASE MANHATTAN BANK,
as Trustee
/s/ Kathleen Perry
By: ----------------------------
Name: Kathleen Perry
Title: Vice President
<PAGE>
Warrant Holders:
DLJMB Funding II, Inc.
By: DLJMB Funding, Inc.
By: /s/ Andrew Rush
----------------------------
Name:
Title:
DLJ Merchant Banking Partners II, L.P.
By: DLJ Merchant Banking II, Inc.
Managing General Partner
By: /s/ Andrew Rush
----------------------------
Name:
Title:
DLJ Merchant Banking Partners II-A, L.P.
By: DLJ Merchant Banking II, Inc.
Managing General Partner
By: /s/ Andrew Rush
----------------------------
Name:
Title:
DLJ FIRST ESC L.P.
By: DLJ LBO PLANS MANAGEMENT
CORPORATION
General Partner
By: /s/ Andrew Rush
----------------------------
Name:
Title:
<PAGE>
DLJ OFFSHORE PARTNERS II, C.V.
By: DLJ MERCHANT BANKING II, INC.
Managing General Partner
By: /s/ Andrew Rush
----------------------------
Name:
Title:
DLJ EAB PARTNERS, L.P.
By: DLJ LBO PLANS MANAGEMENT
CORPORATION
General Partner
By: /s/ Andrew Rush
----------------------------
Name:
Title:
DLJ ESC II L.P.
By: DLJ LBO PLANS MANAGEMENT
CORPORATION
General Partner
By: /s/ Andrew Rush
----------------------------
Name:
Title:
DLJ DIVERSIFIED PARTNERS, L.P.
By: DLJ DIVERSIFIED PARTNERS, INC.
Managing General Partner
By: /s/ Andrew Rush
----------------------------
Name:
Title:
<PAGE>
DLJ DIVERSIFIED PARTNERS-A, L.P.
By: DLJ DIVERSIFIED PARTNERS, INC.
Managing General Partner
By: /s/ Andrew Rush
----------------------------
Name:
Title:
DLJ MILLENNIUM PARTNERS, L.P.
By: DLJ MERCHANT BANKING II, INC.
Managing General Partner
By: /s/ Andrew Rush
----------------------------
Name:
Title:
DLJ MILLENNIUM PARTNERS-A, L.P.
By: DLJ MERCHANT BANKING II, INC.
Managing General Partner
By: /s/ Andrew Rush
----------------------------
Name:
Title:
<PAGE>
SCHEDULE I
Pledged Shares
Pledgor: Middle American Tissue Inc.
<TABLE>
<CAPTION>
PERCENTAGE OF
ALL ISSUED
CAPITAL OR
NUMBER OTHER EQUITY
CLASS CERTIFICATE OF INTERESTS OF
ISSUER OF STOCK NO(S). SHARES ISSUER
- ------ -------- ----------- ------ -------------
<S> <C> <C> <C> <C>
American Tissue Inc. Common 1 200 100%
</TABLE>
MIDDLE AMERICAN TISSUE
CALCULATION OF RATIO OF EARNINGS TO FIXED CHARGES
<TABLE>
<CAPTION>
9 months 9 months LTM
1994 1995 1996 1997 1998 6/30/98 6/30/99 3/31/99
---- ---- ---- ---- ---- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Income before taxes 4,901 (1,733) 13,182 6,873 (1,474) (1,589) 8,237 3,388
Add Fixed Charges
Interest expenses 4,945 6,822 9,175 12,272 14,672 9,641 10,890 15,346
Est interest on rent 757 816 547 670 688 509 516 695
------------------------------------------------------------------------------
10,603 6,005 22,904 19,815 13,886 8,561 19,643 19,429
------------------------------------------------------------------------------
5,702 7,738 9,722 12,942 15,360 10,150 11,406 16,616
Ratio 1.9 0.8 2.4 1.5 0.9 0.8 1.7 1.2
times times times times times times times times
---------------
Rent Expense 2,270 2,447 1,642 2,010 2,065 1,528 1,548 2,086
(Unrelated parties ONLY
Apply factor 0.33 0.33 0.33 0.33 0.33 0.33 0.33 0.33
------------------------------------------------------------------------------
757 816 547 670 686 509 516 695
==============================================================================
</TABLE>
PRO FORMA COMBINED FOR A LTM PERIOD (12 months 3/31/99):
Normal Calculations:
Income before taxes (126,316)
Add Fixed Charges:
Interst expense 24,640
Est. interest on Rent 1,058
--------
EBT plus Fixed Charges (100,619)
--------
Total Fixed Charges 25,698
RATIO (3.9)
times
Adjusted Calculation:
Income before taxes 22,261
Add Fixed Charges
Interest expense 24,640
Est. interest on Rent 1,058
--------
47,958
--------
25,698
RATIO 1.9
times
EBT, AS ADJUSTED
Net income (57,268)
Tax benefit (69,048) (126,316)
NRV-adjustement 16,175
Asset impairment 143,632
Severance (2,273)
Property Tax (8,957)
--------
22,261
========
Estimated interest on Rent:
ATI 695
BG
1100 0.33 363
--------
1,058
========
EXHIBIT 21.1
SUBSIDIARIES OF MIDDLE AMERICAN TISSUE INC.
State or other
jurisdiction of
incorporation or
Name of Subsidiary organization
------------------ ------------
American Tissue Inc. Delaware
100 Realty Management LLC New York
American Cellulose Mill Corp. New York
American Tissue Corporation New York
American Tissue Mills of Greenwich LLC New York
American Tissue Mills of Neenah LLC New York
American Tissue Mills of New Hampshire, Inc. New York
American Tissue Mills of New York, Inc. New York
American Tissue Mills of Oregon, Inc. New York
American Tissue Mills of Wisconsin, Inc. New York
American Tissue--New Hampshire Electric Inc. New Hampshire
Berlin Mills Railway, Inc. New Hampshire
Calexico Tissue Company LLC New York
Coram Realty LLC New York
Engineers Road LLC New York
Fabricaciones Metalicas Mexicanas, S.A. Mexico
Gilpin Realty Corp. New York
Grand LLC New York
Hydro of America LLC Delaware
Landfill of America LLC Delaware
Markwood LLC New York
Paper of America LLC Delaware
Pulp & Paper of America LLC New York
Pulp of America LLC Delaware
Railway of America LLC Delaware
Saratoga Realty LLC New York
Tagsons Papers, Inc. New York
Unique Financing LLC New York
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the use of our
reports (and to all references to our Firm) included or made a part of this
registration statement.
/s/ ARTHUR ANDERSEN LLP
ARTHUR ANDERSEN LLP
Melville, New York
October 25, 1999
CONSENT OF INDEPENDENT AUDITORS
We consent to the use in this Registration Statement of Middle American
Tissue Inc. on Form S-4 of our report dated December 23, 1996. We also consent
to the reference to us under the heading "Experts".
/s/ HOLTZ RUBENSTEIN & CO. LLP
HOLTZ RUBENSTEIN & CO. LLP
Melville, New York
October 25, 1999
Exhibit 23.3
CONSENT OF INDEPENDENT AUDITORS
We consent to the reference to our firm under the caption "Experts" and in the
section titled "Selected Historical Financial Data" in the Registration
Statement Form S-4 and the related Prospectus of Middle American Tissue Inc. for
the registration of $16,716,712.25 of 15% Series B Senior Secured Discount Notes
due 2007 and to the inclusion of our report of April 23, 1999, with respect to
the financial statements of Crown Vantage Inc.'s Berlin-Gorham Pulp and Paper
Mills included in the Registration Statement.
/s/ ERNST & YOUNG LLP
ERNST & YOUNG LLP
San Francisco, California
October 25, 1999
-------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
-------------------------
FORM T-1
STATEMENT OF ELIGIBILITY
UNDER THE TRUST INDENTURE ACT OF 1939 OF
A CORPORATION DESIGNATED TO ACT AS TRUSTEE
-------------------------------------------
CHECK IF AN APPLICATION TO DETERMINE ELIGIBILITY OF
A TRUSTEE PURSUANT TO SECTION 305(b)(2) ________
----------------------------------------
THE CHASE MANHATTAN BANK
(Exact name of trustee as specified in its charter)
New York 13-4994650
(State of incorporation (I.R.S. employer
if not a national bank) identification No.)
270 Park Avenue
New York, New York 10017
(Address of principal executive offices) (Zip Code)
William H. McDavid
General Counsel
270 Park Avenue
New York, New York 10017
Tel: (212) 270-2611
(Name, address and telephone number of agent for service)
---------------------------------------------
Middle American Tissue Inc.
(Exact name of obligor as specified in its charter)
Delaware 52-2181338
(State or other jurisdiction of (I.R.S. employer
incorporation or organization) identification No.)
135 Engineers Road
Hauppauge, New York 11788
(Address of principal executive offices) (Zip Code)
---------------------------------------------
15% Senior Secured Discount Notes due July 15, 2007
---------------------------------------------
<PAGE>
GENERAL
Item 1. General Information.
Furnish the following information as to the trustee:
(a) Name and address of each examining or supervising authority to which it
is subject.
New York State Banking Department, State House, Albany, New York
12110.
Board of Governors of the Federal Reserve System, Washington, D.C.,
20551
Federal Reserve Bank of New York, District No. 2, 33 Liberty Street,
New York, N.Y.
Federal Deposit Insurance Corporation, Washington, D.C., 20429.
(b) Whether it is authorized to exercise corporate trust powers.
Yes.
Item 2. Affiliations with the Obligor.
If the obligor is an affiliate of the trustee, describe each such
affiliation.
None.
- 2 -
<PAGE>
Item 16. List of Exhibits
List below all exhibits filed as a part of this Statement of Eligibility.
1. A copy of the Articles of Association of the Trustee as now in effect,
including the Organization Certificate and the Certificates of Amendment dated
February 17, 1969, August 31, 1977, December 31, 1980, September 9, 1982,
February 28, 1985, December 2, 1991 and July 10, 1996 (see Exhibit 1 to Form T-1
filed in connection with Registration Statement No. 333-06249, which is
incorporated by reference).
2. A copy of the Certificate of Authority of the Trustee to Commence
Business (see Exhibit 2 to Form T-1 filed in connection with Registration
Statement No. 33-50010, which is incorporated by reference. On July 14, 1996, in
connection with the merger of Chemical Bank and The Chase Manhattan Bank
(National Association), Chemical Bank, the surviving corporation, was renamed
The Chase Manhattan Bank).
3. None, authorization to exercise corporate trust powers being contained
in the documents identified above as Exhibits 1 and 2.
4. A copy of the existing By-Laws of the Trustee (see Exhibit 4 to Form T-1
filed in connection with Registration Statement No. 333-06249, which is
incorporated by reference).
5. Not applicable.
6. The consent of the Trustee required by Section 321(b) of the Act (see
Exhibit 6 to Form T-1 filed in connection with Registration Statement No.
33-50010, which is incorporated by reference. On July 14, 1996, in connection
with the merger of Chemical Bank and The Chase Manhattan Bank (National
Association), Chemical Bank, the surviving corporation, was renamed The Chase
Manhattan Bank).
7. A copy of the latest report of condition of the Trustee, published
pursuant to law or the requirements of its supervising or examining authority.
8. Not applicable.
9. Not applicable.
SIGNATURE
Pursuant to the requirements of the Trust Indenture Act of 1939 the
Trustee, The Chase Manhattan Bank, a corporation organized and existing under
the laws of the State of New York, has duly caused this statement of eligibility
to be signed on its behalf by the undersigned, thereunto duly authorized, all in
the City of New York and State of New York, on the 25th day of August, 1999.
THE CHASE MANHATTAN BANK
By /s/ Sheik Wiltshire
----------------------------
Sheik Wiltshire, Second Vice President
-3-
<PAGE>
Exhibit 7 to Form T-1
Bank Call Notice
RESERVE DISTRICT NO. 2
CONSOLIDATED REPORT OF CONDITION OF
The Chase Manhattan Bank
of 270 Park Avenue, New York, New York 10017
and Foreign and Domestic Subsidiaries,
a member of the Federal Reserve System,
at the close of business March 31, 1999, in
accordance with a call made by the Federal Reserve Bank of this
District pursuant to the provisions of the Federal Reserve Act.
Dollar Amounts
ASSETS in Millions
Cash and balances due from depository institutions:
Noninterest-bearing balances and
currency and coin .......................................... $ 15,364
Interest-bearing balances .................................. 3,811
Securities:
Held to maturity securities ..................................... 1,084
Available for sale securities ................................... 49,894
Federal funds sold and securities purchased under
agreements to resell ....................................... 27,638
Loans and lease financing receivables:
Loans and leases, net of unearned income ........ $131,839
Less: Allowance for loan and lease losses ....... 2,642
Less: Allocated transfer risk reserve ........... 0
--------
Loans and leases, net of unearned income,
allowance, and reserve ..................................... 129,197
Trading Assets .................................................. 45,483
Premises and fixed assets (including capitalized
leases) .................................................... 3,124
Other real estate owned ......................................... 242
Investments in unconsolidated subsidiaries and
associated companies ....................................... 171
Customers' liability to this bank on acceptances
outstanding ................................................ 974
Intangible assets ............................................... 2,017
Other assets .................................................... 12,477
--------
TOTAL ASSETS .................................................... $291,476
========
- 4 -
<PAGE>
LIABILITIES
Deposits
In domestic offices ........................................ $ 102,273
Noninterest-bearing ............................. $ 39,135
Interest-bearing ................................ 63,138
---------
In foreign offices, Edge and Agreement,
subsidiaries and IBF's ..................................... 74,586
Noninterest-bearing .................................. $ 4,221
Interest-bearing ................................ 70,365
Federal funds purchased and securities sold under agree-
ments to repurchase ............................................. 41,039
Demand notes issued to the U.S. Treasury ........................ 1,000
Trading liabilities ............................................. 32,929
Other borrowed money (includes mortgage
indebtedness and obligations under
capitalized leases):
With a remaining maturity of one year or less .............. 4,353
With a remaining maturity of more than one year
through three years ................................. 14
With a remaining maturity of more than three years ......... 92
Bank's liability on acceptances executed and outstanding ........ 974
Subordinated notes and debentures ............................... 5,427
Other liabilities ............................................... 9,684
TOTAL LIABILITIES ............................................... 272,371
---------
EQUITY CAPITAL
Perpetual preferred stock and related surplus ................... 0
Common stock .................................................... 1,211
Surplus (exclude all surplus related to preferred stock) ....... 11,016
Undivided profits and capital reserves .......................... 7,040
Net unrealized holding gains (losses)
on available-for-sale securities ..................... (179)
Accumulated net gains (losses) on cash flow hedges ... 0
Cumulative foreign currency translation adjustments ............. 17
TOTAL EQUITY CAPITAL ............................................ 19,105
---------
TOTAL LIABILITIES AND EQUITY CAPITAL ............................ $ 291,476
=========
I, Joseph L. Sclafani, E.V.P. & Controller of the
above-named bank, do hereby declare that this
Report of Condition has been prepared in
conformance with the instructions issued by the
appropriate Federal regulatory authority and is
true to the best of my knowledge and belief.
JOSEPH L. SCLAFANI
We, the undersigned directors, attest to the
correctness of this Report of Condition and
declare that it has been examined by us, and to
the best of our knowledge and belief has been
prepared in conformance with the instructions
issued by the appropriate Federal regulatory
authority and is true and correct.
WALTER V. SHIPLEY )
THOMAS G. LABRECQUE ) DIRECTORS
WILLIAM B. HARRISON, JR. )
-5-
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM CONSOLIDATED
FINANCIAL STATEMENTS AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 9-mos
<FISCAL-YEAR-END> Sep-30-1999
<PERIOD-END> Jun-30-1999
<CASH> 597
<SECURITIES> 0
<RECEIVABLES> 35,486
<ALLOWANCES> 408
<INVENTORY> 57,219
<CURRENT-ASSETS> 100,076
<PP&E> 200,953
<DEPRECIATION> 37,053
<TOTAL-ASSETS> 288,422
<CURRENT-LIABILITIES> 144,351
<BONDS> 0
0
0
<COMMON> 1,605
<OTHER-SE> 42,850
<TOTAL-LIABILITY-AND-EQUITY> 288,422
<SALES> 183,487
<TOTAL-REVENUES> 183,487
<CGS> 143,468
<TOTAL-COSTS> 143,468
<OTHER-EXPENSES> 21,966
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 10,890
<INCOME-PRETAX> 8,247
<INCOME-TAX> 0
<INCOME-CONTINUING> 8,247
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 8,247
<EPS-BASIC> 41.235
<EPS-DILUTED> 41.235
</TABLE>
Middle American Tissue Inc.
Offer to Exchange
15% Series B Senior Secured Discount Notes due 2007
for any and all outstanding 15% Series A Senior Secured Discount Notes due 2007
Pursuant to Its Prospectus Dated
- --------------------------------------------------------------------------------
THE EXCHANGE OFFER WILL EXPIRE AT 5:00 P.M. NEW YORK CITY TIME, ON
___________________________________, UNLESS EXTENDED BY THE COMPANY (THE
"EXPIRATION DATE"). TENDERS MAY BE WITHDRAWN PRIOR TO 5:00 P.M, NEW YORK CITY
TIME, ON THE EXPIRATION DATE.
- --------------------------------------------------------------------------------
Delivery To: The Chase Manhattan Bank, Exchange Agent
By Mail or Hand/Overnight Delivery: By Facsimile Transmission:
The Chase Manhattan Bank
Corporate Trust Securities Window (For Eligible Institutions Only)
Room 234, North Building
55 Water Street (212) 638-7380 or 7381
New York, New York 10041
Confirm by Telephone:
Carlos Esteves: (212) 638-0828
(212) 638-0454
The undersigned acknowledges receipt of the Prospectus dated __________
(the "Prospectus") of Middle American Tissue Inc. (the "Company") which,
together with this Letter of Transmittal (the "Letter of Transmittal"),
describes the Company's offer (the "Exchange Offer") to exchange its 15% Series
B Senior Secured Discount Notes due July 15, 2007, (the "Exchange Notes") for an
equal principal amount of the Company's outstanding 15% Series A Senior Secured
Discount Notes due July 15, 2007 (the "Old Notes").
The undersigned has checked the appropriate boxes below and signed this
Letter of Transmittal to indicate the action the undersigned desires to take
with respect to the Exchange Offer.
PLEASE READ THE ENTIRE LETTER OF TRANSMITTAL AND THE PROSPECTUS CAREFULLY
BEFORE CHECKING ANY BOX BELOW.
THE INSTRUCTIONS INCLUDED WITH THIS LETTER OF TRANSMITTAL MUST BE FOLLOWED.
QUESTIONS AND REQUESTS FOR ASSISTANCE AND FOR ADDITIONAL COPIES OF THE
PROSPECTUS AND THIS LETTER OF TRANSMITTAL MAY BE DIRECTED TO THE EXCHANGE AGENT.
List below the Old Notes to which this Letter of Transmittal relates. If
the space provided below is inadequate, continue on a separate signed schedule
affixed hereto.
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------
DESCRIPTION OF OLD NOTES 1 2 3
- -----------------------------------------------------------------------------------------------------------------------
Name(s) and Address(es) of Registered Holder(s) Certificate Aggregate Principal Principal Amount
(Please fill in, if blank) Number(s)* Amount of Old Notes Tendered**
- -----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
-----------------------------------------------------------------------
-----------------------------------------------------------------------
-----------------------------------------------------------------------
-----------------------------------------------------------------------
-----------------------------------------------------------------------
TOTAL
-----------------------
- -----------------------------------------------------------------------------------------------------------------------
* Need not be completed if Old Notes are being tendered by book-entry transfer.
** Unless otherwise indicated in this column, a holder will be deemed to have tendered ALL of the
Old Notes represented by the Old Notes indicated in column 2. See Instruction 2. Old Notes
tendered hereby must be in denominations of principal amount of $1,000 and any integral
multiple thereof. See Instruction 1.
- -----------------------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE>
- --------------------------------------------------------------------------------
|_| CHECK HERE IF TENDERED OLD NOTES ARE BEING DELIVERED BY BOOK-ENTRY
TRANSFER MADE TO THE ACCOUNT MAINTAINED BY THE EXCHANGE AGENT WITH
THE BOOK-ENTRY TRANSFER FACILITY AND COMPLETE THE FOLLOWING:
Name of Tendering Institution _____________________________________________
Account Number ____________________________________________________________
Transaction Code Number ___________________________________________________
By crediting the Old Notes to the Exchange Agent's account at the
Book-Entry Transfer Facility in accordance with the Book Entry Transfer
Facility's Automated Tender Offer Program ("ATOP") and by complying with
applicable ATOP procedures with respect to the Exchange Offer, including
transmitting to the Exchange Agent a computer generated message (an
"Agent's Message") in which the holder of the Old Notes acknowledges and
agrees to be bound by the terms of, and makes the representations and
warranties contained in, this Letter of Transmittal, the participant in the
Book-Entry Transfer Facility confirms on behalf of itself and the
beneficial owners of such Old Notes all provisions of this Letter of
Transmittal (including any representations and warranties) applicable to it
and such beneficial owner as fully as if it had completed the information
required herein and executed and transmitted this Letter of Transmittal to
the Exchange Agent.
|_| CHECK HERE IF TENDERED OLD NOTES ARE BEING DELIVERED PURSUANT TO A
NOTICE OF GUARANTEED DELIVERY PREVIOUSLY SENT TO THE EXCHANGE AGENT
AND COMPLETE THE FOLLOWING:
Name(s) of Registered Holder(s)____________________________________________
Window Ticket Number (if any) _____________________________________________
Date of Execution of Notice of Guaranteed Delivery_________________________
Name of Institution which guaranteed delivery _____________________________
If Delivered by Book-Entry Transfer, Complete the
Following: ________________________________________________________________
Account No. _______________________________________________________________
Transaction Code No. ______________________________________________________
Name of Tendering Institution _____________________________________________
|_| CHECK HERE IF YOU ARE A BROKER-DEALER WHO HOLDS OLD NOTES ACQUIRED FOR
YOUR OWN ACCOUNT AS A RESULT OF MARKET-MAKING OR OTHER TRADING
ACTIVITIES AND WISH TO RECEIVE COPIES OF THE PROSPECTUS AND COPIES OF ANY
AMENDMENTS OR SUPPLEMENTS THERETO FOR USE IN CONNECTION WITH RESALES
OF EXCHANGE NOTES RECEIVED FOR YOUR OWN ACCOUNT IN EXCHANGE FOR SUCH
OLD NOTES.
Name: _____________________________________________________________________
Address: __________________________________________________________________
Aggregate Principal Amount of Old Notes so held: $_________________________
- --------------------------------------------------------------------------------
DELIVERY OF THIS INSTRUMENT TO AN ADDRESS OTHER THAN AS SET FORTH ABOVE,
OR TRANSMISSION OF INSTRUCTIONS VIA FACSIMILE OTHER THAN AS SET FORTH ABOVE,
WELL NOT CONSTITUTE A VALID DELIVERY.
- 2 -
<PAGE>
THE INSTRUCTIONS CONTAINED HEREIN SHOULD BE READ CAREFULLY BEFORE THIS
LETTER OF TRANSMITTAL IS COMPLETED.
The Company reserves the right, at any time or from time to time, to extend
the Exchange Offer at its sole discretion, in which event the term "Expiration
Date" shall mean the latest time and date to which the Exchange Offer is
extended. The Company shall notify the holders of the Old Notes of any extension
by oral or written notice prior to 9:00 a.m., New York City time, on the next
business day after the previously scheduled Expiration Date.
This Letter of Transmittal is to be completed by a holder of Old Notes
either if certificates are to be forwarded herewith or if a tender of
certificates for Old Notes, if available, is to be made by book-entry transfer
to the account maintained by the Exchange Agent at The Depository Trust Company
(the "Book-Entry Transfer Facility") pursuant to the procedures set forth in
"The Exchange Offer-Procedures for Tendering Old Notes" section of the
Prospectus. Tenders by book-entry transfer may also be made by delivering an
Agent's Message in lieu of this Letter of Transmittal. The term "Agent's
Message" means a message, transmitted by the Book-Entry Transfer Facility to,
and received by, the Exchange Agent and forming a part of a Book-Entry
Confirmation (as defined below), which states that the Book-Entry Transfer
Facility has received an express acknowledgement from the tendering participant
in the Book-Entry Transfer Facility, which acknowledgment states that such
participant has received and agrees to be bound by, and makes each of the
representations and warranties contained in, this Letter of Transmittal and that
the Company may enforce this Letter of Transmittal against such participant.
Holders of Old Notes whose certificates are not immediately available, or who
are unable to deliver their certificates or confirmation of the book-entry
tender of their Old Notes into the Exchange Agent's account at the Book-Entry
Transfer Facility (a "Book-Entry Confirmation") and all other documents required
by this Letter of Transmittal to the Exchange Agent on or prior to the
Expiration Date, must tender their Old Notes according to the guaranteed
delivery procedures set forth in "The Exchange Offer-Guaranteed Delivery
Procedures" section of the Prospectus. See Instruction 1. DELIVERY OF DOCUMENTS
TO THE BOOK-ENTRY TRANSFER FACILITY DOES NOT CONSTITUTE DELIVERY TO THE EXCHANGE
AGENT.
If any tendered Old Notes are not exchanged pursuant to the Exchange Offer
for any reason, certificates for such nonexchanged or nontendered Old Notes will
be returned (or, in the case of Old Notes tendered by book-entry transfer, such
Old Notes will be credited to an account maintained at the Book-Entry Transfer
Facility), without expense to the tendering holder, promptly following the
expiration Or termination of the Exchange Offer.
- 3 -
<PAGE>
PLEASE READ THE ACCOMPANYING INSTRUCTIONS CAREFULLY
Ladies and Gentlemen:
Upon the terms and subject to the conditions of the Exchange Offer, the
undersigned hereby tenders to the Company the above-described principal amount
of Old Notes. Subject to, and effective upon, the acceptance for exchange of the
Old Notes tendered hereby, the undersigned hereby sells, assigns and transfers
to, or upon the order of, the Company, all right, title and interest in and to
such Old Notes as are being tendered hereby and hereby irrevocably constitutes
and appoints the Exchange Agent as attorney-in-fact of the undersigned (with
full knowledge that the Exchange Agent is also acting as agent of the Company in
connection with the Exchange Offer) with respect to such Old Notes, with full
power of substitution (such power of attorney being an irrevocable power coupled
with an interest), to:
(a) deliver such Old Notes in registered certificated form, or
transfer ownership of such Old Notes through book-entry transfer at the
Book-Entry Transfer Facility, to or upon the order of the Company, upon
receipt by the Exchange Agent, as the undersigned's agent, of the same
aggregate principal amount of Exchange Notes; and
(b) receive, for the account of the Company, all benefits and
otherwise exercise, for the account of the Company, all rights of
beneficial ownership of the Old Notes tendered hereby in accordance with
the terms of the Exchange Offer.
The undersigned hereby represents and warrants that the undersigned has
full power and authority to tender, sell, assign and transfer the Old Notes
tendered hereby and that, when the same are accepted for exchange, the Company
will acquire good, marketable and unencumbered tide thereto, free and clear of
all security interests, liens, restrictions, charges, encumbrances, conditional
sale agreements or other obligations relating to their sale or transfer, and not
subject to any adverse claim when the same are accepted by the Company. The
undersigned hereby further represents that any Exchange Notes acquired in
exchange for Old Notes tendered hereby will have been acquired in the ordinary
course of business of the person receiving such Exchange Notes, whether or not
such person is the undersigned, that neither the holder of such Old Notes nor
any such other person has an arrangement or understanding with any person to
participate in the distribution of such Exchange Notes and that neither the
holder of such Old Notes nor any such other person is an "affiliate," as defined
in Rule 405 under the Securities Act of 1933, as amended (the "Securities Act"),
of the Company. The undersigned has read and agrees to all of the terms of the
Exchange Offer.
The undersigned also acknowledges that this Exchange Offer is being made in
reliance on interpretations by the staff of the Securities and Exchange
Commission (the "SEC"), as set forth in no-action letters issued to third
parties, that the Exchange Notes issued in exchange for the Old Notes pursuant
to the Exchange Offer may be offered for resale, resold and otherwise
transferred by holders thereof (other than any such holder (x) that is an
"affiliate" of the Company within the meaning of Rule 405 under the Securities
Act or (y) who purchased such Old Notes directly from the Company to resell
pursuant to Rule 144A under the Securities Act (or another exemption under the
Securities Act), without compliance with the registration and prospectus
delivery provisions of the Securities Act, provided that such Exchange Notes are
acquired in the ordinary course of such holders' business and such holders have
no arrangement with any person to participate in the distribution of such
Exchange Notes. However, the Company does not intend to request the SEC to
consider, and the SEC has not considered, the Exchange Offer in the context of a
no-action letter, and there can be no assurance that the staff of the SEC would
make a similar determination with respect to the Exchange Offer as in other
circumstances.
The undersigned represents that: (i) it is not engaged in, and does not
intend to engage in, a distribution of Exchange Notes and has no arrangement or
understanding to participate in a distribution of Exchange Notes and (ii) it is
not an "affiliate" of the Company within the meaning of Rule 405 under the
Securities Act. If any holder is an affiliate of the Company, is engaged in or
intends to engage in or has any arrangement or understanding with respect to the
distribution of the Exchange Notes to be acquired pursuant to the Exchange
Offer, such holder (i) could not rely on the applicable interpretations of the
staff of the SEC and (ii) must comply with the registration and prospectus
delivery requirements of the Securities Act in connection with any resale
transaction.
- 4 -
<PAGE>
If the undersigned is a broker-dealer that will receive Exchange Notes for
its own account in exchange for Old Notes acquired as a result of market-making
or other trading activities (a "Participating Broker-Dealer"), it represents
that the Old Notes to be exchanged for the Exchange Notes were acquired by it as
a result of market-making or other trading activities and acknowledges that it
will deliver a prospectus in connection with any resale of such Exchange Notes,
which contains a plan of distribution with respect to such resale transactions;
however, by so acknowledging and by delivering a prospectus, such Participating
Broker-Dealer will not be deemed to admit that it is an "underwriter" within the
meaning of the Securities Act. The Prospectus, as it may be amended or
supplemented from time to time, may be used by a broker-dealer in connection
with any resale of Exchange Notes received for Old Notes where such Old Notes
were acquired by a broker-dealer as a result of market-making or other trading
activities (other than Old Notes acquired directly from the Company).
The Company has agreed that, subject to the provisions of the Registration
Rights Agreement, the Prospectus, as it may be amended or supplemented from time
to time, may be used by a Participating Broker-Dealer in connection with resales
of Exchange Notes received in exchange for Old Notes which were acquired by such
Participating Broker-Dealer for its own account as a result of market-making or
other trading activities, for a period ending one year after the Expiration Date
or, if earlier, when such Exchange Notes have been disposed of by such
Participating Broker-Dealer. In that regard, each Participating Broker-Dealer,
who acquired Old Notes for its own account as a result of market-making or
trading activities, by tendering such Old Notes and executing this Letter of
Transmittal, agrees that, upon receipt of notice from the Company of the
occurrence of any event or the discovery of any fact which makes any statement
contained in the Prospectus untrue in any material respect or which causes the
Prospectus to omit to state a material fact necessary in order to make the
statements contained therein, in light of the circumstances under which they
were made, not misleading, such Participating Broker-Dealer will suspend the
sale of Exchange Notes pursuant to the Prospectus until the Company has amended
or supplemented the Prospectus to correct such misstatement or omission and has
furnished copies of the amended or supplemented Prospectus to the Participating
Broker-Dealer or the Company has given notice that the sale of the Exchange
Notes may be resumed, as the case may be.
The undersigned will, upon request, execute and deliver any additional
documents deemed by the Company to be necessary or desirable to complete the
sale, assignment and transfer of the Old Notes tendered hereby. All authority
conferred or agreed to be conferred in this Letter of Transmittal and every
obligation of the undersigned hereunder shall be binding upon the successors,
assigns, heirs, executors, administrators, trustees in bankruptcy and legal
representatives of the undersigned and shall not be affected by, and shall
survive, the death or incapacity of the undersigned. This tender may be
withdrawn only in accordance with the procedures set forth in "The Exchange
Offer-Withdrawal of Tenders" section of the Prospectus.
Unless otherwise indicated herein in the box entitled "Special Issuance
Instructions" below, please deliver the Exchange Notes (and, if applicable,
substitute certificates representing Old Notes for any Old Notes not exchanged)
in the name of the undersigned or, in the case of a book-entry delivery of Old
Notes, please credit the account indicated above maintained at the Book-Entry
Transfer Facility. Similarly, unless otherwise indicated under the box entitled
"Special Delivery Instructions" below, please send the Exchange Notes (and, if
applicable, substitute certificates representing Old Notes for any Old Notes not
exchanged) to the undersigned at the address shown above in the box entitled
"Description of Old Notes."
The undersigned understands that tenders of Old Notes pursuant to any one
of the procedures described in "The Exchange Offer-Procedures for Tendering Old
Notes" in the Prospectus and in the instructions attached hereto will, upon the
Company's acceptance for exchange of such tendered Old Notes, constitute a
binding agreement between the undersigned and the Company upon the terms and
subject to the conditions of the Exchange Offer. The undersigned recognizes
that, under certain circumstances set forth in the Prospectus, the Company may
not be required to accept for exchange any of the Old Notes tendered thereby.
THE UNDERSIGNED, BY COMPLETING THE BOX ENTITLED "DESCRIPTION OF OLD NOTES"
ABOVE AND SIGNING THIS LETTER OF TRANSMITTAL, WILL BE DEEMED TO HAVE TENDERED
THE OLD NOTES AS SET FORTH IN SUCH BOX ABOVE.
- 5 -
<PAGE>
<TABLE>
<S> <C>
- ------------------------------------------------------------ -------------------------------------------------------
SPECIAL ISSUANCE INSTRUCTIONS SPECIAL DELIVERY INSTRUCTIONS
(See Instructions 3 and 4) (See Instructions 3 and 4)
To be completed ONLY if certificates for Old To be completed ONLY if certificates for
Notes not exchanged and/or Exchange Notes are to Old Notes not exchanged and/or Exchange
be issued in the name of and sent to someone other Notes are to be sent to someone other than
than the person or persons whose signature(s) the person or persons whose signature(s)
appear(s) below on this Letter of Transmittal, or if appear(s) below on this Letter of Transmittal,
Old Notes delivered by book-entry transfer which or such person or persons at an address other
are not accepted for exchange are to be returned by than shown above in the box entitled
credit to an account maintained at the Book-Entry "Description of Old Notes" on this Letter of
Transfer Facility other than the account indicated Transmittal.
above.
Mail: Exchange Notes and/or Old Notes to:
Issue: Exchange Notes and/or Old Notes to:
Name(s) _________________________________________
Name(s) _________________________________________ (Please Type or Print)
(Please Type or Print)
_________________________________________________
_________________________________________________ (Please Type or Print)
(Please Type or Print)
Address _________________________________________ Address _________________________________________
_________________________________________________ _________________________________________________
_________________________________________________ _________________________________________________
(Zip Code) (Zip Code)
Credit unexchanged Old Notes delivered by book-entry
transfer to the Book-Entry Transfer Facility account
set forth below.
(Book-Entry Transfer Facility
Account Number, if applicable)
- ------------------------------------------------------------ -------------------------------------------------------
</TABLE>
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<PAGE>
IMPORTANT: THIS LETTER OF TRANSMITTAL OR A FACSIMILE HEREOF (TOGETHER WI
THE CERTIFICATES FOR OLD NOTES OR A BOOK-ENTRY CONFIRMATION AND ALL OTHER
REQUIRED DOCUMENTS OR THE NOTICE OF GUARANTEED DELIVERY) MUST BE RECEIVED BY THE
EXCHANGE AGENT PRIOR TO 5:00 P.M, NEW YORK CITY TIME, ON THE EXPIRATION DATE.
PLEASE READ THIS ENTIRE LETTER OF TRANSMITTAL CAREFULLY
BEFORE COMPLETION.
- --------------------------------------------------------------------------------
PLEASE SIGN HERE
(TO BE COMPLETED BY ALL TENDERING HOLDERS)
(Complete Accompanying Substitute Form W-9 on reverse side)
_____________________________________ ___________________________________
_____________________________________ ___________________________________
_____________________________________ ___________________________________
Signature(s) of Owner Date
Area Code and Telephone Number _________________________
If a holder is tendering any Old Notes, this Letter of Transmittal must be
signed by the registered holder(s) as the name(s) appear(s) on the
certificate(s) for the Old Notes or on a securities position listing or by any
person(s) authorized to become registered holder(s) by endorsements and
documents transmitted herewith. If signature is by a trustee, executor,
administrator, guardian, officer or other person acting in a fiduciary or
representative capacity, please set forth full title. See Instruction 3.
Name(s): _______________________________________________________________________
________________________________________________________________________________
(Please Type or Print)
Capacity: ______________________________________________________________________
Address: _______________________________________________________________________
(Including Zip Code)
SIGNATURE GUARANTEE
(If required by Instruction 3)
Signature(s) Guaranteed by an Eligible Institution: ____________________________
(Authorized Signature)
________________________________________________________________________________
(Title)
________________________________________________________________________________
(Name and Firm)
Dated: _______________________________________________________________________
- --------------------------------------------------------------------------------
- 7 -
<PAGE>
INSTRUCTIONS
Forming Part of the Terms and Conditions of the Exchange Notes
1. Delivery of this Letter of Transmittal and Notes; Guaranteed Delivery
Procedures.
This Letter of Transmittal is to be completed by holders of Old Notes
either if certificates are to be forwarded herewith or if tenders are to be made
pursuant to the procedures for delivery by book-entry transfer set forth in "The
Exchange Offer-Book-Entry Transfer" section of the Prospectus. Certificates for
all physically tendered Old Notes, or Book-Entry Confirmations, as the case may
be, as well as a properly completed and duly executed Letter of Transmittal (or
manually signed facsimile thereof) and any other documents required by this
Letter of Transmittal, must be received by the Exchange Agent at the address set
forth herein on or prior to the Expiration Date, or the tendering holder must
comply with the guaranteed delivery procedures set forth below. Old Notes
tendered hereby must be in denomination of a principal amount of $1,000 and any
integral multiple thereof.
Holders of Old Notes whose certificates for Old Notes are not immediately
available or who cannot deliver their certificates and all other required
documents to the Exchange Agent on or prior to the Expiration Date, or who
cannot complete the procedure for book-entry transfer on a timely basis, may
tender their Old Notes pursuant to the guaranteed delivery procedures set forth
in "The Exchange Offer-Guaranteed Delivery Procedures" section of the
Prospectus. Pursuant to such procedures, (i) such tender must be made through an
Eligible Institution (as defined below), (ii) prior to the Expiration Date, the
Exchange Agent must receive from such Eligible Institution a properly completed
and duly executed Letter of Transmittal (or a facsimile thereof) and Notice of
Guaranteed Delivery, substantially in the form provided by the Company (by
telegram, telex, facsimile transmission, mail or hand delivery), setting forth
the name and address of the holder of Old Notes and the amount of Old Notes
tendered, stating that the tender is being made thereby and guaranteeing that
within three business days after the Expiration Date, the certificates for all
physically tendered Old Notes, or a Book-Entry Confirmation, and any other
documents required by this Letter of Transmittal will be deposited by the
Eligible Institution with the Exchange Agent, and (iii) the certificates for all
physically tendered Old Notes, in proper form for transfer, or Book-Entry
Confirmation, as the case may be, and all other documents required by this
Letter of Transmittal, are received by the Exchange Agent within three business
days after the Expiration Date.
The method of delivery of this Letter of Transmittal, the Old Notes and all
other required documents is at the election and risk of the tendering holders,
but the delivery will be deemed made only when actually received or confirmed by
the Exchange Agent. Instead of delivery by mail, it is recommended that holders
use an overnight or hand delivery service, properly insured. In all cases,
sufficient time should be allowed to assure delivery to the Exchange Agent prior
to 5:00 p.m., New York City time, on the Expiration Date. Do not send this
Letter of Transmittal or any Old Notes to the Company.
The Company will not accept any alternative, conditional or contingent
tenders. Each tendering holder, by execution of a Letter of Transmittal (or
facsimile thereof), waives any right to receive any notice of the acceptance of
such tender. See "The Exchange Offer" section of the Prospectus.
2. Partial Tenders (not applicable to holders of Old Notes who tender by
book-entry transfer); Withdrawal Rights.
Tender of Old Notes will be accepted only in a principal amount of $1,000
and integral multiples thereof. If less than all of the Old Notes evidenced by a
submitted certificate are to be-tendered, the tendering holder(s) should fill in
the aggregate principal amount of Old Notes to be tendered in the boxes above
entitled "Description of Old Notes-Principal Amount Tendered". A reissued
certificate representing the balance of nontendered Old Notes will be sent to
such tendering holder, unless otherwise provided in the appropriate box on this
Letter of Transmittal, promptly after the Expiration Date. All of the Old Notes
delivered to the Exchange Agent will be deemed to have been tendered unless
otherwise indicated.
Except as otherwise provided herein, tenders of Old Notes may be withdrawn
at any time on or prior to 5:00 p.m. New York City time on the Expiration Date.
In order for a withdrawal to be effective or prior to that time, a written or
facsimile transmission of such notice of withdrawal must be timely received by
the Exchange Agent at one of its addresses set forth above on or prior to 5:00
p.m. New York City time on the Expiration Date. Any such notice of withdrawal
must specify the name of the person who tendered the Old Notes to be withdrawn,
the aggregate principal amount of Old Notes to be. withdrawn and (if
certificates for such Old Notes have been tendered) the name of the registered
holder of the Old Notes as set forth on the certificate for the Old Notes, if
- 8 -
<PAGE>
different from that of the person who tendered such Old Notes. If certificates
for the Old Notes have been delivered or otherwise identified to the Exchange
Agent, then prior to the physical release of such certificates for the Old
Notes, the tendering holder must submit the serial numbers shown on the
particular certificates for the Old Notes to be withdrawn and the signature on
the notice of withdrawal must be guaranteed by an Eligible Institution, except
in the case of Old Notes tendered for the account of an Eligible Institution. If
Old Notes have been tendered pursuant to the procedures for book-entry transfer
set forth in "The Exchange Offer-Procedures for Tendering Old Notes" section of
the Prospectus, the notice of withdrawal must specify the name and number of the
account at the Book-Entry Transfer Facility to be credited with the withdrawal
of Old Notes, in which case a notice of withdrawal will be effective if
delivered to the Exchange Agent by written or facsimile transmission.
Withdrawals of tenders of Old Notes may not be rescinded. Old Notes properly
withdrawn will not be deemed to have been validly tendered for purposes of the
Exchange Offer, and no Exchange Notes will be issued with respect thereto unless
the Old Notes so withdrawn are validly retendered. Properly withdrawn Old Notes
may be retendered at any subsequent time on or prior to the Expiration Date by
following the procedures described in the Prospectus under "The Exchange
Offer-Procedures for Tendering Old Notes."
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.
Neither the Company, any employees, agents, affiliates or assigns of the
Company, the Exchange Agent nor any other person shall be under any duty to give
any notification of any irregularities in any notice of withdrawal or incur any
liability for failure to give such notification. Any Old Notes which have been
tendered but which are withdrawn will be returned to the holder thereof without
cost to such holder as promptly as practicable after withdrawal.
3. Signatures on this Letter of Transmittal; Bond Powers and Endorsements;
Guarantee of Signatures.
If this Letter of Transmittal is signed by the registered holder of the Old
Notes tendered hereby, the signature must correspond exactly with the name as
written on the face of the certificates or on a securities position listing
without any change whatsoever.
If any tendered Old Notes are owned of record by two or more joint owners,
all of such owners must sip this Letter of Transmittal.
If any tendered Old Notes are registered in different names on several
certificates or securities positions listings, it will be necessary to complete,
sign and submit as many separate copies of this Letter of Transmittal as there
are different registrations.
When this Letter of Transmittal is signed by the registered holder or
holders of the Old Notes specified herein and tendered hereby, no endorsements
of certificates or separate bond powers are required. If, however, the Exchange
Notes are to be issued, or any untendered Old Notes are to be reissued, to a
person other than the registered holder, then endorsements of any certificates
transmitted hereby. or separate bond powers are required.
Signatures on such certificate(s) must be guaranteed by an Eligible Institution.
If this Letter of Transmittal is signed by a person other than the
registered holder or holders of any certificate(s) specified herein, such
certificate(s) must be endorsed or accompanied by appropriate bond powers, in
either case, signed exactly as the name or names of the registered holder or
holders appear(s) on the certificate(s), and the signatures on such
certificate(s) must be guaranteed by an Eligible Institution.
If this Letter of Transmittal or any certificates 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,
proper evidence satisfactory to the Company of their authority to so act must be
submitted.
Endorsements on certificates for Old Notes or signatures on bond powers
required by this Instruction 3 must be guaranteed by an institution or firm
which is a member of the Medallion system (an "Eligible Institution").
Signatures on this Letter of Transmittal must be guaranteed by an Eligible
Institution, unless the Old Notes are tendered: (i) by a registered holder of
Old Notes (which term, for purposes of the Exchange Offer, includes any
participant in the Book-Entry Transfer Facility system whose name appears on a
security position listing as the holders of such Old Notes) who has not
completed the box entitled "Special Issuance Instructions" or "Special Delivery
Instructions" on this letter or (ii) for the account of an Eligible Institution.
- 9 -
<PAGE>
4. Special Issuance and Delivery Instructions.
Tendering holders of Old Notes should indicate in the applicable box, the
name and address to which Exchange Notes issued pursuant to the Exchange Offer
and/or substitute certificates evidencing Old Notes not exchanged are to be
issued or sent, if different from the name or address of the person signing this
Letter of Transmittal. In the case of issuance in a different name, the employer
identification or social security number of the person named must also be
indicated. A holder of Old Notes tendering Old Notes by book-entry transfer may
request that Old Notes not exchanged be credited to such account maintained at
the Book-Entry Transfer Facility as such holder may designate hereon. If no such
instructions are given, such Old Notes not exchanged will be returned to the
name or address of the person signing this Letter of Transmittal.
5. Tax Identification Number.
Federal income tax law generally requires that a tendering holder whose Old
Notes are accepted for exchange must provide the Company (as payor) with such
holder's correct Taxpayer Identification Number ("TIN") on Substitute Form W-9
below, which, in the case of a tendering holder who is an individual, is his or
her social security number. If the Company is not provided with the current or
an adequate basis for an exemption, such tendering holder may be subject to a
$50 penalty imposed by the Internal Revenue Service. In addition, delivery to
such tendering holder of Exchange Notes may be subject to backup withholding in
an amount equal to 31% of all reportable payments made after the exchange. If
withholding results in an overpayment of taxes, a refund may be obtained.
Exempt holders of Old Notes (including, among others, all corporations and
certain foreign individuals) are not subject to these backup withholding and
reporting requirements. See the enclosed Guidelines for Certification of
Taxpayer Identification Number on Substitute Form W-9 (the "W-9 Guidelines") for
additional instructions.
To prevent backup withholding, each tendering holder of Old Notes must
provide its correct TIN by completing the Substitute Form W-9 set forth below,
certifying that the TIN provided is correct (or that such holder is awaiting a
TIN) and that (i) the holder is exempt from backup withholding, (ii) the holder
has not been notified by the Internal Revenue Service that such holder is
subject to backup withholding as a result of a failure to report all interest or
dividends or (iii) the Internal Revenue Service has notified the holder that
such holder is no longer subject to backup withholding. If the tendering holder
of Old Notes is a nonresident alien or foreign entity not subject to backup
withholding, such holder must give the Company a completed Form W-8, Certificate
of Foreign Status. These forms may be obtained from the Exchange Agent. If the
Old Notes are in more than one name or are not in the name of the actual owner,
such holder should consult the W-9 Guidelines for information on which TIN to
report. If such holder does not have a TIN, such holder should consult the W-9
Guidelines for instructions on applying for a TIN, check the box in Part 2 of
the Substitute Form W-9 and write "applied for" in lieu of its TIN. Note:
Checking this box and writing "applied for" on the form means that such holder
has already applied for a TIN or that such holder intends to apply for one in
the near future. If such holder does not provide its TIN to the Company within
60 days, backup withholding will begin and continue until such holder furnishes
its TIN to the Company.
6. Transfer Taxes.
The Company will pay all transfer taxes, if any, applicable to the transfer
of Old Notes to it pursuant to the Exchange Offer. If, however, Exchange Notes
and/or substitute Old Notes not exchanged are to be delivered to, or are to be
registered or issued in the name of, any person other than the registered holder
of the Old Notes tendered hereby, or if tendered Old Notes are registered in the
name of any person other than the person signing this Letter of Transmittal, or
if a transfer tax is imposed for any reason other than the transfer of Old Notes
to the Company pursuant to the Exchange Offer, 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 herewith, the amount of such
transfer taxes will be billed directly to such tendering holder.
Except as provided in this Instruction 6, it will not be necessary for
transfer tax stamps to be affixed to the Old Notes specified in this Letter of
TransmittaL
7. Determination of Validity.
The Company will determine, in its sole discretion, all questions as to the
form of documents, validity, eligibility (including time of receipt) and
acceptance for exchange of any tender of Old Notes, which determination shall be
final and binding on all parties. The Company reserves the absolute right to
reject any and all tenders determined by it not to be in proper form or the
acceptance of which, or exchange for which, may,
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<PAGE>
in the view of counsel to the Company, be unlawful. The Company also reserves
the absolute right, subject to applicable law, to waive any of the conditions of
the Exchange Offer set forth in the Prospectus under the caption "The Exchange
Offer" or any conditions or irregularity in any tender of Old Notes of any
particular holder whether or not similar conditions or irregularities are waived
in the case of other holders.
The Company's interpretation of the terms and conditions of the Exchange
Offer (including this Letter of Transmittal and the instructions hereto) will be
final and binding. No tender of Old Notes will be deemed to have been validly
made until all irregularities with respect to such tender have been cured or
waived. Although the Company intends to notify holders of defects or
irregularities with respect to tenders of Old Notes, neither the Company, any
employees, agents, affiliates or assigns of the Company, the Exchange Agent, nor
any other person shall be under any duty to give notification of any
irregularities in tenders or incur any liability for failure to give such
notification.
8. No Conditional Tender
No alternative, conditional, irregular or contingent tenders will be
accepted. All tendering holders of Old Notes, by execution of this Letter of
Transmittal, shall waive any right to receive notice of the acceptance of their
Old Notes for exchange.
9. Mutilated, Lost, Stolen or Destroyed Old Notes.
Any holder whose Old Notes have been mutilated, lost, stolen or destroyed
must contact the Exchange Agent at the address indicated above for further
instructions. This Letter of Transmittal and related documents cannot be
processed until the procedures for replacing mutilated, lost, stolen or
destroyed certificate(s) have been followed.
10. Requests for Assistance or Additional Copies.
Questions relating to the procedure for tendering, as well as requests for
additional copies of the Prospectus and this Letter of Transmittal, may be
directed to the Exchange Agent, at the address and telephone number indicated
above.
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<PAGE>
TO BE COMPLETED BY ALL TENDERING HOLDERS
(See Instruction 5)
PAYER'S NAME: MIDDLE AMERICAN TISSUE INC.
<TABLE>
<S> <C> <C>
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SUBSTITUTE Part I-PLEASE PROVIDE TIN: ___________________________________
Form W-9 YOUR TIN IN THE BOX AT Social Security Number or Employer
Department of the RIGHT AND CERTIFY BY Identification Number
Treasury SIGNING AND DATING
Internal Revenue Service BELOW.
Payor's Request for Taxpayer
Identification Number ("TIN")
-----------------------------------------------------------------------------------
Part 2-TIN Applied for:
-----------------------------------------------------------------------------------
CERTIFICATION: UNDER THE PENALTIES OF PERJURY, I
CERTIFY THAT:
(1) the number shown on this form is my correct Taxpayer Identification Number
(or I am waiting for a number to be issued to me).
(2) 1 am not subject to backup withholding either because: (a) I am exempt from
backup withholding, or (b) I have not been notified by the Internal Revenue
Service (the "IRS") that I am subject to backup withholding as a result of a
failure to report all interest or dividends, or (c) the IRS has notified me that
I am no longer subject to backup withholding, and (3) any other information
provided on this form is true and correct.
SIGNATURE ______________________ DATE ____________________________
-----------------------------------------------------------------------------------
You must cross out item (2) of the above certification if you have
been notified by the IRS that you are subject to backup withholding
because of underreporting of interest or dividends on your tax return
and you have not been notified by the IRS that you are no longer
subject to backup withholding.
- --------------------------------------------------------------------------------------------------------------------------
</TABLE>
YOU MUST COMPLETE THE FOLLOWING CERTIFICATE IF YOU CHECKED THE BOX
IN PART 2 OF SUBSTITUTE FORM W-9
- --------------------------------------------------------------------------------
CERTIFICATE OF AWAITING TAXPAYER IDENTIFICATION NUMBER
I certify under penalties of perjury that a taxpayer identification number has
not been issued to me, and either (a) I have mailed or delivered an application
to receive a taxpayer identification number to the appropriate Internal Revenue
Service Center or Social Security Administration Office or (b) I intend to mail
or deliver an application in the near future. I understand that if I do not
provide a taxpayer identification number by the time of the exchange, 31 percent
(31%) of all reportable payments made to me thereafter will be withheld until I
provide a number.
SIGNATURE _____________________ DATE _____________________
- --------------------------------------------------------------------------------
- 12 -
NOTICE OF GUARANTEED DELIVERY
for
Offer to Exchange
15% Series B Senior Secured Discount Notes due 2007
for any and all outstanding 15% Series A Senior Secured Discount Notes due 2007
This Notice of Guaranteed Delivery or one substantially equivalent hereto
must be used to accept the Exchange Offer of Middle American Tissue Inc., a
Delaware corporation (the "Company"), made pursuant to the Prospectus, dated
______________ (the "Prospectus"), if certificates for the Company's outstanding
15% Series A Senior Secured Discount Notes due July 15, 2007 (the "Old Notes")
are not immediately available or if the procedure for book-entry transfer cannot
be completed on a timely basis or time will not permit all required documents to
reach The Chase Manhattan Bank (the "Exchange Agent") on or prior to 5:00 p.m.,
New York City time, on the Expiration Date of the Exchange Offer. This Notice of
Guaranteed Delivery may be delivered or transmitted by telegram, telex,
facsimile transmission, mail or hand delivery to the Exchange Agent as set forth
below. See "The Exchange Offer-Procedures for Tendering Old Notes" in the
Prospectus. In addition, in order to utilize the guaranteed delivery procedure
to tender Old Notes pursuant to the Exchange Offer, a completed, signed and
dated Letter of Transmittal (or a manually signed facsimile thereof) must also
be received by the Exchange Agent on or prior to 5:00 p.m., New York City time,
on the Expiration Date. Capitalized terms used herein but not defined herein
have the respective meanings given to them in the Prospectus.
Delivery To: The Chase Manhattan Bank, Exchange Agent
By Mail or Hand/Overnight Delivery:
The Chase Manhattan Bank By Facsimile Transmission:
Corporate Trust Securities Window (For Eligible Institutions Only)
Room 234, North Building (212) 638-7380 or 7381
55 Water Street Confirm by Telephone:
New York, New York 10041 Carlos Esteves: (212) 638-0828
(212) 638-0454
Delivery of this Notice of Guaranteed Delivery to an address other than as
set forth above or transmission of this Notice of Guaranteed Delivery via
facsimile to a number other than as set forth above will not constitute a valid
delivery.
This Notice of Guaranteed Delivery is not to be used to guarantee
signatures. If a signature on a Letter of Transmittal is required to be
guaranteed by an "Eligible Institution" under the instructions thereto, Such
signature guarantee must appear in the applicable space provided in the
signature box on the Letter of Transmittal.
Ladies and Gentlemen:
Upon the terms and conditions set forth in the Prospectus and the
related Letter of Transmittal, the undersigned hereby tenders to the Company the
principal amount of Old Notes set forth below pursuant to the guaranteed
delivery procedures described in the Prospectus under the caption "The Exchange
Offer-Guaranteed Delivery Procedures."
Principal Amount of Old Notes Tendered:*
- -------------------------------------------------------------------------
Certificate Number
(if available) Principal Amount of Old Notes Tendered*
- -------------------------------------------------------------------------
- -------------------------------------------------------------------------
- -------------------------------------------------------------------------
- -------------------------------------------------------------------------
*Must be in denominations of principal amount of $1,000 and any integral
multiple thereof
Name(s) of Registered Holder(s): __ Area Code and Telephone No.: ______________
___________________________________ If Old Notes will be delivered by book-
___________________________________ entry transfer to DTC, check the box: |_|
DTC account No.: __________________________
<PAGE>
- --------------------------------------------------------------------------------
An authority herein conferred or agreed to be conferred shall survive the death
or incapacity of the undersigned, and every obligation of the undersigned
hereunder shall be binding upon the heirs, personal representatives, successors
and assigns of the undersigned.
- --------------------------------------------------------------------------------
PLEASE SIGN HERE
X __________________________________ ____________________________________
X __________________________________ ____________________________________
Signature(s) of Owner(s) Date
or Authorized Signatory
Area Code and Telephone Number _____________
Must be signed by the holder(s) of Old Notes as their name(s) appear(s) on
certificates for Old Notes or on a security position listing, or by person(s)
authorized to become registered holder(s) by endorsement and documents
transmitted with this Notice of Guaranteed Delivery. If signature is by trustee,
executor, administrator, guardian, attorney-in-fact, officer or other person
acting in a fiduciary or representative capacity, such person must set forth his
or her full title below.
Please print name(s) and address(es)
Name(s): ________________________________________________
Capacity: _______________________________________________
Address(es): ____________________________________________
_________________________________________________________
GUARANTEE
The undersigned, a firm or institution that is a member of the Medallion
System, hereby guarantees that the certificates representing the principal
amount of Old Notes tendered hereby in proper form for transfer, or timely
confirmation of the book-entry transfer of such Old Notes into the Exchange
Agent's account at The Depository Trust Company pursuant to the procedures set
forth in "The Exchange Offer-Guaranteed Delivery Procedures " section of the
Prospectus, together with one or more properly completed and duly executed
Letter(s) of Transmittal (or a manually signed facsimile thereof) with any
required signature guarantee and any other documents required by the Letter of
Transmittal, will be received by the Exchange Agent at the address set forth
above, no later than three business days after the Expiration Date of the
Exchange Offer.
________________________________________ ___________________________________
Name of Firm Authorized Signature
________________________________________ ___________________________________
- 2 -
<PAGE>
Address Title
________________________________________ Name: _________________________________
Zip Code (Please Type or Print)
Area Code and Tel. No.: ________________ Dated: ________________________________
NOTE: DO NOT SEND CERTIFICATES FOR OLD NOTES WITH THIS NOTICE OF GUARANTEED
DELIVERY. ACTUAL SURRENDER OF OLD NOTES MUST BE MADE PURSUANT TO, AND
BE ACCOMPANIED BY, A PROPERLY COMPLETED AND DULY EXECUTED LETTER OF
TRANSMITTAL AND ANY OTHER REQUIRED DOCUMENTS.
- 3 -
EXHIBIT 99.3
OFFER TO EXCHANGE
MIDDLE AMERICAN TISSUE INC.
OFFER TO EXCHANGE
15% Series B Senior Secured Discount Notes due 2007 for any
and all outstanding 15% Series A
Senior Secured Discount Notes due 2007
Brokers, Dealers, Commercial Banks,
Trust Companies and Other Nominees:
Middle American Tissue Inc. (the "Company"), a Delaware corporation, is
offering, upon and subject to the terms and conditions set forth in the
Prospectus dated _____________________ (the "Prospectus") and the enclosed
Letter of Transmittal (the "Letter of Transmittal"), to exchange (the "Exchange
Offer") its 15% Series B Senior Secured Discount Notes due July 15, 2007 (the
"Exchange Notes") for any and all of its outstanding 15% Series A Senior Secured
Discount Notes due July 15, 2007 (the "Old Notes" and, together with the
Exchange Notes, the "Notes"). The Exchange Offer is being made in order to
satisfy certain obligations of the Company contained in the Registration Rights
Agreement dated as of July 9, 1999 between the Company and the initial
purchasers of the Old Notes referred to therein.
We are requesting that you contact your clients for whom you hold Old Notes
regarding the Exchange Offer. For your information and for forwarding to your
clients for whom you hold Old Notes registered in your name or in the name of
your nominee, or who hold Old Notes registered in their own names, we are
enclosing the following documents:
1. The Prospectus;
2. The Letter of Transmittal for your use and for the information of your
clients;
3. A Notice of Guaranteed Delivery to be used to accept the Exchange Offer
if certificates for Old Notes are not immediately available or time will not
permit all required documents to reach the Exchange Agent prior to the
Expiration Date (as defined below) or if the procedure for book-entry transfer
cannot be completed on a timely basis;
4. A form of letter which may be sent to your clients for whose account you
hold Old Notes registered in your name or the
<PAGE>
name of your nominee, with space provided for obtaining such clients'
instructions with regard to the Exchange Offer;
5. Guidelines for Certification of Taxpayer Identification Number on
Substitute Form W-9; and
6. Return envelopes addressed to The Chase Manhattan Bank, the Exchange
Agent for the Old Notes.
Your prompt action is requested. The Exchange Offer will expire at 5:00
p.m., New York City time, on __________, unless extended by the Company (the
"Expiration Date"). Old Notes tendered pursuant to the Exchange Offer may be
withdrawn at any time before the Expiration Date.
To participate in the Exchange Offer, a duly executed and properly
completed Letter of Transmittal (or facsimile thereof), with any required
signature guarantees and any other required documents, should be sent to the
exchange Agent and certificates representing Old Notes should be delivered to
the Exchange Agent, all in accordance with the instructions set forth in the
Letter of Transmittal and the Prospectus.
If holders of Old Notes wish to tender, but it is impracticable for them to
forward their certificates for Old Notes prior to the expiration of the Exchange
Offer or to comply with the book-entry transfer procedures on a timely basis, a
tender may be effected by following the guaranteed delivery procedures described
in the Prospectus under "The Exchange Offer-Guaranteed Delivery Procedure."
The Company will not pay any fees or commissions to brokers, dealers or
other persons for soliciting exchanges of Old Notes pursuant to the Exchange
Offer. The Company will, however, upon request, reimburse brokers, dealers,
commercial banks and trust companies for reasonable and necessary costs and
expenses incurred by them in forwarding the Prospectus and the related documents
to the beneficial owners of Old Notes held by them as nominee or in a fiduciary
capacity. The Company will pay or cause to be paid all stock transfer taxes
applicable to the exchange of Old Notes pursuant to the Exchange Offer, except
as set forth in Instruction 6 of the Letter of Transmittal.
Old Notes not tendered for exchange will remain outstanding and will not
retain any rights under the Registration Rights Agreement dated as of July 9,
1999 between the Company and the initial purchasers of the Old Notes referred to
therein.
<PAGE>
Any inquiries you may have with respect to the Exchange Offer, or requests
for additional copies of the enclosed materials, should be directed to The Chase
Manhattan Bank, the Exchange Agent, as its address and telephone number set
forth on the front of the Letter of Transmittal.
Very truly yours,
Middle American Tissue Inc.
NOTHING HEREIN OR IN THE ENCLOSED DOCUMENTS SHALL CONSTITUTE YOU OR ANY
PERSON AS AN AGENT OF THE COMPANY OR THE EXCHANGE AGENT, OR AUTHORIZE YOU OR ANY
OTHER PERSON TO USE ANY DOCUMENT, OR MAKE ANY STATEMENTS ON BEHALF OF THE
COMPANY WITH RESPECT TO THE EXCHANGE OFFER, EXCEPT FOR STATEMENTS EXPRESSLY MADE
IN THE PROSPECTUS OR THE LETTER OF TRANSMITTAL.
EXHIBIT 99.4
OFFER TO EXCHANGE
MIDDLE AMERICAN TISSUE INC.
OFFER TO EXCHANGE
15% Series B Senior Secured Discount Notes due 2007 for any
and all outstanding 15% Series A
Senior Secured Discount Notes due 2007
To Our Clients:
Enclosed for your consideration is a Prospectus, dated
_____________________ (the "Prospectus"), and the associated Letter of
Transmittal (the "Letter of Transmittal"), relating to the offer (the "Exchange
Offer") of Middle American Tissue Inc. (the "Company"), a Delaware corporation,
to exchange its 15% Series B Senior Secured Discount Notes due July 15, 2007
(the "Exchange Notes") for any and all of its outstanding 15% Series A Senior
Secured Discount Notes due July 15, 2007 (collectively, the "Old Notes"), upon
the terms and subject to the conditions described in the Prospectus and the
Letter of Transmittal. The Exchange Offer is being made in order to satisfy
certain obligations of the Company contained in the Registration Rights
Agreement dated as of July 9, 1999, between the Company and the initial
purchasers of the Old Notes referred to therein.
This material is being forwarded to you as the beneficial owner of Old
Notes carried by us in your account but not registered in your name. A tender of
such Old Notes may only be made by us as the holder of record and pursuant to
your instructions.
Accordingly, we request instructions as to whether you wish us to tender on
your behalf the Old Notes held by us for your account, pursuant to the terms and
conditions set forth in the enclosed Prospectus and Letter of Transmittal.
Your instructions should be forwarded to us as promptly as possible in
order to permit us to tender the Old Notes on your behalf in accordance with the
provisions of the Exchange Offer. The Exchange Offer will expire at 5:00 p.m.,
New York City time, on ________________, unless extended by the Company (the
"Expiration Date"). Any Old Notes tendered pursuant to the Exchange Offer may be
withdrawn at any time before the Expiration Date.
Your attention is directed to the following:
1. The Exchange Offer is for any and all Old Notes.
<PAGE>
2. Except as set forth in Instruction 6 to the Letter of Transmittal, any
transfer taxes incident to the exchange of Old Notes pursuant to the Exchange
Offer will be paid by the Company.
3. The Exchange Offer expires at 5:00 p.m., New York City time, on
_____________, unless extended by the Company.
If you wish to have us tender your Old Notes, please so instruct us by
completing, executing and returning to us the instruction form enclosed herein.
The Letter of Transmittal is furnished to you for information only and may not
be used by you to tender Old Notes.
Old Notes not tendered for exchange will remain outstanding and will not
retain any rights under the Registration Rights Agreement dated as of July 9,
1999 between the Company and the initial purchasers of the Old Notes referred to
therein.
<PAGE>
INSTRUCTIONS WITH RESPECT TO
THE EXCHANGE OFFER
The undersigned acknowledge(s) receipt of your letter and the enclosed
material referred to therein relating to the Exchange Offer made by the Company
with respect to its Old Notes.
This will instruct you to tender the Old Notes held by you for the account
of the undersigned, upon and subject to the terms and conditions set forth in
the Prospectus and the related Letter of Transmittal.
Please tender the Old Notes held by you for any account as indicated below:
Aggregate Principal
Amount of Old Notes
-------------------
15% Series A Senior
Secured Discount Notes due
July 15, 2007.................... _________________________
[__] Please do not tender any Old Notes
held by you for my account. _________________________
Dated: __________________, 1999 _________________________
Signature(s)
_________________________
_________________________
_________________________
Please print name(s) here
_________________________
_________________________
Address(es)
_________________________
Tax Identification or
Social Security No.(s)
None of the Old Notes held by us for your account will be tendered unless we
receive written instructions from you to do so. Unless a specific contrary
instruction is given in the space provided, your signature(s) hereon shall
constitute an instruction to us to tender all the Old Notes held by us for your
account.
