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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 10-K
FOR ANNUAL AND TRANSITION REPORTS
PURSUANT TO SECTIONS 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the fiscal year ended September 30, 1997
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from _________ to ______
Commission file number 0-23340
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ROCK-TENN COMPANY
(Exact name of registrant as specified in its charter)
GEORGIA 62-0342590
(State or other jurisdiction of (I.R.S. employer
incorporation or organization) identification no.)
504 THRASHER STREET 30071
NORCROSS, GEORGIA (Zip code)
(Address of principal executive offices)
Registrant's telephone number, including area code: (770) 448-2193
SECURITIES REGISTERED PURSUANT TO SECTION 12(B) OF THE ACT: Class A Common
Stock, par value $.01 per share
SECURITIES REGISTERED PURSUANT TO SECTION 12(G) OF THE ACT: None
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. YES X NO
--- ---
Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not be contained,
to the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [ ]
The aggregate market value of the voting stock held by non-affiliates
of the registrant as of December 17, 1997 (based on the last reported closing
price per share of Class A Common Stock as reported on the New York Stock
Exchange on such date) was $446,720,735.
As of December 17, 1997, the registrant had 23,401,864 and 11,749,947
shares of Class A Common Stock and Class B Common Stock outstanding,
respectively.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Annual Report to Shareholders for the fiscal year ended
September 30, 1997 are incorporated by reference in Part II. Portions of the
Proxy Statement for the Annual Meeting of Shareholders to be held on January 22,
1998 are incorporated by reference in Parts III and IV.
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INDEX TO FORM 10-K
ROCK-TENN COMPANY
<TABLE>
<CAPTION>
PAGE REFERENCE
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<S> <C> <C>
PART I
Item 1. Business..................................................................................... 3
Item 2. Properties................................................................................... 8
Item 3. Legal Proceedings............................................................................ 8
Item 4. Submission of Matters to a Vote of Security Holders.......................................... 8
Item X. Executive Officers of the Registrant......................................................... 9
PART II
Item 5. Market for Registrant's Common Equity and Related
Stockholder Matters................................................................... 12
Item 6. Selected Financial Data...................................................................... 12
Item 7. Management's Discussion and Analysis of Financial
Condition and Results of Operations................................................... 12
Item 7A. Quantitative and Qualitative Disclosures about Market Risk................................... 12
Item 8. Financial Statements and Supplementary Data.................................................. 12
Item 9. Changes in and Disagreements with Accountants
on Accounting and Financial Disclosure................................................ 12
PART III
Item 10. Directors and Executive Officers of the
Registrant............................................................................ 13
Item 11. Executive Compensation....................................................................... 13
Item 12. Security Ownership of Certain Beneficial
Owners and Management................................................................. 13
Item 13. Certain Relationships and Related Transactions............................................... 13
PART IV
Item 14. Exhibits, Financial Statement Schedules
and Reports on Form 8-K............................................................... 14
</TABLE>
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PART I
ITEM 1. BUSINESS
Unless the context otherwise requires, references herein to the Company
are to the Company and its subsidiaries other than RTS Packaging, LLC.
GENERAL
Founded in 1936 as a folding carton manufacturer, the Company is a
leading converter of recycled and virgin paperboard, a leading manufacturer of
recycled clay-coated and uncoated paperboard and a producer of corrugating
medium. The Company believes that it is the second largest manufacturer of
folding cartons in North America and the largest U.S. producer of laminated
paperboard products for the book cover and furniture markets. The Company
operates 40 converting facilities, 10 paperboard mills, 14 paper recovery
facilities and one distribution facility located in 21 states and Canada.
In September 1997, the Company and Sonoco Products Company ("Sonoco")
formed RTS Packaging, LLC ("RTS"), and the Company contributed to RTS eight
fiber partition plants and one machine engineering facility in the U.S. and
Sonoco contributed to RTS five fiber partition plants in the U.S. (one of which
was subsequently closed) and one plant in Mexico. As a result, the Company
believes that RTS is the largest producer of solid fiber partitions in North
America. Under the terms of the agreement between the Company and Sonoco
relating to RTS, the Company and Sonoco own 65% and 35%, respectively, of the
outstanding interests in RTS. As a result of the consummation of this
transaction, all of the Company's partition products business is conducted
through RTS. RTS operates 13 solid fiber partition plants (one of which will be
closed prior to December 31, 1997) in eight states and Mexico.
PRODUCTS
The Company operates in two industry segments: converted products and
paperboard.
Converted Products
The Company primarily manufactures four lines of converted products:
folding cartons, laminated paperboard products, corrugated products and plastic
packaging products. RTS manufactures solid fiber partitions.
Folding Cartons. The Company believes that it is the second largest
producer of folding cartons in North America. The Company's folding cartons are
used by customers to package frozen, dry and perishable food items, paper goods,
hardware products, textile, automotive, apparel and other products. Folding
cartons are manufactured by the Company from recycled or virgin paperboard,
which is printed, coated, die-cut and glued in accordance with customer
specifications. Finished cartons are then shipped to customers' plants where
they are packed or sealed. The Company operates 22 folding carton plants and one
distribution facility, and sales of folding cartons to unaffiliated customers
accounted for 49.1%, 46.0% and 43.3% of the Company's net sales in fiscal 1997,
1996, and 1995, respectively.
Laminated Paperboard Products. The Company manufactures a number of
laminated paperboard products. The Company believes it is the largest U.S.
producer of laminated paperboard products for the book cover and furniture
markets and that it is recognized for its expertise in laminating recycled
paperboard. The Company converts uncoated paperboard into specialty laminated
paperboard products for use in book covers and binders, furniture, automotive
components and other industrial products. The Company operates nine laminated
paperboard products plants, and sales of laminated paperboard products to
unaffiliated customers accounted for 11.6%, 14.1% and 14.2% of the Company's net
sales in fiscal 1997, 1996 and 1995, respectively.
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Corrugated Products. The Company manufactures corrugated containers,
point-of-purchase displays and corrugated sheet stock, offering a range of flute
configurations and structural designs, which it markets primarily in the
Southeastern U.S. The Company purchases linerboard and corrugating medium, which
are fed simultaneously into a corrugator that flutes the medium to specified
sizes, glues the linerboard and fluted medium together and slits and cuts the
resulting corrugated paperboard into sheets in accordance with customer
specifications. The Company markets corrugated sheets to box manufacturers or
converts it into corrugated products ranging from one-color protective cartons
to graphically brilliant point-of-purchase containers and displays. The Company
operates seven corrugated products plants, and sales of corrugated products to
unaffiliated customers accounted for 10.4%, 12.8% and 10.5% of the Company's net
sales in fiscal 1997, 1996 and 1995, respectively.
Plastic Packaging Products. The Company manufactures thermoformed
plastic converted products and extruded plastic roll stock for sale to the food
service, industrial products, consumer products, healthcare and food processors
markets. The Company uses contact heat and radiant heat thermoforming equipment
to manufacture thermoformed products from plastic roll stock in a wide range of
thicknesses, expanding the range of product applications. The Company also
operates extruders to manufacture plastic roll stock in a wide range of colors.
The Company uses virgin and recycled plastic resin purchased from third parties
in the extrusion process, including high impact polystyrene, high density
polyethylene, polypropylene, polyethylene terephthalate (PET) and K resin
blends.
Partition Products. The Company believes that RTS is the largest
manufacturer of solid fiber partitions in North America, which are marketed
principally to glass container manufacturers. Fiber partitions are manufactured
by RTS from 100% recycled uncoated paperboard. RTS manufactures solid fiber
partitions in varying thicknesses to meet different structural requirements that
are well-suited for high speed casing, uncasing and filling lines due to their
precision die-cut construction. RTS is focused on developing high quality,
value-added partition products for specific applications designed to meet
customers' packaging needs. RTS operates 13 solid fiber partition plants (one of
which will be closed prior to December 31, 1997), and the Company's sales of
fiber partition products (which, from September 5, 1997 to September 30, 1997
included all sales of RTS) to unaffiliated customers accounted for 9.3%, 11.1%
and 11.5% of the Company's net sales in fiscal 1997, 1996 and 1995,
respectively.
Paperboard
The Company produces 100% recycled clay-coated, and uncoated paperboard
and corrugating medium and operates ten paperboard mills, as well as 14
facilities that collect recovered paper.
Recycled Paperboard. The Company is the largest U.S. manufacturer of
100% recycled paperboard (excluding linerboard, medium and paperboard used in
the manufacture of gypsum wallboard), and it believes that it is the second
largest producer of clay-coated recycled paperboard in the U.S. The Company
markets its clay- coated and uncoated recycled paperboard to manufacturers of
folding cartons, fiber partitions, laminated paperboard products and other
paperboard products. The Company also manufactures recycled corrugating medium,
which is marketed to corrugated sheet manufacturers. The Company operates ten
paperboard mills, including one that produces clay-coated recycled paperboard
and corrugating medium, and sales of recycled paperboard (including corrugating
medium) to unaffiliated customers accounted for 13.4%, 9.6% and 13.2% of the
Company's net sales in fiscal 1997, 1996 and 1995, respectively.
Recycled Fiber. The Company operates 14 paper recovery facilities that
collect paper from a number of sources including factories, commercial printers,
office buildings, retail stores and paper converters as well as from other
wastepaper collectors. Certain of the Company's paper recovery facilities are
located near the Company's paperboard mills to minimize freight costs and
provide an additional source of supply of high quality recovered paper for the
Company's operations. Recovered paper is the principal raw material used by the
Company in the production of recycled paperboard. Collected paper is sorted and
baled and then either transferred to the Company's paperboard mills for
processing or sold principally to other U.S. manufacturers of recycled
paperboard.
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SALES AND MARKETING
The Company sold converted products and paperboard to over 5,000 and
1,000 customers, respectively, in fiscal 1997. None of the Company's customers
accounted for more than 10% of the Company's net sales in fiscal 1997. The
Company generally manufactures converted products and paperboard pursuant to
customers' orders. Certain of the Company's converted products and paperboard
are marketed to certain key customers, the loss of which could have an adverse
effect on net income attributable to such converted products or paperboard
segments and, depending on the significance of such product line to the
Company's operations, the Company's results of operations. The Company believes
that it has strong relationships with its customers.
Each of the Company's converted product and paperboard lines are
marketed through its own sales force that maintains direct sales relationships
with its customers. Several converted product lines, including folding cartons
and book covers, are also marketed through independent sales representatives and
independent distributors, respectively. Sales personnel are under the
supervision of regional sales managers, plant general managers or the general
manager for the particular product line, who support and coordinate the sales
activities within their designated area. The Company's paperboard and laminated
paperboard products sales personnel are generally paid a base salary, and its
packaging products sales personnel are generally paid a base salary plus
commissions. The Company's independent sales representatives are paid on a
commission basis.
COMPETITION
The converted products and paperboard industries are highly
competitive, and no single company is dominant. Management believes that the
Company is the second largest manufacturer of folding cartons in North America,
the largest U.S. manufacturer of 100% recycled paperboard (excluding linerboard,
medium and paperboard used in the manufacture of gypsum wallboard), the largest
U.S. producer of laminated paperboard products for the book cover and furniture
markets and the second largest producer of clay-coated recycled paperboard in
the U.S. In addition, the Company believes that RTS is the largest manufacturer
of solid fiber partitions in North America. The Company's and RTS' competitors
include large, vertically integrated converted products and paperboard companies
and numerous smaller companies. The primary competitive factors in the converted
products and paperboard industries are price, design, quality and service, with
varying emphasis on these factors depending on the product line. The Company
believes that it and RTS compete effectively with respect to each of these
factors, but, to the extent that one or more of their respective competitors
becomes more successful with respect to any key competitive factor, the
Company's and RTS' businesses could be materially adversely affected.
In addition, as demand for environmentally friendly packaging has
increased, producers of virgin paperboard have begun to manufacture paperboard
having some recycled paper content. Increasing acceptance of partially recycled
paperboard by consumers as an environmentally friendly alternative to paperboard
produced from 100% recovered paper could have an adverse effect on demand for
the Company's paperboard.
The converted products and recycled paperboard industries have
undergone significant consolidation in recent years, and the Company believes
that current trends within the converted products and paperboard industries will
result in further consolidation. Within the converted products industry, larger
corporate customers with expanded geographic presences have tended in recent
years to seek suppliers who can, because of their broad geographic presence,
efficiently and economically supply all of the customers' packaging needs. In
addition, during recent years, purchasers of recycled paperboard and converted
products have demanded higher quality products meeting stricter quality control
requirements. The Company's results of operations could be adversely affected by
these market trends.
ENVIRONMENTAL REGULATION
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The Company and RTS are subject to various Federal, state, local,
Canadian provincial, and Mexican environmental laws and regulations, including
those regulating the discharge, storage, handling and disposal of a variety of
substances. These laws and regulations include, among others, the Comprehensive
Environmental Response, Compensation and Liability Act ("CERCLA"), the Clean Air
Act (as amended in 1990), the Clean Water Act, the Resource Conservation and
Recovery Act (including amendments relating to underground tanks) and the Toxic
Substances Control Act. These environmental regulatory programs are administered
by the U.S. Environmental Protection Agency. In addition, states in which the
Company and RTS operate have adopted equivalent or more stringent environmental
laws and regulations, or have enacted their own parallel environmental programs,
which are enforced through various state administrative agencies. The Company's
and RTS' operations also are governed by other Federal, state, local, Canadian
provincial and Mexican laws and regulations relating to workplace safety and
worker health, principally the Occupational Safety and Health Act and
regulations promulgated thereunder which, among other things, establish asbestos
and noise standards and regulate the use of hazardous chemicals in the
workplace. Although neither the Company nor RTS use asbestos in the manufacture
of their products, some of their facilities contain asbestos. However,
management believes such asbestos is properly contained and comprehensive
operations and maintenance plans have been, or are in the process of being,
implemented for those facilities where asbestos is present.
The Company does not believe that future compliance with environmental
and health and safety laws and regulations by the Company and RTS will have any
material adverse effect on the Company's results of operations or financial
condition. However, environmental, health and safety laws and regulations are
becoming increasingly stringent. Consequently, unforeseen expenditures required
to comply with such laws and regulations, including remediation costs, or
unforeseen environmental liabilities could have a material adverse effect on the
Company's financial condition or results of operations. In addition, the Company
cannot with certainty assess at this time the impact upon its and RTS'
operations or capital expenditure requirements of the future emissions standards
and enforcement practices under the 1990 amendments to the Clean Air Act.
However, although there can be no assurance, the Company believes that any such
impact or capital expenditures will not have a material adverse effect on the
Company's financial condition or results of operations.
The Company may choose to modify or replace the coal fired boilers at
two of its facilities in order to operate cost effectively while complying with
emissions regulations under the Clean Air Act. The Company estimates these
improvements will cost approximately $3.0 million; however, the Company may
spend more on these improvements to reduce its energy costs at such facilities.
In addition, the Company estimates that it will spend an additional $0.5 million
for capital expenditures during fiscal 1998 in connection with other matters
relating to environmental compliance.
The Company has been identified as a potentially responsible party
("PRP") at ten Superfund sites pursuant to CERCLA or comparable state statutes.
Except with respect to the Muncie Racetrack site ("Muncie Site"), no remediation
costs or allocations have been determined with respect to such sites. With
respect to the Muncie Site, approximately $3.2 million has been spent to date by
certain PRPs other than the Company in connection with soil remediation
activities and studies. The Company was notified of its final allocation of
liability of approximately $9,300 on September 23, 1996 for the surface
contamination at the site. This amount represents 0.3% of the site remediation
costs. The Company believes that no further soil remediation activities will be
required. However, additional costs may be required in connection with the
investigation and remediation of groundwater contamination, and the Company does
not currently have sufficient information to estimate such costs.
In addition, a water treatment lagoon at one of the Company's
facilities is included with an adjacent former landfill owned by a third party
that is being investigated as a CERCLA site for potential addition to the
National Priority List ("NPL"). Based upon information currently available, the
Company believes that it has no material liability at this site. However, there
can be no assurance that such lagoon, together with the landfill, will not be
added to the NPL as a Superfund site or that the Company will not be required to
conduct some remediation in the future.
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Based upon currently available information and the opinions of the
Company's environmental compliance managers and General Counsel, although there
can be no assurance, the Company believes that any liability it may have at any
site will not have a material adverse effect on the Company's financial
condition or results of operations.
On December 1, 1995, a suit was filed by a private party against, among
others, the Company in the United States District Court for the Western District
of Michigan alleging that the Company is jointly and severally liable under
federal and state law for the release of certain hazardous materials at the
Allied Paper, Inc./Portage Creek/Kalamazoo River Superfund Site. No specific
amounts have been asserted by the plaintiff with respect to this matter,
however, the eventual amounts could be material. The Company has responded to
and denies any liability with respect to this matter and is vigorously defending
against these claims. The Company cannot currently predict whether the plaintiff
will prevail on its claims or the magnitude of any potential recovery, if any.
EMPLOYEES
At September 30, 1997, the Company had 8,415 employees (including
employees of the Company leased by the Company to RTS), of whom 6,514 were
hourly and 1,901 were salaried. Approximately 3,393 of the Company's hourly
employees are covered by union collective bargaining agreements, which generally
have three-year terms. The Company has not experienced any work stoppages in the
past 10 years, and management believes that the Company's relations with its
employees are good.
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ITEM 2. PROPERTIES
The following table sets forth certain information with respect to the
Company's paperboard mills:
<TABLE>
<CAPTION>
Fiscal 1997
Production
Location of Mill Capacity (in tons) Paperboard Produced
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<S> <C> <C>
St. Paul, MN* ...............180,000 Recycled corrugating medium
Battle Creek, MI.............128,000 Clay-coated recycled paperboard
Dallas, TX...................160,000 Clay-coated and uncoated recycled
paperboard
Lynchburg, VA................140,000 Uncoated recycled paperboard
St. Paul, MN*................145,000 Clay-coated recycled paperboard
Chattanooga, TN..............122,000 Uncoated recycled paperboard
Otsego, MI....................92,000 Uncoated recycled paperboard
Sheldon Springs, VT
(Missisquoi Mill)..........84,000 Clay-coated recycled paperboard
Eaton, IN.....................60,000 Uncoated recycled paperboard
Cincinnati, OH................53,000 Uncoated recycled paperboard
Stroudsburg, PA...............51,000 Clay-coated recycled paperboard
</TABLE>
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* Comprises one paperboard mill.
In addition to the paperboard mills set forth above, the Company also
operates 40 converting facilities, 14 paper recovery facilities and one
distribution facility in 18 states (mainly in the Southwestern, Southeastern,
Midwestern and Northeastern U.S.) and Canada. Of the Company's facilities, the
Company owns 57 and leases 8. The Company's principal executive offices are
located in Norcross, Georgia, in buildings owned by the Company. The Company
believes that its existing production capacity is adequate to service existing
demand for the Company's products. The Company considers its plants and
equipment to be in good condition.
ITEM 3. LEGAL PROCEEDINGS
The Company is a party to litigation incidental to its business from
time to time. The Company is not currently a party to any litigation that
management believes, if determined adversely to the Company, would have a
material adverse effect on the Company's results of operations or financial
condition. For additional information regarding litigation to which the Company
is a party, which information is incorporated into this item by reference, see
"Item 1 - Business - Environmental Regulation."
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Not applicable.
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ITEM X. EXECUTIVE OFFICERS OF THE REGISTRANT
The executive officers of the Company are as follows:
<TABLE>
<CAPTION>
Name Age Positions Held
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<S> <C> <C>
Bradley Currey, Jr............................ 67 Chairman of the Board, Chief Executive Officer
and Director
Jay Shuster................................... 43 President, Chief Operating Officer and Director
Edward E. Bowns............................... 54 Executive Vice President and General Manager
of Industrial Products Group*
David E. Dreibelbis........................... 45 Executive Vice President and General Manager
of the Mill Group*
David C. Nicholson............................ 43 Senior Vice President, Chief Financial Officer
and Secretary
Russell M. Currey............................. 36 Senior Vice President of Marketing and Planning
Paul England.................................. 42 Executive Vice President and General Manager
of the Uncoated Paperboard Division
Nicholas G. George............................ 47 Executive Vice President and General Manager
of the Folding Carton Division
James K. Hansen............................... 59 Executive Vice President and General Manager
of the Coated Paperboard Division
R. Evan Hardin................................ 35 Treasurer
John H. Morrison.............................. 54 Executive Vice President and General Manager
of the Corrugated Packaging and Display
Division
Paul G. Saari................................. 42 Vice President of Finance
John D. Skelton II............................ 43 Executive Vice President and General Manager
of the Plastic Packaging Division
Alford L. Smith............................... 56 Executive Vice President and General Manager
of Laminated Paperboard Products Division
Richard E. Steed.............................. 46 President and Chief Executive Officer of RTS
</TABLE>
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* The Mill Group consists of the Recycled Fiber, Uncoated Paperboard and
Coated Paperboard Divisions and the Industrial Products Group consists
of the Laminated Paperboard Products, Plastic Packaging and Corrugated
Packaging and Display Divisions and RTS.
Bradley Currey, Jr. has served as Chief Executive Officer of the
Company since January 1989 and Chairman of the Board since July 1993. Mr. Currey
served as President of the Company from 1978 until October 1995. He has been a
director of the Company since 1967. Mr. Currey joined the Company in 1976 and
prior to that time was Executive Vice President and a director of Trust Company
Bank of Georgia (currently SunTrust Bank, Atlanta). Mr. Currey is also a
director of Genuine Parts Co., an auto parts wholesaler, and Poe & Brown, Inc.,
an insurance agency. Mr. Currey is the father of Russell M. Currey and brother
of Robert B. Currey, a director of the Company.
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Jay Shuster has served as President of the Company since October 1995
and Chief Operating Officer of the Company since June 1991. Mr. Shuster served
as an Executive Vice President of the Company from June 1991 until October 1995.
Mr. Shuster was elected a director of the Company in January 1992. From January
1989 until June 1991, Mr. Shuster was Executive Vice President and General
Manager of the Consumer Packaging Group. Mr. Shuster served as Executive Vice
President and General Manager of the Folding Carton Division from December 1986
until January 1989. Mr. Shuster joined the Company in May 1979.
Edward E. Bowns has served as Executive Vice President and General
Manager of the Industrial Products Group since November 1990. From February 1986
until November 1990, Mr. Bowns served as Executive Vice President and General
Manager of the Partition Division. Mr. Bowns joined the Company in October 1980.
David E. Dreibelbis has served as Executive Vice President and General
Manager of the Mill Group since September 1992. From July 1985 until September
1992, Mr. Dreibelbis was Executive Vice President and General Manager of the
Recycled Fiber Division. Mr. Dreibelbis joined the Company in April 1979.
David C. Nicholson has served as Senior Vice President of the Company
since September 1994 and as Chief Financial Officer and Secretary of the Company
since December 1986. Mr. Nicholson served as Vice President of the Company from
December 1986 to September 1994. Mr. Nicholson joined the Company in November
1983 and has served in various other capacities, including Treasurer from
December 1986 until January 1988, Controller and Director of Mergers and
Acquisitions.
Russell M. Currey has served as Senior Vice President of Marketing and
Planning since December 1994. Mr. Currey served as Executive Vice President and
General Manager of the Recycled Fiber Division from September 1992 until
December 1994. From February 1990 until September 1992, Mr. Currey served as
Manager of Strategic Development for the Mill Group. From July 1986 until
February 1990, he was General Manager of one of the Company's recycled fiber
plants. Mr. Currey joined the Company in July 1983. Mr. Currey is the son of
Bradley Currey, Jr. and the nephew of Robert B. Currey, a director of the
Company.
Paul England has served as Executive Vice President and General Manager
of the Uncoated Paperboard Division since September 1997. Mr. England served as
Executive Vice President and General Manager of the Recycled Fiber Division from
September 1994 until September 1997. From September 1989 to September 1994, Mr.
England served in various capacities, including General Manager of one of the
Company's paperboard mills. Mr. England joined the Company in September 1989.
Nicholas G. George has served as Executive Vice President and General
Manager of the Folding Carton Division since June 1991. From January 1991 until
June 1991 he was Vice President and General Sales Manager of the Folding Carton
Division. From July 1986 until January 1991, he was Vice President of Folding
Sales, Western Area. Mr. George joined the Company in May 1980.
James K. Hansen has served as Executive Vice President and General
Manager of the Coated Paperboard Division since September 1997. Mr. Hansen
served as Executive Vice President and General Manager of the Mill Division from
May 1990 until September 1997. From 1984 until May 1990, he was General Manager
of one of the Company's paperboard mills. Mr. Hansen joined the Company in April
1979.
R. Evan Hardin has served as Treasurer of the Company since September
1994. Mr. Hardin joined the Company in March 1988 and has served in various
other capacities, including Assistant Treasurer and Financial Analyst.
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John H. Morrison has served as Executive Vice President and General
Manager of the Corrugated Packaging and Display Division since March 1986. From
1967 until March 1986, Mr. Morrison was employed by Union Camp Corporation,
serving in various capacities, including General Manager of a corrugated
manufacturing plant.
Paul G. Saari has served as Vice President Finance of the Company since
July 1994 and as Assistant Secretary of the Company since January 1988. From
February 1988 to July 1994 he served as Treasurer of the Company and from June
1987 until February 1988, Mr. Saari served as Controller of the Company. Mr.
Saari joined the Company in August 1984.
John D. Skelton II has served as Executive Vice President and General
Manager of the Plastic Packaging Division since December 1991. From January 1991
until December 1991, he served as Vice President of Folding Carton Sales,
Western Area. From 1981 until 1991, Mr. Skelton served as General Manager of
several of the Company's plants. Mr. Skelton joined the Company in July 1976.
Alford L. Smith has served as Executive Vice President and General
Manager of the Laminated Paperboard Products Division since December 1988. From
January 1988 until December 1988, he was Vice President of Sales of the
Laminated Paperboard Products Division. Mr. Smith joined the Company in March
1987.
Richard E. Steed has served as the President and Chief Executive
Officer of RTS since September 1997. From December 1991 until September 1997,
Mr. Steed served as Executive Vice President and General Manager of the
Partition Division. From December 1986 until December 1991, Mr. Steed served as
Executive Vice President and General Manager of the Plastic Packaging Division.
Mr. Steed joined the Company in December 1975.
All executive officers of the Company are elected annually by and serve
at the discretion of either the Board of Directors, or the Chairman of the Board
or the President, of the Company. Mr. Steed is elected annually and serves at
the discretion of the Managing Board of RTS.
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PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
The dividend and market price information under the heading "Financial
and Operating Highlights" on page 2, and the shareholder information under the
heading "Shareholder Information -- Common Stock" on page 50, of the Annual
Report to Shareholders for the year ended September 30, 1997 are incorporated
herein by reference.
ITEM 6. SELECTED FINANCIAL DATA
The information under the heading "Five Year Selected Financial and
Operating Highlights" for the years ended September 30, 1993 through 1997 on
page 17 of the Annual Report to Shareholders for the year ended September 30,
1997 is incorporated herein by reference.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
The information under the heading "Management Discussion and Analysis
of Results of Operations and Financial Condition" on pages 18 through 27 of the
Annual Report to Shareholders for the year ended September 30, 1997 is
incorporated herein by reference.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Not applicable.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The following financial statements of the Registrant and its
subsidiaries included in the Annual Report to Shareholders for the year ended
September 30, 1997 are incorporated herein by reference:
Consolidated Statements of Income for the years ended September 30,
1997, 1996 and 1995.
Consolidated Balance Sheets as of September 30, 1997 and 1996.
Consolidated Statements of Shareholders' Equity for the years ended
September 30, 1997, 1996 and 1995.
Consolidated Statements of Cash Flows for the years ended September 30,
1997, 1996 and 1995.
Notes to Consolidated Financial Statements.
The information in Note 11, "Financial Results by Quarter (Unaudited)"
on page 46 of the Annual Report to Shareholders for the year ended September 30,
1997 is incorporated herein by reference.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.
Not applicable.
-12-
<PAGE> 13
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The sections under the heading "Election of Directors" entitled
"Nominees for Election - Term Expiring 2001," "Nominee for Election -- Term
Expiring 1999," "Incumbent Directors - Term Expiring 2000" and "Incumbent
Directors - Term Expiring 1999" in the Proxy Statement for the Annual Meeting of
Shareholders to be held January 22, 1998 are incorporated herein by reference
for information on the directors of the Registrant. See Item X in Part I hereof
for information regarding the executive officers of the Registrant. The section
under the heading "Other Matters" entitled "Compliance with Section 16(a) of the
Securities Exchange Act of 1934" in the Proxy Statement for the Annual Meeting
of Shareholders to be held on January 22, 1998 is incorporated herein by
reference.
ITEM 11. EXECUTIVE COMPENSATION
The section under the heading "Election of Directors" entitled
"Compensation of Directors" and the sections under the heading "Executive
Compensation" entitled "Summary Compensation Table," "Option Grants Table,"
Aggregated Options Table" and "Pension Plan Table" and the section entitled
"Compensation Committee Interlocks and Insider Participation" in the Proxy
Statement for the Annual Meeting of Shareholders to be held January 22, 1998 are
incorporated herein by reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The information under the heading "Common Stock Ownership by Management
and Principal Shareholders" in the Proxy Statement for the Annual Meeting of
Shareholders to be held on January 22, 1998 is incorporated herein by reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information under the heading "Certain Transactions" in the Proxy
Statement for the Annual Meeting of Shareholders to be held January 22, 1998 is
incorporated herein by reference.
-13-
<PAGE> 14
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON
FORM 8-K
(A) 1. FINANCIAL STATEMENTS.
The following Consolidated Financial Statements of Rock-Tenn Company
and its consolidated subsidiaries and the Report of the Independent Auditors,
included in the Registrant's Annual Report to Shareholders for the year ended
September 30, 1997 are incorporated by reference in Part II, Item 8:
Report of Independent Auditors.
Consolidated Statements of Income for the years ended September
30, 1997, 1996 and 1995.
Consolidated Balance Sheets as of September 30, 1997 and 1996.
Consolidated Statements of Shareholders' Equity for the years
ended September 30, 1997, 1996 and 1995.
Consolidated Statements of Cash Flows for the years ended
September 30, 1997, 1996 and 1995.
Notes to Consolidated Financial Statements.
2. FINANCIAL STATEMENT SCHEDULE OF ROCK-TENN COMPANY.
The following financial statement schedule is included in Part IV of
this report:
Schedule II - Valuation and Qualifying Accounts.
All other schedules are omitted because they are not applicable
or not required.
3. EXHIBITS.
<TABLE>
<CAPTION>
Exhibit
Number
-------
<S> <C> <C>
2.1 -- Asset Acquisition Agreement by and between Rock-Tenn Converting Company, a
wholly owned subsidiary of the Registrant, and Alliance Display and Packaging
Company dated January 31, 1995 (incorporated by reference to Exhibit 2.1 to the
Registrant's Current Report on Form 8-K executed as of February 6, 1995).
2.2 -- Stock Purchase Agreement, dated January 21, 1997 between Rock-Tenn Company and
the Shareholders of Wabash Corporation (incorporated by reference to the Registrant's
Current Report on Form 8-K/A dated January 21, 1997).
3.1 -- Restated and Amended Articles of Incorporation of the Registrant (incorporated by
reference to Exhibit 3.1 to the Registrant's Registration Statement on Form S-1, File
No. 33-73312).
</TABLE>
-14-
<PAGE> 15
<TABLE>
<S> <C> <C>
3.2 -- Articles of Amendment to the Registrant's Restated and Amended Articles of
Incorporation (incorporated by reference to Exhibit 2 of the Registrant's Quarterly
Report on Form 10-Q for the quarter ended March 31, 1995, Commission File No. 0-
23340).
3.3 -- Bylaws of the Registrant (incorporated by reference to Exhibit 3.2 to the Registrant's
Registration Statement on Form S-1, File No. 33-73312).
4.1 -- Credit Agreement dated January 21, 1997, by and among Rock-Tenn Company,
SunTrust Bank, Atlanta and the other banks and lending institutions party to such Credit
Agreement from time to time.
4.2 -- First Amendment to Credit Agreement dated February 20, 1997, by and among Rock-
Tenn Company, SunTrust Bank, Atlanta, in its capacity as a Lender, and SunTrust
Bank, Atlanta, in its capacity as agent for the Lenders.
4.3 -- Second Amendment to Credit Agreement dated June 6, 1997, by and among Rock-Tenn
Company, the Lenders under the Credit Agreement and SunTrust Bank, Atlanta.
4.4 -- Agreement to Provide Other Debt Instruments.
10.1 -- ISO Stock Option Plan (incorporated by reference to Exhibit 10.10 to the Registrant's
Registration Statement on Form S-1, File No. 33-73312).
10.2 -- Rock-Tenn Company 1987 Stock Option Plan (incorporated by reference to Exhibit
10.11 to the Registrant's Registration Statement on Form S-1, File No. 33-73312).
10.3 -- Rock-Tenn Company 1989 Stock Option Plan (incorporated by reference to Exhibit
10.12 to the Registrant's Registration Statement on Form S-1, File No. 33-73312).
10.4 -- Rock-Tenn Company 1993 Employee Stock Option Plan (incorporated by reference to
Exhibit 10.13 to the Registrant's Registration Statement on Form S-1, File No. 33-
73312).
10.5 -- Rock-Tenn Company Key Employee Incentive Bonus Plan as amended on October 27,
1994 (incorporated by reference to Exhibit 10.16 to the Registrant's Annual Report on
Form 10-K for the year ended September 30, 1994, Commission File No. 0-23340).
10.6 -- Rock-Tenn Company Supplemental Executive Retirement Plan Effective as of
October 1, 1994 (incorporated by reference to Exhibit 10.17 to the Registrant's Annual
Report on Form 10-K for the year ended September 30, 1994, Commission File No. 0-
23340).
10.7 -- Demand Promissory Note for $18,500,000, dated January 31, 1995, between the
Registrant and Alliance Display and Packaging Company (incorporated by reference
to Exhibit 10 to the Registrant's Quarterly Report on Form 10-Q for the quarter ended
March 31, 1995, Commission File No. 0-23340).
10.8 -- Joint Venture Agreement, dated September 5, 1997 between Rock-Tenn Company,
Rock-Tenn Partition Company, Sonoco Products Company and Sonoco Partitions, Inc.
10.9 -- Contribution Agreement, dated as of September 5, 1997 by and among Rock-Tenn
Company, Rock-Tenn Partition Company and RTS Packaging, LLC.
</TABLE>
-15-
<PAGE> 16
<TABLE>
<S> <C> <C>
10.10 -- Amended and Restated Operating Agreement of RTS Packaging, LLC, dated as of
September 5, 1997 between Rock-Tenn Partition Company and Sonoco Partitions, Inc.
10.11 -- Consulting Agreement, dated January 21, 1997, between Eugene U. Frey and the
Company.
11 -- Statement re: Computation of Earnings Per Share.
12 -- Statement re: Computation of Ratio of Earnings to Fixed Changes.
13 -- Annual Report to Shareholders submitted herewith but not "filed," except for those
portions expressly incorporated by reference herein.
21 -- Subsidiaries of the Registrant.
23 -- Report and Consent of Ernst & Young LLP.
27 -- Financial Data Schedule.
99 -- Audited Financial Statements for the Rock-Tenn Company 1993 Employee Stock
Purchase Plan for the years ended September 30, 1997, 1996 and 1995.
(B) REPORTS ON FORM 8-K
Not applicable.
(C) SEE ITEM 14(A)(3) AND SEPARATE EXHIBIT INDEX ATTACHED HERETO.
(D) NOT APPLICABLE.
</TABLE>
-16-
<PAGE> 17
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the
Securities Exchange Act of 1934, the Registrant has duly caused this report to
be signed on its behalf by the undersigned, thereunto duly authorized.
ROCK-TENN COMPANY
By: /s/ BRADLEY CURREY, JR.
--------------------------
Bradley Currey, Jr.
Chairman of the Board and
Chief Executive Officer
Date: December 17, 1997
Pursuant to the requirements of the Securities Exchange Act of
1934, this Report has been signed below by the following persons on behalf of
the Registrant and in the capacities and on the dates indicated:
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- -----
<S> <C> <C>
/s/ BRADLEY CURREY, JR. Principal Executive Officer and December 19, 1997
- ------------------------------ Director, Chairman of the
Bradley Currey, Jr. Board and Chief Executive
Officer
/s/ DAVID C. NICHOLSON Principal Financial and December 19, 1997
- ------------------------------ Accounting Officer, Senior
David C. Nicholson Vice President, Chief
Financial Officer and
Secretary
/s/ STEPHEN G. ANDERSON Director December 19, 1997
- ------------------------------
Stephen G. Anderson
/s/ J. HYATT BROWN Director December 19, 1997
- ------------------------------
J. Hyatt Brown
/s/ MARY LOUISE MORRIS BROWN Director December 19, 1997
- ------------------------------
Mary Louise Morris Brown
/s/ ROBERT B. CURREY Director December 19, 1997
- ------------------------------
Robert B. Currey
</TABLE>
-17-
<PAGE> 18
<TABLE>
<S> <C>
/s/ EUGENE U. FREY Director December 19, 1997
- --------------------------------
Eugene U. Frey
/s/ JOHN D. HOPKINS Director December 19, 1997
- --------------------------------
John D. Hopkins
/s/ JAMES W. JOHNSON Director December 19, 1997
- --------------------------------
James W. Johnson
/s/ RANDOLPH SEXTON Director December 19, 1997
- --------------------------------
Randolph Sexton
/s/ JAY SHUSTER Director December 19, 1997
- --------------------------------
Jay Shuster
/s/ JOHN W. SPIEGEL Director December 19, 1997
- --------------------------------
John W. Spiegel
/s/ LAWRENCE L. GELLERSTEDT, JR. Director December 19, 1997
- --------------------------------
Lawrence L. Gellerstedt, Jr.
</TABLE>
-18-
<PAGE> 19
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
Exhibit Sequentially
Number Description of Exhibits Numbered Page
- ------ ----------------------- -------------
<S> <C> <C> <C>
2.1 -- Asset Acquisition Agreement by and between Rock-Tenn
Converting Company, a wholly owned subsidiary of the
Registrant, and Alliance Display and Packaging Company dated
January 31, 1995 (incorporated by reference to Exhibit 2.1 to the
Registrant's Current Report on Form 8-K executed as of
February 6, 1995).
2.2 -- Stock Purchase Agreement, dated January 21, 1997 between
Rock-Tenn Company and the Shareholders of Wabash
Corporation (incorporated by reference to the Registrant's
Current Report on Form 8-K/A dated January 21, 1997).
3.1 -- Restated and Amended Articles of Incorporation of the
Registrant (incorporated by reference to Exhibit 3.1 to the
Registrant's Registration Statement on Form S-1, File
No. 33-73312).
3.2 -- Articles of Amendment to the Registrant's Restated and
Amended Articles of Incorporation (incorporated by reference
to Exhibit 2 of the Registrant's Quarterly Report on Form 10-Q
for the quarter ended March 31, 1995, Commission File
No. 0-23340).
3.3 -- Bylaws of the Registrant (incorporated by reference to Exhibit
3.2 to the Registrant's Registration Statement on Form S-1, File
No. 33-73312).
4.1 -- Credit Agreement dated January 21, 1997, by and among Rock-
Tenn Company, SunTrust Bank, Atlanta and the other banks and
lending institutions party to such Credit Agreement from time to
time.
4.2 -- First Amendment to Credit Agreement dated February 20, 1997,
by and among Rock-Tenn Company, SunTrust Bank, Atlanta, in
its capacity as a Lender, and SunTrust Bank, Atlanta, in its
capacity as agent for the Lenders.
4.3 -- Second Amendment to Credit Agreement dated June 6, 1997, by
and among Rock-Tenn Company, the Lenders under the Credit
Agreement and SunTrust Bank, Atlanta.
4.4 -- Agreement to Provide Other Debt Instruments.
10.1 -- ISO Stock Option Plan (incorporated by reference to Exhibit
10.10 to the Registrant's Registration Statement on Form S-1,
File No. 33-73312).
</TABLE>
-19-
<PAGE> 20
<TABLE>
<CAPTION>
Exhibit Sequentially
Number Description of Exhibits Numbered Page
- ------ ----------------------- -------------
<S> <C> <C> <C>
10.2 -- Rock-Tenn Company 1987 Stock Option Plan (incorporated by
reference to Exhibit 10.11 to the Registrant's Registration
Statement on Form S-1, File No. 33-73312).
10.3 -- Rock-Tenn Company 1989 Stock Option Plan (incorporated by
reference to Exhibit 10.12 to the Registrant's Registration
Statement on Form S-1, File No. 33-73312).
10.4 -- Rock-Tenn Company 1993 Employee Stock Option Plan
(incorporated by reference to Exhibit 10.13 to the Registrant's
Registration Statement on Form S-1, File No. 33-73312).
10.5 -- Rock-Tenn Company Key Employee Incentive Bonus Plan as
amended on October 27, 1994 (incorporated by reference to
Exhibit 10.16 to the Registrant's Annual Report on Form 10-K
for the year ended September 30, 1994, Commission File
No. 0-23340).
10.6 -- Rock-Tenn Company Supplemental Executive Retirement Plan
Effective as of October 1, 1994 (incorporated by reference to
Exhibit 10.17 to the Registrant's Annual Report on Form 10-K
for the year ended September 30, 1994, Commission File
No. 0-23340).
10.7 -- Demand Promissory Note for $18,500,000, dated January 31,
1995, between the Registrant and Alliance Display and
Packaging Company (incorporated by reference to Exhibit 10 to
the Registrant's Quarterly Report on Form 10-Q for the
quarter ended March 31, 1995, Commission File No. 0-23340).
10.8 -- Joint Venture Agreement, dated September 5, 1997 between
Rock-Tenn Company, Rock-Tenn Partition Company, Sonoco
Products Company and Sonoco Partitions, Inc.
10.9 -- Contribution Agreement, dated as of September 5, 1997 by and
among Rock-Tenn Company, Rock-Tenn Partition Company
and RTS Packaging, LLC.
10.10 -- Amended and Restated Operating Agreement of RTS
Packaging, LLC, dated as of September 5, 1997 between Rock-
Tenn Partition Company and Sonoco Partitions, Inc.
10.11 -- Consulting Agreement, dated January 21, 1997, between Eugene
U. Frey and the Company.
11 -- Statement re: Computation of Earnings Per Share.
12 -- Statements re: Computation of Ratio of Earnings to Fixed
Charges
</TABLE>
-20-
<PAGE> 21
<TABLE>
<CAPTION>
Exhibit Sequentially
Number Description of Exhibits Numbered Page
- ------ ----------------------- -------------
<S> <C> <C> <C>
13 -- Annual Report to Shareholders submitted herewith but not
"filed," except for those portions expressly incorporated by
reference herein.
21 -- Subsidiaries of the Registrant.
23 -- Report and Consent of Ernst & Young LLP.
27 -- Financial Data Schedule, (for SEC use only).
99 -- Financial Statements for the Rock-Tenn Company 1993
Employee Stock Purchase Plan for the
years ended September 30, 1997, 1996 and 1995.
</TABLE>
-21-
<PAGE> 22
ROCK-TENN COMPANY SCHEDULE II
SEPTEMBER 30, 1997
(IN THOUSANDS)
<TABLE>
<CAPTION>
Balance At Charged To Balance At
Beginning of Costs and End of
Description Period Expenses Other Deductions Period
----------- ------------ ---------- ----- ---------- -----------
<S> <C> <C> <C> <C> <C>
YEAR ENDED SEPTEMBER 30, 1997:
Allowance for Doubtful Accounts $3,094 $ 188 $ 589(1) $ 239(2) $3,632
Reserve for Facility Closures and
Consolidation 640 3,009 7,536(3) 3,531(4) 7,654
YEAR ENDED SEPTEMBER 30, 1996:
Allowance for Doubtful Accounts $2,144 $1,522 --- $ 572(2) $3,094
Reserve for Facility Closures and
Consolidation --- 1,312 --- 672(4) 640
YEAR ENDED SEPTEMBER 30, 1995:
Allowance for Doubtful Accounts $1,361 $1,790 $2,209(5) $3,216(2) $2,144
- -----------------------------
</TABLE>
(1) Reserve recorded in connection with Waldorf acquisition
(2) Uncollectible accounts written off, net of recoveries
(3) Reserve recorded in connection with Waldorf and Davey acquisitions and the
formation of RTS Packaging, LLC
(4) Amounts paid relating to facility closures and consolidation
(5) Reserves recorded in connection with Olympic and Alliance acquisitions
-22-
<PAGE> 1
EXHIBIT 4.1
==========================================================
CREDIT AGREEMENT
dated as of January 21, 1997
among
ROCK-TENN COMPANY,
THE LENDERS LISTED HEREIN,
and
SUNTRUST BANK, ATLANTA
as Agent
==========================================================
<PAGE> 2
CONTENTS
<TABLE>
<S> <C>
ARTICLE 1. DEFINITIONS; CONSTRUCTION ...................................... 1
Section 1.1. Definitions .............................................. 1
Section 1.2. Accounting Terms and Determination ....................... 19
Section 1.3. Other Definitional Terms ................................. 19
Section 1.4. Exhibits and Schedules ................................... 19
ARTICLE 2. REVOLVING LOANS; COMPETITIVE BID LOANS ......................... 20
Section 2.1. Commitment; Use of Proceeds .............................. 20
Section 2.2. Revolving Credit Notes; Repayment of Principal ........... 20
Section 2.3. Reduction of Revolving Credit and Swing Line
Commitments; Mandatory Prepayment......................... 21
Section 2.4. Change In Control of the Borrower ........................ 22
Section 2.5. Extension of Commitments ................................. 22
Section 2.6. Competitive Bid Loans .................................... 23
Section 2.7. Competitive Bid Notes; Repayment of Principal ............ 26
Section 2.8. Limitation on the Amount of Bid Loans .................... 26
Section 2.9. Pro Rata Payments ........................................ 26
ARTICLE 3. SWING LINE FACILITY ............................................ 28
Section 3.1. Swing Line Facility; Use of Proceeds ..................... 28
Section 3.2. Swing Line Note; Repayment of Principal .................. 29
Section 3.3. Voluntary Reduction of Swing Line Commitment ............. 29
Section 3.4. Refunding Swing Line Loans with Proceeds of
Mandatory Revolving Loans................................. 29
ARTICLE 4. GENERAL LOAN TERMS ............................................. 31
Section 4.1. Funding Notices .......................................... 31
Section 4.2. Disbursement of Funds .................................... 33
Section 4.3. Interest ................................................. 34
Section 4.4. Interest Periods; Maximum Number of Borrowings ........... 36
Section 4.5. Fees ..................................................... 37
Section 4.6. Effective Date for Adjustment to Facility Fee
Percentage and Applicable Margin.......................... 38
Section 4.7. Voluntary Prepayments of Borrowings ...................... 38
Section 4.8. Manner of Payment, Calculation of Interest, Taxes ........ 39
Section 4.9. Interest Rate Not Ascertainable, etc ..................... 42
Section 4.10. Illegality ............................................... 43
Section 4.11. Increased Costs .......................................... 43
Section 4.12. Lending Offices .......................................... 45
</TABLE>
- i -
<PAGE> 3
<TABLE>
<S> <C> <C>
Section 4.13. Funding Losses ......................................... 45
Section 4.14. Assumptions Concerning Funding of Eurodollar
and Competitive Bid Rate Advances....................... 46
Section 4.15. Apportionment of Payments .............................. 46
Section 4.16. Sharing of Payments, Etc ............................... 47
Section 4.17. Capital Adequacy ....................................... 47
Section 4.18. Limitation on Certain Payment Obligations .............. 48
ARTICLE 5. CONDITIONS TO BORROWINGS ....................................... 49
Section 5.1. Conditions Precedent to Initial Loans................... 49
Section 5.2. Conditions to All Loans. ............................... 51
ARTICLE 6. REPRESENTATIONS AND WARRANTIES ................................. 52
Section 6.1. Corporate Existence; Compliance with Law. .............. 52
Section 6.2. Corporate Power; Authorization. ........................ 52
Section 6.3. Enforceable Obligations. ............................... 52
Section 6.4. No Legal Bar. .......................................... 53
Section 6.5. No Material Litigation. ................................ 53
Section 6.6. Investment Company Act, Etc. ........................... 53
Section 6.7. Margin Regulations. .................................... 53
Section 6.8. Compliance With Environmental Laws. .................... 53
Section 6.9. Insurance. ............................................. 54
Section 6.10. No Default. ............................................ 54
Section 6.11. No Burdensome Restrictions. ............................ 54
Section 6.12. Taxes. ................................................. 55
Section 6.13. Subsidiaries. .......................................... 55
Section 6.14. Financial Statements. .................................. 55
Section 6.15. ERISA. ................................................. 56
Section 6.16. Patents, Trademarks, Licenses, Etc. .................... 57
Section 6.17. Ownership of Property; Liens. .......................... 57
Section 6.18. Indebtedness. .......................................... 57
Section 6.19. Financial Condition. ................................... 58
Section 6.20. Labor Matters. ......................................... 58
Section 6.21. Payment or Dividend Restrictions. ...................... 58
Section 6.22. Disclosure. ............................................ 59
ARTICLE 7. AFFIRMATIVE COVENANTS .......................................... 60
Section 7.1. Corporate Existence, Etc. ............................... 60
Section 7.2. Compliance with Laws, Etc. .............................. 60
Section 7.3. Payment of Taxes and Claims, Etc. ....................... 60
Section 7.4. Keeping of Books. ....................................... 60
Section 7.5. Visitation, Inspection, Etc. ............................ 61
Section 7.6. Insurance; Maintenance of Properties. ................... 61
</TABLE>
- ii -
<PAGE> 4
<TABLE>
<S> <C> <C>
Section 7.7. Financial Reports. ..................................... 61
Section 7.8. Notices Under Certain Other Indebtedness. .............. 63
Section 7.9. Notice of Litigation. .................................. 63
Section 7.10. Subsidiary Guarantees. ................................. 64
ARTICLE 8. NEGATIVE COVENANTS .............................................. 65
Section 8.1. Financial Requirements. ................................ 65
Section 8.2. Liens. ................................................. 65
Section 8.3. Limitations on Funded Debt of Restricted Subsidiaries... 67
Section 8.4. Merger and Sale of Assets. ............................. 67
Section 8.5. Transactions with Affiliates. .......................... 69
Section 8.6. Nature of Business. .................................... 69
Section 8.7. Regulations G, T, U and X. ............................. 69
Section 8.8. ERISA Compliance. ...................................... 69
Section 8.9. Limitations on Subsidiaries which are not
Restricted Subsidiaries................................. 69
ARTICLE 9. EVENTS OF DEFAULT............................................... 71
Section 9.1. Payments ............................................... 71
Section 9.2. Covenants Without Notice ............................... 71
Section 9.3. Other Covenants ........................................ 71
Section 9.4. Representations ........................................ 71
Section 9.5. Non-Payments of Other Indebtedness ..................... 71
Section 9.6. Defaults Under Other Agreements ........................ 72
Section 9.7. Bankruptcy ............................................. 72
Section 9.8. ERISA .................................................. 72
Section 9.9. Money Judgment ......................................... 73
Section 9.10. Default Under Other Credit Documents ................... 74
ARTICLE 10. THE AGENT...................................................... 75
Section 10.1. Appointment of Agent ................................... 75
Section 10.2. Authorization of Agent with Respect to the
Security Documents. .................................... 75
Section 10.3. Nature of Duties of Agent .............................. 76
Section 10.4. Lack of Reliance on the Agent .......................... 76
Section 10.5. Certain Rights of the Agent ............................ 76
Section 10.6. Reliance by Agent ...................................... 77
Section 10.7. Indemnification of Agent ............................... 77
Section 10.8. The Agent in its Individual Capacity ................... 77
Section 10.9. Holders of Notes ....................................... 78
Section 10.10. Successor Agent ........................................ 78
</TABLE>
- iii -
<PAGE> 5
<TABLE>
<S> <C>
ARTICLE 11. MISCELLANEOUS...................................................... 79
Section 11.1. Notices ................................................... 79
Section 11.2. Amendments, Etc ........................................... 79
Section 11.3. No Waiver; Remedies Cumulative ............................ 79
Section 11.4. Payment of Expenses, Etc .................................. 80
Section 11.5. Right of Setoff ........................................... 82
Section 11.6. Benefit of Agreement; Assignments and Participations....... 82
Section 11.7. Governing Law; Submission to Jurisdiction;
Waiver of Jury Trial....................................... 85
Section 11.8. Independent Nature of Lenders' Rights ..................... 85
Section 11.9. Counterparts .............................................. 85
Section 11.10. Effectiveness; Survival.................................... 86
Section 11.11. Severability............................................... 86
Section 11.12. Independence of Covenants.................................. 86
Section 11.13. Change in Accounting Principles, Fiscal Year or Tax Laws... 86
Section 11.14. Headings Descriptive; Entire Agreement..................... 87
Section 11.15. Disclosure of Confidential Information..................... 87
Section 11.16. Interest................................................... 88
</TABLE>
- iv -
<PAGE> 6
SCHEDULES
Schedule 6.1. Organization and Ownership of Subsidiaries
Schedule 6.5. Certain Pending and Threatened Litigation
Schedule 6.8. Environmental Compliance
Schedule 6.8. Environmental Notices
Schedule 6.8. Environmental Permits
Schedule 6.11. Burdensome Restrictions
Schedule 6.13 Subsidiaries
Schedule 6.15 ERISA Matters
Schedule 6.16. Patent, Trademark, License, and Other Intellectual Property
Matters
Schedule 6.17. Ownership of Properties
Schedule 6.18. Indebtedness; Liens
Schedule 6.20. Labor Matters
Schedule 6.21. Dividend Restrictions
TABLE OF EXHIBITS
Exhibit A Form of Revolving Credit Note
Exhibit B Form of Competitive Bid Note
Exhibit C Form of Swing Line Note
Exhibit D Form of Compliance Certificate
Exhibit E Form of Competitive Bid Request
Exhibit F Form of Notice of Competitive Bid Request
Exhibit G Form of Competitive Bid
Exhibit H Form of Competitive Bid Accept/Reject Letter
Exhibit I Closing Certificate
Exhibit J-1 Form of Opinion of Corporate Counsel
Exhibit J-2 Form of Opinion of King & Spalding
Exhibit K Form of Assignment and Acceptance Agreement
Exhibit L Form of Contribution Agreement
Exhibit M Form of Subsidiary Guarantee
-v-
<PAGE> 7
Table of Definitions
Acquired Company, 1
Adjusted LIBO Rate, 1
Advance, 2
Affiliate, 2
Agent, 1, 2
Agreement, 2
Applicable Commitment Percentage, 2
Applicable Margin, 3
Applicable Percentages, 38
Assignment and Acceptance, 3
Available Revolving Credit Commitment, 3
Bankruptcy Code, 3
Base Rate, 3
Base Rate Advance, 3
Borrower, 1, 3
Borrowing, 4
Business Day, 4
Calculation Date, 38
Capital Assets, 4
Capital Lease, 4
Capital Lease Obligation, 4
Change in Control, 4
Change in Control Provision, 4
Closing Date, 5
Commitment, 5
Competitive Bid, 5
Competitive Bid Accept/Reject Letter, 5
Competitive Bid Facility, 5
Competitive Bid Loan, 5
Competitive Bid Note, 5
Competitive Bid Rate, 5
Competitive Bid Rate Advance, 5
Competitive Bid Request, 5
Consenting Lenders, 22
Consolidated Companies, 6
Consolidated Funded Debt, 6
Consolidated Net Income, 6
Consolidated Net Income Available For Fixed Charges, 6
Consolidated Net Loss, 6
Consolidated Net Worth, 6
Continuing Lenders, 23
Contractual Obligation, 6
Contribution Agreement, 7
Cost of Funds Advance, 7
Cost of Funds Rate, 7
Credit Documents, 7
Default, 7
Dollar, 7
-vi-
<PAGE> 8
EBITDA, 7
Environmental Laws, 7
Equity Offering, 8
ERISA, 8
ERISA Affiliate, 8
Eurodollar Advance, 8
Event of Default, 8
Executive Officer, 8
Existing Date, 22
Existing Swing Line Lender, 28
Facilities, 8
Facility, 8
Facility Fee, 8, 37
Facility Fee Percentage, 9
Federal Funds Rate, 9
Fee Letter, 9
Financial Officer, 9
Financial Report, 9
Fixed Charges, 10
Funded Debt, 10
GAAP, 10
Guaranty, 10
Hazardous Substances, 10
Income Taxes, 11
Indebtedness, 11
Indebtedness for Borrowed Money, 11
Interest Expense, 12
Interest Period, 12
Interest Rate Contract, 12
Lender, 12
Lenders, 1, 12
Lending Office, 12
LIBOR, 12
Lien, 13
Loans, 13
Margin Regulations, 13
Material, 13
Materially Adverse Effect, 13
Maturity Date, 13
Moody's, 13
Multiemployer Plan, 13
Net Sale Proceeds, 13
New Lender, 23
New Swing Line Lender, 28
Non-Consenting Lenders, 22
Notes, 14
Notice of Borrowing, 14
Notice of Conversion/Continuation, 14
Notice of Conversion/Continuation of Swing Line Loans, 14
Notice of Swing Line Loan, 14
Obligations, 14
-vii-
<PAGE> 9
Payment Office, 14
PBGC, 14
Person, 14
Plan, 14
Prior Agreements, 15
Purchase Agreement, 15
Purchase Money Indebtedness, 15
Rating Agency, 15
Reduction, 21
Refunded Swing Line Loans, 30
Regulation D, 15
Required Lenders, 15
Requirement of Law, 15
Restricted Investment, 15
Restricted Subsidiary, 16
Reuters Screen, 16
Revolving Credit Commitment, 16
Revolving Credit Notes, 17
Revolving Loans, 17
Security Documents, 17
Sonoco Joint Venture, 17
Standard & Poor's, 17
Subsidiary, 17
Subsidiary Guarantee, 17
Subsidiary Guarantor, 17
SunTrust, 1
Swing Line Commitment, 17
Swing Line Facility, 18
Swing Line Lender, 18
Swing Line Lender Replacement Date, 28
Swing Line Loans, 18
Swing Line Note, 18
Tax Code, 18
Taxes, 18
Telerate, 18
Total Capitalization, 18
Total Commitments, 18
Type, 18
U.S. Dollar, 7
Unrestricted Subsidiary, 18
Voting Stock, 19
Waldorf Credit Agreement, 19
Waldorf Debt, 67
Waldorf Indenture, 19
-viii-
<PAGE> 10
CREDIT AGREEMENT
THIS CREDIT AGREEMENT made and entered into as of January 21, 1997, by
and among ROCK-TENN COMPANY, a Georgia corporation (the "Borrower"), SUNTRUST
BANK, ATLANTA a banking corporation organized under the laws of the State of
Georgia ("SunTrust"), the other banks and lending institutions listed on the
signature pages hereof, and any assignees of SunTrust or such other banks and
lending institutions which become "Lenders" as provided herein (SunTrust, and
such other banks, lending institutions, and assignees referred to collectively
herein as the "Lenders"), and SUNTRUST BANK, ATLANTA in its capacity as agent
for the Lenders (together with any successor agent for such Lenders as may be
appointed from time to time pursuant to Article 10. hereof) (the "Agent");
W I T N E S S E T H:
WHEREAS, the Borrower has requested that the Lenders make a revolving
credit facility and swing line facility available to the Borrower in an amount
not to exceed $400,000,000 at any one time outstanding the proceeds of which are
to be used for the repayment of certain existing indebtedness of Borrower, for
financing the acquisition of Wabash Corporation, a Delaware corporation (the
"Acquired Company"), for working capital and for other general corporate
purposes;
WHEREAS, the Lenders have agreed to make such a credit facility
available to the Borrower on the terms and conditions contained herein;
NOW, THEREFORE, in consideration of the premises and the mutual
covenants herein contained, Borrower, the Lenders and the Agent agree, upon the
terms and subject to the conditions set forth herein as follows:
ARTICLE 1. DEFINITIONS; CONSTRUCTION
SECTION 1.1. DEFINITIONS.
In addition to the other terms defined herein, the following terms used
herein shall have the meanings herein specified (to be equally applicable to
both the singular and plural forms of the terms defined):
"Adjusted LIBO Rate" shall mean, with respect to each Interest Period
for a Eurodollar Advance, the rate obtained by dividing (A) LIBOR for such
Interest Period by (B) a percentage equal to 1 minus the then stated maximum
rate (stated as a decimal) of all reserves requirements (including, without
limitation, any marginal, emergency,
<PAGE> 11
supplemental, special or other reserves) applicable to any member bank of the
Federal Reserve System in respect of Eurocurrency liabilities as defined in
Regulation D (or against any successor category of liabilities as defined in
Regulation D).
"Advance" shall mean any principal amount advanced and remaining
outstanding at any time under (i) the Revolving Loans, which Advances shall be
made or outstanding as Base Rate Advances or Eurodollar Advances, as the case
may be, (ii) the Swing Line Loans, which Advances shall be made or outstanding
as Base Rate Advances, Cost of Funds Advances or Eurodollar Advances, as the
case may be, or (iii) the Competitive Bid Loans, which Advances shall be made or
outstanding as Competitive Bid Rate Advances.
"Affiliate" of any Person means any other Person directly or indirectly
controlling, controlled by, or under common control with, such Person, whether
through the ownership of voting securities, by contract or otherwise, excluding
the Borrower and its Restricted Subsidiaries. For purposes of this definition,
"control" (including with correlative meanings, the terms "controlling",
"controlled by", and "under common control with") as applied to any Person,
means the possession, directly or indirectly, of the power to direct or cause
the direction of the management and policies of that Person.
"Agent" shall mean SunTrust Bank, Atlanta, a Georgia banking
corporation, and any successor agent appointed pursuant to Section 10.10.
hereof.
"Agreement" shall mean this Credit Agreement, as hereafter amended,
restated, supplemented or otherwise modified from time to time.
"Applicable Commitment Percentage" shall mean, for each Lender, a
fraction, the numerator of which shall be the then amount of such Lender's
Commitment and the denominator of which shall be the aggregate amount of the
Commitments of all the Lenders, which Applicable Commitment Percentage for each
Lender as of the Closing Date is as set forth on the signature pages hereof
under the caption "Applicable Commitment Percentage".
-2-
<PAGE> 12
"Applicable Margin" shall mean the per annum rates set forth across
from the Ratio of Consolidated Funded Debt to Total Capitalization as calculated
as of the end of the preceding fiscal quarter determined by reference to the
table set forth below. Any changes to the Applicable Margin will be effective as
of the date specified in Section 4.6..
<TABLE>
<CAPTION>
Ratio of Consolidated Funded Applicable Margin
Debt to Total Capitalization
<S> <C>
>55% .500%
>50% but <55% .425%
-
>45% but <50% .325%
-
>35% but <45% .275%
-
>25% but <35% .225%
-
<25% .175%
-
</TABLE>
"Assignment and Acceptance" shall mean an assignment and acceptance
entered into by a Lender and another financial institution in accordance with
the terms of this Agreement and substantially in the form of Exhibit K.
"Available Revolving Credit Commitment shall mean at any time the
excess, if any, of the Total Commitments over (i) all outstanding Revolving
Loans, (ii) all outstanding Competitive Bid Rate Advances, and (iii) all
outstanding Swing Line Loans.
"Bankruptcy Code" shall mean the Bankruptcy Code of 1978, as amended
and in effect from time to time (11 U.S.C. Section 101 et seq.) and any
successor statute.
"Base Rate Advance" shall mean an Advance made or outstanding as a
Swing Line Loan or Revolving Loan, bearing interest based on the Base Rate.
"Base Rate" shall mean (with any change in the Base Rate to be
effective as of the date of change of either of the following rates) the higher
of (i) the rate which the Agent publicly announces from time to time as its
prime lending rate, as in effect from time to time, and (ii) the Federal Funds
Rate, as in effect from time to time, plus one-half of one percent (0.50%) per
annum. The Agent's prime lending rate is a reference rate and does not
necessarily represent the lowest or best rate actually charged to customers; the
Agent may make commercial loans or other loans at rates of interest at, above or
below the Agent's prime lending rate.
"Borrower" shall mean Rock-Tenn Company, a Georgia corporation, its
succes-
-3-
<PAGE> 13
sors and permitted assigns.
"Borrowing" shall mean the incurrence by Borrower under any Facility of
Advances of one Type concurrently having the same Interest Period or the
continuation or conversion of an existing Borrowing or Borrowings in whole or in
part.
"Business Day" shall mean any day excluding Saturday, Sunday and any
other day on which banks are required or authorized to close in Atlanta, Georgia
and, if the applicable Business Day relates to Eurodollar Advances, excluding
any day on which trading is not carried on by and between banks in deposits of
the applicable currency in the applicable interbank Eurocurrency market.
"Capital Assets" shall mean, collectively, for any Person, all fixed
assets, whether tangible or intangible.
"Capital Lease Obligation" shall mean, with respect to any Capital
Lease, the amount of the obligation of the lessee thereunder which would, in
accordance with GAAP, appear on a balance sheet of such lessee in respect of
such Capital Lease.
"Capital Lease" shall mean, as applied to any Person, any lease of any
property (whether real, personal or mixed) by such Person as lessee which would,
in accordance with GAAP, be required to be classified and accounted for as a
capital lease on a balance sheet of such Person, other than, in the case of
Borrower or any of its Restricted Subsidiaries, any such lease under which
Borrower or a wholly-owned Restricted Subsidiary of Borrower is the lessor.
"Change in Control" shall mean, as applied to the Borrower, that,
during any period of twelve (12) consecutive calendar months (i) more than fifty
percent (50%) of the members of the Board of Directors of the Borrower who were
members on the first day of such period shall have resigned or been removed or
replaced, other than as a result of death, disability, or change in personal
circumstances, or (ii) any Person or "Group" (as defined in Section 13(d)(3) of
the Securities Exchange Act of 1934, as amended, but excluding (A) any employee
benefit or stock ownership plans of the Borrower, and (B) members of the Board
of Directors and executive officers of the Borrower as of the date of this
Agreement, members of the immediate families of such members and executive
officers, and family trusts and partnerships established by or for the benefit
of any of the foregoing individuals) shall have acquired more than fifty percent
(50%) of the combined voting power of all classes of common stock of the
Borrower, except that the Borrower's purchase of its common stock outstanding on
the date hereof which results in one or more of the Borrower's shareholders of
record as of the date of this Agreement controlling more than fifty percent
(50%) of the combined voting power of all classes of the common stock of the
Borrower shall not constitute an acquisition hereunder.
-4-
<PAGE> 14
"Change in Control Provision" shall mean any term or provision
contained in any indenture, debenture, note, or other agreement or document
evidencing or governing Indebtedness of Borrower evidencing debt or a commitment
to extend credit in excess of $10,000,000 which requires, or permits the
holder(s) of such Indebtedness of Borrower to require that such Indebtedness of
Borrower be redeemed, repurchased, defeased, prepaid or repaid, either in whole
or in part, or the maturity of such Indebtedness of Borrower to be accelerated
in any respect, as a result of a change in ownership of the capital stock of
Borrower or voting rights with respect thereto.
"Closing Date" shall mean January 21, 1997 or such later date on which
the initial Loans are made and the conditions set forth in Section 5.1. and 5.2.
are satisfied or waived.
"Commitment" shall mean, for any Lender at any time, any of its
Revolving Credit Commitment, or in the case of the Swing Line Lender, the Swing
Line Commitment, as the context may indicate.
"Competitive Bid Accept/Reject Letter" shall mean a notification made
by the Borrower pursuant to Section 2.6. substantially in the form of Exhibit H.
"Competitive Bid Facility" shall mean the facility established pursuant
to Section 2.6.
"Competitive Bid Loan" shall mean a Loan made up of Advances by all of
those Lenders whose Competitive Bids have been accepted by the Borrower pursuant
to the same Competitive Bid Request under the bidding procedure described in
Section 2.6. for the same Interest Period and interest rate (with the
understanding that two Competitive Bid Loans may be made pursuant to a single
Competitive Bid Request).
"Competitive Bid Note" shall mean a promissory note of the Borrower
payable to the order of any Lender, in substantially the form of Exhibit B
hereto, evidencing the indebtedness of the Borrower to such Lender with respect
to outstanding Competitive Bid Rate Advances made by such Lender pursuant to
this Agreement, either as originally executed or as it may be from time to time
supplemented, modified, amended, renewed or extended.
"Competitive Bid Rate Advance" shall mean an Advance made by a Lender
to the Borrower pursuant to the bidding procedure described in Section 2.6.
"Competitive Bid Rate" shall mean, as to any Competitive Bid made by a
Lender pursuant to Section 2.6., the fixed rate of interest per annum offered by
the Lender making the Competitive Bid for the relevant Interest Period.
"Competitive Bid Request" shall mean a request made by the Borrower
pursuant
-5-
<PAGE> 15
to Section 2.6. substantially in the form of Exhibit E.
"Competitive Bid" shall mean an offer by a Lender to make a Competitive
Bid Loan pursuant to Section 2.6.
"Consolidated Companies" shall mean, collectively, Borrower and all of
its Restricted Subsidiaries.
"Consolidated Funded Debt" shall mean the Funded Debt of the Borrower
and its Restricted Subsidiaries on a consolidated basis.
"Consolidated Net Income" shall mean the net income of the Borrower and
its Restricted Subsidiaries on a consolidated basis as defined according to GAAP
after excluding (to the extent included in net income) the sum of (i) any net
loss or any undistributed net income of any non-majority owned Subsidiary, (ii)
the net income or loss of any Restricted Subsidiary for any period prior to the
date it became a Restricted Subsidiary, (iii) the gain or loss (net of any tax
effect) resulting from the sale of any Capital Assets other than in the ordinary
course of business of the Borrower and its Restricted Subsidiaries, and (iv)
other extraordinary items, as defined by GAAP, of the Borrower and its
Restricted Subsidiaries.
"Consolidated Net Income Available For Fixed Charges" shall mean the
sum of (i) Consolidated Net Income (or Consolidated Net Loss, as the case may
be), (ii) the provision for Income Taxes of the Borrower and its Restricted
Subsidiaries, and (iii) Fixed Charges.
"Consolidated Net Loss" shall mean the net losses of the Borrower and
its Restricted Subsidiaries on a consolidated basis as defined according to GAAP
after excluding (to the extent included in net income) the sum of (i) any net
loss or any undistributed net income of any non-majority owned Subsidiary (ii)
the net income or loss of any Restricted Subsidiary for any period prior to the
date it became a Restricted Subsidiary, (iii) the gain or loss (net of any tax
effect) resulting from the sale of any Capital Assets other than in the ordinary
course of business of the Borrower and its Restricted Subsidiaries, and (iv)
other extraordinary items, as defined by GAAP, of the Borrower and its
Restricted Subsidiaries.
"Consolidated Net Worth" shall mean the stockholders' equity of the
Borrower and its Restricted Subsidiaries minus Restricted Investments but only
to the extent the Restricted Investments exceed in the aggregate ten percent
(10%) of stockholders' equity. For purposes of this definition, stockholders'
equity shall be determined on a consolidated basis in accordance with GAAP, as
applied on a consistent basis by the Borrower in the calculation of such amounts
in the Borrower's most recent Financial Reports.
-6-
<PAGE> 16
"Contractual Obligation" of any Person shall mean any provision of any
security issued by such Person or of any agreement, instrument or undertaking
under which such Person is obligated or by which it or any of the property owned
by it is bound.
"Contribution Agreement" shall mean a Contribution Agreement
substantially in the form of Exhibit "L" executed and delivered by one or more
Subsidiary Guarantors in favor of the Agent, for the ratable benefit of the
Lenders, together with all amendments and supplements thereto.
"Cost of Funds Advance" shall mean any Advance hereunder that bears
interest based on the Cost of Funds Rate provided, that, such Advances must have
an Interest Period of not more than thirty (30) days.
"Cost of Funds Rate" shall mean a rate of interest that the Swing Line
Lender may quote from time to time in accordance with Section 3.1. hereof that
the Swing Line Lender determines in its sole and absolute discretion is the cost
incurred by the Swing Line Lender in obtaining the funds to make an Advance
hereunder.
"Credit Documents" shall mean, collectively, this Agreement, the Notes,
the Fee Letter, the Subsidiary Guarantees, the Contribution Agreement, the
Security Documents and all other instruments, documents, certificates,
agreements and writings executed in connection herewith.
"Default" shall mean any event or condition the occurrence of which
constitutes or would, with the lapse of time or the giving of notice, or both,
constitute an Event of Default.
"Dollar" and "U.S. Dollar" and the sign "$" shall mean lawful money of
the United States of America.
"EBITDA" shall mean for any fiscal period, Consolidated Net Income (or
Consolidated Net Loss, as the case may be) for such period plus (a) the
aggregate amount deducted in determining such Consolidated Net Income (Loss) in
respect of (i) Interest Expense, (ii) Income Taxes, and (iii) depreciation and
amortization expense of the Borrower and its Restricted Subsidiaries determined
in accordance with GAAP, in each case for the applicable fiscal period, and (b)
cash distributions of earnings of Unrestricted Subsidiaries made to a
Consolidated Company.
"Environmental Laws" shall mean all federal, state, local and foreign
statutes and codes or regulations, rules or ordinances issued, promulgated, or
approved thereunder, now or hereafter in effect (including, without limitation,
those with respect to asbestos or asbestos containing material or exposure to
asbestos or asbestos containing material), relating to pollution or protection
of the environment and relating to public health and
-7-
<PAGE> 17
safety, relating to (i) emissions, discharges, releases or threatened releases
of pollutants, contaminants, chemicals or industrial toxic or hazardous
constituents, substances or wastes, including without limitation, any Hazardous
Substance, petroleum including crude oil or any fraction thereof, any petroleum
product or other waste, chemicals or substances regulated by any Environmental
Law into the environment (including, without limitation, ambient air, surface
water, ground water, land surface or subsurface strata), or (ii) the
manufacture, processing, distribution, use, generation, treatment, storage,
disposal, transport or handling of any Hazardous Substance, petroleum including
crude oil or any fraction thereof, any petroleum product or other waste,
chemicals or substances regulated by any Environmental Law, and (iii)
underground storage tanks and related piping, and emissions, discharges and
releases or threatened releases therefrom. Such Environmental Laws to include,
without limitation (i) the Clean Air Act (42 U.S.C. Section 7401 et seq.), (ii)
the Clean Water Act (33 U.S.C. Section 1251 et seq.), (iii) the Resource
Conservation and Recovery Act (42 U.S.C. Section 6901 et seq.), (iv) the Toxic
Substances Control Act (15 U.S.C. Section 2601 et seq.), (v) the Comprehensive
Environmental Response Compensation and Liability Act, as amended by the
Superfund Amendments and Reauthorization Act (42 U.S.C. Section 9601 et seq.),
and (vi) all applicable national and local laws or regulations with respect to
environmental control.
"Equity Offering" means an underwritten public offering of any capital
stock of the Borrower, or any debt security convertible into or exchangeable for
capital stock of the Borrower, or any debt security issued with a warrant or
other instrument conferring upon its owner the right to purchase capital stock
of the Borrower, in each case pursuant to an effective registration statement
filed with the Securities and Exchange Commission in accordance with the
Securities Act of 1933, as amended.
"ERISA Affiliate" shall mean, with respect to any Person, each trade or
business (whether or not incorporated) which is a member of a group of which
that Person is a member and which is under common control within the meaning of
the regulations promulgated under Section 414 of the Tax Code.
"ERISA" shall mean the Employee Retirement Income Security Act of 1974,
as amended and in effect from time to time.
"Eurodollar Advance" shall mean an Advance made or outstanding as a
Revolving Loan or a Swing Line Loan, as the case may be, bearing interest based
on the Adjusted LIBO Rate.
"Event of Default" shall have the meaning provided in Article 9.
"Executive Officer" shall mean with respect to any Person, the Chief
Executive Officer, President, Vice Presidents (if elected by the Board of
Directors of such Person), Chief Financial Officer, Treasurer, Secretary and any
Person holding comparable offices
-8-
<PAGE> 18
or duties (if elected by the Board of Directors of such Person).
"Facility Fee" shall have the meaning ascribed to it in Section
4.5.(a).
"Facility" or "Facilities" shall mean the Revolving Credit Commitments,
the Swing Line Facility, or the Competitive Bid Facility, as the context may
indicate.
"Facility Fee Percentage" shall mean the per annum rates set forth
across from the Ratio of Consolidated Funded Debt to Total Capitalization as
calculated as of the end of the preceding fiscal quarter determined by reference
to the table set forth below. Any changes to the Facility Fee Percentage will be
effective as of the date specified in Section 4.6.
<TABLE>
<CAPTION>
Ratio of Consolidated Facility Fee
Funded Debt to Total Percentage
Capitalization
<S> <C>
>55% .250%
>50% but <55% .200%
-
>45% but <50% .150%
-
>35% but <45% .125%
-
>25% but <35% .100%
-
<25% .075%
-
</TABLE>
"Federal Funds Rate" shall mean with respect to any Base Rate Advance,
a fluctuating interest rate per annum equal for each day during which such
Advance is outstanding to the weighted average of the rates on overnight Federal
funds transactions with member banks of the Federal Reserve System arranged by
Federal funds brokers, as set forth for each day on Page 4833 of the Telerate at
9:00 a.m. (Atlanta, Georgia time) or if such reporting service is unavailable,
as published for such day (or, if such day is not a Business Day, for the next
preceding Business Day) by the Federal Reserve Bank of Atlanta, or, if such rate
is not so published for any day which is a Business Day, the average of the
quotations for such day on such transactions received by the Agent from three
Federal funds brokers of recognized standing selected by the Agent.
"Fee Letter"" means that certain letter agreement dated December 6,
1996 between the Borrower and the Agent relating to certain fees from time to
time payable by the Borrower to the Agent, together with all amendments and
supplements thereto.
-9-
<PAGE> 19
"Financial Officer" means with respect to the Borrower, any of the
Chief Financial Officer, Vice President of Finance, and Treasurer.
"Financial Report" means at a specified date, the most recent financial
statements of the Borrower and its Restricted Subsidiaries delivered pursuant to
Section 7.7. of this Agreement.
"Fixed Charges" shall mean the sum of (i) Interest Expense of the
Borrower and its Restricted Subsidiaries, (ii) 100% of lease expense of the
Borrower and its Restricted Subsidiaries (excluding expenses incurred in respect
of Capital Leases) determined in accordance with GAAP, and (iii) preferred stock
dividends, if any, of the Borrower and its Restricted Subsidiaries excluding,
however, any portion of such dividend paid to the Borrower or a Restricted
Subsidiary.
"Funded Debt" shall mean, with respect to any Person, without
duplication and excluding in the case of the Borrower and its Restricted
Subsidiaries intercorporate obligations solely among the Borrower and its
Restricted Subsidiaries, all (i) Indebtedness for Borrowed Money of such Person,
(ii) Capital Lease Obligations of such Person, and (iii) all obligations under
direct or indirect Guaranties in respect of obligations of others of the kinds
referred to in clauses (i) and (ii) above; provided, however, that "Funded Debt"
shall not include any obligations of the Borrower or its Restricted Subsidiaries
with respect to (w) undrawn commercial letters of credit used in the ordinary
course of business, (x) currency exchange agreements, (y) Interest Rate
Contracts or (z) any Indebtedness deemed to be extinguished under GAAP but for
which the Borrower or such Subsidiary remains legally liable.
"GAAP" shall mean 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 may be approved by a significant segment of
the accounting profession, which are applicable to the circumstances as of the
date of determination.
"Guaranty" shall mean any contractual obligation, contingent or
otherwise, of a Person with respect to any Indebtedness or other obligation or
liability of another Person, including without limitation, any such
Indebtedness, obligation or liability directly or indirectly guaranteed,
endorsed, co-made or discounted or sold with recourse by that Person, or in
respect of which that Person is otherwise directly or indirectly liable,
including contractual obligations (contingent or otherwise) arising through any
agreement to purchase, repurchase, or otherwise acquire such Indebtedness,
obligation or liability or any security therefor, or any agreement to provide
funds for the payment or discharge thereof (whether in the form of loans,
advances, stock purchases, capital contributions or otherwise), or to maintain
solvency, assets, level of income, or other financial condition,
-10-
<PAGE> 20
or to make any payment other than for value received. The amount of any Guaranty
shall be deemed to be an amount equal to the stated or determinable amount of
the primary obligation in respect of which guaranty is made or, if not so stated
or determinable, the maximum reasonably anticipated liability in respect thereof
(assuming such Person is required to perform thereunder) as determined by such
Person in good faith.
"Hazardous Substances" shall have the meaning assigned to that term in
the Comprehensive Environmental Response Compensation and Liability Act of 1980,
as amended by the Superfund Amendments and Reauthorization Acts of 1986.
"Income Taxes" shall have the meaning given such term by GAAP.
"Indebtedness" of any Person shall mean, without duplication (i) all
obligations of such Person which in accordance with GAAP would be shown on the
balance sheet of such Person as a liability (including, without limitation,
obligations for borrowed money and for the deferred purchase price of property
or services, and obligations evidenced by bonds, debentures, notes or other
similar instruments); (ii) all Capital Lease Obligations; (iii) all Guaranties
of such Person (including the stated amount of undrawn letters of credit); and
(iv) Indebtedness of others secured by any Lien upon property owned by such
Person, whether or not assumed. Notwithstanding the foregoing, in determining
the Indebtedness of any Person, (x) there shall be included all obligations of
such Person of the character referred to in clauses (i) through (iv) above
deemed to be extinguished under GAAP but for which such Person remains legally
liable and (y) any deferred obligations of such Person to make payments on any
agreement not to compete which was entered into by such Person in connection
with the acquisition of any business shall be reduced by the effective federal
and state corporate tax rate applicable to such Person in order to recognize the
deductibility of such payments and the resulting reduction of the cash actually
expended by the Person to satisfy such obligation.
"Indebtedness for Borrowed Money" shall mean, with respect to any
Person and without duplication:
(a) Indebtedness for money borrowed, including all revolving
and term Indebtedness and all other lines of credit; and
(b) Indebtedness which
(i) is represented by a note payable or drafts accepted, that
represent extensions of credit;
(ii) constitutes obligations evidenced by bonds, debentures,
notes or similar instruments; or
(iii) constitutes Purchase Money Indebtedness, conditional sales
-11-
<PAGE> 21
contracts, title retention debt instruments or other similar
instruments upon which interest charges are customarily paid
or that are issued or assumed as full or partial payment for
property; and
(c) Indebtedness that constitutes a Capital Lease Obligation; and
(d) all reimbursement obligations under any acceptances or any
letters of credit issued in support of Indebtedness of the character described
in clauses (a) through (c) above; and
(e) all Indebtedness of others of the character described in
clauses (a) through (d) above, but only to the extent that such Indebtedness is
subject to a Guaranty of such Person.
"Interest Expense" shall mean interest expense of the Borrower and its
Restricted Subsidiaries determined on a consolidated basis, according to GAAP.
"Interest Period" shall mean (i) as to any Eurodollar Advances, the
interest period selected by the Borrower pursuant to Section 4.4.(a) hereof,
(ii) as to any Competitive Bid Rate Advances, the interest period requested by
the Borrower and agreed to by the participating Lenders pursuant to Section 2.6.
hereof in conformity with Section 4.4.(b) hereof; and (iii) as to any Cost of
Funds Advances, the interest period requested by the Borrower and agreed to by
the Swing Line Lender pursuant to Section 3.1. hereof in conformity with Section
4.4.(c) hereof.
"Interest Rate Contract" shall mean all interest rate swap agreements,
interest rate cap agreements, interest rate collar agreements, interest rate
insurance and other agreements and arrangements designed to provide protection
against fluctuations in interest rates, in each case as the same may be from
time to time amended, restated, renewed, supplemented or otherwise modified.
"Lender" or "Lenders" shall mean SunTrust, the other banks and lending
institutions listed on the signature pages hereof, including, without
limitation, the Swing Line Lender, and each assignee thereof, if any, pursuant
to Section 11.6.(c), together with their corporate successors.
"Lending Office" shall mean for each Lender, the office such Lender may
designate in writing from time to time to Borrower and the Agent with respect to
each Type of Loan.
"LIBOR" shall mean, for any Interest Period, with respect to Eurodollar
Advances the offered rate for deposits in U.S. Dollars, for a period comparable
to the Interest Period and in an amount comparable to the Agent's portion of
such Advances, appearing on the
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Reuters Screen LIBO Page as of 11:00 A.M. (London, England time) on the day that
is two Business Days prior to the first day of the Interest Period. If two or
more of such rates appear on the Reuters Screen LIBO Page, the rate for that
Interest Period shall be the arithmetic mean of such rates. If the foregoing
rate is unavailable from the Reuters Screen for any reason, then such rate shall
be determined by the Agent from Telerate Page 3750 or, if such rate is also
unavailable on such service, then on any other interest rate reporting service
of recognized standing designated in writing by the Agent to Borrower and the
other Lenders; in any such case rounded, if necessary, to the next higher 1/100
of 1.0%, if the rate is not such a multiple.
"Lien" means any security interest, mortgage, pledge, lien, claim,
charge, encumbrance, title retention agreement, lessor's interest under a
Capital Lease or analogous instrument, in, of or on any property.
"Loans" shall mean, collectively, the Revolving Loans, the Swing Line
Loans, and the Competitive Bid Loans.
"Margin Regulations" shall mean Regulation G, Regulation T, Regulation
U and Regulation X of the Board of Governors of the Federal Reserve System, as
the same may be in effect from time to time.
"Material" (or words derived therefrom) as used in this Agreement,
means the measure of a matter of significance which shall be determined as being
an amount equal to the greater of (i) Ten Million Dollars ($10,000,000) or (ii)
five percent (5%) of the Consolidated Net Worth.
"Materially Adverse Effect" shall mean any Material adverse change in
(i) the business, operations, financial condition or assets of the Consolidated
Companies, taken as a whole, (ii) the ability of Borrower to perform its
obligations under this Agreement, or (iii) the ability of the Consolidated
Companies (taken as a whole) to perform their respective obligations, if any,
under the Credit Documents.
"Maturity Date" shall mean the earlier of (i) January 21, 2002, and
(ii) the date on which all amounts outstanding under this Agreement have been
declared or have automatically become due and payable pursuant to the provisions
of Article 9.; provided, however, that the date listed in subsection (i) above
may be extended as provided in Section 2.5.
"Moody's" shall mean Moody's Investors Services, Inc. and each of its
successors.
"Multiemployer Plan" shall have the meaning set forth in Section
4001(a)(3) of ERISA.
"Net Sale Proceeds" means the aggregate cash proceeds received by any
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Consolidated Company in respect of any Equity Offering (including, without
limitation, any cash received upon the sale or other disposition of any noncash
consideration received in any Equity Offering), net of the direct costs relating
to such Equity Offering (including, without limitation, legal, accounting and
investment banking fees, printing, sales and distribution costs and expenses,
and sales commissions), taxes paid or payable as a result thereof.
"Notes" shall mean, collectively, the Revolving Credit Notes, the Swing
Line Note and the Competitive Bid Notes.
"Notice of Borrowing" shall have the meaning provided in Section
4.1.(a)(i).
"Notice of Conversion/Continuation of Swing Line Loans" shall have the
meaning provided in Section 4.1.(b)(ii).
"Notice of Conversion/Continuation" shall have the meaning provided in
Section 4.1.(b)(i).
"Notice of Swing Line Loan" shall have the meaning provided in Section
4.1.(a)(ii).
"Obligations" shall mean all amounts owing to the Agent or any Lender
pursuant to the terms of this Agreement or any other Credit Document, including,
without limitation, all Loans (including all principal and interest payments due
thereunder), fees, expenses, indemnification and reimbursement payments,
indebtedness, liabilities, and obligations of the Consolidated Companies, direct
or indirect, absolute or contingent, liquidated or unliquidated, now existing or
hereafter arising, together with all renewals, extensions, modifications or
refinancings thereof.
"Payment Office" shall mean with respect to payments of principal,
interest, fees or other amounts relating to the Revolving Loans, the Swing Line
Loans, the Competitive Bid Loans and all other Obligations, the office specified
as the "Payment Office" for the Agent and in the case of the Swing Line Loans,
the Swing Line Lender, on the signature page of the Agent and the Swing Line
Lender, or such other location as to which the Agent or the Swing Line Lender
shall have given written notice to the Borrower.
"PBGC" shall mean the Pension Benefit Guaranty Corporation, or any
successor thereto.
"Person" shall mean any individual, partnership, firm, corporation,
association, joint venture, trust, limited liability company, limited liability
partnership, or other entity, or any government or political subdivision or
agency, department or instrumentality thereof.
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"Plan" shall mean any "employee benefit plan" (as defined in
Section 3(3) of ERISA), including, but not limited to, any defined benefit
pension plan, profit sharing plan, money purchase pension plan, savings or
thrift plan, stock bonus plan, employee stock ownership plan, Multiemployer
Plan, or any plan, fund, program, arrangement or practice providing for medical
(including post-retirement medical), hospitalization, accident, sickness,
disability, or life insurance benefits.
"Prior Agreements" shall mean, collectively, (i) that certain Revolving
Credit Agreement dated as of January 15, 1995 by and between the Borrower and
SunTrust and (ii) that certain Revolving Credit Agreement dated as of January
15, 1995 by and between the Borrower and Wachovia Bank of Georgia, N.A.
"Purchase Agreement" means that certain Stock Purchase Agreement by and
among Borrower and the shareholders of the Acquired Company, dated as of January
21, 1997, as it may be amended on or prior to the Closing Date in accordance
with Section 5.1(h) hereof.
"Purchase Money Indebtedness" shall mean Indebtedness incurred or
assumed for the purpose of financing all or any part of the acquisition cost of
any property (excluding trade payables incurred in the ordinary course of
business) and any refinancing thereof, in each case entered into in compliance
with this Agreement.
"Rating Agency" shall mean either Moody's or Standard & Poor's.
"Regulation D" shall mean Regulation D of the Board of Governors of the
Federal Reserve System, as the same may be in effect from time to time.
"Required Lenders" shall mean at any time, the Lenders holding at least
66 2/3% of the amount of the Total Commitments, whether or not advanced or,
following the termination of all of the Commitments, the Lenders holding at
least 66 2/3% of the aggregate outstanding Advances at such time.
"Requirement of Law" for any Person shall mean any law, treaty, rule or
regulation, or determination of an arbitrator or a court or other governmental
authority, in each case applicable to or binding upon such Person or any of its
property or to which such Person or any of its property is subject.
"Restricted Investment" means all investments (in cash or by delivery
of property) made, directly or indirectly in any Person, whether by acquisition
of shares of capital stock, indebtedness or other obligations or securities or
by loan, advance, guaranty, capital contribution or otherwise (including,
without limitation, the net actual liability of such Person under an Interest
Rate Contract not entered into in respect of outstanding Funded Debt of such
Person); provided, however, that Restricted Investments shall not
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mean or include: (i) investments in property to be used or consumed in the
ordinary course of business, (ii) investments by the Borrower or its Restricted
Subsidiaries in and to Restricted Subsidiaries, including any investment in a
corporation which, after giving effect to such investment, will immediately
become a Restricted Subsidiary, (iii) investments in commercial paper or other
short-term security maturing in 270 days or less from the date of issuance,
which at the time of acquisition by the Borrower or its Subsidiary, is accorded
the rating of A-2 or better by Standard & Poor's or P-2 or better by Moody's,
(iv) investments in direct obligations of the United States of America or any
agency or instrumentality of the United States of America, the payment or
guarantee of which constitutes a full faith and credit obligation of the United
States of America, in either case maturing in three years or less from the date
of acquisition thereof, (v) loans or advances in the usual and ordinary course
of business to officers, directors and employees for expenses (including moving
expenses related to a transfer) incidental to carrying on the business of the
Borrower or any Restricted Subsidiary, (vi) receivables arising from the sale of
goods and services in the ordinary course of business of the Borrower and its
Restricted Subsidiaries, (vii) municipal bonds maturing in three (3) years or
less from the date of acquisition thereof and accorded either a long-term or
short-term rating no lower than the highest rating category by Standard & Poor's
or Moody's, (viii) variable rate preferred stock issued by United States or
United Kingdom corporations which are accorded a rating no lower than the third
highest rating category by Standard & Poor's or Moody's, (ix) variable rate
demand obligations, tax-free preferred stock of United States corporations and
other tax exempt investments which mature in three (3) years or less or have
variable rate features and are accorded a rating no lower than the third highest
rating category by Standard & Poor's or Moody's, (x) certificates of deposit of
or drafts accepted by a commercial bank (a) that is organized under the laws of
the United States of America or any state thereof, and (b) whose long-term
unsecured debt obligations (or the long-term debt obligations of the bank
holding company owning all of the capital stock of such bank) shall be rated A2
or better by Moody's or A or better by Standard & Poor's, and (c) that has
capital, surplus and undivided profits aggregating in excess of $100,000,000,
and (xi) the initial investments made by the Borrower and its Subsidiaries in
the Sonoco Joint Venture through the contribution of those assets forming a part
of their solid fiber partition business.
"Restricted Subsidiary" means (i) any Subsidiary of the Borrower
identified as such on Schedule I hereto, (ii) the Acquired Company and any
Subsidiaries it owns at the time of the closing of the transaction evidenced by
this Agreement, and (iii) any Subsidiary of the Borrower created or acquired
after the date of this Agreement other than a Subsidiary which, at the option of
the Borrower, is designated in writing by the Borrower to the Agent as being an
Unrestricted Subsidiary.
"Reuters Screen" shall mean, when used in connection with any
designated page and LIBOR, the display page so designated on the Reuter Monitor
Money Rates Service
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(or such other page as may replace that page on that service for the purpose of
displaying rates comparable to LIBOR).
"Revolving Credit Commitment" shall mean, at any time for any Lender,
the amount of such commitment set forth opposite such Lender's name on the
signature pages hereof, as the same may be increased or decreased from time to
time as a result of any reduction thereof pursuant to Section 2.3., any
assignment thereof pursuant to Section 11.6., or any amendment thereof pursuant
to Section 11.2.
"Revolving Credit Notes" shall mean, collectively, the promissory notes
evidencing the Revolving Loans in the form attached hereto as Exhibit A, either
as originally executed or as hereafter amended, modified or supplemented.
"Revolving Loans" shall mean, collectively, the revolving loans made to
the Borrower by the Lenders pursuant to Section 2.1.
"Security Documents" shall mean, collectively, each guaranty agreement,
mortgage, deed of trust, security agreement, pledge agreement, or other security
or collateral document, if any, guaranteeing or securing the Obligations, as the
same may be amended, restated, supplemented or otherwise modified from time to
time.
"Sonoco Joint Venture" shall mean the Delaware limited liability
company to be formed by the Subsidiaries of the Borrower and Sonoco Products
Company, respectively, to engage in the solid fiber partition business
previously conducted separately by the Borrower and Sonoco Products Company.
"Standard & Poor's" shall mean Standard & Poor's Ratings Group, a
division of McGraw-Hill, Inc. and its successors.
"Subsidiary" shall mean, with respect to any Person, any corporation or
other entity (including, without limitation, limited liability companies,
partnerships, joint ventures, limited liability companies, and associations)
regardless of its jurisdiction of organization or formation, at least a majority
of the total combined voting power of all classes of Voting Stock or other
ownership interests of which shall, at the time as of which any determination is
being made, be owned by such Person, either directly or indirectly through one
or more other Subsidiaries.
"Subsidiary Guarantee" shall mean a Subsidiary Guarantee substantially
in the form of Exhibit "M" executed and delivered by one or more Subsidiary
Guarantors in favor of the Agent, for the ratable benefit of the Lenders,
together with all amendments and supplements thereto.
"Subsidiary Guarantor" shall mean a Restricted Subsidiary which will
execute a Subsidiary Guarantee pursuant to Section 7.10.
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"Swing Line Commitment" shall mean, at any time for the Swing Line
Lender, an amount equal to the Swing Line Commitment set forth on the signature
page of the Swing Line Lender, as the same may be increased or decreased from
time to time as a result of any assignment thereof pursuant to Section 11.6., or
any amendment thereof pursuant to Section 11.2. The Swing Line Commitment shall
be part of, subsumed within, and not in addition to the Revolving Credit
Commitment of the Swing Line Lender until such Revolving Credit Commitment is
reduced to or below $90,000,000, at which time the Swing Line Commitment shall
become an independent Commitment hereunder in the amount specified in the
preceding sentence.
"Swing Line Facility" shall mean, at any time, the Swing Line
Commitment, which amount shall not exceed $20,000,000.
"Swing Line Lender" shall mean SunTrust and any successor or assignee
thereof.
"Swing Line Loans" shall mean, collectively, loans made by the Swing
Line Lender to the Borrower pursuant to the Swing Line Facility.
"Swing Line Note" shall mean a promissory note of the Borrower payable
to the order of the Swing Line Lender, in substantially the form of Exhibit C
hereto, evidencing the maximum aggregate principal indebtedness of the Borrower
to such Swing Line Lender with respect to the Swing Line Commitment, either as
originally executed or as it may be from time to time supplemented, modified,
amended, renewed or extended.
"Tax Code" shall mean the Internal Revenue Code of 1986, as amended and
in effect from time to time.
"Taxes" shall mean any present or future taxes, levies, imposts,
duties, fees, assessments, deductions, withholdings or other charges of whatever
nature, including without limitation, income, receipts, excise, property, sales,
transfer, license, payroll, withholding, social security and franchise taxes now
or hereafter imposed or levied by the United States, or any state, local or
foreign government or by any department, agency or other political subdivision
or taxing authority thereof or therein and all interest, penalties, additions to
tax and similar liabilities with respect thereto.
"Telerate" shall mean, when used in connection with any designated page
and LIBOR or the Federal Funds Rate, the display page so designated on the Dow
Jones Telerate Service (or such other page as may replace that page on that
service for the purpose of displaying rates comparable to LIBOR or the Federal
Funds Rate).
"Total Capitalization" shall mean for the Borrower and its Restricted
Subsidiaries on a consolidated basis, the sum of their: (i) Funded Debt and (ii)
Consolidated Net Worth.
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"Total Commitments" shall mean the sum of the Revolving Credit
Commitments of all Lenders.
"Type" of Borrowing shall mean a Borrowing consisting of Base Rate
Advances, Eurodollar Advances, Competitive Bid Rate Advances, or Cost of Funds
Advances.
"Unrestricted Subsidiary" shall mean any Subsidiary of the Borrower
that is not a Restricted Subsidiary.
"Voting Stock" shall mean stock of a corporation of a class or classes
having general voting power under ordinary circumstances to elect a majority of
the board of directors, managers or trustees of such corporation (irrespective
of whether or not at the time stock of any other class or classes shall have or
might have voting power by the reason of the happening of any contingency).
"Waldorf Credit Agreement" shall mean that certain Credit Agreement
dated as of July 5, 1995 among Waldorf Corporation, the banks party thereto and
The Chase Manhattan Bank, as administrative agent, as amended and supplemented
from time to time.
"Waldorf Indenture" shall mean the agreement pursuant to which the
Waldorf Debt is issued.
SECTION 1.2. ACCOUNTING TERMS AND DETERMINATION.
Unless otherwise defined or specified herein, all accounting terms
shall be construed herein, all accounting determinations hereunder shall be
made, all financial statements required to be delivered hereunder shall be
prepared, and all financial records shall be maintained, in accordance with
GAAP. In the event of a change in GAAP that is applicable to the Borrower and
its Subsidiaries, compliance with the financial covenants contained herein shall
continue to be determined in accordance with GAAP as in effect prior to such
change; provided, however, that the Borrower and the Required Lenders will
thereafter negotiate in good faith to revise such covenants to the extent
necessary to conform such covenants to GAAP as then in effect.
SECTION 1.3. OTHER DEFINITIONAL TERMS.
The words "hereof", "herein" and "hereunder" and words of similar
import when used in this Agreement shall refer to this Agreement as a whole and
not to any particular provision of this Agreement, and Article, Section,
Schedule, Exhibit and like references are to this Agreement unless otherwise
specified.
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SECTION 1.4. EXHIBITS AND SCHEDULES.
All Exhibits and Schedules attached hereto are by reference made a part
hereof.
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ARTICLE 2. REVOLVING LOANS; COMPETITIVE BID LOANS
SECTION 2.1. COMMITMENT; USE OF PROCEEDS.
(a) Subject to and upon the terms and conditions herein set forth, each
Lender severally agrees to make to Borrower from time to time on and after the
Closing Date, but prior to the Maturity Date, Revolving Loans; provided that,
immediately after each such Revolving Loan is made, (i) the aggregate principal
amount of all Advances comprising Revolving Loans made by such Lender shall not
exceed such Lender's Revolving Credit Commitment, and (ii) the aggregate
principal amount of all outstanding Revolving Loans plus the aggregate principal
amount of all Competitive Bid Rate Advances plus the aggregate principal amount
of all outstanding Swing Line Loans, shall not exceed the Total Commitments.
(b) Each Revolving Loan shall, at the option of Borrower, be made or
continued as, or converted into, part of one or more Borrowings that shall
consist entirely of Base Rate Advances or Eurodollar Advances. The aggregate
principal amount of each Borrowing of Revolving Loans comprised of Eurodollar
Advances shall be not less than $5,000,000 or a greater integral multiple of
$1,000,000, and the aggregate principal amount of each Borrowing of Revolving
Loans comprised of Base Rate Advances shall be not less than $1,000,000 or a
greater integral multiple of $100,000.
(c) The proceeds of Revolving Loans shall be used solely for the
following purposes:
(i) Initially, to repay the Indebtedness outstanding pursuant
to the Prior Agreements on the Closing Date; and
(ii) All other amounts shall be used by the Borrower and its
Subsidiaries for acquisitions, capital expenditures and as
working capital and for other general corporate purposes.
SECTION 2.2. REVOLVING CREDIT NOTES; REPAYMENT OF PRINCIPAL.
(a) The Borrower's obligations to pay the principal of, and interest
on, the Revolving Loans to each Lender shall be evidenced by the records of the
Agent and such Lender and by the Revolving Credit Note payable to such Lender
(or the assignor of such Lender) completed in conformity with this Agreement.
(b) All Borrowings outstanding under the Revolving Credit Commitments
shall be due and payable in full on the Maturity Date.
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SECTION 2.3. REDUCTION OF REVOLVING CREDIT AND SWING LINE COMMITMENTS;
MANDATORY PREPAYMENT.
(a) Upon at least three (3) Business Days' prior telephonic notice
(promptly confirmed in writing) to the Agent, Borrower shall have the right,
without premium or penalty, to terminate the Revolving Credit Commitments, in
part or in whole, provided that any partial termination of the Revolving Credit
Commitments pursuant to this Section 2.3. shall be in an amount of at least
$1,000,000 and integral multiples of $1,000,000.
(b) The Revolving Credit Commitments shall be automatically and
permanently reduced in connection with the consummation of any Equity Offering
by an amount equal to the lesser of (i) 100% of the Net Sale Proceeds received
by the Borrower in respect of any Equity Offering and (ii) an amount necessary
to reduce the Total Commitments to $300,000,000 (the "Reduction").
(c) Any reduction of Revolving Credit Commitments pursuant to
subsections (a) and (b) of this Section 2.3. shall apply to proportionately,
automatically and permanently reduce the Revolving Credit Commitments of each of
the Lenders based upon each Lender's Applicable Commitment Percentage.
(d) If at any time the aggregate outstanding Competitive Bid Loans,
Revolving Loans and, so long as the Swing Line Commitment is part of the Swing
Line Lender's Revolving Credit Commitment, Swing Line Loans exceed the Total
Commitments, the Borrower shall immediately cause an amount equal to such excess
to be applied as follows in the order of priority indicated:
First, so long as the Swing Line Commitment is part of the
Swing Line Lender's Revolving Credit Commitment, to the prepayment of
outstanding Swing Line Loans;
Second, to the prepayment of outstanding Revolving Loans; and
Third, to the prepayment of outstanding Competitive Bid Loans,
such prepayment to be applied to such Loans as designated by the
Borrower and, in the event the Borrower fails to designate a Loan, to such Loans
with the earliest maturity dates, based upon the remaining terms of their
respective Interest Periods, and with respect to Loans with the same Interest
Period, pro rata to the Lenders extending such Loans.
Any prepayment of Swing Line Loans, Revolving Loans and Competitive Bid Loans
pursuant to this Section 2.3. shall be made, insofar as is possible, in such a
way as to avoid any funding losses pursuant to Section 4.13.
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SECTION 2.4. CHANGE IN CONTROL OF THE BORROWER.
If (i) any Change in Control occurs hereunder or (ii) any event or
condition shall occur or exist which, pursuant to the terms of any Change in
Control Provision (other than a Change in Control Provision in the Waldorf
Indenture and the Waldorf Credit Agreement) requires or permits the holder(s) of
the Indebtedness subject to such Change in Control Provision to require that
such Indebtedness be redeemed, repurchased, defeased, prepaid or repaid, in
whole or in part, or the maturity of such Indebtedness to be accelerated,
then, upon the occurrence of the events described in (i) or (ii) above, the
Borrower shall provide notice of the occurrence thereof to the Agent and the
Lenders promptly after such occurrence and, on the ninetieth (90th) day after
such occurrence, unless the Lenders shall have elected otherwise (such election
to be made in their sole and absolute discretion), there shall be an automatic
reduction of the Revolving Credit Commitments and the Swing Line Commitments and
the Borrower shall repay in full all outstanding Loans, together with all
accrued and unpaid interest thereon and Facility Fees due hereunder, and all
other amounts owing to the Lenders hereunder.
SECTION 2.5. EXTENSION OF COMMITMENTS.
(a) The Borrower may, by written notice to the Agent (which shall
promptly deliver a copy to each of the Lenders), given not more than sixty (60)
days nor less than thirty (30) days prior to any anniversary of the Closing Date
while the Revolving Credit Commitments are in effect, request that the Lenders
extend the then scheduled Maturity Date (the "Existing Date") for an additional
one-year period. Each Lender shall, by notice to the Borrower and the Agent
given within fifteen (15) Business Days after the Borrower gives such notice,
advise the Borrower and the Agent whether or not such Lender consents to the
extension request (and any Lender which does not respond during such
15-Business-Day period shall be deemed to have advised the Borrower that it will
not agree to such extension).
(b) In the event that, on the 15th Business Day after Borrower gives
the notice described in subsection (a) above, not all of the Lenders shall have
agreed to extend their Revolving Credit Commitments, the Borrower shall notify
each of the consenting Lenders ("Consenting Lenders") of the amount of the
Revolving Credit Commitments of the non-extending Lenders ("Non-Consenting
Lenders") and each of such Consenting Lenders shall, by notice to the Borrower
and the Agent given within ten (10) Business Days after receipt of such notice,
advise the Agent and Borrower whether or not such Lender wishes to purchase all
or a portion of the Revolving Credit Commitments of the Non-Consenting Lenders
(and any Lender which does not respond during such 10-Business-Day period shall
be deemed to have rejected such offer). In the event that more than one
Consenting Lender agrees to purchase all or a portion of such Revolving Credit
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Commitments, the Borrower and the Agent shall allocate such Revolving Credit
Commitments among such Consenting Lenders so as to preserve, to the extent
possible, the relative pro rata shares of the Consenting Lenders of the
Revolving Credit Commitments prior to such extension request. If Consenting
Lenders do not elect to assume all of the Revolving Credit Commitments of the
Non-Consenting Lenders, the Borrower shall have the right to arrange for one or
more banks or other lending institutions (any such bank or lending institution
being called a "New Lender"), to purchase the Revolving Credit Commitment of any
Non-Consenting Lender. Each Non-Consenting Lender shall assign its Revolving
Credit Commitment and the Loans outstanding hereunder to the Consenting Lender
or New Lender purchasing such Revolving Credit Commitment in accordance with
Section 11.6., in return for payment in full of all principal, interest and
other amounts owing to such Non-Consenting Lender hereunder, on or before the
Existing Date and, as of the effective date of such assignment, shall no longer
be a party hereto, provided that each New Lender shall be subject to the
approval of the Agent (which approval shall not be unreasonably withheld). If
(and only if) Lenders (including New Lenders) holding Revolving Credit
Commitments representing at least 60% of the aggregate Revolving Credit
Commitments on the date of such extension request shall have agreed in
accordance with the terms hereof to such extension (the "Continuing Lenders"),
then (i) the Maturity Date shall be extended for one additional year from the
Existing Date and (ii) the Commitment of any Non-Consenting Lender which has not
been assigned to a Consenting Lender or a New Lender shall terminate (with the
result that the amount of the Total Commitments shall be decreased by the amount
of such Revolving Credit Commitment), and all Loans of such Non-Consenting
Lender shall become due and payable, together with all interest accrued thereon
and all other amounts owed to such Non-Consenting Lender hereunder, on the
Existing Date applicable to such Lender without giving effect to any extension
of the Maturity Date.
(c) The effective date of any extension of the Maturity Date shall be
the date on which 60% of the Continuing Lenders have agreed to such extension in
accordance with the terms of Section 2.5(b).
(d) The extension by the Swing Line Lender of its Revolving Credit
Commitment pursuant to this Section 2.5. shall automatically extend the Swing
Line Commitment.
SECTION 2.6. COMPETITIVE BID LOANS
(a) In addition to making Revolving Loans pursuant to the Revolving
Credit Commitments pursuant to Section 2.1. above, the Lenders may, in their
sole discretion and at the request of the Borrower, make Competitive Bid Rate
Advances to the Borrower in an amount not to exceed the Available Revolving
Credit Commitment.
(b) In order to request Competitive Bids, the Borrower shall telecopy
to the
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Agent a duly completed Competitive Bid Request in the form of Exhibit E
attached hereto (which may request not more than two Competitive Bids), to be
received by the Agent not later than 10:00 a.m. (Atlanta, Georgia) time, four
(4) Business Days prior to the proposed Competitive Bid Loan or Loans. A
Competitive Bid Request that does not conform substantially to the format of
Exhibit E may be rejected in the Agent's sole discretion, and the Agent shall
notify the Borrower of such rejection by telecopy not later than 12:00 noon
(Atlanta, Georgia time) on the date of receipt. Such request shall in each case
refer to this Agreement and specify (i) the date of such Borrowing or Borrowings
(which shall be a Business Day) and (ii) the aggregate principal amount thereof
which shall be in a minimum principal amount of $5,000,000 and in an integral
multiple of $1,000,000, and (iii) the Interest Period requested with respect
thereto. Promptly after its receipt of a Competitive Bid Request that is not
rejected as aforesaid, the Agent shall invite by telecopy (substantially in the
form set forth in Exhibit F attached hereto) the Lenders to bid, subject to the
terms and conditions of this Agreement, to make Competitive Bid Rate Advances
pursuant to the Competitive Bid Request.
(c) Each Lender may, in its sole discretion, make one or more
Competitive Bids (but not more than two) to the Borrower responsive to a
Competitive Bid Request. Each Competitive Bid by a Lender must be received by
the Agent via telecopy, substantially in the form of Exhibit G attached hereto,
not later than 11:00 a.m. (Atlanta, Georgia time) on the Business Day of the
proposed Competitive Bid Loan. Multiple bids (not to exceed two per Lender) will
be accepted by the Agent. Competitive Bids that do not conform substantially to
the format of Exhibit G may be rejected by the Agent acting in consultation with
the Borrower, and the Agent shall notify the Lender making such nonconforming
bid of such rejection as soon as practicable. Each Competitive Bid shall refer
to this Agreement and specify (i) the principal amount (which shall be in a
minimum principal amount of $5,000,000 and in an integral multiple of
$1,000,000) of the Competitive Bid Rate Advance or Advances that the Lender is
willing to make to the Borrower, (ii) the Competitive Bid Rate or Rates at which
the Lender is prepared to make the Competitive Bid Rate Advance or Advances, and
(iii) the Interest Period and the last day thereof. If any Lender shall elect
not to make a Competitive Bid, such Lender shall so notify the Agent via
telecopy by the time specified above for submitting a Competitive Bid; provided,
however, that failure by any Lender to give such notice shall not cause such
Lender to be obligated to make any Competitive Bid Rate Advance as part of such
Competitive Bid Loan. A Competitive Bid submitted by a Lender pursuant to this
paragraph (c) shall be irrevocable (absent manifest error).
(d) The Agent shall promptly notify the Borrower by telecopy of all the
Competitive Bids made, the Competitive Bid Rate and the principal amount of each
Competitive Bid Rate Advance in respect of which a Competitive Bid was made and
the identity of the Lender that made each bid. The Agent shall send a copy of
all Competitive Bids to the Borrower for its records as soon as practicable
after completion
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of the bidding process set forth in this Section 2.6.
(e) The Borrower may, in its sole and absolute discretion, subject only
to the provisions of this paragraph (e), accept or reject any Competitive Bid
referred to in paragraph (d) above. The Borrower shall notify the Agent by
telephone, confirmed by telecopy in the form of a Competitive Bid Accept/Reject
Letter, whether and to what extent it has decided to accept or reject any of or
all the bids referred to in paragraph (d) above not later than 12:30 p.m.
(Atlanta, Georgia time) on the Business Day of the proposed Competitive Bid
Loan; provided, however, that (i) the failure by the Borrower to give such
notice shall be deemed to be a rejection of all the bids referred to in
paragraph (d) above, (ii) the Borrower shall not accept a bid made at a
particular Competitive Bid Rate if the Borrower has decided to reject a bid made
at a lower Competitive Bid Rate with respect to the same requested Advance,
(iii) the aggregate amount of the Competitive Bids accepted by the Borrower
shall not exceed the principal amount specified in the Competitive Bid Request,
(iv) if the Borrower shall accept a bid or bids made at a particular Competitive
Bid Rate but the amount of such bid or bids shall cause the total amount of bids
to be accepted by the Borrower to exceed the amount specified in the Competitive
Bid Request, then the Borrower shall accept a portion of such bid or bids in an
amount equal to the amount specified in the Competitive Bid Request less the
amount of all other Competitive Bids accepted with respect to such Competitive
Bid Request, which acceptance, in the case of multiple bids at the same
Competitive Bid Rate, shall be made pro rata in accordance with the amount of
each such bid at such Competitive Bid Rate, and (v) except pursuant to clause
(iv) above, no bid shall be accepted for a Competitive Bid Loan unless such
Competitive Bid Loan is in a minimum principal amount of $5,000,000 and an
integral multiple of $1,000,000; provided further, however, that if a
Competitive Bid Loan must be in an amount less than $5,000,000 because of the
provisions of clause (iv) above, such Competitive Bid Loan may be for a minimum
of $1,000,000 or any integral multiple thereof, and in calculating the pro rata
allocation of acceptances of portions of multiple bids at a particular
Competitive Bid Rate pursuant to clause (iv) the amounts shall be rounded to
integral multiples of $1,000,000 in a manner which shall be in the discretion of
the Borrower. A notice given by the Borrower pursuant to this paragraph (e)
shall be irrevocable.
(f) The Agent shall promptly notify each bidding Lender whether or not
its Competitive Bid has been accepted (and if so, in what amount and at what
Competitive Bid Rate) by telecopy sent by the Agent, and each successful bidder
will thereupon become bound, subject to the other applicable conditions hereof,
to make the Competitive Bid Loan in respect of which its bid has been accepted.
(g) A Competitive Bid Request shall not be made within five (5)
Business Days after the date of any previous Competitive Bid Request.
(h) If the Agent shall elect to submit a Competitive Bid in its
capacity as a
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Lender, it shall submit such bid directly to the Borrower one half of an hour
earlier than the time at which the other Lenders are required to submit their
bids to the Agent pursuant to paragraph (c) above.
(i) Each Lender participating in any Competitive Bid Loan shall make
its Competitive Bid Rate Advance available to the Agent on the date specified in
the Bid Request at the time and in the manner and subject to the provisions
specified in Section 4.2..
(j) The proceeds of each of the Competitive Bid Loans shall be used by
the Borrower and its Subsidiaries for acquisitions, capital expenditures and as
working capital and for other general corporate purposes.
SECTION 2.7. COMPETITIVE BID NOTES; REPAYMENT OF PRINCIPAL.
(a) The Borrower's obligations to pay the principal of, and interest
on, the Competitive Bid Loans to each Lender shall be evidenced by the records
of the Agent and such Lender and by the Competitive Bid Note payable to such
Lender (or the assignor of such Lender) completed in conformity with this
Agreement.
(b) A Competitive Bid Loan shall be due and payable in full on the
earlier of (i) the expiration of the applicable Interest Period or (ii) the
Maturity Date.
SECTION 2.8. LIMITATION ON THE AMOUNT OF BID LOANS.
The aggregate outstanding principal amount of all Revolving Loans, all
Swing Line Loans and all Competitive Bid Loans at any time shall not exceed the
Total Commitments at such time.
SECTION 2.9. PRO RATA PAYMENTS.
Except as otherwise provided herein, (a) each payment on account of the
principal of and interest on the Revolving Loans and fees (other than the fees
payable under the Fee Letter, which shall be retained by the Agent) described in
this Agreement shall be made to the Agent for the account of the Lenders pro
rata based on their Applicable Commitment Percentages, (b) each payment on
account of principal of and interest on a Competitive Bid Loan shall be made to
the Agent for the account of the Lender making such Competitive Bid Loan, (c)
all payments to be made by the Borrower for the account of each of the Lenders
on account of principal, interest and fees, shall be made without set-off or
counterclaim, and (d) the Agent will promptly distribute payments received by it
to the Lenders. If a payment is received by the Agent before 10:00 a.m.,
Atlanta, Georgia time on a Business Day, the Agent shall distribute each
Lender's share of the payment to such Lender before 2:00 p.m., Atlanta, Georgia
time on the same day; or if a payment is received by the Agent after 10:00 a.m.
Atlanta, Georgia time on a Business
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Day or is received on a day other than a Business Day, the Agent shall
distribute each Lender's share of the payment to such Lender before 2:00 p.m.,
Atlanta, Georgia time on the next Business Day. If, for any reason, the Agent
makes any distribution to any Lender prior to receiving the corresponding
payment from the Borrower, and the Borrower's payment is not received by the
Agent within three Business Days after payment by the Agent to the Lender, the
Lender will, upon written request from the Agent, return the payment to the
Agent with interest at the interest rate per annum for overnight borrowing by
the Agent from the Federal Reserve Bank for the period commencing on the date
the Lender received such payment and ending on, but excluding, the date of its
repayment to the Agent. If the Agent advises any Lender of any miscalculation of
the amount of such Lender's share that has resulted in an excess payment to such
Lender, promptly upon request by the Agent such Lender shall return the excess
amount to the Agent with interest calculated as set forth above. Similarly, if a
Lender advises the Agent of any miscalculation that has resulted in an
insufficient payment to such Lender, promptly upon written request by such
Lender the Agent shall pay the additional amount to such Lender with interest
calculated as set forth above. In the event the Agent is required to return any
amount of principal, interest or fees or other sums received by the Agent after
the Agent has paid over to any Lender its share of such amount, such Lender
shall, promptly upon demand by the Agent, return to the Agent such share,
together with applicable interest on such share.
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ARTICLE 3. SWING LINE FACILITY
SECTION 3.1. SWING LINE FACILITY; USE OF PROCEEDS.
(a) Subject to and upon the terms and conditions herein set forth, the
Swing Line Lender, from on and after the Closing Date, but prior to the Maturity
Date, hereby agrees to make available to the Borrower from time to time, Swing
Line Loans which shall not exceed in aggregate principal amount at any time
outstanding the Swing Line Commitment.
(b) Amount and Terms of Swing Line Loans. Each Swing Line Loan shall,
at the option of Borrower, be made or continued as, or converted into, Base Rate
Advances, Eurodollar Advances or, to the extent available, Cost of Funds
Advances. The aggregate principal amount of each Swing Line Loan comprised of
Eurodollar Advances shall be not less than $500,000 or a greater integral
multiple of $100,000, and the aggregate principal amount of each Swing Line Loan
comprised of Base Rate Advances or Cost of Funds Advances shall be not less than
$500,000 or greater integral multiples of $100,000.
(c) Use of Proceeds. The proceeds of Swing Line Loans shall be used by
the Borrower and its Subsidiaries for acquisitions, capital expenditures and as
working capital and for other general corporate purposes.
(d) Notification of Availability of Cost of Funds Advance and Cost of
Funds Rate. The Swing Line Lender shall have no obligation to make a Cost of
Funds Advance. If the Swing Line Lender elects to make a Cost of Funds Advance,
it shall notify the Borrower thereof and of the Cost of Funds Rate being offered
prior to 11:00 a.m. (Atlanta time) on the Business Day of such requested
Advance. If the Borrower does not notify the Swing Line Lender of its acceptance
of such Cost of Funds Advance prior to 12:00 noon (Atlanta time) on the date of
such requested Advance, the Borrower will be deemed to have rejected the same.
(e) Swing Line Lender. If the existing Swing Line Lender (the "Existing
Swing Line Lender") is unable or unwilling to make Cost of Funds Advances to the
Borrower, the Borrower may, upon the satisfaction of the following conditions,
designate a new Swing Line Lender to replace the Existing Swing Line Lender:
(i) the Borrower shall provide written notice to the Agent and
the Lenders, including the Existing Swing Line Lender, of its intention to
proceed under this paragraph (e), which notice shall include (i) the identity of
the lending institution selected by the Borrower to be the new Swing Line Lender
(the "New Swing Line Lender") and (ii) the date upon which the Borrower intends
to effect the replacement of the Existing Swing Line Lender (the "Swing Line
Lender Replacement Date"); and
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(ii) the Borrower shall, on or prior to the Swing Line Lender
Replacement Date, repay in full all outstanding Swing Line Loans, together with
all accrued and unpaid interest thereon, and all other amounts owing to the
Existing Swing Line Lender hereunder relating to its Swing Line Loans.
Upon the satisfaction of the foregoing conditions and upon the consummation of
the amendment to this Agreement referred to in the next sentence, (x) the Swing
Line Commitment shall terminate as to the Existing Swing Line Lender; (y) the
Existing Swing Line Lender shall cancel the outstanding Swing Line Note and
return it to the Borrower and (z) the New Swing Line Lender shall replace and
become vested with all the rights, powers, privileges and duties of the existing
Swing Line Lender under this Agreement. Before the new Swing Line Commitment can
become effective, it will be necessary to amend the provisions of this Agreement
relating to the relationship of the Swing Line Commitment to the Revolving
Credit Commitment of the Existing Swing Line Lender as well as Sections 2.3. and
2.4. The Lenders and the Borrower covenant and agree to negotiate such amendment
in good faith.
SECTION 3.2. SWING LINE NOTE; REPAYMENT OF PRINCIPAL.
(a) The Borrower's obligations to pay the principal of, and interest
on, the Swing Line Loans to the Swing Line Lender shall be evidenced by the
records of the Swing Line Lender and by the Swing Line Note payable to the Swing
Line Lender in the amount of the Swing Line Facility.
(b) All Borrowings outstanding under the Swing Line Note shall be due
and payable in full on the earlier of (i) the expiration of the applicable
Interest Period or (ii) on the Maturity Date.
SECTION 3.3. VOLUNTARY REDUCTION OF SWING LINE COMMITMENT
Upon at least three (3) Business Days' prior telephonic notice
(promptly confirmed in writing) to SunTrust and the Agent, Borrower shall have
the right, without premium or penalty, to terminate the unutilized portion of
the Swing Line Commitment, in part or in whole, provided that any partial
termination pursuant to this Section 3.3. shall be in an amount of at least
$1,000,000 and integral multiples of $100,000.
SECTION 3.4. REFUNDING SWING LINE LOANS WITH PROCEEDS OF MANDATORY
REVOLVING LOANS.
If (i) any Swing Line Loan shall be outstanding upon the occurrence of
an Event of Default, or (ii) after giving effect to any request for a Swing Line
Loan or a Revolving Loan, the aggregate principal amount of the Revolving Loans
and Swing Line Loans outstanding to the Swing Line Lender would exceed the Swing
Line Lender's Revolving
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Credit Commitment, then each Lender hereby agrees, upon request from the Swing
Line Lender, to make a Revolving Loan (which shall be initially funded as a Base
Rate Advance) in an amount equal to such Lender's Applicable Commitment
Percentage of the outstanding principal amount of the Swing Line Loans (the
"Refunded Swing Line Loans") outstanding on the date such notice is given. On or
before 11:00 a.m. (local time for the Agent) on the first Business Day following
receipt by each Lender of a request to make Revolving Loans as provided in the
preceding sentence, each such Lender (other than the Swing Line Lender) shall
deposit in an account specified by the Agent to the Lenders from time to time
the amount so requested in same day funds, whereupon such funds shall be
immediately delivered to the Swing Line Lender (and not the Borrower) and
applied to repay the Refunded Swing Line Loans. On the day such Revolving Loans
are made, the Swing Line Lender's pro rata share of the Refunded Swing Line
Loans shall be deemed to be paid with the proceeds of the Revolving Loans made
by the Swing Line Lender. Upon the making of any Revolving Loan pursuant to this
clause, the amount so funded shall become due under such Lender's Revolving
Credit Note and shall no longer be owed under the Swing Line Note. Each Lender's
obligation to make the Revolving Loans referred to in this clause shall be
absolute and unconditional and shall not be affected by any circumstance,
including, without limitation, (i) any setoff, counterclaim, recoupment, defense
or other right which such Lender may have against the Swing Line Lender, the
Borrower or any other Person for any reason whatsoever; (ii) the occurrence or
continuance of any Default or Event of Default; (iii) any adverse change in the
condition (financial or otherwise) of the Borrower or any other Consolidated
Company; (iv) the acceleration or maturity of any Loans or the termination of
the Revolving Credit Commitments after the making of any Swing Line Loan;
(v) any breach of this Agreement by the Borrower or any other Lender; or
(vi) any other circumstance, happening or event whatsoever, whether or not
similar to any of the foregoing.
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ARTICLE 4. GENERAL LOAN TERMS
SECTION 4.1. FUNDING NOTICES.
(a) (i) Whenever Borrower desires to make a Borrowing of Revolving
Loans with respect to the Revolving Credit Commitments (other than one resulting
from a conversion or continuation pursuant to Section 4.1.(b)), it shall give
the Agent prior written notice (or telephonic notice promptly confirmed in
writing) of such Borrowing (a "Notice of Borrowing"), such Notice of Borrowing
to be given at Agent's Payment Office (x) prior to 11:00 A.M. (local time for
the Agent) on the Business Day which is the requested date of such Borrowing in
the case of Base Rate Advances, and (y) prior to 12:00 noon (local time for the
Agent) three Business Days prior to the requested date of such Borrowing in the
case of Eurodollar Advances. Notices received after 12:00 noon shall be deemed
received on the next Business Day. Each Notice of Borrowing shall be irrevocable
and shall specify the aggregate principal amount of the Borrowing, the date of
Borrowing (which shall be a Business Day), and whether the Borrowing is to
consist of Base Rate Advances or Eurodollar Advances and (in the case of
Eurodollar Advances) the Interest Period to be applicable thereto.
(ii) Whenever Borrower desires to obtain a Swing Line Loan under
the Swing Line Facility (other than one resulting from a conversion or
continuation pursuant to Section 4.1.(b)), it shall give the Swing Line Lender
prior written notice (or telephonic notice promptly confirmed in writing) of
such Swing Line Loan (a "Notice of Swing Line Loan"), such Notice of Swing Line
Loan to be given at its Payment Office (x) prior to 12:00 Noon (local time for
the Swing Line Lender) on the Business Day which is the requested date of such
Swing Line Loan in the case of Base Rate Advances, (y) prior to 10:00 a.m.
(local time for the Swing Line Lender) on the Business Day which is the
requested date of such Swing Line Loan in the case of Cost of Funds Advances,
and (y) prior to 12:00 noon (local time for the Swing Line Lender) two Business
Days prior to the requested date of such Swing Line Loan in the case of
Eurodollar Advances. Notices received after 12:00 noon shall be deemed received
on the next Business Day. Each Notice of Swing Line Loan shall be irrevocable
and shall specify the aggregate principal amount of the Swing Line Loan, the
date of Swing Line Loan (which shall be a Business Day), and whether the Swing
Line Loan is to consist of Base Rate Advances, Cost of Funds Advances or
Eurodollar Advances and (in the case of Eurodollar Advances and Cost of Funds
Advances) the Interest Period to be applicable thereto.
(iii) Whenever Borrower desires to receive Competitive Bids, it
shall follow the procedure set forth in Section 2.6.
(b) (i) Whenever Borrower desires to convert all or a portion of an
outstanding Borrowing under the Revolving Credit Commitments consisting of Base
Rate Advances into a Borrowing consisting of Eurodollar Advances, or to continue
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outstanding a Borrowing consisting of Eurodollar Advances for a new Interest
Period, it shall give the Agent at least three Business Days' prior written
notice (or telephonic notice promptly confirmed in writing) of each such
Borrowing to be converted into or continued as Eurodollar Advances. Such notice
(a "Notice of Conversion/Continuation") shall be given prior to 12:00 noon
(local time for the Agent) on the date specified at the Payment Office of the
Agent. Each such Notice of Conversion/Continuation shall be irrevocable and
shall specify the aggregate principal amount of the Advances to be converted or
continued, the date of such conversion or continuation and the Interest Period
to be applicable thereto. If, upon the expiration of any Interest Period in
respect of any Borrowing consisting of Eurodollar Advances, Borrower shall have
failed to deliver the Notice of Conversion/Continuation, Borrower shall be
deemed to have elected to convert or continue such Borrowing to a Borrowing
consisting of Base Rate Advances. So long as any Executive Officer of Borrower
has knowledge that any Default or Event of Default shall have occurred and be
continuing, no Borrowing may be converted into or continued as (upon expiration
of the current Interest Period) Eurodollar Advances unless the Agent and each of
the Lenders shall have otherwise consented in writing. No conversion of any
Borrowing of Eurodollar Advances shall be permitted except on the last day of
the Interest Period in respect thereof.
(ii) Whenever Borrower desires to convert all or a portion of
an outstanding Swing Line Loan consisting of Base Rate Advances into a Swing
Line Loan consisting of Eurodollar Advances or Cost of Funds Advances, or to
continue outstanding a Swing Line Loan consisting of Eurodollar Advances or Cost
of Funds Advances for a new Interest Period, it shall give the Swing Line Lender
prior written notice (or telephonic notice promptly confirmed in writing) of
each such Swing Line Loan to be converted into or continued as Eurodollar
Advances or Cost of Funds Advances, such notice to be given at least two
Business Days in advance thereof, in the case of Eurodollar Advances, or on the
same day, in the case of Cost of Funds Advances. Such notice (a "Notice of
Conversion/Continuation of Swing Line Loans") shall be given prior to 12:00 noon
in the case of Eurodollar Advances, or 10:00 a.m. in the case of Cost of Funds
Advances (local time for the Swing Line Lender) on the date specified at the
Payment Office of the Swing Line Lender. Each such Notice of
Conversion/Continuation of Swing Line Loans shall be irrevocable and shall
specify the aggregate principal amount of the Advances to be converted or
continued, the date of such conversion or continuation and the Interest Period
to be applicable thereto. If, upon the expiration of any Interest Period in
respect of any Swing Line Loan consisting of Eurodollar Advances or Cost of
Funds Advances, Borrower shall have failed to deliver the Notice of
Conversion/Continuation of Swing Line Loans, Borrower shall be deemed to have
elected to convert or continue such Swing Line Loan to a Swing Line Loan
consisting of Base Rate Advances. So long as any Executive Officer of Borrower
has knowledge that any Default or Event of Default shall have occurred and be
continuing, no Swing Line Loan may be converted into or continued as (upon
expiration of the current Interest
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Period) Eurodollar Advances or Cost of Funds Advances unless the Swing Line
Lender shall have otherwise consented in writing. No continuation or conversion
of any Swing Line Loan of Eurodollar Advances or Cost of Funds Advances shall be
permitted except on the last day of the Interest Period in respect thereof.
(c) Without in any way limiting Borrower's obligation to confirm in
writing any telephonic notice, the Agent and the Swing Line Lender may act
without liability upon the basis of telephonic notice believed by the Agent or
the Swing Line Lender, as the case may be, in good faith to be from Borrower
prior to receipt of written confirmation. In each such case, Borrower hereby
waives the right to dispute the Agent's or the Swing Line Lender's, as the case
may be, record of the terms of such telephonic notice.
(d) The Agent shall promptly (and in any event by the same time on the
next succeeding Business Day as such notice is received) give each Lender notice
by telephone (confirmed in writing) or by telex, telecopy or facsimile
transmission of the matters covered by the notices given to the Agent pursuant
to this Section 4.1. with respect to the Revolving Credit Commitments.
SECTION 4.2. DISBURSEMENT OF FUNDS.
(a) No later than 12:00 noon (local time for the Agent) in the case of
a Borrowing consisting of Eurodollar Advances and no later than 2:00 p.m. (local
time for the Agent) in the case of a Borrowing consisting of Base Rate Advances
on the date of each Borrowing pursuant to the Revolving Credit Commitments
(other than one resulting from a conversion or continuation pursuant to Section
4.1.(b)(i)), each Lender will make available its Applicable Commitment
Percentage of the amount of such Borrowing in immediately available funds at the
Payment Office of the Agent. The Agent will make available to Borrower the
aggregate of the amounts (if any) so made available by the Lenders to the Agent
in a timely manner by crediting such amounts to Borrower's demand deposit
account maintained with the Agent or at Borrower's option, by effecting a wire
transfer of such amounts to Borrower's account specified by the Borrower, by the
close of business on such Business Day. In the event that the Lenders do not
make such amounts available to the Agent by the time prescribed above, but such
amount is received later that day, such amount may be credited to Borrower in
the manner described in the preceding sentence on the next Business Day (with
interest on such amount to begin accruing hereunder on such next Business Day).
(b) No later than 2:00 p.m. (local time for the Swing Line Lender) on
the date of each Swing Line Loan, the Swing Line Lender shall make available to
Borrower the requested Swing Line Loan by crediting such amounts to Borrower's
demand deposit account maintained with the Agent or at Borrower's option, by
effecting a wire transfer of such amounts to Borrower's account specified by the
Borrower, by the close of business
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on such Business Day.
(c) No later than 3:00 p.m. (local time for the Agent) on the date of
each Competitive Bid Loan, each Lender participating in such Competitive Bid
Loan will make available its pro rata share of the amount of such Competitive
Bid Loan in immediately available funds at the Payment Office of the Agent. The
Agent will make available to Borrower the aggregate of the amounts (if any) so
made available by the Lenders to the Agent in a timely manner by crediting such
amount to Borrower's demand deposit account maintained with the Agent or at the
Borrower's option by effecting a wire transfer of such amounts to Borrower's
account specified by the Borrower by the close of business on such Business Day.
In the event that Lenders do not make such amounts available to the Agent by the
time prescribed above but such amount is received later that day, such amount
may be credited to the Borrower in the manner described in the preceding
sentence on the next Business Day (with interest on such amount to begin
accruing hereunder on such next Business Day).
(d) Unless the Agent shall have been notified by any Lender prior to
the date of a Borrowing that such Lender does not intend to make available to
the Agent such Lender's portion of the Borrowing to be made on such date, the
Agent may assume that such Lender has made such amount available to the Agent on
such date and the Agent may make available to Borrower a corresponding amount.
If such corresponding amount is not in fact made available to the Agent by such
Lender on the date of Borrowing, the Agent shall be entitled to recover such
corresponding amount on demand from such Lender together with interest at the
Federal Funds Rate. If such Lender does not pay such corresponding amount
forthwith upon the Agent's demand therefor, the Agent shall promptly notify
Borrower, and Borrower shall immediately pay such corresponding amount to the
Agent together with interest at the rate specified for the Borrowing which
includes such amount paid and any amounts due under Section 4.13. hereof.
Nothing in this subsection shall be deemed to relieve any Lender from its
obligation to fund its Commitments hereunder or to prejudice any rights which
Borrower may have against any Lender as a result of any default by such Lender
hereunder.
(e) All Borrowings under the Revolving Credit Commitments shall be
loaned by the Lenders on the basis of their Applicable Commitment Percentage on
the date of such Borrowing. No Lender shall be responsible for any default by
any other Lender in its obligations hereunder, and each Lender shall be
obligated to make the Loans provided to be made by it hereunder, regardless of
the failure of any other Lender to fund its Commitment hereunder.
SECTION 4.3. INTEREST.
(a) Borrower agrees to pay interest in respect of all unpaid principal
amounts of the Revolving Loans from the respective dates such principal amounts
were advanced
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to maturity (whether by acceleration, notice of prepayment or otherwise) at
rates per annum equal to the applicable rates indicated below:
(i) For Base Rate Advances--The Base Rate in effect from time to time;
and
(ii) For Eurodollar Advances--The relevant Adjusted LIBO Rate plus the
Applicable Margin.
(b) Borrower agrees to pay interest in respect of all unpaid principal
amounts of the Swing Line Loans made to Borrower from the respective dates such
principal amounts were advanced to maturity (whether by acceleration, notice of
prepayment or otherwise) at rates per annum equal to the applicable rates
indicated below:
(i) For Base Rate Advances--The Base Rate in effect on each day that
the Swing Line Loan is outstanding;
(ii) For Eurodollar Advances--The relevant Adjusted LIBO Rate plus the
Applicable Margin; and
(iii) For Cost of Funds Advances--The relevant Cost of Funds Rate plus
the Applicable Margin.
(c) Borrower agrees to pay interest in respect of all unpaid principal
amounts of the Competitive Bid Loans made to Borrower from the respective dates
such principal amounts were advanced to maturity (whether by acceleration,
notice of prepayment or otherwise) at the Competitive Bid Rate or Rates agreed
to by the Borrower and the Lender(s) participating therein for each Competitive
Bid Loan.
(d) Overdue principal and, to the extent not prohibited by applicable
law, overdue interest, in respect of the Revolving Loans, Swing Line Loans and
Competitive Bid Loans, and all other overdue amounts owing hereunder, shall bear
interest from each date that such amounts are overdue:
(i) in the case of overdue principal and interest with respect to all
Loans outstanding as Eurodollar Advances, at the greater of (A)
the rate otherwise applicable for the then-current Interest Period
plus an additional two percent (2.0%) per annum or (B) the rate in
effect for Base Rate Advances plus an additional two percent
(2.0%) per annum; and
(ii) in the case of overdue principal and interest with respect to all
other Loans outstanding as Base Rate Advances, or Cost of Funds
Advances or Competitive Bid Rate Advances, and all other
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Obligations hereunder (other than Loans), at a rate equal to the
Base Rate plus an additional two percent (2.0%) per annum.
(e) Interest on each Loan shall accrue from and including the date of
such Loan to but excluding the date of any repayment thereof; provided that, if
a Loan is repaid on the same day made, one day's interest shall be paid on such
Loan. Interest on all outstanding Base Rate Advances shall be payable quarterly
in arrears on the last day of each calendar quarter, commencing on March 31,
1997. Interest on all outstanding Eurodollar Advances and Competitive Bid Rate
Advances shall be payable on the last day of each Interest Period applicable
thereto, and, in the case of Eurodollar Advances and Competitive Bid Rate
Advances having an Interest Period in excess of three months, on each three
month anniversary of the initial date of such Interest Period. Interest on all
outstanding Cost of Funds Advances shall be payable monthly in arrears on the
last day of each Interest Period applicable thereto. Interest on all Loans shall
be payable on any conversion of any Advances comprising such Loans into Advances
of another Type (other than in connection with the conversion from a Base Rate
Loan), prepayment (on the amount prepaid), at maturity (whether by acceleration,
notice of prepayment or otherwise) and, after maturity, on demand.
(f) The Agent shall promptly notify the Borrower and the other Lenders
by telephone (confirmed in writing) or in writing, upon determining the Adjusted
LIBO Rate for any Interest Period. Any such determination shall, absent manifest
error, be final, conclusive and binding for all purposes.
SECTION 4.4. INTEREST PERIODS; MAXIMUM NUMBER OF BORROWINGS.
(a) In connection with the making or continuation of, or conversion
into, each Borrowing of Eurodollar Advances, Borrower shall select an Interest
Period to be applicable to such Eurodollar Advances, which Interest Period shall
be either a 1, 2, 3 or 6 month period.
(b) In connection with the submission of each Competitive Bid Request,
the Borrower may select an Interest Period to be applicable to such Competitive
Bid Loan not to exceed 24 months.
(c) In connection with the submission of each request for a Cost of
Funds Advance, the Borrower may select an Interest Period to be applicable to
such Cost of Funds Advance not to exceed 30 days.
(d) Notwithstanding paragraphs (a), (b) and (c) of this Section 4.4.:
(i) The initial Interest Period for any Borrowing of Eurodollar
Advances, Cost of Funds Advances or Competitive Bid Rate
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Advances shall commence on the date of such Borrowing
(including the date of any conversion from a Borrowing
consisting of Base Rate Advances) and each Interest Period
occurring thereafter in respect of such Borrowing shall
commence on the day on which the next preceding Interest
Period expires;
(ii) If any Interest Period would otherwise expire on a day which
is not a Business Day, such Interest Period shall expire on
the next succeeding Business Day, provided that if any
Interest Period in respect of Eurodollar Advances would
otherwise expire on a day that is not a Business Day but is a
day of the month after which no further Business Day occurs in
such month, such Interest Period shall expire on the next
preceding Business Day;
(iii) Any Interest Period in respect of Eurodollar Advances which
begins on a day for which there is no numerically
corresponding day in the calendar month at the end of such
Interest Period shall, subject to part (iv) below, expire on
the last Business Day of such calendar month; and
(iv) No Interest Period with respect to the Loans shall extend
beyond the Maturity Date.
(e) At no time shall the combined number of Borrowings
outstanding under Articles 2. and 3. exceed eight (8); provided that, for the
purpose of determining the number of Borrowings outstanding and the minimum
amount for Borrowings resulting from conversions or continuations, all Swing
Line Loans comprised of Base Rate Advances shall be considered as one
Borrowing, all Swing Line Loans comprised of Cost of Funds Advances shall be
considered as one Borrowing, and all Revolving Loans comprised of Base Rate
Advances shall be considered as one Borrowing; further provided that, at no
time shall more than two (2) Swing Line Loans consisting of Eurodollar Advances
be outstanding.
SECTION 4.5. FEES.
(a) Borrower shall pay to the Agent, for the ratable benefit of
each Lender based upon its respective Applicable Commitment Percentage of the
Total Commitments, a facility fee (the "Facility Fee") for the period
commencing on the Closing Date to and including the Maturity Date, payable
quarterly in arrears on the last day of each calendar quarter, commencing on
March 31, 1997, and on the Maturity Date, equal to the Facility Fee Percentage
multiplied by the average daily amount of the Revolving Credit Commitments,
whether or not utilized.
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(b) Borrower shall pay to the Agent the amounts and on the dates agreed
to in the Fee Letter.
SECTION 4.6. EFFECTIVE DATE FOR ADJUSTMENT TO FACILITY FEE PERCENTAGE
AND APPLICABLE MARGIN.
The Facility Fee Percentage and Applicable Margin (collectively
"Applicable Percentages" shall be determined and adjusted quarterly on the date
by which the Borrower is required to provide the officer's certificate in
accordance with the provisions of Section 7.7.(d) (each a "Calculation Date");
provided, however that (i) the initial Applicable Percentages shall assume that
the Ratio of Consolidated Funded Debt to Total Capitalization shall be 60% and
shall remain at such level until the first Calculation Date subsequent to
December 31, 1996, and, thereafter, such level shall be determined by the then
current Ratio of Consolidated Funded Debt to Total Capitalization, and (ii) if
the Borrower fails to provide the officer's certificate to the Agent by each
Calculation Date, the Applicable Percentages from such Calculation Date shall be
based on maximum percentage until such time as an appropriate officer's
certificate is provided, whereupon the level shall be determined by the then
current Ratio of Consolidated Funded Debt to Total Capitalization. Except as set
forth above, each Applicable Percentage shall be effective from one Calculation
Date until the next Calculation Date.
SECTION 4.7. VOLUNTARY PREPAYMENTS OF BORROWINGS.
(a) Borrower may, at its option, prepay Borrowings consisting of Base
Rate Advances at any time in whole, or from time to time in part, in amounts
aggregating $1,000,000 or any greater integral multiple of $100,000, by paying
the principal amount to be prepaid together with interest accrued and unpaid
thereon to the date of prepayment. Borrowings consisting of Eurodollar Advances
or Competitive Bid Rate Advances may be prepaid, at Borrower's option, in whole,
or from time to time in part, in amounts aggregating $1,000,000 or an integral
multiple of $1,000,000 (except that no partial prepayment may be made if the
remaining principal amount outstanding of such Eurodollar Advance which
comprises a Revolving Loan or Competitive Bid Rate Advance would be less than
$5,000,000), by paying the principal amount to be prepaid, together with
interest accrued and unpaid thereon to the date of prepayment, and all
compensation payments pursuant to Section 4.13. if such prepayment is made on a
date other than the last day of an Interest Period applicable thereto. Each such
optional prepayment shall be applied in accordance with Section 4.7.(c) below.
(b) Borrower shall give written notice (or telephonic notice confirmed
in writing) to the Agent or the Swing Line Lender, as applicable, of any
intended prepayment of the Revolving Loans (i) by 11:00 A.M. (local time for the
Agent) on the Business Day of any prepayment of Base Rate Advances or Cost of
Funds Advances and (ii) not less than three Business Days prior to any
prepayment of Eurodollar Advances or Competitive Bid
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Rate Advances. Such notice, once given, shall be irrevocable. Upon receipt of
such notice of prepayment pursuant to the first sentence of this paragraph (b)
with respect to any prepayment of Revolving Loans or Competitive Bid Loans, the
Agent shall promptly (and in any event by the same time on the next succeeding
Business Day as such notice is received) notify each Lender of the contents of
such notice and of such Lender's Applicable Commitment Percentage of each
Revolving Loan and its pro rata share of each Competitive Bid Loan subject to
such prepayment.
(c) Borrower, when providing notice of prepayment pursuant to Section
4.7.(b), may designate the Types of Advances and the specific Borrowing or
Borrowings which are to be prepaid, provided that (i) if any prepayment of
Eurodollar Advances made pursuant to a single Borrowing of the Revolving Loans
shall reduce the outstanding Advances made pursuant to such Borrowing to an
amount less than $5,000,000, such Borrowing shall immediately be converted into
Base Rate Advances; and (ii) each prepayment made pursuant to a single
Borrowing shall be applied pro rata among the Loans comprising such Borrowing.
In the absence of a designation by Borrower, the Agent or, with respect to the
Swing Line Loans, the Swing Line Lender, shall, subject to the foregoing, make
such designation in its discretion but using reasonable efforts to avoid
funding losses to the Lenders pursuant to Section 4.13. and subject to the last
sentence of Section 4.16. All voluntary prepayments shall be applied to the
payment of interest then due and owing before application to principal.
SECTION 4.8. MANNER OF PAYMENT, CALCULATION OF INTEREST, TAXES
(a) (i) Except as otherwise specifically provided herein, all
payments under this Agreement and the other Credit Documents, other than the
payments specified in clause (ii) below, shall be made without defense, set-off
or counterclaim to the Agent not later than 12:00 noon (local time for the
Agent) on the date when due and shall be made in Dollars in immediately
available funds at the Agent's Payment Office.
(ii) All payments under this Agreement with respect to the Swing
Line Loans, including the Swing Line Facility Fee, shall be made without
defense, set-off or counterclaim to the Swing Line Lender not later than 12:00
noon (local time for the Swing Line Lender) on the date when due and shall be
made in Dollars in immediately available funds at the Swing Line Lender's
Payment Office.
(b) (i) All such payments shall be made free and clear of and without
deduction or withholding for any Taxes in respect of this Agreement, the Notes
or other Credit Documents, or any payments of principal, interest, fees or
other amounts payable hereunder or thereunder (but excluding, except as
provided in paragraph (iii) hereof, in the case of each Lender, taxes imposed
on or measured by its net income, and franchise taxes and branch profit taxes
imposed on it (A) by the jurisdiction under the laws of which such Lender is
organized or any political subdivision thereof and, in the case of each Lender,
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taxes imposed on or measured by its net income, and franchise taxes and branch
profit taxes imposed in it, by the jurisdiction of such Lender's appropriate
Lending Office or any political subdivision thereof, and (B) by a jurisdiction
in which any payments are to be made by any Borrower hereunder, other than the
United States of America, or any political subdivision of any thereof, and that
would not have been imposed but for the existence of a connection between such
Lender and the jurisdiction imposing such taxes (other than a connection arising
as a result of this Agreement or the transactions contemplated by this
Agreement), except in the case of taxes described in this clause (B), to the
extent such taxes are imposed as a result of a change in the law or regulations
of any jurisdiction or any applicable treaty or regulations or in the official
interpretation of any such law, treaty or regulations by any government
authority charged with the interpretation or administration thereof after the
date of this Agreement. If any such Taxes are so levied or imposed, Borrower
agrees (A) to pay the full amount of such Taxes, and such additional amounts as
may be necessary so that every net payment of all amounts due hereunder and
under the Notes and other Credit Documents, after withholding or deduction for
or on account of any such Taxes (including additional sums payable under this
Section 4.8.), will not be less than the full amount provided for herein had no
such deduction or withholding been required, (B) to make such withholding or
deduction and (C) to pay the full amount deducted to the relevant authority in
accordance with applicable law. Borrower will furnish to the Agent and each
Lender, within 30 days after the date the payment of any Taxes is due pursuant
to applicable law, certified copies of tax receipts evidencing such payment by
Borrower. Borrower will indemnify and hold harmless the Agent and each Lender
and reimburse the Agent and each Lender upon written request for the amount of
any such Taxes so levied or imposed and paid by the Agent or Lender and any
liability (including penalties, interest and expenses) arising therefrom or with
respect thereto, whether or not such Taxes were correctly or illegally asserted.
A certificate as to the amount of such payment by such Lender or the Agent,
absent manifest error, shall be final, conclusive and binding for all purposes.
(ii) Each Lender that is organized under the laws of any jurisdiction
other than the United States of America or any State thereof (including the
District of Columbia) agrees to furnish to Borrower and the Agent, prior to the
time it becomes a Lender hereunder, two copies of either U.S. Internal Revenue
Service Form 4224 or U.S. Internal Revenue Service Form 1001 or any successor
forms thereto (wherein such Lender claims entitlement to complete exemption from
U.S. Federal withholding tax on interest paid by Borrower hereunder) and to
provide to Borrower and the Agent a new Form 4224 or Form 1001 or any successor
forms thereto if any previously delivered form is found to be incomplete or
incorrect in any material respect or upon the obsolescence of any previously
delivered form; provided, however, that no Lender shall be required to furnish a
form under this paragraph (ii) after the date that it becomes a Lender hereunder
if it is not entitled to claim an exemption from withholding under applicable
law.
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(iii) Borrower shall also reimburse the Agent and each Lender, upon written
request, for any Taxes imposed (including, without limitation, Taxes imposed on
the overall net income of the Agent or Lender or its applicable Lending Office
pursuant to the laws of the jurisdiction in which the principal executive
office or the applicable Lending Office of the Agent or Lender is located) as
the Agent or Lender shall determine are payable by the Agent or Lender in
respect of amounts paid by or on behalf of Borrower to or on behalf of the
Agent or Lender pursuant to paragraph (i) hereof.
(iv) In addition to the documents to be furnished pursuant to Section
4.8(b)(ii), each Lender shall, promptly upon the reasonable written request of
the Borrower to that effect, deliver to the Borrower such other accurate and
complete forms or similar documentation as such Lender is legally able to
provide and as may be required from time to time by any applicable law, treaty,
rule or regulation or any jurisdiction in order to establish such Lender's tax
status for withholding purposed or as may otherwise be appropriate to eliminate
or minimize any Taxes on payments under this Agreement or the Notes.
(v) The Borrower shall not be required to pay any amounts pursuant to
Section 4.8(b)(i) or (iii) to any Lender for the account of any Lending Officer
of such Lender in respect of any United States withholding taxes payable
hereunder (and the Borrower, if required by law to do so, shall be entitled to
withhold such amounts and pays such amounts to the United States Government) if
the obligation to pay such additional amounts would not have arisen but for a
failure by such Lender to comply with its obligations under Section 4.8(b)(ii),
and such Lender shall not be entitled to exemption from deduction or
withholding of United Stated Federal income tax in respect of the payment of
such sum by the Borrower hereunder for the account of such Lending Office for,
in each case, any reason other than a change in United States law or
regulations by any governmental authority charged with the interpretation or
administration thereof (whether or not having the force of law) after the date
such Lender became a Lender hereunder.
(vi) Within sixty (60) days of the written request of the Borrower,
each Lender shall execute and deliver such certificates, forms or other
documents, which can be reasonably furnished consistent with the facts and
which are reasonably necessary to assist in applying for refunds of Taxes
remitted hereunder.
(vii) To the extent that the payment of any Lender's Taxes by the
Borrower gives rise from time to time to a Tax Benefit (as hereinafter defined)
to such Lender in any jurisdiction other than the jurisdiction which imposed
such Taxes, such Lender shall pay to the Borrower the amount of each such Tax
Benefit so recognized or received. The amount of each Tax Benefit and,
therefore, payment to the Borrower will be determined from time to time by the
relevant Lender in its sole discretion, which determination shall be binding
and conclusive on all parties hereto. Each such payment will be due and payable
by such Lender to the Borrower within a reasonable time after the filing of the
income tax return in which such Tax Benefit is recognized or, in the case of
any tax re-
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fund, after the refund is received; provided, however, if at any time thereafter
such Lender is required to rescind such Tax Benefit or such Tax Benefit is
otherwise disallowed or nullified, the Borrower shall promptly, after notice
thereof from such Lender, repay to Lender the amount of such Tax Benefit
previously paid to the Borrower and rescinded, disallowed or nullified. For
purposed of this section, "Tax Benefit" shall mean the amount by which any
Lender's income tax liability for the taxable period in question is reduced
below what would have been payable had the Borrower not been required to pay the
Lender's Taxes. In case of any dispute with respect to the amount of any payment
the Borrower shall have no right to any offset or withholding of payments with
respect to future payments due to any Lender under this Agreement or the Notes.
(c) Subject to Section 4.4.(c)(ii), whenever any payment to be made
hereunder or under any Note shall be stated to be due on a day which is not a
Business Day, the due date thereof shall be extended to the next succeeding
Business Day and, with respect to payments of principal, interest thereon shall
be payable at the applicable rate during such extension.
(d) All computations of interest and fees shall be made on the basis of
a year of 360 days for the actual number of days (including the first day but
excluding the last day) occurring in the period for which such interest or fees
are payable (to the extent computed on the basis of days elapsed). Interest on
Base Rate Advances shall be calculated based on the Base Rate from and including
the date of such Loan to but excluding the date of the repayment or conversion
thereof. Interest on Eurodollar Advances, Cost of Funds Advances and Competitive
Bid Rate Advances shall be calculated as to each Interest Period from and
including the first day thereof to but excluding the last day thereof. Each
determination by the Agent of an interest rate or fee hereunder shall be made in
good faith and, except for manifest error, shall be final, conclusive and
binding for all purposes.
(e) Payment by the Borrower to the Agent in accordance with the terms
of this Agreement shall, as to the Borrower, constitute payment to the Lenders
under this Agreement.
SECTION 4.9. INTEREST RATE NOT ASCERTAINABLE, ETC.
In the event that the Agent shall have determined (which determination
shall be made in good faith and, absent manifest error, shall be final,
conclusive and binding upon all parties) that on any date for determining the
Adjusted LIBO Rate for any Interest Period, by reason of any changes arising
after the date of this Agreement affecting the London interbank market, or the
Agent's position in such market, adequate and fair means do not exist for
ascertaining the applicable interest rate on the basis provided for in the
definition of Adjusted LIBO Rate, then, and in any such event, the Agent shall
forthwith give notice (by telephone confirmed in writing) to Borrower and to the
Lenders, of such
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determination and a summary of the basis for such determination. Until the
Agent notifies Borrower that the circumstances giving rise to the suspension
described herein no longer exist, the obligations of the Lenders to make or
permit portions of the Revolving Loans and the Swing Line Loans to remain
outstanding past the last day of the then current Interest Periods as
Eurodollar Advances shall be suspended, and such affected Advances shall bear
the same interest as Base Rate Advances. Nothing set forth in this Section 4.9.
shall prohibit the Borrower from utilizing the provisions herein relating to
Competitive Bid Rate Advances or Cost of Funds Advances.
SECTION 4.10. ILLEGALITY.
(a) In the event that any Lender or the Swing Line Lender shall have
determined (which determination shall be made in good faith and, absent manifest
error, shall be final, conclusive and binding upon all parties) at any time that
the making or continuance of any Eurodollar Advance or Competitive Bid Rate
Advance has become unlawful by compliance by such Lender in good faith with any
applicable law, governmental rule, regulation, guideline or order (whether or
not having the force of law and whether or not failure to comply therewith would
be unlawful), then, in any such event, the Lender shall give prompt notice (by
telephone confirmed in writing) to Borrower and to the Agent of such
determination and a summary of the basis for such determination (which notice
the Agent shall promptly transmit to the other Lenders).
(b) Upon the giving of the notice to Borrower referred to in subsection
(a) above, (i) Borrower's right to request and such Lender's obligation to make
Eurodollar Advances or Competitive Bid Rate Advances shall be immediately
suspended, and such Lender shall make an Advance as part of the requested
Borrowing of Eurodollar Advances as a Base Rate Advance, which Base Rate
Advance, as the case may be, shall, for all other purposes, be considered part
of such Borrowing, and (ii) if the affected Eurodollar Advance or Advances are
then outstanding, Borrower shall immediately, or if permitted by applicable law,
no later than the date permitted thereby, upon at least one Business Day's
written notice to the Agent and the affected Lender, convert each such Advance
into a Base Rate Advance or Advances, provided that if more than one Lender is
affected at any time, then all affected Lenders must be treated the same
pursuant to this Section 4.10.(b).
SECTION 4.11. INCREASED COSTS.
(a) If, by reason of (x) after the date hereof, the introduction of or
any change (including, without limitation, any change by way of imposition or
increase of reserve requirements) in or in the interpretation of any law or
regulation, or (y) the compliance with any guideline or request from any central
bank or other governmental authority or quasi-governmental authority exercising
control over banks or financial institutions generally (whether or not having
the force of law):
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(i) any Lender (or its applicable Lending Office) shall be subject
to any tax, duty or other charge with respect to its
Eurodollar Advances or Competitive Bid Rate Advances, or its
obligation to make such Advances, or the basis of taxation of
payments to any Lender of the principal of or interest on its
Eurodollar Advances or Competitive Bid Rate Advances or its
obligation to make Eurodollar Advances shall have changed
(except for changes in the tax on the overall net income of
such Lender or its applicable Lending Office imposed by the
jurisdiction in which such Lender's principal executive office
or applicable Lending Office is located); or
(ii) any reserve (including, without limitation, any imposed by the
Board of Governors of the Federal Reserve System), special
deposit or similar requirement against assets of, deposits
with or for the account of, or credit extended by, any
Lender's applicable Lending Office shall be imposed or deemed
applicable or any other condition affecting its Eurodollar
Advances or Competitive Bid Rate Advances or its obligation to
make Eurodollar Advances or Competitive Bid Rate Advances
shall be imposed on any Lender or its applicable Lending
Office or the London interbank market;
and as a result thereof there shall be any increase in the cost to such Lender
of agreeing to make or making, funding or maintaining Eurodollar Advances
(except to the extent already included in the determination of the applicable
Adjusted LIBO Rate for Eurodollar Advances) or Competitive Bid Rate Advances or
its obligation to make Eurodollar Advances, or there shall be a reduction in the
amount received or receivable by such Lender or its applicable Lending Office,
then Borrower shall from time to time (subject, in the case of certain Taxes, to
the applicable provisions of Section 4.8.(b)), upon written notice from and
demand by such Lender to Borrower (with a copy of such notice and demand to the
Agent), pay to the Agent for the account of such Lender within ten (10) Business
Days after the date of such notice and demand, additional amounts sufficient to
indemnify such Lender against such increased cost. A certificate as to the
amount of such increased cost, submitted to Borrower and the Agent by such
Lender in good faith and accompanied by a statement prepared by such Lender
describing in reasonable detail the basis for and calculation of such increased
cost, shall, except for manifest error, be final, conclusive and binding for all
purposes.
(b) If any Lender shall advise the Agent that at any time, because of
the circumstances described in clauses (x) or (y) in Section 4.11.(a) or any
other circumstances beyond such Lender's reasonable control arising after the
date of this Agreement affecting such Lender or the London interbank market or
such Lender's position in such market, the Adjusted LIBO Rate as determined by
the Agent will not adequately and fairly reflect the
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cost to such Lender of funding its Eurodollar Advances or, if applicable,
Competitive Bid Rate Advances, then, and in any such event:
(i) the Agent shall forthwith give notice (by telephone confirmed
in writing) to Borrower and to the other Lenders of such
advice;
(ii) Borrower's right to request and such Lender's obligation to
make or permit portions of the Loans to remain outstanding
past the last day of the then current Interest Periods as
Eurodollar Advances or Competitive Bid Rate Advances shall be
immediately suspended;
(iii) in the event the affected Loan is a Revolving Loan, such
Lender shall make a Loan as part of the requested Borrowing
under the Revolving Loan Commitments of Eurodollar Advances as
a Base Rate Advance, which such Base Rate Advance shall, for
all other purposes, be considered part of such Borrowing; and
(iv) in the event the affected Loan is a Swing Line Loan, the Swing
Line Lender shall make a Loan as part of the requested
Borrowing under the Swing Line Commitment of Eurodollar
Advances as a Base Rate Advance, which such Base Rate Advance
shall, for all other purposes, be considered part of such
Borrowing. Nothing set forth in this clause (iv) shall
prohibit the Borrower from requesting Cost of Funds Advances
from the Swing Line Lender.
SECTION 4.12. LENDING OFFICES.
(a) Each Lender agrees that, if requested by Borrower, it will use
reasonable efforts (subject to overall policy considerations of such Lender) to
designate an alternate Lending Office with respect to any of its Eurodollar
Advances or Competitive Bid Rate Advance, as the case may be, affected by the
matters or circumstances described in Sections 4.8.(b), 4.9., 4.10., 4.11. or
4.17. to reduce the liability of Borrower or avoid the results provided
thereunder, so long as such designation is not disadvantageous to such Lender as
reasonably determined by such Lender, which determination shall be conclusive
and binding on all parties hereto. Nothing in this Section 4.12. shall affect or
postpone any of the obligations of Borrower or any right of any Lender provided
hereunder.
(b) If any Lender that is organized under the laws of any jurisdiction
other than the United States of America or any State thereof (including the
District of Columbia) issues a public announcement with respect to the closing
of its lending offices in the United States such that any withholdings or
deductions and additional payments with respect to Taxes may be required to be
made by Borrower thereafter pursuant to
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Section 4.8.(b), such Lender shall use reasonable efforts to furnish Borrower
notice thereof as soon as practicable thereafter; provided, however, that no
delay or failure to furnish such notice shall in any event release or discharge
Borrower from its obligations to such Lender pursuant to Section 4.8.(b) or
otherwise result in any liability of such Lender.
SECTION 4.13. FUNDING LOSSES.
Borrower shall compensate each Lender, upon its written request to
Borrower (which request shall set forth the basis for requesting such amounts in
reasonable detail and which request shall be made in good faith and, absent
manifest error, shall be final, conclusive and binding upon all of the parties
hereto), for all actual losses, expenses and liabilities (including, without
limitation, any interest paid by such Lender to lenders of funds borrowed by it
to make or carry its Eurodollar Advances or Competitive Bid Rate Advances, in
either case to the extent not recovered by such Lender in connection with the
re-employment of such funds but excluding loss of anticipated profits), which
the Lender may sustain: (i) if for any reason (other than a default by such
Lender) a borrowing of, or conversion to or continuation of, Eurodollar Advances
or Competitive Bid Rate Advances to Borrower does not occur on the date
specified therefor in a Notice of Borrowing, Notice of Swing Line Loan,
Competitive Bid Accept/Reject Letter, Notice of Conversion/Continuation or
Notice of Conversion/Continuation of Swing Line Loans (whether or not
withdrawn), (ii) if any repayment (including mandatory prepayments and any
conversions pursuant to Section 4.10.(b)) of any Eurodollar Advances to Borrower
occurs on a date which is not the last day of an Interest Period applicable
thereto, or (iii), if, for any reason, Borrower defaults in its obligation to
repay its Eurodollar Advances when required by the terms of this Agreement.
SECTION 4.14. ASSUMPTIONS CONCERNING FUNDING OF EURODOLLAR AND
COMPETITIVE BID RATE ADVANCES.
Calculation of all amounts payable to a Lender under this Article 4.
shall be made as though that Lender had actually funded its relevant Eurodollar
Advances or Competitive Bid Rate Advances through the purchase of deposits in
the relevant market bearing interest at the rate applicable to such Eurodollar
Advances or Competitive Bid Rate Advance in an amount equal to the amount of the
Eurodollar Advances or Competitive Bid Rate Advance and having a maturity
comparable to the relevant Interest Period and through the transfer of such
Eurodollar Advances or Competitive Bid Rate Advance from an offshore office of
that Lender to a domestic office of that Lender in the United States of America;
provided, however, that each Lender may fund each of its Eurodollar Advances or
Competitive Bid Rate Advances in any manner it sees fit and the foregoing
assumption shall be used only for calculation of amounts payable under this
Article 4.
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SECTION 4.15. APPORTIONMENT OF PAYMENTS.
Aggregate principal and interest payments in respect of Loans and
payments in respect of facility fees shall be apportioned among all outstanding
Commitments and Loans to which such payments relate, proportionately to the
Lenders' respective pro rata portions of such Commitments and outstanding Loans.
The Agent shall promptly distribute to each Lender at its payment office
specified by any Lender its share of all such payments received by the Agent on
the same Business Day as such payment is deemed to be received by the Agent.
SECTION 4.16. SHARING OF PAYMENTS, ETC.
If any Lender shall obtain any payment or reduction (including, without
limitation, any amounts received as adequate protection of a deposit treated as
cash collateral under the Bankruptcy Code) of the Obligations (whether
voluntary, involuntary, through the exercise of any right of set-off, or
otherwise) in excess of its Applicable Commitment Percentage of payments or
reductions on account of such obligations obtained by all the Lenders (other
than payments of principal, interest and fees with respect to the Competitive
Bid Loans which are payable solely to the Lenders participating therein), such
Lender shall forthwith (i) notify each of the other Lenders and Agent of such
receipt, and (ii) purchase from the other Lenders such participations in the
affected obligations as shall be necessary to cause such purchasing Lender to
share the excess payment or reduction, net of costs incurred in connection
therewith, ratably with each of them, provided that if all or any portion of
such excess payment or reduction is thereafter recovered from such purchasing
Lender or additional costs are incurred, the purchase shall be rescinded and the
purchase price restored to the extent of such recovery or such additional costs,
but without interest unless the Lender obligated to return such funds is
required to pay interest on such funds. Borrower agrees that any Lender so
purchasing a participation from another Lender pursuant to this Section 4.16.
may, to the fullest extent permitted by law, exercise all its rights of payment
(including the right of set-off) with respect to such participation as fully as
if such Lender were the direct creditor of Borrower in the amount of such
participation. Any payment received by the Agent or any Lender following the
occurrence and during the continuation of an Event of Default shall be
distributed pro rata amongst the Lenders based upon the percentage obtained by
dividing the Obligations owing to each Lender by the total amount of Obligations
on the date of receipt of such payment, with such amounts to be applied to the
outstanding Obligations in accordance with the terms of this Agreement.
SECTION 4.17. CAPITAL ADEQUACY.
Without limiting any other provision of this Agreement, in the event
that any Lender shall have determined that any law, treaty, governmental (or
quasi-governmental) rule, regulation, guideline or order regarding capital
adequacy not currently in effect or
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fully applicable as of the Closing Date, or any change therein or in the
interpretation or application thereof after the Closing Date, or compliance by
such Lender with any request or directive regarding capital adequacy not
currently in effect or fully applicable as of the Closing Date (whether or not
having the force of law and whether or not failure to comply therewith would be
unlawful) from a central bank or governmental authority or body having
jurisdiction, does or shall have the effect of reducing the rate of return on
such Lender's capital as a consequence of its obligations hereunder to a level
below that which such Lender could have achieved but for such law, treaty, rule,
regulation, guideline or order, or such change or compliance (taking into
consideration such Lender's policies with respect to capital adequacy) by an
amount deemed by such Lender to be material, then within ten (10) Business Days
after written notice and demand by such Lender (with copies thereof to the
Agent), Borrower shall from time to time pay to such Lender additional amounts
sufficient to compensate such Lender for such reduction (but, in the case of
outstanding Base Rate Advances, without duplication of any amounts already
recovered by such Lender by reason of an adjustment in the applicable Base
Rate). Each certificate as to the amount payable under this Section 4.17. (which
certificate shall set forth the basis for requesting such amounts in reasonable
detail), submitted to Borrower by any Lender in good faith, shall, absent
manifest error, be final, conclusive and binding for all purposes.
SECTION 4.18. LIMITATION ON CERTAIN PAYMENT OBLIGATIONS.
(a) Each Lender or the Agent shall make written demand on the Borrower
for indemnification or compensation pursuant to Section 4.8.(b) no later than
six months after the earlier of (i) on the date on which Lender or the Agent
makes payment of any such Taxes and (ii) the date on which the relevant taxing
authority or other governmental authority makes written demand upon such Lender
or Agent for the payment of such Taxes.
(b) Each Lender or Agent shall make written demand on the Borrower for
indemnification or compensation pursuant to Section 4.13. no later than six
months after the event giving rise to the claim for indemnification or
compensation occurs.
(c) Each Lender or the Agent shall make written demand on the Borrower
for indemnification or compensation pursuant to Section 4.11. or Section 4.17.
no later than six months after such Lender or Agent receives actual notice or
obtains actual knowledge of the promulgation of a law, rule, order,
interpretation or occurrence of another event giving rise to a claim pursuant to
such provisions.
(d) In the event that the Lenders or Agent fail to give the Borrower
notice within the time limitations set forth above, the Borrower shall not have
any obligation to pay amounts with respect to such claims accrued prior to six
months preceding any written demand therefor.
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ARTICLE 5. CONDITIONS TO BORROWINGS
The obligation of each Lender to make Advances to Borrower is subject
to the satisfaction of the following conditions:
SECTION 5.1. CONDITIONS PRECEDENT TO INITIAL LOANS.
At the time of the making of the initial Loans hereunder on the Closing
Date, all obligations of Borrower hereunder incurred prior to the initial Loans
(including, without limitation, Borrower's obligations to reimburse the
reasonable fees and expenses of counsel to the Agent and any fees and expenses
payable to the Agent as previously agreed with Borrower), shall have been paid
in full, and the Agent shall have received the following, in form and substance
reasonably satisfactory in all respects to the Agent:
(a) the duly executed counterparts of this Agreement;
(b) the duly completed Revolving Credit Notes evidencing the Revolving
Credit Commitments, the duly completed Swing Note evidencing the Swing
Line Commitment and the duly executed Competitive Bid Notes evidencing
the Competitive Bid Facility;
(c) receipt by the Agent of evidence that all governmental, shareholder and
material third-party consents (including Hart-Scott-Rodino clearance)
and approvals required in connection with the acquisition of the
Acquired Company and the other transactions contemplated hereby and
expiration of all applicable waiting periods without any action being
taken by any authority that could reasonably be likely to restrain,
prevent or impose any material adverse conditions on the acquisition of
the Acquired Company or such other transactions or that could
reasonably be likely to seek or threaten any of the foregoing, and no
law or regulation shall be applicable which in the judgment of the
Agent could reasonably be likely to have such effect;
(d) certificates of the Secretary or Assistant Secretary of the Borrower
attaching and certifying copies of the resolutions of the board of
directors of the Borrower, authorizing as applicable the execution,
delivery and performance of the Credit Documents;
(e) certificates of the Secretary or an Assistant Secretary of the Borrower
certifying (i) the name, title and true signature of each officer of
the Borrower executing the Credit Documents, and (ii) the bylaws of the
Borrower;
(f) certified copies of the certificate or articles of incorporation of the
Borrower and each of its Subsidiaries certified by the Secretary of
State and by the Secretary or Assistant Secretary of the Borrower or
such Subsidiaries, as appropriate, together
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with certificates of good standing or existence, as may be available
from the Secretary of State of the jurisdiction of incorporation or
organization of the Borrower and each of its Subsidiaries, and each
other jurisdiction where the ownership of property or the conduct of
its business require the Borrower or its Subsidiaries to be qualified,
except where a failure to be so qualified would not have a Materially
Adverse Effect;
(g) certificate of Borrower in substantially the form of Exhibit I attached
hereto and appropriately completed;
(h) there shall not have been any Material modification, amendment,
supplement or waiver to the Purchase Agreement without the prior
written consent of the Agent, including, but not limited to, any
Material modification, amendment, supplement or waiver relating to the
amount or type of consideration to be paid in connection with the
acquisition of the Acquired Company and the contents of all disclosure
schedules and exhibits, the acquisition of the Acquired Company shall
have been consummated substantially in accordance with the terms of the
Purchase Agreement; and Agent shall have received a copy of the final
Purchase Agreement, together with all exhibits and schedules thereto,
certified by an Executive Officer of the Borrower;
(i) the favorable opinion of (a) Robert McIntosh, Esquire, corporate
counsel to the Borrower and its Subsidiaries as to certain corporate
matters, and (b) King & Spalding, counsel to the Borrower and its
Subsidiaries as to certain matters, in the form of Exhibits J-1 and
J-2, respectively, in each case addressed to the Agent and each of the
Lenders;
(j) copies of all documents and instruments, including all consents,
authorizations and filings, required under the articles or certificate
of incorporation and bylaws or other organizational or governing
documents, under any Requirement of Law or by any material Contractual
Obligation of the Borrower and its Subsidiaries, in connection with the
execution, delivery, performance, validity and enforceability of the
Credit Documents and the other documents to be executed and delivered
hereunder, and such consents, authorizations, filings and orders shall
be in full force and effect and all applicable waiting periods shall
have expired; and
(k) any other document, opinion or certificate reasonably requested by the
Agent and the Lenders assuring the Agent and the Lenders that all
corporate proceedings and all other legal matters in connection with
the authorization, legality, validity and enforceability of the Credit
Documents are in form and substance satisfactory to the Lenders.
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SECTION 5.2. CONDITIONS TO ALL LOANS.
At the time of the making of all Loans, including the initial Loans
hereunder, (before as well as after giving effect to such Loans and to the
proposed use of the proceeds thereof), the following conditions shall have been
satisfied or shall exist:
(a) there shall exist no Default or Event of Default;
(b) all representations and warranties by Borrower contained herein shall
be true and correct in all material respects with the same effect as
though such representations and warranties had been made on and as of
the date of such Loans except to the extent they expressly relate to an
earlier date or have been updated to the extent permitted herein;
(c) since the date of the most recent financial statements of the
Consolidated Companies described in Section 6.14., there shall have
been no change which has had or is reasonably likely to have a
Materially Adverse Effect (whether or not any notice with respect to
such change has been furnished to the Lenders pursuant to Section
7.7.);
(d) there shall be no action or proceeding instituted or pending before any
court or other governmental authority or, to the knowledge of Borrower,
threatened (i) which is reasonably likely to have a Materially Adverse
Effect, or (ii) seeking to prohibit or restrict one or more of the
Consolidated Companies right to own or operate any portion of its
business or assets, or to compel one or more of the Borrower and its
Consolidated Companies to dispose of or hold separate all or any
portion of its businesses or assets, where such portion or portions of
such business(es) or assets, as the case may be, constitute a Material
portion of the total businesses or assets of the Consolidated
Companies;
(e) the Loans to be made and the use of proceeds thereof shall not
contravene, violate or conflict with, or involve the Agent or any
Lender in a violation of, any law, rule, injunction, or regulation, or
determination of any court of law or other governmental authority
applicable to Borrower; and
(f) the Agent shall have received such other documents or legal opinions as
the Agent or any Lender may reasonably request, all in form and
substance reasonably satisfactory to the Agent.
Each request for a Borrowing or Competitive Bid Request and the acceptance by
Borrower of the proceeds thereof shall constitute a representation and warranty
by Borrower, as of the date of the Loans comprising such Borrowing, that the
applicable conditions specified in Sections 5.1. and 5.2. have been satisfied.
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ARTICLE 6. REPRESENTATIONS AND WARRANTIES
Borrower (as to itself and all other Consolidated Companies) represents
and warrants as follows:
SECTION 6.1. CORPORATE EXISTENCE; COMPLIANCE WITH LAW.
Each of the Consolidated Companies is a corporation duly organized,
validly existing, and in good standing under the laws of the jurisdiction of its
incorporation. Each of the Consolidated Companies (i) has the corporate power
and authority and the legal right to own and operate its property and to conduct
its business, (ii) is duly qualified as a foreign corporation and in good
standing under the laws of each jurisdiction where its ownership of property or
the conduct of its business requires such qualification, and (iii) is in
compliance with all Requirements of Law, where (a) the failure to have such
power, authority and legal right as set forth in clause (i), (b) the failure to
be so qualified or in good standing as set forth in clause (ii), or (c) the
failure to comply with Requirements of Law as set forth in clause (iii), is
reasonably likely, in the aggregate, to have a Materially Adverse Effect. The
jurisdiction of incorporation or organization, and the ownership of all issued
and outstanding capital stock, for each Subsidiary as of the date of this
Agreement is accurately described on Schedule 6.1. Schedule 6.1. may be updated
from time to time by the Borrower by giving written notice thereof to the Agent.
SECTION 6.2. CORPORATE POWER; AUTHORIZATION.
Each of the Borrower and its Subsidiaries has the corporate power and
authority to make, deliver and perform the Credit Documents to which it is a
party and has taken all necessary corporate action to authorize the execution,
delivery and performance of such Credit Documents. No consent or authorization
of, or filing with, any Person (including, without limitation, any governmental
authority), is required in connection with the execution, delivery or
performance by the Borrower or its Subsidiaries, or the validity or
enforceability against the Borrower or its Subsidiaries, of the Credit
Documents, other than such consents, authorizations or filings which have been
made or obtained.
SECTION 6.3. ENFORCEABLE OBLIGATIONS.
This Agreement has been duly executed and delivered, and each other
Credit Document will be duly executed and delivered, by the respective
Consolidated Companies, as applicable, and this Agreement constitutes, and each
other Credit Document when executed and delivered will constitute, legal, valid
and binding obligations of the Consolidated Companies executing the same,
enforceable against such Consolidated Companies in accordance with their
respective terms, except as may be limited by applicable bankruptcy, insolvency,
reorganization, moratorium, or similar laws affecting the enforcement of
creditors' rights generally and by general principles of
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equity.
SECTION 6.4. NO LEGAL BAR.
The execution, delivery and performance by the Consolidated Companies
of the Credit Documents will not violate their articles or certificate of
incorporation, bylaws or other organizational or governing documents or any
Requirement of Law or cause a breach or default under any of their respective
Material Contractual Obligations.
SECTION 6.5. NO MATERIAL LITIGATION.
Except as set forth on Schedule 6.5., no litigation, investigation or
proceeding of or before any court, tribunal, arbitrator or governmental
authority is pending or, to the knowledge of any Executive Officer of the
Borrower, threatened by or against any of the Consolidated Companies, or against
any of their respective properties or revenues, existing or future (a) with
respect to any Credit Document, or any of the transactions contemplated hereby
or thereby, or (b) which, if adversely determined, is reasonably likely to have
a Materially Adverse Effect.
SECTION 6.6. INVESTMENT COMPANY ACT, ETC.
Neither the Company nor any of its Subsidiaries is an "investment
company" or a company "controlled" by an "investment company" (as each of the
quoted terms is defined or used in the Investment Company Act of 1940, as
amended). Neither the Company nor any of its Subsidiaries is subject to
regulation under the Public Utility Holding Company Act of 1935, the Federal
Power Act, or any foreign, federal or local statute or regulation limiting its
ability to incur indebtedness for money borrowed, guarantee such indebtedness,
or pledge its assets to secure such indebtedness, as contemplated hereby or by
any other Credit Document.
SECTION 6.7. MARGIN REGULATIONS.
No part of the proceeds of any of the Loans will be used for any
purpose which violates, or which would be inconsistent or not in compliance
with, the provisions of the applicable Margin Regulations.
SECTION 6.8. COMPLIANCE WITH ENVIRONMENTAL LAWS.
(a) The Consolidated Companies have received no notices of claims or
potential liability under, and are in compliance with, all applicable
Environmental Laws, where such claims and liabilities under, and failures to
comply with, such statutes, regulations, rules, ordinances, laws or licenses, is
reasonably likely to result in penalties, fines, claims or other liabilities to
the Consolidated Companies in amounts that would have a Materially Adverse
Effect, either individually or in the aggregate (including any such
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penalties, fines, claims, or liabilities relating to the matters set forth on
Schedule 6.8.), except as set forth on Schedule 6.8.).
(b) Except as set forth on Schedule 6.8.(b), none of the Consolidated
Companies has received any notice of violation, or notice of any action, either
judicial or administrative, from any governmental authority (whether United
States or foreign) relating to the actual or alleged violation of any
Environmental Law, including, without limitation, any notice of any actual or
alleged spill, leak, or other release of any Hazardous Substance, waste or
hazardous waste by any Consolidated Company or its employees or agents, or as to
the existence of any contamination on any properties owned by any Consolidated
Company, where any such violation, spill, leak, release or contamination is
reasonably likely to result in penalties, fines, claims or other liabilities to
the Consolidated Companies in amounts that would have a Materially Adverse
Effect, either individually or in the aggregate.
(c) Except as set forth on Schedule 6.8.(c), the Consolidated Companies
have obtained all necessary governmental permits, licenses and approvals for the
operations conducted on their respective properties, including without
limitation, all required material permits, licenses and approvals for (i) the
emission of air pollutants or contaminants, (ii) the treatment or pretreatment
and discharge of waste water or storm water, (iii) the treatment, storage,
disposal or generation of hazardous wastes, (iv) the withdrawal and usage of
ground water or surface water, and (v) the disposal of solid wastes, in any such
case where the failure to have such license, permit or approval is reasonably
likely to have a Materially Adverse Effect.
SECTION 6.9. INSURANCE.
The Consolidated Companies currently maintain insurance with respect to
their respective properties and businesses, with financially sound and reputable
insurers, having coverages against losses or damages of the kinds customarily
insured against by reputable companies in the same or similar businesses, such
insurance being in amounts no less than those amounts which are customary for
such companies under similar circumstances. The Consolidated Companies have paid
all material amounts of insurance premiums now due and owing with respect to
such insurance policies and coverages, and such policies and coverages are in
full force and effect.
SECTION 6.10. NO DEFAULT.
None of the Consolidated Companies is in default under or with respect
to any Contractual Obligation in any respect which has had or is reasonably
likely to have a Materially Adverse Effect.
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SECTION 6.11. NO BURDENSOME RESTRICTIONS.
Except as set forth on Schedule 6.11., none of the Consolidated
Companies is a party to or bound by any Contractual Obligation or Requirement of
Law or any provision of its articles or certificate of incorporation, bylaws or
other organizational or governing documents which has had or is reasonably
likely to have a Materially Adverse Effect.
SECTION 6.12. TAXES.
The Borrower and its Subsidiaries have filed all Federal tax returns
and, to the knowledge of the Executive Officers of the Borrower, the Borrower
and its Subsidiaries have filed all other tax returns which are required to have
been filed in any jurisdiction; the Borrower and its Subsidiaries have paid all
taxes shown to be due and payable on such Federal returns and other returns and
all other taxes, assessments, fees and other charges payable by them, in each
case, to the extent the same have become due and payable and before they have
become delinquent, except for the filing of any such returns or the payment of
any taxes, assessments, fees and other charges the amount, applicability or
validity of which is currently being contested in good faith by appropriate
proceedings and with respect to which the Borrower or a Subsidiary, as the case
may be, has set aside on its books reserves (segregated to the extent required
by GAAP) deemed by it in good faith to be adequate. The Borrower has not
received written notice of any proposed Material tax assessment with respect to
Federal income taxes against the Borrower or any Subsidiary nor does any
Executive Officer of the Borrower know of any Material Federal income tax
liability on the part of the Borrower or any Subsidiary other than any such
assessment or liability which is adequately provided for on the books of the
Borrower and its Subsidiaries.
SECTION 6.13. SUBSIDIARIES.
Except as disclosed on Schedule 6.13., Borrower has no Subsidiaries and
neither Borrower nor any Subsidiary is a joint venture partner or general
partner in any partnership. Schedule 6.13. indicates which Subsidiaries are
Restricted Subsidiaries and which Subsidiaries are Unrestricted Subsidiaries.
Schedule 6.13. may be updated from time to time by the Borrower by giving
written notice thereof to the Agent.
SECTION 6.14. FINANCIAL STATEMENTS.
Borrower has furnished to the Agent and the Lenders (i) the audited
consolidated balance sheets as of September 30, 1996, 1995, and 1994 of Borrower
and the related consolidated statements of income, shareholders' equity and cash
flows for the fiscal years then ended, including in each case the related notes.
The foregoing financial statements fairly present in all material respects the
consolidated financial condition of Borrower as at the dates thereof and results
of operations for such periods in conformity
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with GAAP consistently applied (subject, in the case of the quarterly financial
statements, to normal year-end audit adjustments and the absence of certain
notes). The Consolidated Companies taken as a whole did not have any material
contingent obligations, contingent liabilities, or material liabilities for
known taxes, long-term leases or unusual forward or long-term commitments
required to be reflected in the foregoing financial statements or the notes
thereto that are not so reflected. Since September 30, 1996, there have been no
changes with respect to the Consolidated Companies which has had or is
reasonably likely to have a Materially Adverse Effect.
SECTION 6.15. ERISA.
Except as disclosed on Schedule 6.15.:
(1) Identification of Plans. None of the Consolidated Companies nor
any of their respective ERISA Affiliates maintains or contributes to, or has
during the past seven years maintained or contributed to, any Plan that is
subject to Title IV of ERISA;
(2) Compliance. Each Plan maintained by the Consolidated Companies have
at all times been maintained, by their terms and in operation, in compliance
with all applicable laws, and the Consolidated Companies are subject to no tax
or penalty with respect to any Plan of such Consolidated Company or any ERISA
Affiliate thereof, including without limitation, any tax or penalty under Title
I or Title IV of ERISA or under Chapter 43 of the Tax Code, or any tax or
penalty resulting from a loss of deduction under Sections 162, 404, or 419 of
the Tax Code, where the failure to comply with such laws, and such taxes and
penalties, together with all other liabilities referred to in this Section 6.15.
(taken as a whole), would in the aggregate have a Materially Adverse Effect;
(3) Liabilities. The Consolidated Companies are subject to no
liabilities (including withdrawal liabilities) with respect to any Plans of such
Consolidated Companies or any of their ERISA Affiliates, including without
limitation, any liabilities arising from Titles I or IV of ERISA, other than
obligations to fund benefits under an ongoing Plan and to pay current
contributions, expenses and premiums with respect to such Plans, where such
liabilities, together with all other liabilities referred to in this Section
6.15. (taken as a whole), would in the aggregate have a Materially Adverse
Effect;
(4) Funding. The Consolidated Companies and, with respect to any Plan
which is subject to Title IV of ERISA, each of their respective ERISA
Affiliates, have made full and timely payment of all amounts (A) required to be
contributed under the terms of each Plan and applicable law, and (B) required to
be paid as expenses (including PBGC or other premiums) of each Plan, where the
failure to pay such amounts (when taken as a whole, including any penalties
attributable to such amounts) would have a Materially Adverse Effect. No Plan
subject to Title IV of ERISA has an "amount of un-
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funded benefit liabilities" (as defined in Section 4001(a)(18) of ERISA),
determined as if such Plan terminated on any date on which this representation
and warranty is deemed made, in any amount which, together with all other
liabilities referred to in this Section 6.15. (taken as a whole), would have a
Materially Adverse Effect if such amount were then due and payable. The
Consolidated Companies are subject to no liabilities with respect to
post-retirement medical benefits in any amounts which, together with all other
liabilities referred to in this Section 6.15. (taken as a whole), would have a
Materially Adverse Effect if such amounts were then due and payable.
Schedule 6.15., as it applies to paragraph (1) above, may be updated
from time to time by the Borrower by giving written notice thereof to the Agent.
SECTION 6.16. PATENTS, TRADEMARKS, LICENSES, ETC.
Except as set forth on Schedule 6.16., (i) the Consolidated Companies
have obtained and hold in full force and effect all material patents,
trademarks, service marks, trade names, copyrights, licenses and other such
rights, free from burdensome restrictions, which are necessary for the operation
of their respective businesses as presently conducted, and (ii) to the best of
Borrower's knowledge, no product, process, method, service or other item
presently sold by or employed by any Consolidated Company in connection with
such business infringes any patents, trademark, service mark, trade name,
copyright, license or other right owned by any other person and there is not
presently pending, or to the knowledge of Borrower, threatened, any claim or
litigation against or affecting any Consolidated Company contesting such
Person's right to sell or use any such product, process, method, substance or
other item where the result of such failure to obtain and hold such benefits or
such infringement would have a Materially Adverse Effect.
SECTION 6.17. OWNERSHIP OF PROPERTY; LIENS.
(a) Except as set forth on Schedule 6.17., (i) each Consolidated
Company has good and marketable fee simple title to or a valid leasehold
interest in all of its real property and good title to, or a valid leasehold
interest in, all of its other property, as such properties are reflected in the
consolidated balance sheet of the Consolidated Companies as of September 30,
1996 except where the failure to hold such title, leasehold interest or
possession would not have a Materially Adverse Effect, referred to in Section
6.14., other than properties disposed of in the ordinary course of business
since such date or as otherwise permitted by the terms of this Agreement,
subject to no Lien or title defect of any kind, except Liens permitted by
Section 8.2. and (ii) the Consolidated Companies enjoy peaceful and undisturbed
possession under all of their respective leases.
(b) As of the date of this Agreement, the property and assets owned by
each Consolidated Company are not subject to any Lien securing any Indebtedness
or other
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obligation of such Consolidated Company in excess of $5,000,000 individually
other than as described on Schedule 6.18 hereof.
SECTION 6.18. INDEBTEDNESS.
Except for the Indebtedness outstanding pursuant to the Prior
Agreements to be refinanced on the Closing Date and as set forth on Schedule
6.18. for each Consolidated Company, as of the date hereof none of the
Consolidated Companies is an obligor in respect of any Indebtedness for Borrowed
Money in excess of $5,000,000 individually, or any commitment to create or incur
any Indebtedness for Borrowed Money in excess of $5,000,000 individually.
SECTION 6.19. FINANCIAL CONDITION.
On the Closing Date and after giving effect to the transactions
contemplated by this Agreement and the other Credit Documents, including without
limitation, the use of the proceeds of the Loans as provided in Articles 2. and
3. (i) the assets of each Consolidated Company at fair valuation and based on
their present fair saleable value will exceed such Consolidated Company's debts,
including contingent liabilities, (ii) the remaining capital of such
Consolidated Company will not be unreasonably small to conduct such Consolidated
Company's business, and (iii) such Consolidated Company will not have incurred
debts, or have intended to incur debts, beyond the Consolidated Company's
ability to pay such debts as they mature. For purposes of this Section 6.19.,
"debt" means any liability on a claim, and "claim" means (a) the right to
payment, whether or not such right is reduced to judgment, liquidated,
unliquidated, fixed, contingent, matured, unmatured, disputed, undisputed,
legal, equitable, secured or unsecured, or (b) the right to an equitable remedy
for breach of performance if such breach gives rise to a right to payment,
whether or not such right to an equitable remedy is reduced to judgment, fixed,
contingent, matured, unmatured, disputed, undisputed, secured or unsecured.
SECTION 6.20. LABOR MATTERS.
Except as set forth in Schedule 6.20., the Consolidated Companies have
experienced no strikes, labor disputes, slow downs or work stoppages due to
labor disagreements which is reasonably likely to have, a Materially Adverse
Effect, and, to the best knowledge of the Executive Officers of the Borrower,
there are no such strikes, disputes, slow downs or work stoppages threatened
against any Consolidated Company except as disclosed in writing to the Agent.
The hours worked and payment made to employees of the Consolidated Companies
have not been in violation in any material respect of the Fair Labor Standards
Act or any other applicable law dealing with such matters, and all payments due
from the Consolidated Companies, or for which any claim may be made against the
Consolidated Companies, on account of wages and employee health and welfare
insurance and other benefits have been paid or accrued as liabilities on the
books
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of the Consolidated Companies, in each case where the failure to comply with
such laws or to pay or accrue such liabilities is reasonably likely to have a
Materially Adverse Effect.
SECTION 6.21. PAYMENT OR DIVIDEND RESTRICTIONS.
Except as described on Schedule 6.21., none of the Consolidated
Companies is party to or subject to any agreement or understanding restricting
or limiting the payment of any dividends or other distributions by any such
Consolidated Company.
SECTION 6.22. DISCLOSURE.
(a) Neither this Agreement nor any financial statements delivered to
the Lenders nor in the most recent version of any other document, certificate or
written statement furnished to the Lenders by or on behalf of any Consolidated
Company in connection with the transactions contemplated hereby contains any
untrue statement of a material fact or omits to state a material fact necessary
in order to make the statements contained therein or herein not misleading, it
being understood that the representation set forth in this Section 6.22.(a)
shall not apply to any financial projections or other pro forma financial
information.
(b) The financial projections and other pro forma financial information
contained in the information referred to in subsection (a) above were based on
good faith estimates and assumptions believed by the applicable Consolidated
Companies to be reasonable at the time made and at the time furnished to the
Agent and/or any Lender, it being recognized by the Lenders that such
projections and other pro forma financial information as to future events such
projections and other pro forma financial information may differ from the
projected results for such period or periods.
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ARTICLE 7. AFFIRMATIVE COVENANTS
So long as any Commitment remains in effect hereunder or any Note shall
remain unpaid, Borrower will:
SECTION 7.1. CORPORATE EXISTENCE, ETC.
Preserve and maintain, and cause each of the Restricted Subsidiaries to
preserve and maintain, its corporate existence (except as otherwise permitted
pursuant to Section 8.4.), its material rights, franchises, and licenses, and
its material patents and copyrights (for the scheduled duration thereof),
trademarks, trade names, and service marks, necessary or desirable in the normal
conduct of its business, and its qualification to do business as a foreign
corporation in all jurisdictions where it conducts business or other activities
making such qualification necessary, where the failure to be so qualified is
reasonably likely to have a Materially Adverse Effect.
SECTION 7.2. COMPLIANCE WITH LAWS, ETC.
Comply, and cause each of its Subsidiaries to comply with all
Requirements of Law (including, without limitation, the Environmental Laws
subject to the exceptions set forth in Section 6.8. where the penalties, claims,
fines, and other liabilities resulting from noncompliance with such
Environmental Laws do not involve amounts Material in the aggregate) and
Contractual Obligations applicable to or binding on any of them where the
failure to comply with such Requirements of Law and Contractual Obligations is
reasonably likely to have a Materially Adverse Effect.
SECTION 7.3. PAYMENT OF TAXES AND CLAIMS, ETC.
File and cause each Subsidiary to file all Federal, state, local and
foreign tax returns that are required to be filed by each of them and will pay
or make provision for the payment of all taxes that have become due pursuant to
such returns or pursuant to any assessment in respect thereof received by the
Borrower or any Subsidiary, and the Borrower and each Subsidiary will pay or
cause to be paid all other taxes, assessments, fees and other governmental
charges and levies which, to the knowledge of the Executive Officers of the
Borrower or any Subsidiary, are due and payable before the same become
delinquent, except only such taxes and assessments as are being contested in
good faith by appropriate and timely proceedings and as to which adequate
reserves have been established in accordance with GAAP.
SECTION 7.4. KEEPING OF BOOKS.
Keep, and cause each of its Subsidiaries to keep, proper books of
record and account, containing complete and accurate entries of all their
respective financial and business transactions.
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SECTION 7.5. VISITATION, INSPECTION, ETC.
Permit, and cause each of its Subsidiaries to permit, any
representative of the Agent or any Lender, at the Agent's or such Lender's
expense, to visit and inspect any of its property, to examine its books and
records and to make copies and take extracts therefrom, and to discuss its
affairs, finances and accounts with its officers, all at such reasonable times
and as often as the Agent or such Lender may reasonably request after reasonable
prior notice to Borrower; provided, however, that at any time following the
occurrence and during the continuance of a Default or an Event of Default, no
prior notice to Borrower shall be required.
SECTION 7.6. INSURANCE; MAINTENANCE OF PROPERTIES.
(a) Maintain or cause to be maintained with financially sound and
reputable insurers, insurance with respect to its properties and business, and
the properties and business of its Subsidiaries, against loss or damage of the
kinds customarily insured against by reputable companies in the same or similar
businesses, such insurance to be of such types and in such amounts and subject
to such deductibles and self-insurance programs as the Borrower in its judgment
deems reasonable; provided, however, that in any event Borrower shall use its
best efforts to maintain, or cause to be maintained, insurance in amounts and
with coverages not materially less favorable to any Consolidated Company as in
effect on the date of this Agreement, except where the costs of maintaining such
insurance would, in the judgment of the Borrower, be excessive.
(b) Cause, and cause each of the Consolidated Companies to cause, all
properties used or useful in the conduct of its business to be maintained and
kept in good condition, repair and working order and supplied with all necessary
equipment and will cause to be made all necessary repairs, renewals,
replacements, settlements and improvements thereof, all as in the judgment of
Borrower may be necessary so that the business carried on in connection
therewith may be properly and advantageously conducted at all times; provided,
however, that nothing in this Section shall prevent Borrower from discontinuing
the operation or maintenance of any such properties if such discontinuance is,
in the judgment of Borrower, desirable in the conduct of its business or the
business of any Consolidated Company.
(c) Cause a summary, set forth in format and detail reasonably
acceptable to the Agent, of the types and amounts of insurance (property and
liability) maintained by the Consolidated Companies to be delivered to the Agent
on or before thirty (30) days after the Closing Date.
SECTION 7.7. FINANCIAL REPORTS.
The Borrower will furnish to the Agent and each Lender:
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(a) within sixty (60) days after the end of each of the first three
quarter-annual periods of each of its fiscal years (and, in any event, in each
case as soon as prepared), the quarterly Financial Report of the Borrower as at
the end of that period, prepared on a consolidated basis an accompanied by a
certificate, dated the date of furnishing, signed by a Financial Officer of the
Borrower to the effect that such Financial Report accurately presents in all
material respects the consolidated financial condition of the Borrower and its
consolidated Subsidiaries and that such Financial Report has been prepared in
accordance with GAAP consistently applied (subject to year end adjustments),
except that such Financial Report need not be accompanied by notes;
(b) within one hundred twenty (120) days after the end of each of its
fiscal years (and, in any event, as soon as available), the annual Financial
Report of the Borrower for that year prepared on a consolidated basis (which
Financial Report shall be reported on by the Borrower's independent certified
public accountants, such report to state that such Financial Report fairly
presents in all material respects the consolidated financial condition and
results of operation of the Borrower and its consolidated Subsidiaries in
accordance with GAAP and to be without any material qualifications or
exceptions); provided, however, during any period that the Borrower has
consolidated Subsidiaries which are not Restricted Subsidiaries, the Borrower
shall also provide such financial information in a form sufficient to enable the
Agent and the Lenders to determine the compliance of the Borrower with the terms
of this Agreement with respect to the Borrower and its Restricted Subsidiaries;
(c) within sixty (60) days after the end of each of its first three
quarterly accounting periods and within one hundred twenty (120) days after the
end of its annual accounting period, a statement certified as true and correct
by a Financial Officer of the Borrower, substantially in the form of Exhibit D
hereto, reflecting compliance with Sections 8.1., 8.2., 8.3. and 8.4. hereof,
with back-up material setting forth in reasonable detail such calculations
attached thereto and stating whether any Event of Default has occurred and is
continuing;
(d) within sixty (60) days after the end of each of its quarterly
accounting periods, a statement certified as true and correct by a Financial
Officer of the Borrower setting forth the Consolidated Funded Debt to Total
Capitalization ratio as of the last day of such quarterly accounting period;
(e) promptly upon the filing thereof or otherwise becoming available,
copies of all financial statements, annual, quarterly and special reports, proxy
statements and notices sent or made available generally by Borrower to its
public security holders, of all regular and periodic reports and all
registration statements and prospectuses, if any, filed by any of them with any
securities exchange or with the Securities and Exchange Commission, and of all
press releases and other statements made available generally to the public
containing Material developments in the business or financial condition of
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Borrower and the other Consolidated Companies;
(f) promptly upon receipt thereof, copies of all financial statements
of, and all reports submitted by, independent public accountants to Borrower in
connection with each annual, interim, or special audit of Borrower's financial
statements, including without limitation, the comment letter submitted by such
accountants to management in connection with their annual audit;
(g) as soon possible and in any event within thirty (30) days after the
Borrower or any Subsidiary knows or has reason to know that any "Reportable
Event" (as defined in Section 4043(b) of ERISA) with respect to any Plan has
occurred (other than such a Reportable Event for which the PBGC has waived the
30-day notice requirement under Section 4043(a) of ERISA) and such Reportable
Event involves a matter that has had, or is reasonably likely to have, a
Materially Adverse Effect, a statement of a Financial Officer of the Borrower or
such Subsidiary setting forth details as to such Reportable Event and the action
which the Borrower or such Subsidiary proposes to take with respect thereto,
together with a copy of the notice of such Reportable Event given to the PBGC if
a copy of such notice is available to the Borrower or such Subsidiary; and
(h) with reasonable promptness, such other information relating to the
Borrower's performance of this Agreement or its financial condition as may
reasonably be requested from time to time by the Agent.
SECTION 7.8. NOTICES UNDER CERTAIN OTHER INDEBTEDNESS.
Immediately upon its receipt thereof, Borrower shall furnish the Agent
a copy of any notice received by it or any other Consolidated Company from the
holder(s) of Indebtedness (or from any trustee, agent, attorney, or other party
acting on behalf of such holder(s)) in an amount which, in the aggregate,
exceeds $10,000,000, where such notice states or claims (i) the existence or
occurrence of any default or event of default with respect to such Indebtedness
under the terms of any indenture, loan or credit agreement, debenture, note, or
other document evidencing or governing such Indebtedness, or (ii) the existence
or occurrence of any event or condition which requires or permits holder(s) of
any Indebtedness of the Consolidated Companies to exercise rights under any
Change in Control Provision.
SECTION 7.9. NOTICE OF LITIGATION.
The Borrower shall notify the Agent of any actions, suits or
proceedings instituted by any Person against it or any Subsidiary where the
uninsured portion of the money damages sought (which shall include any
deductible amount to be paid by the Borrower or such Subsidiary) is in excess of
$10,000,000 or which is reasonably likely to have a Materially Adverse Effect.
Said notice is to be given along with the quarterly and annual
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reports required by Section 7.7. hereof, and is to specify the amount of damages
being claimed or other relief being sought, the nature of the claim, the Person
instituting the action, suit or proceeding, and any other significant features
of the claim.
SECTION 7.10. SUBSIDIARY GUARANTEES.
(a) Subject to subsection (c) below, the Borrower shall cause all of
its Restricted Subsidiaries existing as of the Closing Date to execute and
deliver a Subsidiary Guarantee and a counterpart Contribution Agreement in
substantially the same form as set forth, respectively, in Exhibits "L" and "M",
on or before April 21, 1997. The delivery of such documents shall be accompanied
by such other documents as the Agent may reasonably request (e.g., certificates
of incorporation, articles of incorporation and bylaws, membership operating
agreements, opinion letters and appropriate resolutions of the Board of
Directors of any such Subsidiary Guarantor).
(b) Subject to subsection (c) below, the Borrower shall cause all of
its Restricted Subsidiaries not existing as of the Closing Date to execute and
deliver Subsidiary Guarantees and a counterpart Contribution Agreement in
substantially the same form as set forth, respectively, in Exhibits "L" and "M",
within thirty (30) days of the creation or acquisition of any such Restricted
Subsidiary by the Borrower or other Restricted Subsidiary. The delivery of such
documents shall be accompanied by such other documents as the Agent may
reasonably request (e.g., certificates of incorporation, articles of
incorporation and bylaws, membership operating agreements, opinion letters and
appropriate resolutions of the Board of Directors of any such Subsidiary
Guarantor).
(c) Notwithstanding the foregoing subsections (a) and (b), the Borrower
shall not be required to cause any Restricted Subsidiary to deliver a Subsidiary
Guarantee and a counterpart Contribution Agreement if (i) such Restricted
Subsidiary is incorporated under any jurisdiction outside of the United States
of America (or any of its territories); (ii) the delivery of such documents
would cause such Restricted Subsidiary to violate any Requirement of Law; or
(iii) the delivery of such documents would result in any Rating Agency
downgrading the rating of the Borrower.
(d) In the event that the Borrower or any Restricted Subsidiary sells
any Subsidiary Guarantor as permitted by Section 8.4 hereof, then such
Subsidiary Guarantor shall be released from all obligations under the Subsidiary
Guarantee and Contribution Agreement which it had previously delivered to the
Agent. Such release shall occur upon the consummation of the sale and the Agent
shall execute and deliver any releases or other documents reasonably requested
by the Borrower to effectuate such release.
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ARTICLE 8. NEGATIVE COVENANTS
So long as any Commitment remains in effect hereunder or any Note shall
remain unpaid:
SECTION 8.1. FINANCIAL REQUIREMENTS.
The Borrower shall not:
(i) Fixed Charges. Suffer or permit, as of the last day of any
fiscal quarter, the ratio of (a) Consolidated Net Income
Available for Fixed Charges to (b) Fixed Charges to be less
than 2.5:1.0, as calculated for a period consisting of the
four preceding fiscal quarters.
(ii) Consolidated Funded Debt to EBITDA. Permit, as of the last day
of any fiscal quarter, the ratio of (a) Consolidated Funded
Debt to (b) EBITDA to be greater than 4.0:1.0 for fiscal
quarters ending on or before June 30, 1997, and 3.0:1.0 for
fiscal quarters ending on or after September 30, 1997, as
calculated for the four preceding fiscal quarters ending as of
such day.
(iii) Consolidated Funded Debt to Total Capitalization. Permit the
ratio of Consolidated Funded Debt to Total Capitalization as
of the last day of each fiscal quarter ending during the
periods set forth below, to exceed the ratio set forth
opposite such period
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
PERIOD RATIO
- --------------------------------------------------------------------------------
<S> <C>
Closing Date thru .65:1
June 30, 1997
- --------------------------------------------------------------------------------
September 30, 1997 thru .60:1
June 30, 1998
- --------------------------------------------------------------------------------
September 30, 1998 thru .55:1
Maturity Date
- --------------------------------------------------------------------------------
</TABLE>
SECTION 8.2. LIENS.
The Borrower will not, and will not permit any Restricted Subsidiary
to, create, assume or suffer to exist any Lien upon any of their respective
properties or assets (hereinafter "Properties") whether now owned or hereafter
acquired; provided, however,
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that this Section 8.2. shall not apply to the following:
(a) any Lien for taxes not yet due or taxes or assessments or other
governmental charges which are being actively contested in good faith by
appropriate proceedings;
(b) any Liens, pledges or deposits in connection with worker's
compensation or social security, assessments or other similar charges or
deposits incidental to the conduct of the business of the Borrower or any
Restricted Subsidiary or the ownership of any of their Properties which were not
incurred in connection with the borrowing of money or the obtaining of advances
or credit and which do not in the aggregate Materially detract from the value of
their Properties or Materially impair the use thereof in the operation of their
businesses;
(c) any Lien existing on any properties of any corporation at the time
it becomes a Restricted Subsidiary, or existing prior to the time of acquisition
upon any Properties acquired by the Borrower or any Restricted Subsidiary
through purchase, merger, consolidation or otherwise, whether or not assumed by
the Borrower or such Restricted Subsidiary;
(d) any Lien placed upon any asset at the time of its acquisition (or
within 60 days thereafter) by the Borrower or any Restricted Subsidiary to
secure all or a portion of (or to secure indebtedness incurred prior to or at
the time of the acquisition of such asset for the purpose of financing all or a
portion of) the purchase price thereof; provided, however, that any such Lien
shall not encumber any other properties of the Borrower or such Restricted
Subsidiary;
(e) statutory Liens of carriers, warehousemen, mechanics, materialmen
and other Liens imposed by law created in the ordinary course of business for
amounts not yet due or which are being contested in good faith by appropriate
proceedings;
(f) pledges or deposits for the purpose of securing a stay or discharge
in the course of any legal proceeding provided that the aggregate amount of such
pledges or deposits outstanding at any one time does not exceed five percent
(5%) of Consolidated Net Worth, unless such excess amount is otherwise permitted
pursuant to this Section 8.2;
(g) Liens consisting of encumbrances in the nature of zoning
restrictions, easements, rights and restrictions of record on the use of real
property on the date of the acquisition thereof and statutory Liens of landlords
and lessors which in any case do not Materially detract from the value of such
property or impair the use thereof;
(h) any Lien in favor of the United States of America or any department
or agency thereof, or in favor of any state government or political subdivision
thereof, or in favor of a prime contractor under a government contract of the
United States, or of any
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state government or any political subdivision thereof, and, in each case,
resulting from acceptance of partial, progress, advance or other payments in the
ordinary course of business under government contracts of the United States, or
of any state government or any political subdivision thereof, or subcontracts
thereunder;
(i) any Lien existing on the date hereof;
(j) any Lien securing Funded Debt of a Restricted Subsidiary to the
Borrower;
(k) any Lien renewing, extending, refinancing or refunding any Lien
permitted by clauses (c), (d), (e), (f), (g), (h), (i), or (j) above; provided,
however, that the principal amount secured is not increased, and the Lien is not
extended to other Properties; and
(l) any Lien other than those permitted by clauses (a) through (k)
above; provided, however, that the aggregate amount of all outstanding
obligations secured by Liens permitted by this clause (l) shall not at any time
exceed ten percent (10%) of the Consolidated Net Worth, and when combined
(without duplication) with outstanding Funded Debt of the Restricted
Subsidiaries, such total shall not exceed 20% of Total Capitalization.
SECTION 8.3. LIMITATIONS ON FUNDED DEBT OF RESTRICTED SUBSIDIARIES.
The Borrower will not permit any Restricted Subsidiary to incur or
suffer to exist Funded Debt other than:
(a) Funded Debt of the Restricted Subsidiaries existing on the date of
this Agreement and any renewal, extension, refunding, or refinancing thereof;
(b) additional unsecured or secured (to the extent permitted by Section
8.2. above) Funded Debt which, when aggregated (without duplication) with the
outstanding Funded Debt of all the Restricted Subsidiaries, does not exceed 20%
of the Total Capitalization at the end of each fiscal quarter;
(c) Funded Debt of Waldorf Corporation in the aggregate principal
amount of $100,000,000 evidenced by its 7.42% Senior Notes due June 30, 2005
(the "Waldorf Debt"), provided, that such Funded Debt shall cease to be
permitted under this Section 8.3.(c) on and after June 30, 1997; and
(d) Funded Debt of Waldorf Corporation under the Waldorf Credit
Agreement in the amount and type described in Schedule 6.18 , provided that such
Funded Debt shall cease to be permitted under this Section 8.3(d) on or after
April 21, 1997.
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SECTION 8.4. MERGER AND SALE OF ASSETS.
The Borrower will not, without the prior written consent of the
Required Lenders, merge or consolidate with any other corporation or sell, lease
or transfer or otherwise dispose of all or, during any twelve-month period, a
substantial part of its assets (for purposes of this Section 8.4., substantial
means assets sold, leased, transferred or otherwise disposed of other than in
the ordinary course of business with a book value aggregating an amount greater
than 15% of Consolidated Net Worth, determined by reference to the most recent
audited Financial Report), to any person or entity other than in the ordinary
course of business, nor will the Borrower permit any Restricted Subsidiary to
take any of the above actions; provided that notwithstanding any of the
foregoing limitations, if no Event of Default shall then exist or immediately
thereafter will begin to exist, the Borrower and the Restricted Subsidiaries may
take the following actions (none of which shall be included in calculating the
percentage in the immediately preceding parenthetical):
(a) Any Restricted Subsidiary may merge with (i) the Borrower (provided
that the Borrower shall be the continuing or surviving corporation) or (ii) any
one or more other Subsidiaries provided that either the continuing or surviving
corporation shall be a Restricted Subsidiary or after giving effect to any
merger pursuant to this Section 8.4., the Borrower and/or one or more Restricted
Subsidiaries shall own not less than the same percentage of the outstanding
Voting Stock of the continuing or surviving corporation as the Borrower and/or
one or more Restricted Subsidiaries owned of the merged Restricted Subsidiary
immediately prior to such merger;
(b) Any Restricted Subsidiary may sell, lease, transfer or otherwise
dispose of any of its assets to (i) the Borrower, (ii) any Restricted Subsidiary
or (iii) any Subsidiary of which the Borrower and/or one or more Restricted
Subsidiaries shall own not less than the same percentage of Voting Stock as the
Borrower and/or one or more Restricted Subsidiaries then own of the Restricted
Subsidiary making such sale, lease, transfer or other disposition;
(c) The Borrower may sell, lease, transfer or otherwise dispose of a
substantial part of its assets to any Subsidiary, provided (i) that upon
completion of a transaction described in this Section 8.4.(c), there shall exist
no Default or Event of Default and (ii) that upon completion of a transaction
described in this Section 8.4.(c), the Subsidiary to which the Borrower's assets
are sold, leased, transferred or otherwise disposed shall be a Restricted
Subsidiary;
(d) The Borrower may merge with any other corporation, provided that
the Borrower shall be the surviving corporation and shall be able to incur at
least $1.00 of Funded Debt under the provisions of this Agreement;
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(e) The Borrower or any of its Restricted Subsidiaries may sell assets
to any Person provided that the Borrower or such Restricted Subsidiary is
obligated to lease such assets from such Person within one hundred and eighty
(180) days provided, however, that the aggregate book value of such assets,
together with the aggregate book value of all other assets sold in all such
transactions during the then previous twelve-month period shall not exceed an
aggregate amount greater than 15% of Consolidated Net Worth determined by
reference to the then most recent audited Financial Report; and
(f) The Borrower and its Subsidiaries may transfer the assets which
constitute their solid fiber partition division to the Sonoco Joint Venture.
SECTION 8.5. TRANSACTIONS WITH AFFILIATES.
The Borrower will not, and will not permit any Restricted Subsidiary
to, enter into or be a party to any transaction or arrangement with any
Affiliate (including without limitation, the purchase from, sale to or exchange
of property with, or the rendering of any service by or for, any Affiliates),
except in the ordinary course of and pursuant to the reasonable requirements of
the Borrower's or such Subsidiary's business and upon fair and reasonable terms
no less favorable to the Borrower or such Subsidiary than such party would
obtain in a comparable arm's-length transaction with a Person other than an
Affiliate.
SECTION 8.6. NATURE OF BUSINESS.
Neither the Borrower nor any Restricted Subsidiary will engage in any
business if, as a result, the general nature of the business, taken on a
consolidated basis, which would then be engaged in by the Borrower and its
Restricted Subsidiaries would be fundamentally changed from the general nature
of the business engaged in by the Borrower and its Restricted Subsidiaries on
the date of this Agreement, which the parties agree is the manufacture and sale
of paperboard, paperboard and plastic products, other types of packaging
material and similar products and services connected or incidental thereto.
SECTION 8.7. REGULATIONS G, T, U AND X.
The Borrower will not nor will it permit any Subsidiary to take any
action that would result in any non-compliance of the Advances made hereunder
with Regulations G, T, U and X of the Board of Governors of the Federal Reserve
System.
SECTION 8.8. ERISA COMPLIANCE.
Neither the Borrower nor any Subsidiary will incur any Material
"accumulated funding deficiency" within the meaning of Section 302(a)(2) of
ERISA, or any Material liability under Section 4062 of ERISA to the Pension
Benefit Guaranty Corporation ("PBGC") established thereunder in connection with
any Plan.
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SECTION 8.9. LIMITATIONS ON SUBSIDIARIES WHICH ARE NOT RESTRICTED
SUBSIDIARIES.
The Borrower will not allow any Unrestricted Subsidiary:
(a) to own any capital stock or right or option to acquire capital
stock of a Consolidated Company, or own or hold any Lien on any property of any
Consolidated Company; and
(b) to create, incur, issue, assume, guarantee or otherwise become
directly or indirectly liable with respect to, or suffer to exist any
Indebtedness pursuant to which the lender has recourse to any Consolidated
Company or to any of the assets of any Consolidated Company ("Recourse Debt")
other than Recourse Debt which, when aggregated (without duplication) with the
outstanding Recourse Debt of all the Unrestricted Subsidiaries, does not exceed
15% of the Total Capitalization at the end of each fiscal quarter.
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ARTICLE 9. EVENTS OF DEFAULT
Upon the occurrence and during the continuance of any of the following
specified events (each an "Event of Default"):
SECTION 9.1. PAYMENTS.
Borrower shall fail to make promptly when due (including, without
limitation, by mandatory prepayment) any principal payment with respect to the
Loans, or Borrower shall fail to make any payment of interest, fee or other
amount payable hereunder within three (3) Business Days of the due date thereof;
SECTION 9.2. COVENANTS WITHOUT NOTICE.
Borrower shall fail to observe or perform any covenant or agreement
contained in Sections 7.7.(a), (b), (c) and (d), Section 7.10 or Article 8.;
SECTION 9.3. OTHER COVENANTS.
Borrower shall fail to observe or perform any covenant or agreement
contained in this Agreement, other than those referred to in Sections 9.1. and
9.2., and such failure shall remain unremedied for 30 days after the earlier of
(i) an Executive Officer of the Borrower obtaining knowledge thereof, or (ii)
written notice thereof shall have been given to Borrower by Agent or any Lender;
SECTION 9.4. REPRESENTATIONS.
Any representation or warranty made or deemed to be made by Borrower or
any other Consolidated Company or by any of its officers under this Agreement or
any other Credit Document (including the Schedules attached thereto), or any
certificate or other document submitted to the Agent or the Lenders by any such
Person pursuant to the terms of this Agreement or any other Credit Document,
shall be incorrect in any material respect when made or deemed to be made or
submitted;
SECTION 9.5. NON-PAYMENTS OF OTHER INDEBTEDNESS.
Any Consolidated Company shall fail to make when due (whether at stated
maturity, by acceleration, on demand or otherwise, and after giving effect to
any applicable grace period) any payment of principal of or interest on any
Indebtedness (other than the Obligations) exceeding $10,000,000 individually or
in the aggregate;
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SECTION 9.6. DEFAULTS UNDER OTHER AGREEMENTS.
Any Consolidated Company shall fail to observe or perform within any
applicable grace period any covenants or agreements contained in any agreements
or instruments relating to any of its Indebtedness exceeding $10,000,000
individually or in the aggregate, or any other event shall occur if the effect
of such failure or other event is to accelerate, or to permit the holder of such
Indebtedness or any other Person to accelerate, the maturity of such
Indebtedness; or any such Indebtedness shall be required to be prepaid (other
than by a regularly scheduled required prepayment) in whole or in part prior to
its stated maturity;
SECTION 9.7. BANKRUPTCY.
Borrower or any other Consolidated Company shall commence a voluntary
case concerning itself under the Bankruptcy Code or applicable foreign
bankruptcy laws; or an involuntary case for bankruptcy is commenced against any
Consolidated Company and the petition is not controverted within 30 days, or is
not dismissed within 60 days, after commencement of the case; or a custodian (as
defined in the Bankruptcy Code) or similar official under applicable foreign
bankruptcy laws is appointed for, or takes charge of, all or any substantial
part of the property of any Consolidated Company; or any Consolidated Company
commences proceedings of its own bankruptcy or to be granted a suspension of
payments or any other proceeding under any reorganization, arrangement,
adjustment of debt, relief of debtors, dissolution, insolvency or liquidation or
similar law of any jurisdiction, whether now or hereafter in effect, relating to
any Consolidated Company or there is commenced against any Consolidated Company
any such proceeding which remains undismissed for a period of 60 days; or any
Consolidated Company is adjudicated insolvent or bankrupt; or any order of
relief or other order approving any such case or proceeding is entered; or any
Consolidated Company suffers any appointment of any custodian or the like for it
or any substantial part of its property to continue undischarged or unstayed for
a period of 60 days; or any Consolidated Company makes a general assignment for
the benefit of creditors; or any Consolidated Company shall fail to pay, or
shall state that it is unable to pay, or shall be unable to pay, its debts
generally as they become due; or any Consolidated Company shall call a meeting
of its creditors with a view to arranging a composition or adjustment of its
debts; or any Consolidated Company shall by any act or failure to act indicate
its consent to, approval of or acquiescence in any of the foregoing; or any
corporate action is taken by any Consolidated Company for the purpose of
effecting any of the foregoing;
SECTION 9.8. ERISA.
A Plan of a Consolidated Company or a Plan subject to Title IV of ERISA
of any of its ERISA Affiliates
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(i) shall fail to be funded in accordance with the minimum funding
standard required by applicable law, the terms of such Plan,
Section 412 of the Tax Code or Section 302 of ERISA for any
plan year or a waiver of such standard is sought or granted
with respect to such Plan under applicable law, the terms of
such Plan or Section 412 of the Tax Code or Section 303 of
ERISA; or
(ii) is being, or has been, terminated or the subject of
termination proceedings under applicable law or the terms of
such Plan; or
(iii) shall require a Consolidated Company to provide security under
applicable law, the terms of such Plan, Section 401 or 412 of
the Tax Code or Section 306 or 307 of ERISA; or
(iv) results in a liability to a Consolidated Company under
applicable law, the terms of such Plan, or Title IV of ERISA;
and there shall result from any such failure, waiver, termination or other event
a liability to the PBGC or a Plan that would have a Materially Adverse Effect.
SECTION 9.9. MONEY JUDGMENT.
Judgments or orders for the payment of money in excess of $10,000,000
individually or in the aggregate or otherwise having a Materially Adverse Effect
shall be rendered against Borrower or any other Consolidated Company and such
judgment or order shall continue unsatisfied (in the case of a money judgment)
and in effect for a period of 30 days during which execution shall not be
effectively stayed or deferred (whether by action of a court, by agreement or
otherwise);
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SECTION 9.10. DEFAULT UNDER OTHER CREDIT DOCUMENTS.
There shall exist or occur any "Event of Default" as provided under the
terms of any Credit Document, or any Credit Document ceases to be in full force
and effect or the validity or enforceability thereof is disaffirmed by or on
behalf of Borrower or any other Consolidated Company, or at any time it is or
becomes unlawful for Borrower or any other Consolidated Company to perform or
comply with its obligations under any Credit Document, or the obligations of
Borrower or any other Consolidated Company under any Credit Document are not or
cease to be legal, valid and binding on Borrower or any such Consolidated
Company;
then, and in any such event, and at any time thereafter if any Event of Default
shall then be continuing, the Agent may, and upon the written or telex request
of the Required Lenders, shall, by written notice to Borrower, take any or all
of the following actions, without prejudice to the rights of the Agent, any
Lender or the holder of any Note to enforce its claims against Borrower or any
other Consolidated Company: (i) declare all Commitments terminated, whereupon
the Commitments of each Lender shall terminate immediately and any facility fee
shall forthwith become due and payable without any other notice of any kind;
(ii) declare the principal of and any accrued interest on the Loans, and all
other Obligations owing hereunder to be, whereupon the same shall become,
forthwith due and payable without presentment, demand, protest or other notice
of any kind, all of which are hereby waived by the Borrower; provided, that, if
an Event of Default specified in Section 9.7. shall occur, the result which
would occur upon the giving of written notice by the Agent to any Consolidated
Company, as specified in clauses (i) and (ii) above, shall occur automatically
without the giving of any such notice, and (iii) may exercise any other rights
or remedies available under the Credit Documents, at law or in equity.
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ARTICLE 10. THE AGENT
SECTION 10.1. APPOINTMENT OF AGENT.
Each Lender hereby designates SunTrust as Agent to administer all
matters concerning the Loans and to act as herein specified. Each Lender hereby
irrevocably authorizes, and each holder of any Note by the acceptance of a Note
shall be deemed irrevocably to authorize, the Agent to take such actions on its
behalf under the provisions of this Agreement, the other Credit Documents, and
all other instruments and agreements referred to herein or therein, and to
exercise such powers and to perform such duties hereunder and thereunder as are
specifically delegated to or required of the Agent by the terms hereof and
thereof and such other powers as are reasonably incidental thereto. The Agent
may perform any of its duties hereunder by or through its agents or employees.
SECTION 10.2. AUTHORIZATION OF AGENT WITH RESPECT TO THE SECURITY
DOCUMENTS.
(a) Each Lender hereby authorizes the Agent to enter into any Security
Documents, and to take all action contemplated thereby. All rights and remedies
under any Security Documents may be exercised by the Agent for the benefit of
the Agent and the Lenders and the other beneficiaries thereof upon the terms
thereof. The Lenders further agree that the Agent may assign its rights and
obligations under any of the Security Documents to any affiliate of the Agent or
to any trustee, if necessary or appropriate under applicable law, which assignee
in each such case shall (subject to compliance with any requirements of
applicable law governing the assignment of such Security Documents) be entitled
to all the rights of the Agent under and with respect to any applicable Security
Document.
(b) In each circumstance where, under any provision of any Security
Document, the Agent shall have the right to grant or withhold any consent,
exercise any remedy, make any determination or direct any action by the Agent
under such Security Document, the Agent shall act in respect of such consent,
exercise of remedies, determination or action, as the case may be, with the
consent of and at the direction of the Required Lenders; provided, however, that
no such consent of the Required Lenders shall be required with respect to any
consent, determination or other matter that is, in the Agent's judgment,
ministerial or administrative in nature. In each circumstance where any consent
of or direction from the Required Lenders is required, the Agent shall send to
the Lenders a notice setting forth a description in reasonable detail of the
matter as to which consent or direction is requested and the Agent's proposed
course of action with respect thereto. In the event the Agent shall not have
received a response from any Lender within five (5) Business Days after such
Lender's receipt of such notice, such Lender shall be deemed to have agreed to
the course of action proposed by the Agent.
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SECTION 10.3. NATURE OF DUTIES OF AGENT.
The Agent shall have no duties or responsibilities except those
expressly set forth in this Agreement and the other Credit Documents. None of
the Agent nor any of its respective officers, directors, employees or agents
shall be liable for any action taken or omitted by it as such hereunder or in
connection herewith, unless caused by its or their gross negligence or willful
misconduct. The duties of the Agent shall be ministerial and administrative in
nature; the Agent shall not have by reason of this Agreement a fiduciary
relationship in respect of any Lender; and nothing in this Agreement, express or
implied, is intended to or shall be so construed as to impose upon the Agent any
obligations in respect of this Agreement or the other Credit Documents except as
expressly set forth herein.
SECTION 10.4. LACK OF RELIANCE ON THE AGENT.
(a) Independently and without reliance upon the Agent, each Lender, to
the extent it deems appropriate, has made and shall continue to make (i) its own
independent investigation of the financial condition and affairs of the
Consolidated Companies in connection with the taking or not taking of any action
in connection herewith, and (ii) its own appraisal of the creditworthiness of
the Consolidated Companies, and, except as expressly provided in this Agreement,
the Agent shall have no duty or responsibility, either initially or on a
continuing basis, to provide any Lender with any credit or other information
with respect thereto, whether coming into its possession before the making of
the Loans or at any time or times thereafter.
(b) The Agent shall not be responsible to any Lender for any recitals,
statements, information, representations or warranties herein or in any
document, certificate or other writing delivered in connection herewith or for
the execution, effectiveness, genuineness, validity, enforceability,
collectibility, priority or sufficiency of this Agreement, the Notes, or any
other documents contemplated hereby or thereby, or the financial condition of
the Consolidated Companies, or be required to make any inquiry concerning either
the performance or observance of any of the terms, provisions or conditions of
this Agreement, the Notes, or the other documents contemplated hereby or
thereby, or the financial condition of the Consolidated Companies, or the
existence or possible existence of any Default or Event of Default.
SECTION 10.5. CERTAIN RIGHTS OF THE AGENT.
If the Agent shall request instructions from the Required Lenders with
respect to any action or actions (including the failure to act) in connection
with this Agreement, the Agent shall be entitled to refrain from such act or
taking such act, unless and until the Agent shall have received instructions
from the Required Lenders; and the Agent shall not incur liability in any Person
by reason of so refraining. Without limiting the
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foregoing, no Lender shall have any right of action whatsoever against the Agent
as a result of the Agent acting or refraining from acting hereunder in
accordance with the instructions of the Required Lenders.
SECTION 10.6. RELIANCE BY AGENT.
The Agent shall be entitled to rely, and shall be fully protected in
relying, upon any note, writing, resolution, notice, statement, certificate,
telex, teletype or telecopier message, cable gram, radiogram, order or other
documentary, teletransmission or telephone message believed by it to be genuine
and correct and to have been signed, sent or made by the proper Person. The
Agent may consult with legal counsel (including counsel for any Consolidated
Company), independent public accountants and other experts selected by it and
shall not be liable for any action taken or omitted to be taken by it in good
faith in accordance with the advice of such counsel, accountants or experts.
SECTION 10.7. INDEMNIFICATION OF AGENT.
To the extent the Agent is not reimbursed and indemnified by the
Consolidated Companies, each Lender will reimburse and indemnify the Agent,
ratably according to the respective amounts of the Loans outstanding under all
Facilities (or if no amounts are outstanding, ratably in accordance with the
Total Commitments), in either case, for and against any and all liabilities,
obligations, losses, damages, penalties, actions, judgments, suits, costs,
expenses (including counsel fees and disbursements) or disbursements of any kind
or nature whatsoever which may be imposed on, incurred by or asserted against
the Agent in performing its duties hereunder, in any way relating to or arising
out of this Agreement or the other Credit Documents; provided that no Lender
shall be liable to the Agent for any portion of such liabilities, obligations,
losses, damages, penalties, actions, judgments, suits, costs, expenses or
disbursements resulting from the Agent's gross negligence or willful misconduct.
SECTION 10.8. THE AGENT IN ITS INDIVIDUAL CAPACITY.
With respect to its obligation to lend under this Agreement, the Loans
made by it and the Notes issued to it, the Agent shall have the same rights and
powers hereunder as any other Lender or holder of a Note and may exercise the
same as though it were not performing the duties specified herein; and the terms
"Lenders", "Required Lenders", "holders of Notes", or any similar terms shall,
unless the context clearly otherwise indicates, include the Agent in its
individual capacity. The Agent may accept deposits from, lend money to, and
generally engage in any kind of banking, trust, financial advisory or other
business with the Consolidated Companies or any Affiliate of the Consolidated
Companies as if it were not performing the duties specified herein, and may
accept fees and other consideration from the Consolidated Companies for services
in connection with this Agreement and otherwise without having to account for
the same to the Lenders.
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SECTION 10.9. HOLDERS OF NOTES.
The Agent may deem and treat the payee of any Note as the owner thereof
for all purposes hereof unless and until a written notice of the assignment or
transfer thereof shall have been filed with the Agent. Any request, authority or
consent of any Person who, at the time of making such request or giving such
authority or consent, is the holder of any Note shall be conclusive and binding
on any subsequent holder, transferee or assignee of such Note or of any Note or
Notes issued in exchange therefor.
SECTION 10.10. SUCCESSOR AGENT.
(a) The Agent may resign at any time by giving written notice thereof
to the Lenders and Borrower and may be removed at any time with or without cause
by the Required Lenders; provided, however, the Agent may not resign or be
removed until a successor Agent has been appointed and shall have accepted such
appointment. Upon any such resignation or removal, the Required Lenders shall
have the right to appoint a successor Agent subject to Borrower's prior written
approval. If no successor Agent shall have been so appointed by the Required
Lenders, and shall have accepted such appointment, within 30 days after the
retiring Agent's giving of notice of resignation or the Required Lenders'
removal of the retiring Agent, then the retiring Agent may, on behalf of the
Lenders, appoint a successor Agent subject to Borrower's prior written approval,
which shall be a bank which maintains an office in the United States, or a
commercial bank organized under the laws of the United States of America or any
State thereof, or any Affiliate of such bank, having a combined capital and
surplus of at least $100,000,000. In the event that the Agent is no longer a
Lender hereunder, the Agent shall promptly resign as Agent.
(b) Upon the acceptance of any appointment as the Agent hereunder by a
successor Agent, such successor Agent shall thereupon succeed to and become
vested with all the rights, powers, privileges and duties of the retiring Agent,
and the retiring Agent shall be discharged from its duties and obligations under
this Agreement. After any retiring Agent's resignation or removal hereunder as
Agent, the provisions of this Article 10. shall inure to its benefit as to any
actions taken or omitted to be taken by it while it was an Agent under this
Agreement.
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ARTICLE 11. MISCELLANEOUS
SECTION 11.1. NOTICES.
All notices, requests and other communications to any party hereunder
shall be in writing (including bank wire, telex, telecopy or similar
teletransmission or writing) and shall be given to such party at its address or
applicable teletransmission number set forth on the signature pages hereof, or
such other address or applicable teletransmission number as such party may
hereafter specify by notice to the Agent and Borrower. Each such notice, request
or other communication shall be effective (i) if given by telex, when such telex
is transmitted to the telex number specified in this Section and the appropriate
answerback is received, (ii) if given by mail, three Business Days after such
communication is deposited in the mails with first class postage prepaid,
addressed as aforesaid, (iii) if given by telecopy, when such telecopy is
transmitted to the telecopy number specified in this Section and the appropriate
confirmation is received, or (iv) if given by any other means (including,
without limitation, by air courier), when delivered or received at the address
specified in this Section; provided that notices to the Agent shall not be
effective until received.
SECTION 11.2. AMENDMENTS, ETC.
No amendment or waiver of any provision of this Agreement or the other
Credit Documents, nor consent to any departure by any Consolidated Company
therefrom, shall in any event be effective unless the same shall be in writing
and signed by the Required Lenders, and then such waiver or consent shall be
effective only in the specific instance and for the specific purpose for which
given; provided that no amendment, waiver or consent shall, unless in writing
and signed by all the Lenders do any of the following: (i) waive any of the
conditions specified in Section 5.1. or 5.2., (ii) increase the Commitments or
other contractual obligations to Borrower under this Agreement, (iii) reduce the
principal of, or interest on, the Notes or any fees hereunder, (iv) postpone any
date fixed for the payment in respect of principal of, or interest on, the Notes
or any fees hereunder, (v) change the percentage of the Commitments or of the
aggregate unpaid principal amount of the Notes, or the number or identity of
Lenders which shall be required for the Lenders or any of them to take any
action hereunder, (vi) modify the definition of "Required Lenders," (vii)
reduce any obligation owed under or release any Subsidiary Guarantee (except as
required under Section 7.10(d). or (viii) modify this Section 11.2.
Notwithstanding the foregoing, no amendment, waiver or consent shall, unless in
writing and signed by the Agent in addition to the Lenders required hereinabove
to take such action, affect the rights or duties of the Agent under this
Agreement or under any other Credit Document.
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SECTION 11.3. NO WAIVER; REMEDIES CUMULATIVE.
No failure or delay on the part of the Agent, any Lender or any holder
of a Note in exercising any right or remedy hereunder or under any other Credit
Document, and no course of dealing between any Consolidated Company and the
Agent, any Lender or the holder of any Note shall operate as a waiver thereof,
nor shall any single or partial exercise of any right or remedy hereunder or
under any other Credit Document preclude any other or further exercise thereof
or the exercise of any other right or remedy hereunder or thereunder. The rights
and remedies herein expressly provided are cumulative and not exclusive of any
rights or remedies which the Agent, any Lender or the holder of any Note would
otherwise have. No notice to or demand on any Consolidated Company not required
hereunder or under any other Credit Document in any case shall entitle any
Consolidated Company to any other or further notice or demand in similar or
other circumstances or constitute a waiver of the rights of the Agent, the
Lenders or the holder of any Note to any other or further action in any
circumstances without notice or demand.
SECTION 11.4. PAYMENT OF EXPENSES, ETC.
Borrower shall:
(i) whether or not the transactions hereby contemplated are
consummated, pay all reasonable, out-of-pocket costs and
expenses of the Agent in connection with the preparation,
execution and delivery of, preservation of rights under,
enforcement of, and, after a Default or Event of Default or,
upon the request of the Borrower, refinancing, renegotiation
or restructuring of, this Agreement and the other Credit
Documents and the documents and instruments referred to
therein, and any amendment, waiver or consent relating thereto
(including, without limitation, the reasonable fees actually
incurred and disbursements of counsel for the Agent), and in
the case of enforcement of this Agreement or any Credit
Document after an Event of Default, all such reasonable,
out-of-pocket costs and expenses (including, without
limitation, the reasonable fees actually incurred and
reasonable disbursements and charges of counsel), for any of
the Lenders;
(ii) subject, in the case of certain Taxes, to the applicable
provisions of Section 4.8.(b), pay and hold each of the
Lenders harmless from and against any and all present and
future stamp, documentary, and other similar Taxes with
respect to this Agreement, the Notes and any other Credit
Documents, any collateral described therein, or any payments
due thereunder, and save each Lender harmless
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from and against any and all liabilities with respect to or
resulting from any delay or omission to pay such Taxes; and
(iii) indemnify the Agent and each Lender, and their respective
officers, directors, employees, representatives and agents
from, and hold each of them harmless against, any and all
costs, losses, liabilities, claims, damages or expenses
incurred by any of them (whether or not any of them is
designated a party thereto) (an "Indemnitee") arising out of
or by reason of any investigation, litigation or other
proceeding related to any actual or proposed use of the
proceeds of any of the Loans or any Consolidated Company
entering into and performing of the Agreement, the Notes, or
the other Credit Documents, including, without limitation, the
reasonable fees actually incurred and disbursements of counsel
incurred in connection with any such investigation, litigation
or other proceeding; provided, however, Borrower shall not be
obligated to indemnify any Indemnitee for any of the foregoing
arising out of such Indemnitee's gross negligence or willful
misconduct;
(iv) without limiting the indemnities set forth in subsection (iii)
above, indemnify each Indemnitee for any and all expenses and
costs (including without limitation, remedial, removal,
response, abatement, cleanup, investigative, closure and
monitoring costs), losses, claims (including claims for
contribution or indemnity and including the cost of
investigating or defending any claim and whether or not such
claim is ultimately defeated, and whether such claim arose
before, during or after any Consolidated Company's ownership,
operation, possession or control of its business, property or
facilities or before, on or after the date hereof, and
including also any amounts paid incidental to any compromise
or settlement by the Indemnitee or Indemnitees to the holders
of any such claim), lawsuits, liabilities, obligations,
actions, judgments, suits, disbursements, encumbrances, liens,
damages (including without limitation damages for
contamination or destruction of natural resources), penalties
and fines of any kind or nature whatsoever (including without
limitation in all cases the reasonable fees actually incurred,
other charges and disbursements of counsel in connection
therewith) incurred, suffered or sustained by that Indemnitee
based upon, arising under or relating to Environmental Laws
based on, arising out of or relating to in whole or in part,
the existence or exercise of any rights or remedies by any
Indemnitee under this Agreement, any other Credit Document or
any related
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documents.
If and to the extent that the obligations of Borrower under this
Section 11.4. are unenforceable for any reason, Borrower hereby agrees to make
the maximum contribution to the payment and satisfaction of such obligations
which is permissible under applicable law.
SECTION 11.5. RIGHT OF SETOFF.
In addition to and not in limitation of all rights of offset that any
Lender or other holder of a Note may have under applicable law, each Lender or
other holder of a Note shall, upon the occurrence and during the continuation of
any Event of Default and whether or not such Lender or such holder has made any
demand or any Consolidated Company's obligations have matured, have the right to
appropriate and apply to the payment of any Consolidated Company's obligations
hereunder and under the other Credit Documents, all deposits of any Consolidated
Company (general or special, time or demand, provisional or final) then or
thereafter held by and other indebtedness or property then or thereafter owing
by such Lender or other holder to any Consolidated Company, whether or not
related to this Agreement or any transaction hereunder.
SECTION 11.6. BENEFIT OF AGREEMENT; ASSIGNMENTS AND PARTICIPATIONS.
(a) This Agreement shall be binding upon and inure to the benefit of
and be enforceable by the respective successors and assigns of the parties
hereto, provided that Borrower may not assign or transfer any of its interest
hereunder without the prior written consent of the Lenders.
(b) Any Lender may make, carry or transfer Loans at, to or for the
account of, any of its branch offices or the office of an Affiliate of such
Lender.
(c) Each Lender may assign all or a portion of its interests, rights
and obligations under this Agreement (including all or a portion of its
Commitment and the Loans at the time owing to it and the Notes held by it) to
any financial institution; provided, however, that (i) the Agent and, except
during the continuance of a Default or Event of Default, the Borrower must give
their prior written consent to such assignment (which consent shall not be
unreasonably withheld or delayed) unless such assignment is to an Affiliate of
the assigning Lender, (ii) the amount of the Commitments of the assigning Lender
subject to each assignment (determined as of the date the assignment and
acceptance with respect to such assignment is delivered to the Agent) shall not
be less than an amount equal to $10,000,000 or greater integral multiplies
thereof, and (iii) the parties to each such assignment shall execute and deliver
to the Agent an Assignment and Acceptance, together with the Note or Notes
subject to such assignment and, unless such assignment is to an Affiliate of
such Lender, a processing and recordation fee of $2,500.
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Borrower shall not be responsible for such processing and recordation fee or any
costs or expenses incurred by any Lender or the Agent in connection with such
assignment. From and after the effective date specified in each Assignment and
Acceptance, which effective date shall be at least five (5) Business Days after
the execution thereof, the assignee thereunder shall be a party hereto and to
the extent of the interest assigned by such Assignment and Acceptance, have the
rights and obligations of a Lender under this Agreement. Within five (5)
Business Days after receipt of the notice and the Assignment and Acceptance,
Borrower, at its own expense, shall execute and deliver to the Agent, in
exchange for the surrendered Note or Notes, a new Note or Notes to the order of
such assignee in a principal amount equal to the applicable Commitments assumed
by it pursuant to such Assignment and Acceptance and new Note or Notes to the
assigning Lender in the amount of its retained Commitment or Commitments. Such
new Note or Notes shall be in an aggregate principal amount equal to the
aggregate principal amount of such surrendered Note or Notes, shall be dated the
date of the surrendered Note or Notes which they replace, and shall otherwise be
in substantially the form attached hereto.
(d) Each Lender may sell participations to one or more banks or other
entities in all or a portion of its rights and obligations under this Agreement
(including all or a portion of its Commitments in the Loans owing to it and the
Notes held by it), provided, however, that (i) no Lender may sell a
participation in its aggregate Commitments (after giving effect to any permitted
assignment hereof) in an amount in excess of fifty percent (50%) of such
aggregate Commitments, provided, however, sales of participations to an
Affiliate of such Lender shall not be included in such calculation and shall not
require the consent of the Borrower; provided, however, no such maximum amount
shall be applicable to any such participation sold at any time there exists an
Event of Default hereunder, (ii) such Lender's obligations under this Agreement
shall remain unchanged, (iii) such Lender shall remain solely responsible to the
other parties hereto for the performance of such obligations, and (iv) the
participating bank or other entity shall not be entitled to the benefit (except
through its selling Lender) of the cost protection provisions contained in
Article 4. of this Agreement, and (v) Borrower and the Agent and other Lenders
shall continue to deal solely and directly with each Lender in connection with
such Lender's rights and obligations under this Agreement and the other Credit
Documents, and such Lender shall retain the sole right to enforce the
obligations of Borrower relating to the Loans and to approve any amendment,
modification or waiver of any provisions of this Agreement.
(e) Any Lender or participant may, in connection with the assignment or
participation or proposed assignment or participation, pursuant to this Section,
disclose to the assignee or participant or proposed assignee or participant any
information relating to Borrower or the other Consolidated Companies furnished
to such Lender by or on behalf of Borrower or any other Consolidated Company.
With respect to any disclosure of confidential, non-public, proprietary
information, such proposed assignee or participant shall
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agree to use the information only for the purpose of making any necessary credit
judgments with respect to this credit facility and not to use the information in
any manner prohibited by any law, including without limitation, the securities
laws of the United States. The proposed participant or assignee shall agree not
to disclose any of such information except as permitted by Section 11.15.
hereof. The proposed participant or assignee shall further agree to return all
documents or other written material and copies thereof received from any Lender,
the Agent or Borrower relating to such confidential information unless otherwise
properly disposed of by such entity.
(f) Any Lender may at any time assign all or any portion of its rights
in this Agreement and the Notes issued to it to a Federal Reserve Bank; provided
that no such assignment shall release the Lender from any of its obligations
hereunder.
(g) If (i) any Taxes referred to in Section 4.8.(b) have been levied or
imposed so as to require withholdings and reductions by the Borrower and payment
by the Borrower of additional amounts to any Lender as a result thereof or any
Lender shall make demand for payment of any material additional amounts as
compensation for increased costs pursuant to Section 4.11., then and in such
event, upon request from the Borrower delivered to such Lender and the Agent,
such Lender shall assign, in accordance with the provisions of Section 11.6.(c),
all of its rights and obligations under this Agreement and the other Credit
Documents to another Lender or other financial institution selected by the
Borrower and consented to by the Agent in consideration for the payment by such
assignee to the Lender of the principal of and interest on the outstanding Loans
accrued to the date of such assignment and the assumption of such Lender's
Revolving Credit Commitment, together with any and all other amounts owing to
such Lender under any provisions of this Agreement or the other Credit Documents
accrued to the date of such assignment.
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SECTION 11.7. GOVERNING LAW; SUBMISSION TO JURISDICTION; WAIVER OF
JURY TRIAL.
(a) THIS AGREEMENT AND THE RIGHTS AND OBLIGATIONS OF THE PARTIES
HEREUNDER AND UNDER THE NOTES SHALL BE CONSTRUED IN ACCORDANCE WITH AND BE
GOVERNED BY THE LAW (WITHOUT GIVING EFFECT TO THE CONFLICT OF LAW PRINCIPLES
THEREOF) OF THE STATE OF GEORGIA.
(b) ANY LEGAL ACTION OR PROCEEDING WITH RESPECT TO THIS AGREEMENT, THE
NOTES OR ANY OTHER CREDIT DOCUMENT MAY BE BROUGHT IN THE SUPERIOR COURT OF
FULTON COUNTY, GEORGIA, OR ANY OTHER COURT OF THE STATE OF GEORGIA OR OF THE
UNITED STATES OF AMERICA FOR THE NORTHERN DISTRICT OF GEORGIA, AND, BY EXECUTION
AND DELIVERY OF THIS AGREEMENT, BORROWER HEREBY ACCEPTS FOR ITSELF AND IN
RESPECT OF ITS PROPERTY, GENERALLY AND UNCONDITIONALLY, THE JURISDICTION OF THE
AFORESAID COURTS.
(c) THE PARTIES HERETO HEREBY IRREVOCABLY WAIVE TRIAL BY JURY, AND
BORROWER HEREBY IRREVOCABLY WAIVES ANY OBJECTION, INCLUDING, WITHOUT LIMITATION,
ANY OBJECTION TO THE LAYING OF VENUE OR BASED ON THE GROUNDS OF FORUM NON
CONVENIENS, WHICH IT MAY NOW OR HEREAFTER HAVE TO THE BRINGING OF ANY SUCH
ACTION OR PROCEEDING IN SUCH RESPECTIVE JURISDICTIONS.
(d) Nothing herein shall affect the right of the Agent, any Lender, any
holder of a Note or any Consolidated Company to serve process in any other
manner permitted by law or to commence legal proceedings or otherwise proceed
against Borrower in any other jurisdiction.
SECTION 11.8. INDEPENDENT NATURE OF LENDERS' RIGHTS.
The amounts payable at any time hereunder to each Lender shall be a
separate and independent debt, and each Lender shall be entitled to protect and
enforce its rights pursuant to this Agreement and its Notes, and it shall not be
necessary for any other Lender to be joined as an additional party in any
proceeding for such purpose.
SECTION 11.9. COUNTERPARTS.
This Agreement may be executed in any number of counterparts and by the
different parties hereto on separate counterparts, each of which when so
executed and delivered
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<PAGE> 96
shall be an original, but all of which shall together constitute one and the
same instrument.
SECTION 11.10. EFFECTIVENESS; SURVIVAL.
(a) This Agreement shall become effective on the date (the "Effective
Date") on which all of the parties hereto shall have signed a copy hereof
(whether the same or different copies) and shall have delivered the same to the
Agent pursuant to Section 11.1. or, in the case of the Lenders, shall have given
to the Agent written (which may be delivered by facsimile) or telex notice
(actually received) that the same has been signed and mailed to them.
(b) The obligations of Borrower under Sections 4.8.(b), 4.11., 4.13.,
4.14., 4.17. and 11.4. hereof shall survive the payment in full of the Notes
after the Maturity Date. All representations and warranties made herein, in the
certificates, reports, notices, and other documents delivered pursuant to this
Agreement shall survive the execution and delivery of this Agreement, the other
Credit Documents, and such other agreements and documents, the making of the
Loans hereunder, and the execution and delivery of the Notes.
SECTION 11.11. SEVERABILITY.
In case any provision in or obligation under this Agreement or the
other Credit Documents shall be invalid, illegal or unenforceable, in whole or
in part, in any jurisdiction, the validity, legality and enforceability of the
remaining provisions or obligations, or of such provision or obligation in any
other jurisdiction, shall not in any way be affected or impaired thereby.
SECTION 11.12. INDEPENDENCE OF COVENANTS.
All covenants hereunder shall be given independent effect so that if a
particular action or condition is not permitted by any of such covenants, the
fact that it would be permitted by an exception to, or be otherwise within the
limitation of, another covenant, shall not avoid the occurrence of a Default or
an Event of Default if such action is taken or condition exists.
SECTION 11.13. CHANGE IN ACCOUNTING PRINCIPLES, FISCAL YEAR OR TAX
LAWS.
If (i) any preparation of the financial statements referred to in
Section 7.7. hereafter occasioned by the promulgation of rules, regulations,
pronouncements and opinions by or required by the Financial Accounting Standards
Board or the American Institute of Certified Public Accounts (or successors
thereto or agencies with similar functions) result in a material change in the
method of calculation of financial covenants, standards or terms found in this
Agreement, (ii) there is any change in Borrower's fiscal quarter or
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fiscal year, or (iii) there is a material change in federal tax laws which
materially affects any of the Consolidated Companies' ability to comply with the
financial covenants, standards or terms found in this Agreement, Borrower and
the Required Lenders agree to enter into negotiations in order to amend such
provisions so as to equitably reflect such changes with the desired result that
the criteria for evaluating any of the Consolidated Companies' financial
condition shall be the same after such changes as if such changes had not been
made. Unless and until such provisions have been so amended, the provisions of
this Agreement shall govern.
SECTION 11.14. HEADINGS DESCRIPTIVE; ENTIRE AGREEMENT.
The headings of the several sections and subsections of this Agreement
are inserted for convenience only and shall not in any way affect the meaning or
construction of any provision of this Agreement. This Agreement, the other
Credit Documents, and the agreements and documents required to be delivered
pursuant to the terms of this Agreement constitute the entire agreement among
the parties hereto and thereto regarding the subject matters hereof and thereof
and supersede all prior agreements, representations and understandings related
to such subject matters.
SECTION 11.15. DISCLOSURE OF CONFIDENTIAL INFORMATION.
The Agent and the Lenders agree to use their best efforts to hold in
confidence and not disclose any written information (other than information (i)
which was publicly known from a source other than the Borrower or a Subsidiary,
at the time of disclosure (except pursuant to disclosure in connection with this
Agreement), (ii) which subsequently becomes publicly known through no act or
omission by them, or (iii) which otherwise becomes known to them, other than
through disclosure by the Borrower or a Subsidiary or by any other Person whom
the Agent or such Lender has reason to believe disclosed such information in
violation of or contrary to the confidentiality requirements or policies of the
Borrower or a Subsidiary) delivered or made available by or on behalf of the
Borrower or any Subsidiary to them (including without limitation any non-public
information obtained pursuant to Section 7.5. or 7.7.) in connection with or
pursuant to this Agreement which is proprietary in nature and clearly marked or
labeled as being confidential information, provided that nothing herein shall
prevent the Agent or any Lender from delivering copies of any financial
statements and other documents delivered to the Agent or such Lender, and
disclosing any other information disclosed to the Agent or such Lender, by or on
behalf of the Borrower or any Subsidiary in connection with or pursuant to this
Agreement to (i) the Agent's or such Lender's directors, officers, employees,
agents and professional consultants, (ii) any other Lender, (iii) any Person to
which such Lender offers to assign its Notes or Commitments or any part thereof
(which Person agrees to be bound by the provisions of this Section 11.15), (iv)
any Person to which such Lender sells or offers to sell a participation in all
or any part of its Notes or Commitments (which Person agrees to be bound by the
provisions of this Section 11.15), (v) any federal
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<PAGE> 98
or state regulatory authority having jurisdiction over the Agent or such Lender,
and (vi) any other Person to which such delivery or disclosure may be necessary
(a) to effect compliance with any law, rule, regulation or order applicable to
the Agent or such Lender, (b) in response to any subpoena or other legal
process, (c) in connection with any litigation to which the Agent or such Lender
is a party or (d) in order to protect such Lender's investment in its Notes.
SECTION 11.16. INTEREST.
In no event shall the amount of interest, and all charges, amounts or
fees contracted for, charged or collected pursuant to this Agreement, the Notes
or the other Credit Documents and deemed to be interest under applicable law
(collectively, "Interest") exceed the highest rate of interest allowed by
applicable law (the "Maximum Rate"), and in the event any such payment is
inadvertently received by any Lender, then the excess sum (the "Excess") shall
be credited as a payment of principal, unless the Borrower shall notify such
Lender in writing that it elects to have the Excess returned forthwith. It is
the express intent hereof that the Borrower not pay and the Lenders not receive,
directly or indirectly in any manner whatsoever, interest in excess of that
which may legally be paid by the Borrower under applicable law. The right to
accelerate maturity of any of the Loans does not include the right to accelerate
any interest that has not otherwise accrued on the date of such acceleration,
and the Agent and the Lenders do not intend to collect any unearned interest in
the event of any such acceleration. All monies paid to the Agent or the Lenders
hereunder or under any of the Notes or the other Credit Documents, whether at
maturity or by prepayment, shall be subject to rebate of unearned interest as
and to the extent required by applicable law. By the execution of this
Agreement, the Borrower covenants, to the fullest extent permitted by law, that
(i) the credit or return of any Excess shall constitute the acceptance by the
Borrower of such Excess, and (ii) the Borrower shall not seek or pursue any
other remedy, legal or equitable, against the Agent or any Lender, based in
whole or in part upon contracting for charging or receiving any Interest in
excess of the Maximum Rate. For the purpose of determining whether or not any
Excess has been contracted for, charged or received by the Agent or any Lender,
all interest at any time contracted for, charged or received from the Borrower
in connection with this Agreement, the Notes or any of the other Credit
Documents shall, to the extent permitted by applicable law, be amortized,
prorated, allocated and spread in equal parts throughout the full term of the
Commitments. The Borrower, the Agent and each Lender shall, to the maximum
extent permitted under applicable law, (i) characterize any non-principal
payment as an expense, fee or premium rather than as Interest and (ii) exclude
voluntary prepayments and the effects thereof. The provisions of this Section
shall be deemed to be incorporated into each Note and each of the other Credit
Documents (whether or not any provision of this Section is referred to therein).
All such Credit Documents and communications relating to any Interest owed by
the Borrower and all figures set forth therein shall, for the sole purpose of
computing the extent of obligations
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<PAGE> 99
hereunder and under the Notes and the other Credit Documents be automatically
recomputed by the Borrower, and by any court considering the same, to give
effect to the adjustments or credits required by this Section.
[Signatures on Next page]
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<PAGE> 100
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed and delivered in Atlanta, Georgia, by their duly authorized
officers as of the day and year first above written.
ROCK-TENN COMPANY
(CORPORATE SEAL) By:/s/ David C. Nicholson
-------------------------------------
Title:Senior Vice President, Chief
-------------------------------
Financial Officer and Secretary
Attest:
By: Robert B. McIntosh
--------------------------
Title: Assistant Secretary
-------------------
Address for notice:
Rock-Tenn Company
P.O. Box 4098
Norcross, Georgia 30091
Attention: Chief Financial Officer
[Signatures Continued on Next Page]
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<PAGE> 101
SUNTRUST BANK, ATLANTA, AS
AGENT
By:/s/ Jenna M. Hale
-------------------------------------
Title: Assistant Vice President
-------------------------------
(BANK SEAL)
By:
-------------------------------------
Title:
-------------------------------
Address for notice:
SunTrust Bank Atlanta
25 Park Place
Atlanta, Georgia 30303
Attention: Jenna Hale
[Signatures Continued on Next Page]
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<PAGE> 102
SUNTRUST BANK, ATLANTA, as
LENDER
By: /s/ Jenna M. Hale
---------------------------------
Title: Assistant Vice President
---------------------------
(BANK SEAL) By:
---------------------------------
Title:
---------------------------
Address for notice:
SunTrust Bank Atlanta
25 Park Place
Atlanta, Georgia 30303
Attention: Jenna Hale
Telecopy No.: 404/827-6270
Payment Office:
25 Park Place, N.E.
23rd Floor
Atlanta, Georgia 30303
REVOLVING CREDIT COMMITMENT $400,000,000
APPLICABLE COMMITMENT PERCENTAGE 100%
SWING LINE COMMITMENT $ 20,000,000
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<PAGE> 1
EXHIBIT 4.2
FIRST AMENDMENT TO CREDIT AGREEMENT
THIS FIRST AMENDMENT TO CREDIT AGREEMENT dated as of February 20, 1997
(the "Amendment") by and among ROCK-TENN COMPANY, a Georgia corporation (the
"Borrower"), SUNTRUST BANK, ATLANTA in its capacity as a Lender under the Credit
Agreement (as such terms are defined below) and SUNTRUST BANK, ATLANTA in its
capacity as agent for the Lenders (together with any successor agent for such
Lenders as may be appointed from time to time pursuant to Article 10. of the
Credit Agreement (the "Agent").
WHEREAS, the Borrower, the Agent and the Lender are parties to that
certain Credit Agreement dated as of January 21, 1997, by and among the
Borrower, the Agent and the other banks and lending institutions party to the
Credit Agreement from time to time which become "Lenders" as provided therein
(collectively, the "Lenders") (the "Credit Agreement"; all capitalized terms not
otherwise defined herein shall have the meanings set forth in the Credit
Agreement), pursuant to which the Lenders have made available certain financial
accommodations to the Borrower;
WHEREAS, the parties wish to amend certain provisions of the Credit
Agreement on the terms and conditions contained herein.
NOW, THEREFORE, for good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged by the parties hereto, the parties
hereto agree as follows:
Section 1. Amendments.
(a) The Credit Agreement is hereby amended by deleting the second
sentence of Section 2.9(d) in its entirety and inserting in lieu thereof the
following:
"If a payment is received by the Agent before 12:00 noon (local time for
the Agent) on a Business Day, the Agent shall distribute each Lender's
share of the payment to such Lender before 2:00 p.m. (local time for the
Agent) on the same day; or if a payment is received by the Agent after
12:00 noon (local time for the Agent) on a Business Day or is received
on a day other than a Business Day, the Agent shall distribute each
Lender's share of the payment to such Lender before 2:00 p.m. (local
time for the Agent) on the next Business Day.".
(b) The Credit Agreement is hereby further amended by deleting clause
(iv) of Section 11.2 in its entirety and inserting in lieu thereof the
following:
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<PAGE> 2
"(iv) postpone any date fixed for the payment in respect of
principal of, or interest on, the Notes (other than in connection with
the extension of the Maturity Date in accordance with Section 2.5
hereof) or any fees hereunder,".
(c) The Credit Agreement is hereby further amended by deleting clause
(viii) of Section 11.2 in its entirety and inserting in lieu thereof the
following:
"(viii) modify this Section 11.2 or Section 2.5".
Section 2. Benefits of Credit Agreement. Each reference to the Credit
Agreement in any of the Credit Documents shall be deemed to be a reference to
the Credit Agreement as amended by this Amendment, and as the Credit Agreement
may from time to time be further amended, supplemented, restated or otherwise
modified in the future by one or more other written amendments or supplemental
or modification agreements entered into pursuant to the applicable provisions
thereof.
Section 3. Representations. The Borrower represents to the Lenders
that:
(a) The Borrower has the right and power, and has taken all necessary
action to authorize it, to execute and deliver this Amendment, and to perform
this Amendment, and the Credit Agreement, as amended by this Amendment, in
accordance with their respective terms. This Amendment has been duly executed
and delivered by the duly authorized officers of the Borrower, and each of this
Amendment, and the Credit Agreement, as amended by this Amendment, is a legal,
valid and binding obligation of the Borrower enforceable against the Borrower in
accordance with its terms, except as may be limited by applicable bankruptcy,
insolvency, reorganization, moratorium, or similar laws affecting the
enforcement of creditors' rights generally and by general principles of equity.
(b) The execution and delivery of this Amendment, and the performance
by the Borrower of this Amendment, and the Credit Agreement, as amended by this
Amendment, in accordance with their respective terms, do not and will not, by
the passage of time or the giving of notice, or otherwise: (i) violate any
Requirement of Law relating to the Borrower; (ii) conflict with, result in a
breach of or constitute a default under the charter or by-laws of the Borrower,
or any of its Material Contractual Obligations; or (iii) result in or require
the creation or imposition of any Lien upon or with respect to any property now
owned or hereafter acquired by the Borrower other than those permitted by the
Credit Agreement.
Section 4. Conditions to Effectiveness of Amendment. The effectiveness
of this Amendment are subject to the condition precedent that each of the
following be received by the Agent (unless otherwise waived in writing by the
Agent), each of which shall be
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<PAGE> 3
satisfactory in form and substance to the Agent: (a) this Amendment executed by
the Borrower; (b) a certificate of incumbency signed by the Secretary of the
Borrower with respect to each of the officers of the Borrower authorized to
execute and deliver the Amendment; and (c) such other approvals, opinions or
documents as the Agent may reasonably request.
Section 5. Reaffirmation. The Borrower hereby repeats and reaffirms all
representations and warranties made by the Borrower in the Credit Agreement and
the other Credit Documents to which it is a party as of the date hereof with the
same force and effect as if such representations and warranties were set forth
in this Amendment in full.
Section 6. Benefits. This Amendment shall be binding upon and shall
inure to the benefit of the parties hereto and their respective successors and
assigns.
Section 7. GOVERNING LAW. THIS AMENDMENT SHALL BE GOVERNED BY, AND
CONSTRUED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF GEORGIA.
Section 8. Effect. Except as expressly herein amended, the terms and
conditions of the Credit Agreement shall remain in full force and effect.
Section 9. Counterparts. This Amendment may be executed in any number
of counterparts, each of which shall be deemed to be an original and shall be
binding upon all parties.
[Signatures on following page]
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<PAGE> 4
IN WITNESS WHEREOF, the parties have caused this First Amendment to
Credit Agreement to be executed by their authorized officers all as of the day
and year first above written.
ROCK-TENN COMPANY
(CORPORATE SEAL) By:
/s/ David C. Nicholson
-----------------------------------
Title:
Senior Vice President,
------------------------------
Secretary and Chief Financial
Officer
Attest:
By:
/s/ Robert B. McIntosh
--------------------------
Title: Assistant Secretary
-------------------
SUNTRUST BANK, ATLANTA, AS
AGENT AND LENDER
By:
/s/ Jenna M. Hale
------------------------------------
Title:
Assistant Vice President
------------------------------
By:
------------------------------------
Title:
------------------------------
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<PAGE> 1
EXHIBIT 4.3
SECOND AMENDMENT TO CREDIT AGREEMENT
THIS SECOND AMENDMENT TO CREDIT AGREEMENT dated as of June 6, 1997 (the
"Amendment") by and among ROCK-TENN COMPANY, a Georgia corporation (the
"Borrower"), the Lenders under the Credit Agreement (as such terms are defined
below) and SUNTRUST BANK, ATLANTA in its capacity as agent for the Lenders
(together with any successor agent for such Lenders as may be appointed from
time to time pursuant to Article 10 of the Credit Agreement (the "Agent")).
WHEREAS, the Borrower, the Agent and the Lenders are parties to that
certain Credit Agreement dated as of January 21, 1997, by and among the
Borrower, the Agent and the other banks and lending institutions party to the
Credit Agreement from time to time which become "Lenders" as provided therein
(collectively, the "Lenders"), as amended by that certain First Amendment to
Credit Agreement dated as of February 20, 1997 (as so amended, the "Credit
Agreement"; all capitalized terms not otherwise defined herein shall have the
meanings set forth in the Credit Agreement), pursuant to which the Lenders have
made available certain financial accommodations to the Borrower;
WHEREAS, the parties wish to amend the Credit Agreement to, among other
things, increase the Total Commitments to $450,000,000 which includes increasing
the Revolving Credit Commitment to $430,000,000, but only on the terms and
conditions contained herein.
NOW, THEREFORE, for good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged by the parties hereto, the parties
hereto agree as follows:
Section 1. Amendments.
(a) The Credit Agreement is hereby amended by deleting from
Section 1.1 the definitions of the terms "Applicable Commitment Percentage",
"Applicable Margin", "Facility Fee Percentage", "Material", "Materially Adverse
Effect", "Swing Line Commitment", "Swing Line Lender" and "Total Commitments"
and substituting in their respective places the following:
"'Applicable Commitment Percentage' shall mean, for each
Lender, (i) in the case of Revolving Credit Commitments, a fraction,
the
<PAGE> 2
numerator of which shall be the then amount of such Lender's Revolving
Credit Commitment and the denominator of which shall be the aggregate
amount of the Revolving Credit Commitments of all the Lenders and (ii)
in the case of Total Commitments, a fraction, the numerator of which
shall be the then amount of such Lender's Revolving Credit Commitment
and, in the case of the Swing Line Lender, the Swing Line Commitment,
and the denominator of which shall be the aggregate amount of the
Revolving Credit Commitments of all the Lenders and the Swing Line
Commitment. The Applicable Commitment Percentage of Revolving Credit
Commitments and the Applicable Percentage of Total Commitments of each
Lender as of the Closing Date is as set forth on the signature pages
hereof.
'Applicable Margin' shall mean the per annum rates set forth
across from the Ratio of Consolidated Funded Debt to Total
Capitalization as calculated as of the end of the preceding fiscal
quarter determined by reference to the table set forth below. Any
changes to the Applicable Margin will be effective as of the date
specified in Section 4.6.
<TABLE>
<CAPTION>
Ratio of Consolidated Applicable Margin
--------------------- -----------------
Funded Debt to Total
--------------------
Capitalization
--------------
<S> <C>
>60% .575%
>55% but <60% .500%
-
>50% but <55% .425%
-
>45% but <50% .325%
-
>35% but <45% .275%
-
>25% but <35% .225%
-
<25% .175%
-
</TABLE>
'Facility Fee Percentage' shall mean the per annum rates set
forth across from the Ratio of Consolidated Funded Debt to Total
Capitalization as calculated as of the end of the preceding fiscal
quarter determined by reference to the table set forth below. Any
changes to the Facility Fee Percentage will be effective as of the date
specified in Section 4.6.
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<PAGE> 3
<TABLE>
<CAPTION>
Ratio of Consolidated Facility Fee
--------------------- ------------
Funded Debt to Total Percentage
-------------------- ----------
Capitalization
--------------
<S> <C>
>60% .300%
>55% but <60% .250%
-
>50% but <55% .200%
-
>45% but <50% .150%
-
>35% but <45% .125%
-
>25% but <35% .100%
-
<25% .075%
-
</TABLE>
'Material' (or words derived therefrom) as used in this
Agreement, means the measure of a matter of significance which shall in
no event be determined as being less than an amount equal to the
greater of (i) Ten Million Dollars ($10,000,000) or (ii) ten percent
(10%) of the Consolidated Net Worth.
'Materially Adverse Effect' shall mean any Material adverse
change in (i) the business, operations, financial condition or assets
of the Consolidated Companies, taken as a whole, (ii) the ability of
Borrower to perform its obligations under this Agreement, or (iii) the
ability of the Consolidated Companies (taken as a whole) to perform
their respective obligations, if any, under the Credit Documents.
Notwithstanding anything set forth herein to the contrary, the effect
of the writeoff of goodwill taken by the Borrower for the fiscal
quarter ending March 31, 1997 resulting from the closure of its
Mundelin, Illinois plant shall not constitute a "Materially Adverse
Effect".
'Swing Line Commitment' shall mean, at any time for the Swing
Line Lender, an amount equal to the Swing Line Commitment set forth on
the signature page of the Swing Line Lender, as the same may be
increased or decreased from time to time as a result of any assignment
thereof pursuant to Section 11.6., or any amendment thereof pursuant to
Section 11.2. The Swing Line Commitment shall be in addition to the
Revolving Credit Commitment of the Swing Line Lender.
'Swing Line Lender' shall mean SunTrust and any successor or
assignee thereof; provided, however, that the Swing Line Lender must at
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<PAGE> 4
all times be a Lender having a Revolving Credit Commitment in excess of
the Swing Line Commitment.
'Total Commitments' shall mean the sum of the Revolving Credit
Commitments of all Lenders and the Swing Line Commitment of the Swing
Line Lender."
(b) The Credit Agreement is hereby further amended by deleting the
words, "Applicable Commitment Percentage" in the last line of Section 2.3(c) and
substituting in lieu thereof the words, "Applicable Commitment Percentage of
Revolving Credit Commitments".
(c) The Credit Agreement is hereby further amended by deleting
Section 2.3(d) in its entirety and inserting in lieu thereof the following:
"(d) If at any time the aggregate outstanding Competitive Bid
Loans, Revolving Loans and Swing Line Loans exceed the Total
Commitments, the Borrower shall immediately cause an amount equal to
such excess to be applied as follows in the order of priority
indicated:
First, to the prepayment of outstanding Swing Line Loans;
Second, to the prepayment of outstanding Revolving Loans; and
Third, to the prepayment of outstanding Competitive Bid Loans.
Any such prepayment to be applied to such Loans as designated
by the Borrower and, in the event the Borrower fails to designate a
Loan, to such Loans with the earliest maturity dates, based upon the
remaining terms of their respective Interest Periods, and with respect
to Loans with the same Interest Period, pro rata to the Lenders
extending such Loans.
Any prepayment of Swing Line Loans, Revolving Loans and
Competitive Bid Loans pursuant to this Section 2.3. shall be made,
insofar as is possible, in such a way as to avoid any funding losses
pursuant to Section 4.13.".
(d) The Credit Agreement is hereby further amended by deleting the
words, "Applicable Commitment Percentage" in the fourth and fifth lines of
Section 2.9 and substituting in lieu thereof the words, "Applicable Commitment
Percentage of Revolving Credit Commitments".
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<PAGE> 5
(e) The Credit Agreement is hereby further amended by deleting
Section 3.4 in its entirety and inserting in lieu thereof the following:
"SECTION 3.4 INTENTIONALLY OMITTED.".
(f) The Credit Agreement is hereby further amended by deleting the
words, "Applicable Commitment Percentage" in the sixth line of Section 4.2(a)
and substituting in lieu thereof the words, "Applicable Commitment Percentage of
Revolving Credit Commitments".
(g) The Credit Agreement is hereby further amended by deleting the
words, "Applicable Commitment Percentage" in the second line of Section 4.2(e)
and substituting in lieu thereof the words, "Applicable Commitment Percentage of
Revolving Credit Commitments".
(h) The Credit Agreement is hereby further amended by deleting
Section 4.5(a) in its entirety and inserting in lieu thereof the following:
"(a) Borrower shall pay to the Agent, for the ratable
benefit of each Lender based upon its respective Applicable Commitment
Percentage of the Total Commitments, a facility fee (the "Facility
Fee") for the period commencing on the Closing Date to and including
the Maturity Date, payable quarterly in arrears on the last day of each
calendar quarter, commencing on March 31, 1997, and on the Maturity
Date, equal to the Facility Fee Percentage multiplied by the average
daily amount of the Total Commitments, whether or not utilized.".
(i) The Credit Agreement is hereby further amended by deleting the
words, "Applicable Commitment Percentage" in the tenth and eleventh lines of
Section 4.7(b) and substituting in lieu thereof the words, "Applicable
Commitment Percentage of Revolving Credit Commitments".
(j) The Credit Agreement is hereby further amended by deleting the
words, "Applicable Commitment Percentage" in the fourth and fifth lines of
Section 4.16 and substituting in lieu thereof the words, "Applicable Commitment
Percentage of Total Commitments".
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(k) The Credit Agreement is hereby further amended by adding the
following new Section 4.19:
"SECTION 4.19 CONVERSION OF SWING LINE LOANS AND READJUSTMENT
OF APPLICABLE COMMITMENT PERCENTAGES UPON ACCELERATION.
Upon the acceleration of the Loans in accordance with Section
9.10 hereof (including any automatic acceleration provided for therein)
(an "Acceleration"), all of the outstanding Swing Line Loans shall
automatically be converted into Revolving Loans and each of the Lenders
shall be deemed to have purchased or sold, as applicable, a portion of
the Revolving Loans so that after giving effect to such purchases and
sales, each Lender (including the Swing Line Lender) shall have a pro
rata share of the outstanding Revolving Loans based upon such Lender's
Applicable Commitment Percentage of Total Commitments. Accordingly,
following an Acceleration, the Agent shall promptly determine the
portion of any Revolving Loan, if any, that each Lender shall be deemed
to have purchased or sold in order to assure that the total outstanding
Revolving Loans made by each Lender, after giving effect to the
conversion of all outstanding Swing Line Loans, equals such Lender's
Applicable Commitment Percentage of the Total Commitments.
Determinations of the amounts of Revolving Loan that are deemed to have
been purchased and sold hereunder shall be conclusive absent manifest
error. Upon making such determinations, the Agent shall promptly notify
each of the Lenders of the portion of Revolving Loans that such Lender
is deemed to have purchased and/or sold. To the extent any Lender is
deemed to have purchased a Revolving Loan from another Lender
hereunder, then such Lender shall on or before 11:00 a.m. (local time
for the Agent) on the first Business Day after receipt of notice from
the Agent, deposit in an account specified by the Agent an amount equal
to the principal amount of the portion of the Revolving Loan which it
is deemed to have purchased in same day funds, whereupon such funds
shall be immediately delivered to the Lender deemed to have sold the
portion of such Revolving Loan. In no event shall any such amount be
received by the Borrower. Upon the payment of the amounts by a
purchasing Lender required herein, the amount so funded shall become an
obligation under such Lender's Revolving Credit Note and shall no
longer be owed under the Revolving Credit Note of the selling Lender.
Each Lender's obligation to purchase and sell the Revolving Loans
-6-
<PAGE> 7
referred to in this Section 4.19 shall be absolute and unconditional
and shall not be affected by any circumstance, including, without
limitation, (i) any setoff, counterclaim, recoupment, defense or other
right which such Lender may have against the Swing Line Lender, the
Borrower or any other Person for any reason whatsoever; (ii) any
adverse change in the condition (financial or otherwise) of the
Borrower or any other Consolidated Company; (iii) the acceleration or
maturity of any Loans or the termination of the Revolving Credit
Commitments after the making of any Revolving Loan; (iv) any breach of
this Agreement by the Borrower or any other Lender; or (v) any other
circumstance, happening or event whatsoever, whether or not similar to
any of the foregoing.".
(l) The Credit Agreement is hereby further amended by deleting
Section 7.10(b) in entirety and inserting in lieu thereof the following:
"(b) Subject to subsection (c) below, the Borrower shall
cause all of its Restricted Subsidiaries not existing as of the Closing
Date to execute and deliver Subsidiary Guarantees and a counterpart
Contribution Agreement in substantially the same form as set forth,
respectively, in Exhibits "L" and "M", within thirty (30) days of the
creation or acquisition of any such Restricted Subsidiary by the
Borrower or other Restricted Subsidiary; provided, however, that in the
case of any Subsidiary which holds no assets and is formed solely to
effectuate an acquisition, the thirty (30) day period referenced above
shall begin on the earlier of (i) such Subsidiary acquiring any assets
or (ii) the consummation of the acquisition for which such Subsidiary
was formed. The delivery of such documents shall be accompanied by such
other documents as the Agent may reasonably request (e.g., certificates
of incorporation, articles of incorporation and bylaws, membership
operating agreements, opinion letters and appropriate resolutions of
the Board of Directors of any such Subsidiary Guarantor).".
(m) The Credit Agreement is hereby further amended by deleting
Section 8.1 in its entirety and inserting in lieu thereof the following:
"SECTION 8.1 FINANCIAL REQUIREMENTS.
The Borrower shall not:
(i) Fixed Charges. Suffer or permit, the ratio of (a) Consolidated
Net Income Available for Fixed Charges to (b) Fixed Charges as
-7-
<PAGE> 8
of the last day of each fiscal quarter ending during the
periods set forth below as calculated for a period consisting
of the four preceding fiscal quarters, to be less than the
ratio set forth opposite such period:
<TABLE>
<CAPTION>
-----------------------------------------
PERIOD RATIO
------ -----
-----------------------------------------
<S> <C>
Closing Date thru 2.5:1.0
March 31, 1997
-----------------------------------------
June 30, 1997 thru 1.5:1.0
March 31, 1998
-----------------------------------------
June 30, 1998 thru 2.0:1.0
September 30, 1999
-----------------------------------------
December 31, 1999 thru 2.5:1.0
Maturity Date
-----------------------------------------
</TABLE>
(ii) Consolidated Funded Debt to EBITDA. Permit the ratio of (a)
Consolidated Funded Debt to (b) EBITDA as of the last day of
each fiscal quarter ending during the periods set forth below
as calculated for a period consisting of the four preceding
fiscal quarters, to exceed the ratio set forth opposite such
period:
<TABLE>
<CAPTION>
-------------------------------------------
PERIOD RATIO
------ -----
-------------------------------------------
<S> <C>
Closing Date thru 4.25:1.0
September 30, 1997
-------------------------------------------
December 31, 1997 thru 4.0:1.0
September 30, 1998
-------------------------------------------
December 31, 1998 thru 3.5:1.0
September 30, 1999
-------------------------------------------
December 31, 1999 thru 3.0:1.0
Maturity Date
-------------------------------------------
</TABLE>
-8-
<PAGE> 9
(iii) Consolidated Funded Debt to Total Capitalization. Permit the
ratio of Consolidated Funded Debt to Total Capitalization as
of the last day of each fiscal quarter ending during the
periods set forth below, to exceed the ratio set forth
opposite such period:
<TABLE>
<CAPTION>
---------------------------------------
PERIOD RATIO
------ -----
---------------------------------------
<S> <C>
Closing Date thru .65:1
September 30, 1998
---------------------------------------
December 31, 1998 thru .60:1
September 30, 1999
---------------------------------------
December 31, 1999 thru .55:1
Maturity Date
---------------------------------------
</TABLE>
(n) The Credit Agreement is further amended by changing the amount
of the (i) Revolving Credit Commitments, (ii) the Swing Line Commitments and
(iii) the Applicable Commitment Percentage of each of the Lenders, and the Swing
Line Lender, in the case of the Swing Line Commitment, to the respective amounts
set forth on the signature pages attached hereto.
Section 2. Acknowledgment of Lenders' Commitments; Repayment of
Outstanding Loans.
(a) The parties hereto hereby agree that after giving effect to
the transactions contemplated by this Amendment, the amount of each Lender's
respective Commitment and Applicable Commitment Percentage and, in the case of
the Swing Line Lender, the Swing Line Commitment, is set forth on the signature
pages hereto. Accordingly, for purposes of the definitions of "Applicable
Commitment Percentage", "Revolving Credit Commitment" and "Swing Line
Commitment", the signature pages hereto shall constitute signature pages to the
Credit Agreement.
(b) Upon the effectiveness of this Amendment, all of the
outstanding Loans shall be repaid by the Borrower in their entirety, together
with any fees under Section 4.13 of the Credit Agreement.
-9-
<PAGE> 10
Section 3. Benefits of Credit Documents.
(a) Each reference to the Credit Agreement in any of the Credit
Documents shall be deemed to be a reference to the Credit Agreement as amended
by this Amendment, and as the Credit Agreement may from time to time be further
amended, supplemented, restated or otherwise modified in the future by one or
more other written amendments or supplemental or modification agreements entered
into pursuant to the applicable provisions thereof.
(b) Each reference to the Revolving Credit Notes in any of the
Credit Documents shall be deemed to be a reference to the Revolving Credit
Notes, substantially in the form of Exhibit A hereto, dated the date hereof,
payable to the order of each of the Lenders, in the aggregate principal amount
of $450,000,000 (the "New Revolving Credit Notes") in replacement of the
outstanding Revolving Credit Notes in favor of each of the Lenders in the
aggregate principal amount of $400,000,000.
(c) Each reference to the Competitive Bid Notes in any of the
Credit Documents shall be deemed to be a reference to the Competitive Bid Notes,
substantially in the form of Exhibit B hereto, each dated the date hereof,
payable to the order of each of the Lenders, each in the principal amount of
$450,000,000 (the "New Competitive Bid Notes", the New Competitive Bid Notes,
together with the New Revolving Credit Notes, the "New Notes") in replacement of
the outstanding Competitive Bid Notes in favor of each of the Lenders each in
the principal amount of $400,000,000.
Section 4. Conditions to Effectiveness of Amendment. The effectiveness
of this Amendment is subject to the condition precedent that each of the
following be received by the Agent (unless otherwise waived in writing by the
Agent), each of which shall be satisfactory in form and substance to the Agent:
(a) this Amendment executed by each of the parties hereto;
(b) the New Revolving Credit Notes executed by the Borrower;
(c) the New Competitive Bid Notes executed by the Borrower;
(d) the Acknowledgment and Consent of the Guarantors,
substantially in the form of Exhibit C hereto, executed by each of the
Guarantors (the "Acknowledgment");
-10-
<PAGE> 11
(e) A certificate of the Secretary or Assistant Secretary of the
Borrower which certifies as to (i) the incumbency with respect to each of the
officers of the Borrower authorized to execute and deliver this Amendment, the
New Notes and the other documents in connection therewith and (ii) the truth and
correctness of attached copies of the following: (A) all corporate or other
necessary action taken by the Borrower (including the resolutions of the board
of directors of Borrower) to authorize the execution, delivery and performance
of this Amendment, the New Notes and the other documents entered in connection
therewith; (B) the certificate of incorporation and by-laws of the Borrower (or
a statement that such documents have not been amended, supplemented or otherwise
modified from copies of such documents previously delivered to the Agent); and
(C) a certificate of existence or other good standing certificate issued by the
Secretary of State of the State of Georgia;
(f) a certificate executed by a Financial Officer of the Borrower,
stating that: (i) on such date, and after giving effect to the transactions
contemplated hereby, no Default or Event of Default has occurred and is
continuing; (ii) there has been no change which has had or is reasonably likely
to have a Materially Adverse Effect since March 31, 1997; (iii) the
representations and warranties set forth in Article 6 of the Agreement are true
and correct in all material respects on and as of such date with the same effect
as though made on and as of such date; and (iv) the Borrower on such date is in
compliance with all the terms and provisions set forth in the Credit Agreement
on its part to be observed and performed;
(g) A certificate of the Secretary or Assistant Secretary of each
of the Guarantors which certifies as to (i) the incumbency with respect to each
of the officers of such Guarantor authorized to execute and deliver the
Acknowledgment and the other documents in connection therewith and (ii) the
truth and correctness of attached copies of (A) of all corporate or other
necessary action taken by such Guarantor (including the resolutions of the board
of directors of such Guarantor) to authorize the execution, delivery and
performance of the Acknowledgment and (B) the certificate of incorporation and
by-laws of such Guarantor (or a statement that such documents have not been
amended, supplemented or otherwise modified from copies of such documents
previously delivered to the Agent);
(h) payment by the Borrower of a fee equal to $337,500.00 to the
Agent to be distributed to the Lenders pro rata based upon their Applicable
Commitment Percentage of the Total Commitments;
(i) opinions of (i) Robert McIntosh, Esquire, corporate counsel to
the Borrower and the Guarantors as to certain corporate matters, and (ii) King &
Spalding,
-11-
<PAGE> 12
counsel to the Borrower and the Guarantors regarding the enforceability of the
Amendment, the Credit Agreement as amended by the Amendment, and the New Notes,
and such other matters as Agent or its counsel may request; and
(j) such other approvals, opinions or documents as the Agent may
reasonably request.
Section 5. Representations. The Borrower represents to the Lenders
that:
(a) The Borrower has the right and power, and has taken all
necessary action to authorize it, to execute and deliver this Amendment and the
New Notes, and to perform this Amendment, the New Notes and the Credit
Agreement, as amended by this Amendment, in accordance with their respective
terms. This Amendment and each of the New Notes have been duly executed and
delivered by the duly authorized officers of the Borrower, and each of this
Amendment, each New Note, and the Credit Agreement, as amended by this
Amendment, is a legal, valid and binding obligation of the Borrower enforceable
against the Borrower in accordance with its terms, except as may be limited by
applicable bankruptcy, insolvency, reorganization, moratorium, or similar laws
affecting the enforcement of creditors' rights generally and by general
principles of equity.
(b) The execution and delivery of this Amendment and the New
Notes, and the performance by the Borrower of this Amendment, the New Notes and
the Credit Agreement, as amended by this Amendment, in accordance with their
respective terms, do not and will not, by the passage of time or the giving of
notice, or otherwise: (i) violate any Requirement of Law relating to the
Borrower; (ii) conflict with, result in a breach of or constitute a default
under the charter or by-laws of the Borrower, or any of its Material Contractual
Obligations; or (iii) result in or require the creation or imposition of any
Lien upon or with respect to any property now owned or hereafter acquired by the
Borrower other than those permitted by the Credit Agreement.
Section 6. Reaffirmation. The Borrower hereby repeats and reaffirms all
representations and warranties made by the Borrower in the Credit Agreement and
the other Credit Documents to which it is a party as of the date hereof with the
same force and effect as if such representations and warranties were set forth
in this Amendment in full except to the extent such representations expressly
relate to an earlier date or have been updated to the extent permitted by the
Credit Agreement.
Section 7. Reaffirmation and Representations by Guarantor. By execution
of the Acknowledgment, each Guarantor hereby:
-12-
<PAGE> 13
(a) reaffirms its continuing obligations to the Agent and the Lenders
under the Subsidiary Guarantee to which it is a party, and agrees that the
transactions contemplated by this Amendment shall not in any way affect the
validity and enforceability of such Subsidiary Guarantee, or reduce, impair or
discharge the obligations of such Guarantor thereunder; and
(b) represents to the Lenders that:
(i) such Guarantor has the right and power, and has taken all necessary
action to authorize it, to execute and deliver the Acknowledgment, and to
perform the Acknowledgment in accordance with its terms. The Acknowledgment has
been duly executed and delivered by the duly authorized officers of each
Guarantor, and is a legal, valid and binding obligation of each Guarantor
enforceable against each Guarantor in accordance with its terms, except as may
be limited by applicable bankruptcy, insolvency, reorganization, moratorium, or
similar laws affecting the enforcement of creditors' rights generally and by
general principles of equity; and
(ii) the execution and delivery of the Acknowledgment and the
performance by the such Guarantor of the Acknowledgment in accordance with its
terms, do not and will not, by the passage of time or the giving of notice, or
otherwise: (i) violate any Requirement of Law relating to such Guarantor; (ii)
conflict with, result in a breach of or constitute a default under the charter
or by-laws of such Guarantor, or any of its Material Contractual Obligations; or
(iii) result in or require the creation or imposition of any Lien upon or with
respect to any property now owned or hereafter acquired by the Borrower or such
Guarantor other than those permitted by the Credit Agreement.
Section 8. Benefits. This Amendment shall be binding upon and shall
inure to the benefit of the parties hereto and their respective successors and
assigns.
Section 9. GOVERNING LAW. THIS AMENDMENT SHALL BE GOVERNED BY, AND
CONSTRUED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF GEORGIA.
Section 10. Effect. Except as expressly herein amended, the terms and
conditions of the Credit Agreement shall remain in full force and effect.
-13-
<PAGE> 14
Section 11. Counterparts. This Amendment may be executed in any number
of counterparts, each of which shall be deemed to be an original and shall be
binding upon all parties.
IN WITNESS WHEREOF, the parties have caused this Second Amendment to
Credit Agreement to be executed by their authorized officers all as of the day
and year first above written.
ROCK-TENN COMPANY
(CORPORATE SEAL) By:
----------------------------------
Title:
----------------------------
Attest:
By:
---------------------
Title:
----------------
[Signatures continued on following pages]
<PAGE> 15
[SIGNATURE PAGE TO SECOND AMENDMENT TO CREDIT AGREEMENT]
SUNTRUST BANK, ATLANTA, AS
AGENT AND LENDER
By:
-----------------------------------
Title:
-----------------------------
By:
-----------------------------------
Title:
-----------------------------
<TABLE>
<S> <C>
REVOLVING CREDIT COMMITMENT $100,000,000
APPLICABLE COMMITMENT PERCENTAGE OF 23.2558%
REVOLVING CREDIT COMMITMENTS
SWING LINE COMMITMENT $ 20,000,000
APPLICABLE COMMITMENT PERCENTAGE OF 26.6667%
TOTAL COMMITMENTS
</TABLE>
WACHOVIA BANK OF
GEORGIA, N.A.
By:
-----------------------------------
Title:
-----------------------------
By:
-----------------------------------
Title:
-----------------------------
<TABLE>
<S> <C>
REVOLVING CREDIT COMMITMENT $115,000,000
APPLICABLE COMMITMENT PERCENTAGE OF 26.7442%
REVOLVING CREDIT COMMITMENTS
APPLICABLE COMMITMENT PERCENTAGE OF 25.5556%
TOTAL COMMITMENTS
</TABLE>
[Signatures continued on next page]
-2-
<PAGE> 16
[SIGNATURE PAGE TO SECOND AMENDMENT TO CREDIT AGREEMENT]
THE CHASE MANHATTAN BANK
By:
-----------------------------------
Title:
-----------------------------
<TABLE>
<S> <C>
REVOLVING CREDIT COMMITMENT $72,500,000
APPLICABLE COMMITMENT PERCENTAGE OF 16.8605%
REVOLVING CREDIT COMMITMENTS
APPLICABLE COMMITMENT PERCENTAGE OF 16.1111%
TOTAL COMMITMENTS
</TABLE>
NATIONSBANK, N.A.
By:
-----------------------------------
Title:
-----------------------------
By:
-----------------------------------
Title:
-----------------------------
<TABLE>
<S> <C>
REVOLVING CREDIT COMMITMENT $72,500,000
APPLICABLE COMMITMENT PERCENTAGE OF 16.8605%
REVOLVING CREDIT COMMITMENTS
APPLICABLE COMMITMENT PERCENTAGE OF 16.1111%
TOTAL COMMITMENTS
</TABLE>
-3-
<PAGE> 17
[Signatures continued on next page]
-4-
<PAGE> 18
[SIGNATURE PAGE TO SECOND AMENDMENT TO CREDIT AGREEMENT]
CIBC, INC.
By:/s/ Page Colburn
-----------------------------------
Title: Director
-----------------------------
<TABLE>
<S> <C>
REVOLVING CREDIT COMMITMENT $70,000,000
APPLICABLE COMMITMENT PERCENTAGE OF 16.2791%
REVOLVING CREDIT COMMITMENTS
APPLICABLE COMMITMENT PERCENTAGE OF 15.5556%
TOTAL COMMITMENTS
</TABLE>
-5-
<PAGE> 1
EXHIBIT 4.4
Rock-Tenn Company has excluded from filing herewith instruments
relating to (i) the $5,850,000 Industrial Development Revenue Bonds (Rock-Tenn
Converting Company Project), Series 1986, issued by the Waxahachie Industrial
Development Authority; (ii) the $6,750,000 Economic Development Revenue Bonds
(Rock-Tenn Company, Mill Division Inc. Project), Series 1995, issued by the City
of Columbus, Indiana; (iii) the $3,300,000 Economic Development Revenue Bonds
(Rock-Tenn Converting Company Facility), Series 1994, issued by the Maryland
Industrial Development Financing Authority; (iv) the $4,000,000 Industrial
Development Revenue Bonds (Rock-Tenn Converting Company Project), Series 1995,
issued by the Industrial Development Board of the City of Tullahoma, Tennessee;
(v) the $2,750,000 Industrial Development Revenue Bonds (Rock-Tenn Converting
Company Project, Series 1995, issued by the Industrial Development Board of the
County of Wilson; (vi) the $2,500,000 Industrial Development Revenue Bonds
(Rock-Tenn Converting Company Project), Series 1995, issued by the Development
Authority of DeKalb County; (vii) the $2,500,000 Industrial Development Revenue
Bonds (Rock-Tenn Converting Company Project), Series 1993, issued by the City of
Harrison, Arkansas; (viii) the $1,500,000 Industrial Development Revenue Bonds
(Rock-Tenn Company Mill Division, Inc.), Series 1996, issued by the Development
Authority of DeKalb County; (ix) the $1,500,000 Industrial Development Revenue
Bonds (Rock-Tenn Converting Company Project), Series 1996, issued by the Hart
County Industrial Development Authority; (x) the $3,500,000 Industrial
Development Revenue Bonds (Rock-Tenn Converting Company Project), Series 1997,
issued by the Union County Industrial Facilities and Pollution Control Financing
Authority; and (xi) the $25,000,000 Senior Unsecured Notes Purchase Agreement,
dated as of July 1, 1992, between Rock-Tenn Company and Great-West Life and
Annuity Insurance Company. Rock-Tenn Company hereby agrees to furnish a copy of
the constituent agreements relating to these bonds to the Securities and
Exchange Commission upon request.
<PAGE> 1
EXHIBIT 10.8
- -------------------------------------------------------------------------------
JOINT VENTURE AGREEMENT
DATED AS OF SEPTEMBER 5, 1997
AMONG
ROCK-TENN COMPANY,
ROCK-TENN PARTITION COMPANY,
SONOCO PRODUCTS COMPANY
AND
SONOCO PARTITIONS, INC.
- -------------------------------------------------------------------------------
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
ARTICLE 1.
DEFINITIONS AND CONSTRUCTION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
Section 1.1 Certain Definitions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
Section 1.2 Additional Definitions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
Section 1.3 Interpretation and Construction of this Agreement . . . . . . . . . . . . . . . . . . . . . 10
ARTICLE 2.
JOINT VENTURE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
Section 2.1 Organization of Joint Venture . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
Section 2.2 Name and Place of Business . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
Section 2.3 Percentage Interests . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
Section 2.4 Purpose of the Joint Venture . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
Section 2.5 Term . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
ARTICLE 3.
MANAGEMENT . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
Section 3.1 Managing Board . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
Section 3.2 Officers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
ARTICLE 4.
ACTIVITIES BY THE PARTIES AND THE JOINT VENTURE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
Section 4.1 In General . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
Section 4.2 Non-Competition Obligations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
Section 4.3 Non-Competition Exceptions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
ARTICLE 5.
TO JOINT VENTURE; ASSUMED LIABILITIES; PRORATIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
Section 5.1 Contemporaneous Deliveries . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
Section 5.2 Additional Capital Contributions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
Section 5.3 Further Assurances . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
Section 5.4 Repurchase of Assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
Section 5.5 Accounts Receivable True Up . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
Section 5.6 Inventory True Up . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
Section 5.7 Accounts Receivable and Inventory Indemnity . . . . . . . . . . . . . . . . . . . . . . . . 18
</TABLE>
<PAGE> 3
<TABLE>
<CAPTION>
PAGE
----
<S> <C> <C>
Section 5.8 Allocation and Proration of Certain Items . . . . . . . . . . . . . . . . . . . . . . . . . 19
ARTICLE 6.
REPRESENTATIONS AND WARRANTIES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
Section 6.1 Representations and Warranties of Rock-Tenn and Rock-Tenn Partition . . . . . . . . . . . . 20
Section 6.2 Representations and Warranties of Sonoco and Sonoco Partitions . . . . . . . . . . . . . . 21
ARTICLE 7.
COVENANTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
Section 7.1 Indemnification . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
Section 7.2 Claims on Behalf of the Company . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
Section 7.3 Covenants Regarding Ownership of Subs. . . . . . . . . . . . . . . . . . . . . . . . . . . 27
Section 7.4 Parent Guarantees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
Section 7.5 Confidentiality . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
Section 7.6 Transfer of Venture Interests . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30
Section 7.7 Effect of Applicable Law . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30
ARTICLE 8.
BUY-OUT RIGHTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31
Section 8.1 Buy-Out Rights . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31
Section 8.2 Buy-Out Notice . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31
Section 8.3 Buy-Out Upon Default, Etc . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32
Section 8.4 Buy/Sell Arrangements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32
Section 8.5 Waiver of Buy-Out Rights . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33
Section 8.6 Determination of Appraised Value . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33
Section 8.7 Parties. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34
ARTICLE 9.
DISPUTE RESOLUTION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34
Section 9.1 Dispute Resolution . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34
Section 9.2 Equitable Relief . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35
</TABLE>
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<TABLE>
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PAGE
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<S> <C>
ARTICLE 10.
POST-TERMINATION PROVISIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35
Section 10.1 Consequences of Termination . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35
ARTICLE 11.
MISCELLANEOUS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36
Section 11.1 Notices . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36
Section 11.2 Applicable Law . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37
Section 11.3 Severability . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37
Section 11.4 Amendments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38
Section 11.5 Waiver . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38
Section 11.6 Counterparts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38
Section 11.7 Entire Agreement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38
Section 11.8 No Assignment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38
Section 11.9 Expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38
Section 11.10 No Third-Party Beneficiaries . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38
Section 11.11 Publicity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 39
Section 11.12 Construction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 39
Section 11.13 Disclaimer of Agency . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 39
Section 11.14 Fiduciary Duties . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 39
</TABLE>
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<PAGE> 5
EXHIBITS
Exhibit A -- Opinion of Counsel to Rock-Tenn and Rock-Tenn Partition
Exhibit B -- Opinion of Counsel to Sonoco and Sonoco Partitions, Inc.
- iv -
<PAGE> 6
SCHEDULES
Schedule A -- Initial Business Plan
- v -
<PAGE> 7
JOINT VENTURE AGREEMENT
THIS JOINT VENTURE AGREEMENT (this " Agreement"), dated as of
September 5, 1997, by and among ROCK-TENN COMPANY, a Georgia corporation
("Rock-Tenn"), ROCK-TENN PARTITION COMPANY, a Georgia corporation ("Rock-Tenn
Partition"), SONOCO PRODUCTS COMPANY, a South Carolina corporation ("Sonoco"),
and SONOCO PARTITIONS, INC., a South Carolina corporation ("Sonoco Partitions");
W I T N E S S E T H:
WHEREAS, each of Rock-Tenn and Sonoco is engaged in the solid fiber
partition business; and
WHEREAS, Rock-Tenn and Sonoco have agreed to form a Joint Venture (as
defined herein) to engage in the solid fiber partition business on a worldwide
basis; and
WHEREAS, the Joint Venture will be organized as a Delaware limited
liability company (the " Company"); and
WHEREAS, Rock-Tenn and Sonoco have agreed to contribute certain assets
which form a part of their respective solid fiber partition businesses to the
Company and to license certain other assets which form part of their respective
solid fiber businesses to the Company and intend that, except as expressly
provided herein, they will engage in the solid fiber partition business
exclusively through the Company; and
WHEREAS, Rock-Tenn Partition and Sonoco Partitions have been formed by
Rock-Tenn and Sonoco, respectively, to hold their ownership interests in the
Joint Venture;
NOW, THEREFORE, in consideration of the premises and the
representations, warranties, covenants and agreements contained herein and in
the other Operative Agreements, and for other good and valuable consideration,
the receipt and sufficiency of which are hereby acknowledged, the Parties,
intending to be legally bound, hereby agree as follows:
ARTICLE 1.
DEFINITIONS AND CONSTRUCTION
Section 1.1 Certain Definitions. Capitalized terms used herein and
not otherwise defined herein shall have the meanings ascribed thereto in the
Operating Agreement. As used in this Agreement, the following terms shall have
the meanings specified below:
"Accounts Receivable" shall mean (i) in respect of Rock-Tenn, the
accounts receivable of Rock-Tenn described in the Contribution Agreement dated
the date hereof among Rock-Tenn,
<PAGE> 8
Rock-Tenn Partition and the Company which have been contributed to the Company
by Rock-Tenn Partition on the date hereof and (ii) in respect of Sonoco, the
accounts receivable of Sonoco described in the Contribution Agreement dated the
date hereof among Sonoco, Sonoco Partitions and the Company (the "Sonoco
Contribution Agreement") which have been contributed to the Company by Sonoco
Partitions on the date hereof, which shall include the accounts receivable of
the Sonoco Contributed Sub.
"Affiliate" shall mean, with respect to any Person, any other Person
that directly, or indirectly through one or more intermediaries, Controls or is
Controlled by, or is under common Control with, such Person.
"Applicable Law" shall mean all applicable provisions of all (i)
constitutions, treaties, statutes, laws (including common law), rules,
regulations, ordinances or codes of any Governmental Authority, and (ii)
orders, decisions, injunctions, judgments, awards and decrees of any
Governmental Authority.
"Approval" shall mean any consent, approval, license, permit,
authorization, order, registration, waiver, grant, concession, license,
exemption, certificate, declaration, filing, report or notice.
"Assignment Agreements" shall mean (i) the Trademark Assignment
Agreement dated the date hereof between Rock- Tenn Partition and the Company,
(ii) the Patent Assignment dated the date hereof between Rock-Tenn Partition
and the Company, (iii) the Trademark Assignment Agreement dated the date hereof
between Sonoco Partitions and the Company, and (iv) the Patent Assignment dated
the date hereof between Sonoco Partitions and the Company.
"Assumed Liabilities" shall mean the Rock-Tenn Liabilities and the
Sonoco Liabilities.
"Bankruptcy" shall mean, with respect to any Person, (i) the
commencement, under any bankruptcy, reorganization, arrangement, adjustment of
debt, relief of debtors, dissolution, insolvency or liquidation or similar
Applicable Law of any jurisdiction, whether now or hereafter in effect, by such
Person of a case or proceeding seeking (A) the entry as to such Person of an
order of relief, (B) such Person's own bankruptcy, liquidation, reorganization,
rehabilitation or composition or adjustment of debts, or (C) a suspension or
moratorium of payments; (ii) the commencement against such Person of any case
or proceeding of the type described in clause (i) of this definition which
remains undismissed for a period of sixty (60) days; (iii) the appointment of a
custodian, trustee, administrator or similar official under any Applicable Law
described in clause (i) of this definition with respect to such Person, or the
taking charge by such custodian, trustee, administrator or similar official, of
all or any substantial part of the property of such Person; (iv) any
adjudication that such Person is insolvent or bankrupt; (v) the entering of any
order of relief in, or other order approving, any case or proceeding of the
type described in clause (i) of this definition; (vi) the making by such Person
of a general assignment for the benefit of its creditors; (vii) the failure by
such Person to pay, or the statement by such Person that it is unable to pay,
or shall be
2
<PAGE> 9
unable to pay,its debts generally as they become due; (viii) the calling by
such Person of a meeting of its creditors with a view to arranging a
composition or adjustment of its debts; (ix) any indication by such Person,
either by an act or failure to act, of its consent to, approval of or
acquiescence in, any of the actions, orders or events described in the
foregoing clauses of this definition; or (x) the taking of any corporate or
similar action by such Person for the purpose of effecting any of the actions,
orders or events described in the foregoing clauses of this definition.
"Business Day" shall mean any day other than a day on which commercial
banks in the City of New York, Columbia, South Carolina or Atlanta, Georgia are
required by Applicable Law to be closed and a day on which the Federal Reserve
wire transfer system is closed.
"Business Plan" shall mean the Initial Business Plan and each other
strategic business plan prepared annually for the Company pursuant to the
Operating Agreement.
"CEO" shall mean the Chief Executive Officer of the Company.
"CFO" shall mean the Chief Financial Officer of the Company.
"Change of Control" shall mean, as to any Rock-Tenn Party or Sonoco
Party:
(a) a decision by the Board of Directors of such Person
to sell Control of such Person or not to oppose a third party tender
offer for securities of such Person which entitles the owners of such
securities to exercise in the aggregate more than 50% of the voting
power of such Person;
(b) a change in the identity of a majority of the members
of the Board of Directors of such Person due to (i) a proxy contest
(or the threat to engage in a proxy contest); or (ii) any unsolicited
tender, exchange or other purchase offer which has not been approved
by a majority of the members of the Board of Directors of such Person;
or
(c) a third party acquires or agrees to acquire, by
purchase or otherwise, all or a material portion of the assets of such
Person and its Subsidiaries taken as a whole.
"Company" shall mean RTS Packaging, LLC, a Delaware limited liability
company.
"Competing Business" shall mean any business or venture related to the
manufacture, sale, distribution or licensing of solid fiber partitions or any
products substantially similar to or substitutable for solid fiber partitions,
specifically excluding corrugated partitions and cushion fiber packaging.
"Contract" shall mean any loan or credit agreement, note, bond,
indenture, mortgage, deed of trust, lease, franchise, contract, or other
agreement, obligation, instrument or binding commitment of any nature.
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<PAGE> 10
"Contribution Agreements" shall mean (i) the Contribution Agreement
dated the date hereof among Rock-Tenn, Rock-Tenn Partition and the Company,
and (ii) the Sonoco Contribution Agreement.
"Control" (including, with its correlative meanings, "Controlled by"
and "under common Control with") shall mean, with respect to any Person, any of
the following: (i) ownership, directly or indirectly, by such Person of equity
securities entitling it to exercise in the aggregate more than 50% of the
voting power of the entity in question, or (ii) the possession by such Person
of the power, directly or indirectly, (A) to elect a majority of the board of
directors (or equivalent governing body) of the entity in question; or (B) to
direct or cause the direction of the management and policies of or with respect
to the entity in question, whether through ownership of securities, by Contract
or otherwise.
"COO" shall mean the Chief Operating Officer of the Company.
"Employee Matters Agreement" shall mean the Employee Matters Agreement
dated the date hereof among Rock-Tenn, Sonoco and the Company.
"Environmental Laws" shall mean any and all national, federal, state,
provincial, local or municipal laws, rules, orders, regulations, statutes,
ordinances, codes, decrees or requirements of any Governmental Authority
regulating, relating to or imposing liability or standards of conduct
concerning any Hazardous Materials or Petroleum Products or environmental
protection as now or at any time hereafter in effect, together with any
amendment or re- authorization thereto or thereof.
"Fiscal Year" shall mean the period commencing October 1 in any year
and ending on September 30 in such year, except that the first Fiscal Year of
Company shall commence on the date hereof and end on September 30, 1997.
"GAAP" shall mean the current accounting principles recommended by the
American Institute of Certified Public Accountants, or in the event not covered
by recommendations, principles having general acceptance among certified public
accountants at the particular time.
"Governmental Approval" shall mean any Approval of a Governmental
Authority.
"Governmental Authority" shall mean any federation, nation, state,
sovereign or government, any federal, regional, state or local political
subdivision, any governmental or administrative body, instrumentality,
department or agency or any court, administrative hearing body, commission or
other similar dispute resolving panel or body, and any other entity exercising
executive, legislative, judicial, regulatory or administrative functions of a
government.
"Hazardous Materials" shall mean any waste, pollutant, contaminant,
substance, by-product or other material identified in or regulated under any
Environmental Law, including without
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<PAGE> 11
limitation, the Toxic Substances Control Act, the federal Comprehensive
Environmental Response, Compensation and Liability Act and the Resource
Conservation and Recovery Act.
"HSR Act" shall mean the Hart-Scott-Rodino Antitrust Improvements Act
of 1976.
"Initial Business Plan" shall mean the strategic business plan of the
Company in the form attached hereto as Schedule A.
"Injunction" shall mean any preliminary, temporary, interim or final
injunction, temporary restraining order or other legal prohibition or equitable
remedy ordered by any Governmental Authority requiring or prohibiting action.
"Inventory" shall mean (i) in respect of Rock-Tenn, the inventory of
Rock-Tenn described in the Contribution Agreement dated as of the date hereof
among Rock-Tenn, Rock-Tenn Partition and the Company which has been
contributed to the Company on the date hereof and (ii) in respect of Sonoco,
the inventory of Sonoco described in the Contribution Agreement dated as of the
date hereof among Sonoco, Sonoco Partitions and the Company which have been
contributed to the Company on the date hereof, which shall include the
inventory of the Sonoco Contributed Sub.
"Invest or Participate" (including, with its correlative meanings,
"Investment or Participation," "Invested or Participated" and "Investing or
Participating"), as it relates to a Party or any of its Affiliates, shall mean,
with respect to any other Person that engages in a Competing Business, directly
or indirectly through an Affiliate, (a) to acquire, as a principal, partner,
shareholder, beneficial owner or in any similar capacity, any ownership
interest in such Person or (b) by Contract or otherwise to manage, operate or
finance such Person, or to participate in the management, operation or
financing of such Person, or to act as agent, representative, consultant or in
any similar capacity for such Person, or to use the name of such Person, or
permit the use of the name of such Party or its Affiliate by such Person, to
the extent that any of such activities described in this clause (b) are related
to such Competing Business.
"Joint Venture" shall mean the Company and the rights and obligations
of the Parties under the Operative Agreements.
"Judgment" shall mean any judgment, order, judicial decree or arbitral
award of any Governmental Authority.
"License Agreement" shall mean the Trademark License Agreement dated
the date hereof between Rock-Tenn and the Company.
"Lien" shall mean any mortgage, pledge, security interest, adverse
claim, encumbrance, lien (statutory or otherwise) or charge of any kind
(including any agreement to give any of the foregoing, any conditional sale or
other title retention agreement, any lease in the nature thereof, and the
filing
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<PAGE> 12
of or agreement to give any financing statement under the Uniform Commercial
Code or similar Applicable Law of any jurisdiction) or any other type of
preferential arrangement for the purpose, or having the effect, of protecting a
creditor against loss or securing the payment or performance of an obligation.
"Losses" shall mean any and all claims, losses, liabilities, damages
(including fines, penalties, and criminal or civil judgments and settlements),
costs (including court costs) and expenses (including reasonable attorneys' and
accountants' fees).
"Managing Board" shall mean the managing board of the Company.
"Material Adverse Effect" shall mean, with respect to any Person, the
effect of any event, occurrence, fact, condition or change that is materially
adverse to the business, operations, results of operations, financial
condition, assets or liabilities of such Person.
"Material Default" shall mean, with respect to the Rock-Tenn Parties
or the Sonoco Parties, a breach by a Rock- Tenn Party or Sonoco Party, as the
case may be, of its obligations under (i) Sections 4.2, 5.5, 5.6, 5.7, 7.1,
7.3, 7.4, 7.5, 7.6, 8.3 or 8.4 of this Agreement and (ii) a section of another
Operative Agreement which by its express terms provides that a breach by a
Rock-Tenn Party or Sonoco Party, as the case may be, of its obligations
thereunder shall constitute a "Material Default" under this Agreement;
provided, that in any case, such breach shall be termed a "Material Default"
only if such breach, if it can be cured within such period, shall not have been
cured within thirty (30) days after written notice of such breach is given to
such Rock-Tenn Party or Sonoco Party by the other Party.
"Members" shall mean the holders from time to time of ownership
interests in the Company.
"Operating Agreement" shall mean the Amended and Restated Operating
Agreement of the Company dated the date hereof between Rock-Tenn Partition and
Sonoco Partitions.
"Operative Agreements" shall mean this Agreement, the License
Agreement, the Supply Agreement, the Services Agreements, the Operating
Agreement, the Contribution Agreements and the Assignment Agreements.
"Opinions of Counsel" shall mean the opinions of counsel to Rock-Tenn
and Rock-Tenn Partition and counsel to Sonoco and Sonoco Partitions in the form
of Exhibit A and Exhibit B, respectively.
"Parties" shall mean Rock-Tenn, Rock-Tenn Partition, Sonoco and Sonoco
Partitions, and upon any Transfer of a Venture Interest pursuant to Article 10
of the Operating Agreement, such permitted transferee.
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<PAGE> 13
"Person" shall mean an individual or a partnership, an association, a
joint venture, a limited liability company, a corporation, a business or a
trust or other entity organized under any Applicable Law, an unincorporated
organization or any Governmental Authority.
"Petroleum Products" shall mean gasoline, diesel fuel, motor oil,
waste or used oil, heating oil, kerosene or other petroleum products.
"Proceeding" shall mean any action, litigation, suit, proceeding or
formal investigation or review of any nature, civil, criminal, regulatory or
otherwise, before any Governmental Authority.
"Rock-Tenn Contributed Assets" shall mean the assets owned or used or
held for use primarily in the conduct of the Solid Fiber Partition Business by
Rock-Tenn Partition and its Affiliates described in the Contribution Agreement
dated the date hereof among Rock-Tenn, Rock-Tenn Partition and the Company
which have been contributed to the Company on the date hereof.
"Rock-Tenn Liabilities" shall mean the debts, liabilities and
obligations of Rock-Tenn and its Subsidiaries relating primarily to the
Rock-Tenn Solid Fiber Partition Business described in the Contribution
Agreement dated the date hereof among Rock-Tenn, Rock-Tenn Partition and the
Company which have been assumed by the Company on the date hereof.
"Rock-Tenn Licensed Assets" shall mean the tradenames and trademarks
of Rock-Tenn and its Subsidiaries relating to the Rock-Tenn Solid Fiber
Partition Business described in the License Agreement dated the date hereof
between Rock- Tenn and the Company which have been licensed to the Company on
the date hereof.
"Rock-Tenn Services" shall mean the administrative services described
in the Services Agreement dated the date hereof between Rock-Tenn and the
Company which shall be provided by Rock-Tenn to the Company after the date
hereof.
"Rock-Tenn Solid Fiber Partition Business" shall mean the solid fiber
partition business of Rock-Tenn and its Subsidiaries conducted by Rock-Tenn and
its Subsidiaries immediately prior to the date hereof.
"Rock-Tenn Venture Interest" shall mean the Venture Interest of
Rock-Tenn and its Wholly Owned Subsidiaries.
"Services Agreements" shall mean (i) the Services Agreement dated the
date hereof between Rock-Tenn and the Company, (ii) the Services Agreement
dated the date hereof between Sonoco and the Company and (iii) the Services
Agreement dated the date hereof between Sonoco de Mexico and RTS Empaques S. de
R.L. de C.V.
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<PAGE> 14
"Solid Fiber Partition Businesses" shall mean the Rock-Tenn Solid
Fiber Partition Business and the Sonoco Solid Fiber Partition Business as such
businesses may be expanded or modified by the Company.
"Sonoco Contributed Assets" shall mean the assets owned or used or
held for use primarily in the conduct of the Solid Fiber Partition Business by
Sonoco Partitions and its Affiliates described in the Sonoco Contribution
Agreement which have been contributed to the Company on the date hereof.
"Sonoco Contributed Sub" shall mean RTS Empaques S. de R.L. de C.V.
"Sonoco Contributed Sub Assets" shall mean the assets owned or used or
held for use primarily in the conduct of the Solid Fiber Partition Business by
Sonoco Contributed Sub described in the Sonoco Contribution Agreement which
have been contributed to the Company on the date hereof.
"Sonoco Liabilities" shall mean the debts, liabilities and obligations
of Sonoco and its Subsidiaries relating primarily to the Sonoco Solid Fiber
Partition Business described in the Sonoco Contribution Agreement which have
been assumed by the Company on the date hereof.
"Sonoco Services" shall mean the administrative services described in
(i) the Services Agreement dated the date hereof between Sonoco and the Company
and (ii) the Services Agreement dated the date hereof between Sonoco de Mexico
and RTS Empaques, S. de R.L. de C.V. which shall be provided by Sonoco and
Sonoco de Mexico, respectively, after the date hereof.
"Sonoco Solid Fiber Partition Business" shall mean the solid fiber
partition business of Sonoco and its Subsidiaries conducted by Sonoco and its
Subsidiaries immediately prior to the date hereof.
"Sonoco Venture Interest" shall mean the Venture Interest of Sonoco
and its Wholly Owned Subsidiaries.
"Subsidiary" shall mean, with respect to any Person (the "Parent"),
any other Person in which the Parent, one or more direct or indirect
Subsidiaries of the Parent, or the Parent and one or more of its direct or
indirect Subsidiaries (i) have the ability, through ownership of securities
individually or as a group, ordinarily, in the absence of contingencies, to
elect a majority of the directors (or individuals performing similar functions)
of such other Person, and (ii) own more than 50% of the equity interests of
such Person.
"Supply Agreement" shall mean the Board Supply Agreement dated the
date hereof among Rock-Tenn, Sonoco and the Company.
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<PAGE> 15
"Third Party Approval" shall mean the Approval of a Person other than
a Governmental Authority, a Party or its Affiliates or the Company or its
Affiliates.
"Transactions" shall mean the transactions contemplated by the
Operative Agreements.
"Transfer" shall mean to sell, exchange, assign, transfer, pledge,
hypothecate or otherwise dispose of.
"Venture Business" shall mean the solid fiber partition business and
any other activities, businesses or transactions the Joint Venture may engage
in pursuant to Section 2.4.
"Venture Interests" shall mean the shares or other equity interests in
the Joint Venture including the capital accounts of the Company.
"Wholly Owned" shall mean, when used to designate the ownership
interest of any Person in an entity, that such Person owns directly or
indirectly all of the outstanding shares or other equity interests and voting
power of such entity.
Section 1.2 Additional Definitions.
<TABLE>
<CAPTION>
Defined Term Defined in
- ------------ ----------
<S> <C>
Accounts Receivable Report Section 5.5(a)
Accounts Receivable Shortfall Amount Section 5.5(a)
Accounts Receivable Shortfall Party Section 5.5(a)
Adjusted Accounts Receivable Value Section 5.5(a)
Adjusted Inventory Value Section 5.6(a)
Agreement Introductory Paragraph
Appraised Value Section 8.6(a)
Buy-Out Event Section 8.1
Buy-Out Notice Section 8.1(a)
Competing Assets Section 4.3(b)
Competing Assets Closing Date Section 4.3(b)
Competing Assets Sale Notice Section 4.3(b)
Competing Assets Sale Offer Section 4.3(b)
Estimated Accounts Receivable Shortfall Amount Section 5.6(a)
Indemnifying Parties Section 7.1(g)
Inventory Report Section 5.6(a)
Inventory Shortfall Party Section 5.6(a)
Offeree Section 8.4
Offeror Section 8.4
Parent Definition of "Subsidiary"
Process Agent Section 9.1
</TABLE>
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<TABLE>
<S> <C>
Protected Parties Section 7.1(b)
Representatives Section 7.5(a)(i)
Resale Assets Section 5.4(a)
Resale Closing Date Section 5.4(a)
Resale Notice Section 5.4(a)
Resale Offer Section 5.4(a)
Resale Party Section 5.4(a)
Rock-Tenn Introductory Paragraph
Rock-Tenn Party Section 8.3(b)
Rock-Tenn Protected Parties Section 7.1(b)
Rock-Tenn Partition Introductory Paragraph
Securities Laws Section 7.5(h)
Shortfall Amount Section 5.6(a)
Sonoco Introductory Paragraph
Sonoco Contribution Agreement Section 1.1
Sonoco Partitions Introductory Paragraph
Sonoco Party Section 8.3(a)
Sonoco Protected Parties Section 7.1(a)
Value Opinion Section 8.6(b)
</TABLE>
Section 1.3 Interpretation and Construction of this Agreement. The
definitions in Sections 1.1 and 1.2 shall apply equally to both the singular and
plural forms of the terms defined. Whenever the context may require, any
pronoun shall include the corresponding masculine, feminine and neuter forms.
The words "include," "includes" and "including" shall be deemed to be followed
by the phrase "without limitation." All references herein to Articles,
Sections, Exhibits and Schedules shall be deemed to be references to Articles
and Sections of, and Exhibits and Schedules to, this Agreement unless the
context shall otherwise require. The table of contents and the headings of the
Articles and Sections are inserted for convenience of reference only and are not
intended to be a part of or to affect the meaning or interpretation of this
Agreement. Unless the context shall otherwise require, any reference to any
agreement or other instrument or statute or regulation is to such agreement,
instrument, statute or regulation as amended and supplemented from time to time
(and, in the case of a statute or regulation, to any successor provision). Any
reference in this Agreement to a "day" or a number of "days" (without the
explicit qualification of "Business") shall be interpreted as a reference to a
calendar day or number of calendar days. If any action or notice is to be taken
or given on or by a particular calendar day, and such calendar day is not a
Business Day, then such action or notice shall be deferred until, or may be
taken or given, on the next Business Day.
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ARTICLE 2.
THE JOINT VENTURE
Section 2.1 Organization of Joint Venture. Prior to or
contemporaneously with the execution and delivery of this Agreement, Rock-Tenn
Partition and Sonoco Partitions have executed and delivered the Operating
Agreement and all other documents necessary to organize the Company as a
Delaware limited liability company. Unless otherwise agreed by the Parties, the
Company shall conduct the Venture Business. The Parties may from time to time
form, or cause the Company to form, one or more other entities directly or
indirectly owned by the Parties to conduct the Venture Business.
Section 2.2 Name and Place of Business. The name of the Company
shall be RTS Packaging, LLC. The principal place of business of the Company
initially shall be located at 504D Thrasher Street, Norcross, Georgia 30071.
The principal place of business of the Company may be changed from time to time
by the Managing Board.
Section 2.3 Percentage Interests. The Percentage Interest (i) of
Rock-Tenn Partition shall be 65% and (ii) of Sonoco Partitions shall be 35%.
Section 2.4 Purpose of the Joint Venture. The purpose of the
Joint Venture is to engage in the Solid Fiber Partition Business on a worldwide
basis. The Joint Venture shall have the following additional purposes:
(a) to perform the agreements and arrangements referred to in
this Agreement and the other Operative Agreements; and
(b) to engage in any other lawful activity, business or
transaction as may be approved by the Managing Board.
Section 2.5 Term. The term of the Joint Venture shall be
indefinite, unless earlier terminated in the accordance with the provisions of
this Agreement or the Operating Agreement. A Party may terminate the Joint
Venture on December 31, 2002, and on December 31 of each calendar year
thereafter, by delivering to the other Party a Buy-Out Notice pursuant to
Article 8, which notice shall be delivered at least one year prior to the
proposed termination date. If neither Party gives any such notice in respect of
any such December 31, the term of the Joint Venture will continue unless and
until terminated in accordance with the provisions of this Agreement or the
Operating Agreement.
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ARTICLE 3.
MANAGEMENT
Section 3.1 Managing Board. The Company shall be managed by the
Managing Board, which shall consist of five members. Rock-Tenn Partition shall
be entitled to designate three members to the Managing Board, and Sonoco
Partitions shall be entitled to designate two members to the Managing Board. In
each election of members, Rock-Tenn Partition and Sonoco Partitions shall vote
their Venture Interests to effect the election of the Managing Board nominees so
designated. The Managing Board shall conduct the Venture Business in accordance
with the Business Plan, this Agreement and the Operating Agreement.
Section 3.2 Officers.
(a) The Managing Board shall select the principal officers of the
Company, including the CEO, the COO and the CFO, in accordance with Sections
6.5 and 8.1 of the Operating Agreement. The Parties have agreed that the
initial principal officers of the Company shall be:
CEO Richard E. Steed
COO Terry Durham
CFO Nancy Garner
(b) To the extent provided in Sections 6.5 and 8.1 of the
Operating Agreement, the Managing Board shall have the right at any time to
remove and replace any officer of the Company and to designate any permanent or
temporary replacement of such officer.
ARTICLE 4.
OTHER ACTIVITIES BY THE PARTIES
AND THE JOINT VENTURE
Section 4.1 In General. The Parties acknowledge that to support
their intention to engage in the Solid Fiber Partition Business solely through
the Joint Venture and to protect adequately their interests in the Joint Venture
and the Company, it is necessary and essential that the Parties enter into and
adhere to the covenants contained in this Article 4.
Section 4.2 Non-Competition Obligations. Except as provided in
Section 4.3 (i) during the term of the Joint Venture and for a period of ten
(10) years following the termination of the Joint Venture, no Party or any of
its Affiliates shall, and (ii) during the term of the Joint Venture and for a
period of ten (10) years following the withdrawal of a Party from the Joint
Venture in the case of a Buy-Out pursuant to Article 8 or otherwise, no such
withdrawing Party or any of its Affiliates shall:
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(i) Engage in any Competing Business; or
(ii) Invest or Participate in any Person that engages in
any Competing Business.
This Section 4.2 shall not affect the right of a Party or its
Affiliate that purchases the Venture Interest of the other Party and its
Affiliates pursuant to Article 8 hereof to conduct the Venture Business
following the consummation of such purchase and the termination of the Joint
Venture.
Section 4.3 Non-Competition Exceptions. Nothing in this Article 4
shall be construed to prohibit any of the following activities by a Party or any
of its Affiliates:
(a) Five Percent Investments. The acquisition or ownership by a
Party (directly or indirectly through an Affiliate) of any securities of a
company whose securities are listed for trading on a securities exchange or
market in the United States, if such securities (i) were not acquired directly
from such Person in a private placement or similar transaction, (ii) do not
represent more than 5% of the aggregate voting power of the outstanding equity
securities of such Person (assuming the conversion, exercise or exchange of all
such securities held by such Party or its Affiliate that are convertible,
exercisable or exchangeable into or for voting securities), and (iii) in the
case of debt securities, entitle the holder thereof to receive only interest or
other returns that are not based on the value or results of operations of such
Person.
(b) Ownership of Competing Business Pending Divestiture. The
acquisition and ownership of any direct or indirect interest in a business or
venture which in part consists of a Competing Business; provided that within
ninety (90) days following the date of such acquisition such Party or its
Affiliates either (i) transfers the assets of such business or venture which
relates to a Competing Business (the "Competing Assets") to the Joint Venture on
terms mutually agreed to by such Party and the Joint Venture, or (ii) if the
Joint Venture elects not to purchase the Competing Assets, transfers the
Competing Assets to a third party that is not an Affiliate of either Rock-Tenn
or Sonoco. In the event that a Party (directly or indirectly through an
Affiliate) determines to transfer the Competing Assets to a third party that is
not Affiliate of either Rock-Tenn or Sonoco, such Party shall, prior to entering
into any agreement for the sale of such Competing Assets, offer to sell such
Competing Assets to the Joint Venture (the "Competing Assets Sale Offer") by
written notice (the "Competing Assets Sale Notice") to the Joint Venture, which
shall (1) describe such Competing Assets and any Liens relating thereto, (2)
state the purchase price of such Competing Assets, which shall be the purchase
price offered by such third party for such Competing Assets, and describe all
other material terms of the offer of the third party purchaser, and (3) state
the closing date for the purchase by the Joint Venture of such Competing Assets,
which shall be a Business Day not later than thirty (30) days after the date of
the Competing Assets Sale Notice (the "Competing Assets Closing Date"). For a
period of fifteen (15) days after receipt of the Competing Assets Sale Notice,
the Joint Venture shall have the right to purchase all, but not less than all,
of such Competing Assets on the terms set forth in the Competing Assets Sale
Notice. The right of the Joint Venture to purchase the Competing Assets
pursuant to a Competing Assets Sale Notice shall be exercisable
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by delivering written notice of the exercise thereof, prior to the expiration
of the fifteen (15) day period referred to above, to the transferring Party,
which notice shall constitute the irrevocable agreement of the Joint Venture to
purchase the Competing Assets on the terms set forth in the Competing Assets
Sale Notice. The failure of the Joint Venture to respond to the Competing
Assets Sale Notice within such fifteen (15) day period referred to above shall
be deemed a waiver of the Joint Venture's rights to purchase the Competing
Assets pursuant to this Section 4.3(b). The closing of the purchase of
Competing Assets pursuant to this Section 4.3(b) shall be held at the principal
office of the Joint Venture on the Competing Assets Closing Date or at such
other place and on such other date as the parties to such transaction may
agree. At closing, the transferring Party shall deliver to the Joint Venture
title to such Competing Assets, free and clear of all Liens other than Liens to
which such Competing Assets are subject which are described in the Competing
Assets Sale Notice, and the Joint Venture shall deliver to the transferring
Party the purchase price for the Competing Assets payable in accordance with
the terms set forth in the Competing Assets Sale Notice, provided, that in the
event that all or any portion of the purchase price includes property, the
Joint Venture may pay cash in lieu of such property in an amount equal to the
fair market value of such property. At such closing, all of the parties to the
transaction shall execute such additional documents as are otherwise necessary
or appropriate. No purchase by the Joint Venture of any Competing Assets
pursuant to this Section 4.3(b) shall relieve such transferring Party or any of
its Affiliates from their respective obligations under Article 4 hereof. If
the Joint Venture fails to respond to the Competing Assets Sale Notice within
such fifteen (15) day period referred to above, the Party that proposes to sell
the Competing Assets will be permitted to sell such Competing Assets to such
third party; provided that (i) such sale is consummated solely in accordance
with the price, terms and conditions described in the Competing Assets Sale
Notice and (ii) such sale is consummated within sixty (60) days following the
end of the fifteen (15) day period referred to above.
ARTICLE 5.
CONTRIBUTIONS TO JOINT VENTURE; ASSUMED LIABILITIES; PRORATIONS
Section 5.1 Contemporaneous Deliveries. (a) Contemporaneously
with the execution and delivery of this Agreement, the Parties have, and have
caused their respective Subsidiaries to, execute and deliver the following
Operative Agreements to which each such Party or Subsidiary is a party:
(i) Services Agreements;
(ii) Supply Agreement;
(iii) License Agreement;
(iv) Operating Agreement;
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(v) Employee Matters Agreement;
(vi) Contribution Agreements; and
(vii) Assignment Agreements.
(b) Contemporaneously with the execution and delivery of this
Agreement, the Parties have caused their respective counsel to deliver the
Opinions of Counsel.
Section 5.2 Additional Capital Contributions. The Parties shall
make additional capital contributions to the Joint Venture in accordance with
the Operating Agreement.
Section 5.3 Further Assurances. The Parties shall from time to
time hereafter at the request of another Party and without further consideration
execute and deliver to the Company such instruments of transfer, conveyance and
assignment in addition to those delivered pursuant to Section 5.1 as the Company
shall reasonably request to transfer, convey and assign more effectively their
respective Solid Fiber Partition Businesses to the Company. In addition, each
such Party shall from time to time hereafter at another Party's request and
without further consideration execute and deliver to the Company such
instruments of assumption in addition to the Assignment Agreements as such Party
shall reasonably request to evidence more fully the Company's assumption of the
Assumed Liabilities.
Section 5.4 Repurchase of Assets.
(a) In the event that the Joint Venture determines to sell to a
third party any of the assets contributed to the Joint Venture by Rock-Tenn,
Sonoco or any of their respective Affiliates, including the Sonoco Contributed
Sub Assets (as such term is defined in the Sonoco Contribution Agreement), but
excluding finished products and accounts receivable (the "Resale Assets"), the
Joint Venture shall, prior to entering into any agreement for the sale of such
Resale Assets, offer to sell such Resale Assets to Rock-Tenn if such Resale
Assets are Rock-Tenn Contributed Assets and to Sonoco if such Resale Assets are
Sonoco Contributed Assets or Sonoco Contributed Sub Assets (the "Resale Offer")
by written notice (the "Resale Notice") to Rock-Tenn or Sonoco (as appropriate),
with a copy to the other, which shall (1) describe the Resale Assets and any
Liens relating thereto, (2) state the purchase price of the Resale Assets, which
shall be the book value of the Resale Assets on the books and records of the
Joint Venture payable in cash, and (3) state the closing date for the purchase
of the Resale Assets, which shall be a Business Day not later than thirty (30)
days after the date of the Resale Notice (the "Resale Closing Date"). For a
period of fifteen (15) days after receipt of the Resale Notice, Rock-Tenn or
Sonoco (as appropriate) (the "Resale Party") shall have the right to purchase
all, but not less than all, of the Resale Assets on the terms set forth in the
Resale Notice. The Resale Assets shall be sold to the Resale Party free and
clear of all Liens, provided, that if such Resale Assets are not free and clear
of all Liens, the Resale Party may elect instead to subtract the principal
amount secured by any such existing Lien from the purchase price for such Resale
Assets.
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The right of the Resale Party to purchase the Resale Assets pursuant to a
Resale Notice shall be exercisable by delivering written notice of the exercise
thereof, prior to the expiration of the fifteen (15) day period referred to
above, to the Joint Venture, with a copy to the other Party, which notice shall
constitute the irrevocable agreement of the Resale Party to purchase the Resale
Assets on the terms set forth in the Resale Notice. The failure of the Resale
Party to respond to the Resale Notice within such fifteen (15) day period
referred to above shall be deemed a waiver of such Resale Party's rights under
this Section 5.4(a).
(b) The closing of the purchase of Resale Assets pursuant to this
Section 5.4 shall be held at the principal office of the Joint Venture on the
Resale Closing Date or at such other place and on such other date as the parties
to such transaction may agree. At closing, the Joint Venture shall deliver to
the Resale Party title to such Resale Assets, free and clear of all Liens other
than Liens to which such Resale Assets are subject which are described in the
Resale Notice and which have been offset against the purchase price for such
Resale Assets, and the Resale Party shall deliver to the Joint Venture the
purchase price for the Resale Assets in cash. At such closing, all of the
parties to the transaction shall execute such additional documents as are
otherwise necessary or appropriate.
(c) No purchase by the Resale Party of any Resale Assets pursuant
to this Section 5.4 shall relieve such Resale Party or any of its Affiliates
from their respective obligations under Article 4 hereof. If the Resale Party
fails to respond to the Resale Notice within such fifteen (15) day period
referred to above, the Joint Venture will be permitted to sell the Resale Assets
to such third party.
Section 5.5 Accounts Receivable True Up.
(a) As soon as possible after the date hereof, but in any event
not later than one hundred twenty (120) days after the date hereof, the Company
shall cause to be prepared and delivered to Rock-Tenn and Sonoco a report of the
Accounts Receivable of the Company as of the date hereof (the "Accounts
Receivable Report"), which shall describe (i) the aggregate "Adjusted Accounts
Receivable Value" (as hereinafter defined) of the Company as of the date hereof,
(ii) the aggregate Adjusted Accounts Receivable Value contributed to the Company
on the date hereof by Rock- Tenn, and (iii) the aggregate Adjusted Accounts
Receivable Value contributed to the Company on the date hereof by Sonoco. The
aggregate Adjusted Accounts Receivable Value contributed to the Company on the
date hereof by Rock-Tenn and Sonoco, respectively, shall be (i) in the case of
Rock-Tenn, the aggregate amount of all Accounts Receivable contributed to the
Company by Rock-Tenn on the date hereof, and (ii) in the case of Sonoco, the
aggregate amount of all Accounts Receivable contributed to the Company by Sonoco
on the date hereof. The aggregate Adjusted Accounts Receivable Value
contributed to the Company on the date hereof shall be the sum of the aggregate
Adjusted Accounts Receivable Value contributed by Rock-Tenn and Sonoco to the
Company on the date hereof.
(b) Rock-Tenn and Sonoco shall review the Accounts Receivable
Report promptly upon receiving it to determine whether (i) the aggregate
Adjusted Accounts Receivable Value contributed to the Company by Rock-Tenn on
the date hereof as shown in the Accounts Receivable Report is
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less than 65% of the aggregate Adjusted Accounts Receivable Value contributed
by Rock-Tenn and Sonoco to the Company on the date hereof or (ii) the aggregate
Adjusted Accounts Receivable Value contributed to the Company by Sonoco on the
date hereof as shown on the Accounts Receivable Report is less than 35% of the
aggregate Adjusted Accounts Receivable Value contributed by Rock-Tenn and
Sonoco to the Company on the date hereof (the party which contributes less than
the percentage specified above applicable to it of the Adjusted Accounts
Receivable Value of the Company on the date hereof shall be referred to herein
as the "Accounts Receivable Shortfall Party"). Promptly upon such
determination, the Accounts Receivable Shortfall Party shall calculate the
"Accounts Receivable Shortfall Amount." The Accounts Receivable Shortfall
Amount shall be an amount which (1) in the event that Rock-Tenn is the Accounts
Receivable Shortfall Party, will cause the sum of (x) the Accounts Receivable
Shortfall Amount and (y) the aggregate Adjusted Accounts Receivable Value
contributed to the Company by Rock-Tenn on the date hereof to be equal to 65%
of the sum of (i) the Accounts Receivable Shortfall Amount, (ii) the aggregate
Adjusted Accounts Receivable Value contributed to the Company on the date
hereof by Rock-Tenn and Sonoco, and (iii) the "Estimated Accounts Receivable
Shortfall Amount" contributed to the Company on the date hereof by Sonoco
pursuant to Section 1.1(a)(xvi) of the Sonoco Contribution Agreement, and (2)
in the event that Sonoco is the Accounts Receivable Shortfall Party, will cause
the sum of (x) the Accounts Receivable Shortfall Amount, the Estimated Accounts
Receivable Shortfall Amount and the aggregate Adjusted Accounts Receivable
Value contributed to the Company by Sonoco on the date hereof to be equal to
35% of the sum of (i) the Accounts Receivable Shortfall Amount, (ii) the
aggregate Adjusted Accounts Receivable Value contributed to the Company on the
date hereof by Rock-Tenn and Sonoco, and (iii) the Estimated Accounts
Receivable Shortfall Amount contributed to the Company on the date hereof by
Sonoco pursuant to Section 1.1(a)(xvi) of the Sonoco Contribution Agreement.
(c) Promptly after calculating the Accounts Receivable Shortfall
Amount, the Accounts Receivable Shortfall Party shall deliver to the Company in
cash an amount equal to the Accounts Receivable Shortfall Amount.
Section 5.6 Inventory True Up.
(a) As soon as possible after the date hereof, but in any event no
later than thirty (30) days after the date hereof, the Company shall cause to be
prepared and delivered to Rock-Tenn and Sonoco a report of the Inventory of the
Company as of the date hereof (the "Inventory Report"), which shall describe (i)
the aggregate "Adjusted Inventory Value" (as hereinafter defined) of the Company
as of the date hereof, (ii) the aggregate Adjusted Inventory Value contributed
to the Company on the date hereof by Rock-Tenn, and (iii) the aggregate Adjusted
Inventory Value Contributed to the Company on the date hereof by Sonoco. The
aggregate Adjusted Inventory Value contributed to the Company on the date hereof
by Rock-Tenn and Sonoco, respectively, shall be determined by a physical
inventory conducted by the Company as of the date hereof and shall be equal to
(i) the value of all standard paperboard included in such Inventory calculated
at $360 per ton and the value of all nonstandard paperboard (including, by way
of example only, SBS, polycoated, Casemate, Marksman and Winegard) at
Rock-Tenn's or Sonoco's cost, respectively, plus
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each Party's standard upcharges, plus (ii) 80% of the market price on the date
hereof of all finished goods included in such Inventory, plus (iii) the book
value on the date hereof of all other Inventory (determined on a FIFO basis).
No Inventory shall be included in the aggregate Adjusted Inventory Value unless
such Inventory is first quality and useable in the ordinary course of the
business of the Company. Rock-Tenn and Sonoco shall certify to the Company
their respective Adjusted Inventory Value within thirty (30) days after the
date hereof. The aggregate Adjusted Inventory Value contributed to the Company
on the date hereof shall be the sum of the aggregate Adjusted Inventory Value
contributed by Rock-Tenn and Sonoco to the Company on the date hereof.
(b) Rock-Tenn and Sonoco shall review the Inventory Report
promptly upon receiving it to determine whether (i) the aggregate Adjusted
Inventory Value contributed to the Company by Rock-Tenn on the date hereof as
shown in the Inventory Report is less than 65% of the aggregate Adjusted
Inventory Value contributed by Rock-Tenn and Sonoco to the Company on the date
hereof or (ii) the aggregate Adjusted Inventory Value contributed to the
Company by Sonoco on the date hereof as shown on the Inventory Report is less
than 35% of the aggregate Adjusted Inventory Value contributed by Rock-Tenn and
Sonoco to the Company on the date hereof (the party which contributes less
than the percentage specified above applicable to it of the Adjusted Inventory
Value of the Company on the date hereof shall be referred to herein as the
"Inventory Shortfall Party"). Promptly upon such determination, the Inventory
Shortfall Party shall calculate the "Inventory Shortfall Amount." The
Inventory Shortfall Amount shall be an amount which will cause the sum of (x)
the Inventory Shortfall Amount and (y) the aggregate Adjusted Inventory Value
contributed to the Company by the Inventory Shortfall Party on the Closing Date
to be equal to 65% (if Rock-Tenn is the Inventory Shortfall Party) or 35% (if
Sonoco is the Inventory Shortfall Party) of the sum of (1) the Inventory
Shortfall Amount and (2) the aggregate Adjusted Inventory Value contributed to
the Company on the date hereof by Rock-Tenn and Sonoco.
(c) Promptly after calculating the Inventory Shortfall Amount, the
Inventory Shortfall Party shall deliver to the Company in cash an amount equal
to the Inventory Shortfall Amount.
Section 5.7 Accounts Receivable and Inventory Indemnity.
(a) In the event that any Accounts Receivable contributed by
Rock-Tenn or Sonoco to the Company on the date hereof and included in the
aggregate Adjusted Accounts Receivable Value of the Company at the date hereof
is not collected in full by the Company within one hundred twenty (120) days
after the stated due date of such Accounts Receivable, Rock-Tenn or Sonoco, as
the case may be, shall, upon written notice from the Company, purchase such
Accounts Receivable from the Company for a purchase price equal to the value of
such Account Receivable as described in the Accounts Receivable Report.
(b) In the event that any Inventory contributed by Rock-Tenn or
Sonoco to the Company on the date hereof is not used or sold by the Company in
the ordinary course of its business within one (1) year after the date hereof,
Rock-Tenn or Sonoco, as the case may be, shall, upon written notice from the
Company, purchase such Inventory from the Company for a purchase price equal
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to the value of such Inventory as set forth in the Inventory Report. The
Parties understand and agree that a number of factors must be considered when
determining which of the Inventory contributed to the Company by Rock-Tenn
Partition and Sonoco Partitions should be used or sold at any particular time;
however, the Parties intend that unless the Company determines, in its
discretion, that the Company must use or sell Inventory contributed to the
Company by any particular Party, the Company shall use or sell such inventory
on a basis proportional to Rock-Tenn's and Sonoco's Percentage Interests in the
Company.
(c) The closing of the purchase by Rock-Tenn or Sonoco of Accounts
Receivable or Inventory pursuant to Section 5.7(a) or (b) shall be held at the
principal office of the Company on a date mutually agreeable to the parties to
such transaction but not later than thirty (30) days after the date of notice
from the Company regarding such purchase transaction. At such closing, the
Company shall deliver to Rock-Tenn or Sonoco, as the case may be, customary
documentation conveying to Rock-Tenn or Sonoco all right, title and interest of
the Company in and to such Accounts Receivable or Inventory, and Rock-Tenn or
Sonoco, as the case may be, shall deliver to the Company the purchase price in
cash of such Accounts Receivable or Inventory. At such closing, the parties to
such transaction shall execute such additional documents as are otherwise
necessary or appropriate.
Section 5.8 Allocation and Proration of Certain Items.
(a) Except as otherwise provided in this Agreement or in the
Employee Matters Agreement, all revenues, liabilities and expenses with respect
to any or all of the Rock-Tenn Contributed Assets, the Rock-Tenn Liabilities,
the Sonoco Contributed Assets, the Sonoco Contributed Sub Assets and the Sonoco
Liabilities shall be prorated between Rock-Tenn or Sonoco, as the case may be,
and the Company as of 11:59 p.m. on the date hereof. Revenue shall be deemed to
have accrued when it was earned (whether or not billed); liability or expense
shall be deemed to have accrued when the event giving rise to such liability or
expense occurred (whether or not such liability was paid or payable on the date
hereof.) Any such revenue, liability or expense which accrues after 11:59 p.m.
on the date hereof shall be for the benefit of, or the responsibility of, the
Company. Any such revenue, liability or expense which accrued on or prior to
11:59 p.m. on the date hereof shall be for the benefit of, or the responsibility
of, Rock-Tenn or Sonoco as the case may be.
(b) Notwithstanding the provisions of Section 5.8(a), Rock-Tenn
and the Joint Venture will prorate as soon as reasonably practicable after the
date hereof all real and ad valorem property taxes and special tax assessments,
utility, water and sewer charges and similar expense items in respect of the
Rock-Tenn Solid Fiber Partition Business based upon current bills if available
and, if not available, based on the most recent bills available, with such
prorations based upon the number of days during the billing period for each such
expense occurring on or prior to 11:59 p.m. on the date hereof (for which
Rock-Tenn shall be responsible) and occuring after 11:59 p.m. on the date
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hereof (for which the Joint Venture shall be responsible.) Appropriate cash
adjustments shall be made by Rock-Tenn or the Joint Venture as the case may
require, as soon as practicable after current bills are available with respect
to each such expense item to give effect to the prorations provided for in this
Section 5.8(b) based upon actual billed amounts.
(c) Notwithstanding the provisions of Section 5.8(a), Sonoco and
the Joint Venture will prorate as soon as reasonably practicable after the date
hereof all real and ad valorem property taxes and special tax assessments,
utility, water and sewer charges and similar expense items in respect of the
Sonoco Solid Fiber Partition Business based upon current bills if available and,
if not available, based on the most recent bills available, with such prorations
based upon the number of days during the billing period for each such expense
occurring on or prior to 11:59 p.m. on the date hereof (for which Sonoco shall
be responsible) and occuring after 11:59 p.m. on the date hereof (for which the
Joint Venture shall be responsible.). Appropriate cash adjustments shall be made
by Sonoco or the Joint Venture as the case may require, as soon as practicable
after current bills are available with respect to each such expense item to give
effect to the prorations provided for in this Section 5.8(c) based upon actual
billed amounts.
ARTICLE 6.
REPRESENTATIONS AND WARRANTIES
Section 6.1 Representations and Warranties of Rock-Tenn and
Rock-Tenn Partition. Rock-Tenn and Rock-Tenn Partition, jointly and severally,
represent and warrant to Sonoco and Sonoco Partitions as follows:
(a) Organization and Standing. Each of Rock-Tenn and Rock-Tenn
Partition is a corporation duly organized, validly existing and in good standing
under the laws of the State of Georgia, and has all requisite corporate power
and corporate authority necessary to enable it to own, lease or otherwise hold
its properties and assets and to carry on its business as presently conducted.
(b) Authorization; Validity. Each of Rock-Tenn and Rock-Tenn
Partition has all requisite corporate power and corporate authority to enter
into and perform its obligations under this Agreement and to consummate the
Transactions to be consummated by it. Each of Rock-Tenn and Rock-Tenn Partition
has all requisite corporate power and corporate authority to enter into and
perform its obligations under the other Operative Agreements to which it is a
party and to consummate the Transactions to be consummated by it. The
execution, delivery and performance by each of Rock-Tenn and Rock-Tenn Partition
of this Agreement have been, and the execution, delivery and performance by each
of Rock-Tenn and Rock-Tenn Partition of the other Operative Agreements to which
it is a party and the consummation by each of Rock-Tenn and Rock-Tenn Partition
of the Transactions contemplated by Article 5 to be consummated by it on the
date hereof have been duly authorized by all necessary corporate action on the
part of Rock-Tenn and Rock-Tenn Partition. This Agreement has been, and the
other Operative Agreements to which Rock-Tenn
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or Rock-Tenn Partition is a party have been, duly executed and delivered by
Rock-Tenn or Rock-Tenn Partition, as applicable. This Agreement constitutes,
and the other Operative Agreements to which Rock-Tenn or Rock-Tenn Partition is
a party constitute, legal, valid and binding obligations of Rock-Tenn or
Rock-Tenn Partition, as applicable, enforceable against it in accordance with
their respective terms.
(c) No Conflicts. The execution, delivery and performance by each
of Rock-Tenn and Rock- Tenn Partition of this Agreement do not, and the
execution, delivery and performance by each of Rock-Tenn and Rock-Tenn Partition
of the other Operative Agreements to which it is a party do not, and the
consummation of the Transactions contemplated by Article 5 to be consummated by
it and the compliance with the terms of the Operative Agreements to which it is
a party on the date hereof do not, conflict with, result in any violation of or
default (with or without notice or lapse of time or both) under, give rise to a
right of termination, cancellation or acceleration of any obligation (in each
case by any third party) or to the loss of any benefit under, or result in or
require the creation, imposition or extension of any Lien upon any of its
properties or assets under (i) any provision of the Articles of Incorporation or
Bylaws of Rock-Tenn and Rock-Tenn Partition or (ii) any Judgment, Injunction,
Applicable Law or Contract to which it is a party or by which it or any of its
properties is bound (except, with respect to clause (ii), for such conflicts,
violations, defaults, rights or losses that, individually or in the aggregate,
would not have an adverse effect on the ability of Rock-Tenn or Rock-Tenn
Partition (as applicable) to perform in all material respects its obligations
under this Agreement and the other Operative Agreements to which it is a party
in accordance with their respective terms). To the knowledge of Rock-Tenn and
Rock-Tenn Partition, no Third Party Approval and no Governmental Approval is
required to be obtained or made by Rock-Tenn or Rock-Tenn Partition in
connection with the execution, delivery and performance of this Agreement and
the Transactions contemplated by this Agreement, except for Third Party
Approvals or Governmental Approvals the absence of which, individually or in the
aggregate, would not have an adverse effect on the ability of Rock-Tenn or
Rock-Tenn Partition to perform in all material respects its obligations under
this Agreement and the other Operative Agreements to which it is a party in
accordance with their respective terms.
(d) Brokers or Finders. No Person is or will be entitled to any
broker's or finder's fee or any other commission or similar fee as a result of
any actions by Rock-Tenn or Rock-Tenn Partition in connection with any of the
Transactions.
(e) Litigation. To the knowledge of Rock-Tenn and Rock-Tenn
Partition, there is no Proceeding pending or threatened against Rock-Tenn or
Rock-Tenn Partition reasonably likely to restrain, enjoin or otherwise prevent
the consummation of the Transactions.
(f) Operative Agreement Representations. The representations and
warranties made by Rock- Tenn and Rock-Tenn Partition as set forth in each of
the other Operative Agreements to which either of them is a party are or will be
true and correct in all material respects as of the date they are or will be
made (unless expressly stated to be made as of some other date).
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Section 6.2 Representations and Warranties of Sonoco and Sonoco
Partitions. Sonoco and Sonoco Partitions, jointly and severally, represent and
warrant to Rock-Tenn and Rock-Tenn Partition as follows:
(a) Organization and Standing. Each of Sonoco and Sonoco
Partitions is a corporation duly formed and validly existing under the laws of
the jurisdiction of its formation, and each of Sonoco and Sonoco Partitions has
all requisite corporate power and corporate authority necessary to enable it to
own, lease or otherwise hold its properties and assets and to carry on its
business as presently conducted.
(b) Authorization; Validity. Each of Sonoco and Sonoco Partitions
has all requisite corporate power and corporate authority to enter into and
perform its obligations under this Agreement and to consummate the Transactions
to be consummated by it. Each of Sonoco and Sonoco Partitions has all requisite
corporate power and corporate authority to enter into and perform its
obligations under the other Operative Agreements to which it is a party and to
consummate the Transactions to be consummated by it. The execution, delivery
and performance by Sonoco and Sonoco Partitions of this Agreement have been, and
the execution, delivery and performance by each of Sonoco and Sonoco Partitions
of the other Operative Agreements to which it is a party and the consummation by
each of Sonoco and Sonoco Partitions of the Transactions contemplated by Article
5 to be consummated by it on the date hereof have been, duly authorized by all
necessary corporate action on the part of Sonoco and Sonoco Partitions. This
Agreement has been, and the other Operative Agreements to which Sonoco or Sonoco
Partitions is a party have been, duly executed and delivered by Sonoco and
Sonoco Partitions, as applicable. This Agreement constitutes, and the other
Operative Agreements to which Sonoco or Sonoco Partitions is a party constitute,
legal, valid and binding obligations of Sonoco or Sonoco Partitions, as
applicable, enforceable against it in accordance with their respective terms.
(c) No Conflicts. The execution, delivery and performance by each
of Sonoco and Sonoco Partitions of this Agreement do not, and the execution,
delivery and performance by each of Sonoco and Sonoco Partitions of the other
Operative Agreements to which it is a party do not, and the consummation of the
Transactions contemplated by Article 5 to be consummated by it and the
compliance with the terms of the Operative Agreements to which it is a party on
the date hereof do not, conflict with, result in any violation of or default
(with or without notice or lapse of time or both) under, give rise to a right of
termination, cancellation or acceleration of any obligation (in each case by any
third party) or to the loss of any benefit under, or result in or require the
creation, imposition or extension of any Lien upon any of its properties or
assets under (A) any provision of its Articles of Incorporation or Bylaws or (B)
any Judgment, Injunction, Applicable Law or Contract to which it is a party or
by which it or any of its properties is bound (except, with respect to clause
(B), for such conflicts, violations, defaults, rights or losses that,
individually or in the aggregate, would not have an adverse effect on the
ability of Sonoco or Sonoco Partitions (as applicable) to perform in all
material respects its obligations under this Agreement and the other Operative
Agreements to which it is a party in accordance with their respective terms).
To the knowledge of Sonoco and Sonoco Partitions, no Third Party Approval and no
Governmental Approval is required
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to be obtained or made by Sonoco or Sonoco Partitions in connection with the
execution, delivery and performance of this Agreement and the Transactions
contemplated by this Agreement, except for Third Party Approvals or
Governmental Approvals the absence of which, individually or in the aggregate,
would not have an adverse effect on the ability of Sonoco or Sonoco Partitions
(as applicable) to perform in all material respects its obligations under this
Agreement and the other Operative Agreements to which it is a party in
accordance with their respective terms.
(d) Brokers or Finders. No Person is or will be entitled to any
broker's or finder's fee or any other commission or similar fee as a result of
any actions by Sonoco or Sonoco Partitions in connection with any of the
Transactions.
(e) Litigation. To the knowledge of Sonoco and Sonoco Partitions,
there is no Proceeding pending or threatened against Sonoco or Sonoco Partitions
reasonably likely to restrain, enjoin or otherwise prevent the consummation of
the Transactions.
(f) Operative Agreement Representations. The representations and
warranties made by Sonoco and Sonoco Partitions as set forth in each of the
other Operative Agreements to which either of them is a party are or will be
true and correct in all material respects as of the date they are or will be
made (unless expressly stated to be made as of some other date).
ARTICLE 7.
COVENANTS
Section 7.1 Indemnification.
(a) Rock-Tenn and Rock-Tenn Partition, jointly and severally,
shall pay, indemnify and reimburse each of Sonoco and Sonoco Partitions and
their respective Subsidiaries, officers, directors, employees and agents and the
Joint Venture (the "Sonoco Protected Parties") for any and all Losses suffered
or incurred by any of them as a result of, or with respect to, any breach or
inaccuracy of any representation, warranty, covenant or agreement by Rock-Tenn
or Rock-Tenn Partition contained herein or in any other Operative Agreement,
whether or not resulting from third party claims.
(b) Sonoco and Sonoco Partitions, jointly and severally, shall pay,
indemnify and reimburse Rock-Tenn and Rock-Tenn Partition and their respective
Subsidiaries, officers, directors, employees and agents and the Joint Venture
(the "Rock-Tenn Protected Parties"; the Sonoco Protected Parties or the
Rock-Tenn Protected Parties are referred to as the "Protected Parties") for any
and all Losses suffered or incurred by any of them as a result of, or with
respect to, any breach or inaccuracy of any representation, warranty, covenant
or agreement by Sonoco or Sonoco Partitions, whether or not resulting from third
party claims.
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(c) (1) Rock-Tenn shall indemnify, defend and hold harmless the
Joint Venture, Sonoco and Sonoco Partitions for any and all Losses suffered or
incurred by the Joint Venture or Sonoco as a result of or with respect to (x)
any violation of or noncompliance with, or alleged violation of or noncompliance
with, any Environmental Laws (including, without limitation, with respect to any
alleged nuisance or trespass or alleged exposure to Hazardous Materials in the
workplace) arising out of or relating to the operation of the Rock-Tenn
Contributed Assets (whether by Rock-Tenn and its Affiliates or by any prior
owner, lessee or user of such Rock-Tenn Contributed Assets) prior to the date
hereof and (y) any claim arising under any Environmental Law resulting from the
ownership, use, control or operation at any time prior to the date hereof of any
of the Rock-Tenn Contributed Assets (whether currently or previously owned,
leased or used by Rock-Tenn and its Affiliates or by any prior owner, lessee or
user of such Rock-Tenn Contributed Assets), including, without limitation,
arising from any release of any Hazardous Materials or any off-site shipment of
any Hazardous Materials at or from any such Rock-Tenn Contributed Assets
(whether by Rock-Tenn and its Affiliates or by any prior owner, lessee or user
of such Rock-Tenn Contributed Assets). Anything in this Agreement to the
contrary notwithstanding, Rock-Tenn shall be solely responsible for all Losses
under this Section 7.1(c)(1) resulting from facts or circumstances which
occurred prior to the date hereof. The Joint Venture shall be responsible for
all Losses under this Section 7.1(c)(1) resulting from facts or circumstances
which occur on or after the date hereof; provided, however, if Rock-Tenn and the
Joint Venture cannot mutually agree, with such agreement not to be unreasonably
withheld, whether the facts or circumstances which give rise to a Loss under
this Section 7.1(c)(1) occurred prior to, or on or after the date hereof, then
Rock-Tenn shall be responsible for any such Loss.
(2) Sonoco shall indemnify, defend and hold harmless the Joint
Venture, Rock-Tenn and Rock-Tenn Partition for any and all Losses suffered or
incurred by the Joint Venture or Rock-Tenn as a result of or with respect to (x)
any violation of or noncompliance with, or alleged violation of or noncompliance
with, any Environmental Laws (including, without limitation, with respect to any
alleged nuisance or trespass or alleged exposure to Hazardous Materials in the
workplace) arising out of or relating to the operation of the Sonoco Contributed
Assets or Sonoco Contributed Sub Assets (whether by Sonoco and its Affiliates or
by any prior owner, lessee or user of such Sonoco Contributed Assets) prior to
the date hereof and (y) any claim arising under any Environmental Law resulting
from the ownership, use, control or operation at any time prior to the date
hereof of any of the Sonoco Contributed Assets or Sonoco Contributed Sub Assets
(whether currently or previously owned, leased or used by Sonoco and its
Affiliates or by any prior owner, lessee or user of such Sonoco Contributed
Assets or Sonoco Contributed Sub Assets), including, without limitation, arising
from any release of any Hazardous Materials or any off-site shipment of any
Hazardous Materials at or from any such Sonoco Contributed Assets or Sonoco
Contributed Sub Assets (whether by Sonoco and its Affiliates or by any prior
owner, lessee or user of such Sonoco Contributed Assets). Anything in this
Agreement to the contrary notwithstanding, Sonoco shall be solely responsible
for all Losses under this Section 7.1(c)(2) resulting from facts or
circumstances which occurred prior to the date hereof. The Joint Venture shall
be responsible for all Losses under this Section 7.1(c)(2) resulting from facts
or circumstances which occur on or after the date hereof; provided, however, if
Sonoco and the Joint Venture cannot mutually agree, with such agreement not
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to be unreasonably withheld, whether the facts or circumstances which give rise
to a Loss under this Section 7.1(c)(2) occurred prior to, or on or after the
date hereof, then Sonoco shall be responsible for any such Loss.
(d) Each Party agrees that the remedies provided in this Section
7.1, and the enforcement thereof in accordance with Article 9 (including the
right to seek equitable relief pursuant to Section 9.2), shall constitute the
sole and exclusive remedies for recovery against another Party for breaches of
any of the representations, warranties, covenants and agreements in this
Agreement and in any other Operative Agreement that expressly provides that the
remedies provided for in this Section 7.1 shall constitute the sole and
exclusive remedies for the recovery by one party to any such Operative Agreement
against another party to such Operative Agreement for a breach of any
representation, warranty, covenant or agreement contained in such Operative
Agreement (the "Specified Operative Agreements"), except for other remedies as
are expressly provided for in this Agreement or in any other Specified Operative
Agreement. None of the Parties shall in any event be liable for any
consequential, special, exemplary, punitive, incidental or indirect damages,
including loss of profit or goodwill; provided, however, that this Section
7.1(d) shall not limit the liability of a Party for fraud or any willful
misconduct; and provided further that this Section 7.1(d) shall not affect the
calculation of the amount of any Loss (and the corresponding indemnification
rights with respect thereto) of a Protected Party arising from a claim made by a
third party against such Protected Party. No Protected Party shall be
compensated more than once for the same Loss.
(e) The representations and warranties contained herein shall not
be extinguished on the date hereof, but shall survive for a period of two years
following the date hereof. The covenants and agreements contained herein shall
not be extinguished on the date hereof, but shall survive for the period of the
applicable statute of limitations, except to the extent specifically provided
herein. The representations, warranties, covenants and agreements contained in
the Specified Operative Agreements shall survive for periods after the date
hereof to the extent provided in such Specified Operative Agreements. No
investigation or other examination by the Parties or their respective
representatives shall affect the term of survival of the representations,
warranties, covenants and agreements set forth above. The survival of the
representations, warranties, covenants and agreements for a specified period as
provided above shall mean that no Party may commence a claim for breach of any
such representation, warranty, covenant or agreement after such period.
(f) No Party shall make any claim for indemnification under this
Section 7.1 (other than Section 7.1(c)) in respect of a breach of a
representation or warranty contained in Article 6 of this Agreement or in any
Specified Operative Agreement unless and until the aggregate Loss or Losses
arising out of or resulting from such breaches exceed U.S. $250,000, in which
event such Party may claim indemnification for the amount of such Losses that
exceeds U.S. $250,000; provided however, that this Section 7.1(f) shall not
apply to indemnification in respect of fraud or willful misconduct.
(g) The Protected Parties shall promptly notify the other Party or
Parties that may be required to provide indemnification pursuant to Section
7.1(a), (b) or (c) (the "Indemnifying Parties"), in writing, of any claim
thereunder, specifying in reasonable detail the nature of the Loss
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suffered by the Protected Parties, and, if known, the amount, or an estimate of
the amount, of the Loss arising therefrom, provided that failure of the
Protected Parties to give the Indemnifying Parties prompt notice as provided
herein shall not relieve the Indemnifying Parties of any of their obligations
hereunder, except to the extent any of the Indemnifying Parties are prejudiced
by such failure. The Protected Parties shall provide to the Indemnifying
Parties as promptly as practicable thereafter information and documentation
reasonably requested by the Indemnifying Parties to support and verify the
claim asserted, unless the Protected Parties have been advised by counsel that
it is reasonably likely that a loss of privilege will occur with respect to
such information and documentation.
(h) If a Party has made a claim against another Party under this
Section 7.1 with respect to a Loss suffered by a Protected Party which arises
out of the claim of any third party, or if there is any claim against a third
party available by virtue of the circumstances of such a Loss, the Indemnifying
Parties may assume the defense or the prosecution thereof by written notice to
the Protected Parties, including the employment of counsel or accountants, at
the Indemnifying Parties' cost and expense. The Protected Parties shall have
the right to employ counsel separate from counsel employed by the Indemnifying
Parties in any such action and to participate therein, but the fees and expenses
of such counsel employed by the Protected Parties shall be at their expense
unless counsel for the Protected Parties shall have advised that it is
reasonably likely that any Protected Party may raise a defense or claim that is
inconsistent with any defense or claim available to an Indemnifying Party, in
which case such fees and expenses shall be borne by the Indemnifying Party;
provided, however, that the Indemnifying Party shall be required to bear such
fees and expenses only if such defense or claim of the Protected Party has a
reasonable likelihood of success. The Indemnifying Parties shall not be liable
for any settlement of any such claim effected without their prior written
consent, which shall not be unreasonably withheld; provided that if the
Indemnifying Parties do not assume the defense or prosecution of a claim within
thirty (30) days of notice thereof, the Protected Parties may settle such claim
without the consent of the Indemnifying Parties. The Indemnifying Parties shall
not agree to a settlement of or settle any claim which provides for any relief
other than the payment of monetary damages or which would have an adverse effect
on any such Protected Party and its Subsidiaries taken as a whole (if
applicable) without the prior written consent of such Protected Party. Whether
or not the Indemnifying Parties choose to so defend or prosecute such claim, all
the Parties shall cooperate in the defense or prosecution thereof and shall
furnish such records, information and testimony, and attend such conferences,
discovery proceedings, hearings, trials and appeals, as may be reasonably
requested in connection therewith except to the extent that any such Parties
have been advised by counsel that it is reasonably likely that a loss of
privilege will occur with respect to such information, documentation and
testimony. The Indemnifying Parties shall be subrogated to all rights and
remedies of the Protected Parties in respect of a Loss suffered by the
Protected Parties, but only to the extent the Indemnifying Parties have
discharged in full any obligations they may have with respect to such Loss
pursuant to this Section 7.1.
Section 7.2 Claims on Behalf of the Company. Sonoco and Sonoco
Partitions shall have the sole and exclusive right to act on behalf of the
Company (i) with respect to any claim by the Company against any of Rock-Tenn or
Rock-Tenn Partition arising from a breach by Rock-Tenn or
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Rock-Tenn Partition of any representation, warranty, covenant or agreement
included in this Agreement or any other Operative Agreement and (ii) with
respect to any discussions between the Company and Rock-Tenn or Rock-Tenn
Partition in respect of any dispute between the Company and Rock-Tenn or
Rock-Tenn Partition or in respect of any other matter which under the terms
hereof or of any other Operative Agreement requires the agreement of the
Company and Rock-Tenn or Rock-Tenn Partition. Rock-Tenn and Rock-Tenn
Partition shall have the sole and exclusive right to act on behalf of the
Company (x) with respect to any claim by the Company against Sonoco or Sonoco
Partitions arising from a breach by Sonoco or Sonoco Partitions of any
representation, warranty, covenant or agreement included in this Agreement or
any other Operative Agreement and (y) with respect to any discussions between
the Company and Sonoco or Sonoco Partitions in respect of any dispute between
the Company and Sonoco or Sonoco Partitions or in respect of any other matter
which under the terms hereof or of any other Operative Agreement requires the
agreement of the Company and Sonoco or Sonoco Partitions. Such power shall
include, in each case, the sole right, at the expense of the Company, to
initiate, prosecute and settle any such claim, and such actions will not
require approval of the Managing Board of the Company. Each of the Parties
agrees to vote their Venture Interests in the Company and take such other
actions as may be necessary to give effect to this Section 7.2. All such
claims will be brought in accordance with Section 7.1 and Article 9.
Section 7.3 Covenants Regarding Ownership of Subs.
(a) Rock-Tenn agrees that it shall at all times in the aggregate
own directly or indirectly through Wholly Owned Subsidiaries 100% of the
economic interests in and voting power of Rock-Tenn Partition and any other
Wholly Owned Subsidiary of Rock-Tenn holding any Venture Interest in the Joint
Venture.
(b) Sonoco agrees that it shall at all times in the aggregate own
directly or indirectly through its Wholly Owned Subsidiaries 100% of the
economic interests and voting power of Sonoco Partitions and any other Wholly
Owned Subsidiary of Sonoco holding any Venture Interest in the Joint Venture.
Section 7.4 Parent Guarantees.
(a) Rock-Tenn hereby unconditionally, absolutely and irrevocably
guarantees to Sonoco and Sonoco Partitions and their successors and assigns the
full and prompt payment and performance of any and all obligations of Rock-Tenn
Partition and any other Wholly Owned Subsidiary of Rock-Tenn holding any Venture
Interest in the Joint Venture under this Agreement and all other Operative
Agreements.
(b) Sonoco hereby unconditionally, absolutely and irrevocably
guarantees to Rock-Tenn and Rock-Tenn Partition and their successors and assigns
the full and prompt payment and performance of any and all obligations of Sonoco
Partitions and any other Wholly Owned Subsidiary
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of Sonoco holding any Venture Interest in the Joint Venture under this
Agreement and all other Operative Agreements.
Section 7.5 Confidentiality.
(a) Except as provided in this Section 7.5, each Party agrees that
from and after the date hereof:
(i) all confidential or proprietary information
communicated, whether before, on or after the date of this Agreement,
to it or any of its Affiliates or their respective officers, directors,
employees, agents, representatives or professional advisors
(collectively, the "Representatives") or the Joint Venture or any of its
Affiliates or their respective Representatives in connection with, or as
a result of, the Joint Venture, this Agreement, any of the other
Operative Agreements or the Transactions contemplated thereby or
otherwise received by such Party or any of its Representatives or the
Joint Venture or any of its Representatives in connection with, or as a
result of, the Joint Venture or the operation of the Venture Business,
shall be held in confidence to the same extent as such Party holds its
own confidential and proprietary information; provided that such Party
shall not use, and shall cause the Joint Venture not to use, less than a
reasonable standard of care in maintaining the confidentiality of such
information;
(ii) such Party will not, and such Party will cause each of
its Representatives and the Joint Venture and each of its
Representatives not to, disclose such confidential or proprietary
information to any third party; and
(iii) such Party will, and such Party will cause each of its
Representatives and the Joint Venture and each of its Representatives,
to use such confidential and proprietary information only to implement
the provisions of, and exercise its rights under, this Agreement and
the other Operative Agreements or in connection with the operation of
the Joint Venture or the Venture Business and for no other purpose.
(b) A Party may disclose confidential or proprietary information
of the other Party or the Joint Venture to its Representatives who need to know
such information to perform their functions in connection with the
implementation of the provisions of, or the exercise of rights under, this
Agreement or any of the other Operative Agreements or in connection with the
operation of the Joint Venture or the Venture Business; provided that before
disclosing any such confidential or proprietary information to any
Representative, such Party shall notify such Representative of such Party's
obligation to comply with this Agreement. Any Party so disclosing confidential
or proprietary information of the other Party or the Joint Venture shall be
responsible for any breach of this Section 7.5 by any of its Representatives and
such Party agrees, at its sole expense, to use its reasonable efforts (including
court proceedings) to restrain its Representatives from any prohibited or
unauthorized disclosure or use of any such confidential or proprietary
information. Each Party
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shall notify the other Party as soon as possible if it has knowledge of a
material breach of this Section 7.5.
(c) No confidential or proprietary information of a Party or the
Joint Venture shall be reproduced by the other Party in any form except to the
extent reasonably necessary in connection with the implementation of the
provisions of, or the exercise of rights under, this Agreement or any other
Operative Agreement or in connection with the operation of the Joint Venture or
the Venture Business.
(d) This Section 7.5 shall not apply to any confidential or
proprietary information of a Party or the Joint Venture which the receiving
Party can establish to have:
(i) been disclosed by the receiving Party with the prior
written consent of the other Party or the Joint Venture, respectively;
(ii) become generally available to the public other than as
a result of disclosure by the receiving Party or any of its
Representatives;
(iii) been independently developed by the receiving Party or
any of its Representatives who have not had knowledge of such
confidential or proprietary information;
(iv) been rightfully obtained by the receiving Party or any
of its Representatives from a third party (other than the other Party
or any of its Representatives or the Joint Venture) without knowledge
or reason to know that such third party is obligated to protect its
confidentiality; or
(v) been obligated to be produced or disclosed by
Applicable Law or any Governmental Authority; provided that such
production or disclosure shall have been made in accordance with
Sections 7.5(g) and (h).
(e) A Party may disclose confidential or proprietary information of
the other Party or the Joint Venture as may be reasonably necessary for such
Party to implement the provisions of, or exercise its rights under, this
Agreement and the other Operative Agreements or to otherwise further the Venture
Business or the purposes of the Joint Venture; provided that such disclosures
may only be made under this Section 7.5(e) if such disclosing Party notifies the
Person to which it is making such disclosure that the information being
disclosed is confidential or proprietary information.
(f) In addition to the other requirements provided in this Section
7.5, each Party agrees that it will comply and that it will cause its
Representatives and the Joint Venture and its Representatives to comply with all
obligations relating to the protection, use and/or nondisclosure of confidential
or proprietary information which are contained in the License Agreements.
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(g) Except as set forth in Section 7.5(h), if a Party is requested
by any Governmental Authority or required by Applicable Law to disclose any
confidential or proprietary information of the other Party or the Joint Venture,
such Party will provide the other Party or the Joint Venture, respectively, with
written notice of such request or requirement as soon as possible and prior to
such disclosure. Such other Party or the Joint Venture may then either seek
appropriate protective relief from all or part of such request or requirement or
waive the disclosing Party's compliance with this Agreement with respect to all
or part of such request or requirement. Each Party agrees that it shall use all
commercially reasonable efforts to cooperate with the other Party or the Joint
Venture in attempting to obtain any protective order which such Party or the
Joint Venture chooses to seek pursuant to this Section 7.5(g). In absence of
such relief, if, in the opinion of counsel for the disclosing Party, such
disclosing Party is legally compelled to disclose any confidential or
proprietary information of the other Party or the Joint Venture, then such
disclosing Party may disclose only that portion of such confidential or
proprietary information which its counsel advises in writing that such
disclosing Party is compelled to disclose; provided that the disclosing Party
shall exercise all commercially reasonable efforts to preserve the
confidentiality of such confidential or proprietary information, including
cooperating with the other Party or the Joint Venture, respectively, to obtain
an appropriate protective order or other reliable assurance that confidential
treatment will be accorded to such confidential or proprietary information.
(h) If a Party reasonably deems it necessary to disclose any
confidential or proprietary information of the other Party or the Joint Venture
in order to comply with the Securities Act of 1933, as amended, the Securities
Exchange Act of 1934, as amended, or any rules or regulations promulgated
thereunder, or the rules of the New York Stock Exchange or any other applicable
stock exchange (the "Securities Laws"), such Party shall provide the other Party
or the Joint Venture, respectively, with written notice of such proposed
disclosure as soon as possible and disclose such confidential or proprietary
information only after receipt of (x) such other Party's or the Joint Venture's
respective written consent to disclose confidential or proprietary information
or (y) receipt of a written opinion of counsel for such Party that such Party is
legally compelled to disclose such confidential or proprietary information under
the Securities Laws, and then only that portion of such confidential or
proprietary information which counsel advises in writing that such Party is
compelled to disclose.
(i) Each Party may disclose confidential or proprietary information
of the Joint Venture to industry investment analysts, shareholders of either
party or potential investors in the ordinary course of business of such Party.
Section 7.6 Transfer of Venture Interests. Except as provided
herein or in the Operating Agreement, no Party shall Transfer its Venture
Interest in whole or in part, directly or indirectly, and any purported Transfer
of all or any part of a Party's Venture Interest shall be void and of no effect
against the Joint Venture, the other Party, any creditor of the Joint Venture or
any person claiming against the Joint Venture, unless such Transfer is made in
accordance with the terms of this Agreement and the Operating Agreement.
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Section 7.7 Effect of Applicable Law. If any provision contained
in any Operative Agreement is inconsistent with, or prohibited by, Applicable
Laws, each of the Parties agrees to take all reasonable steps necessary to
modify such provision in a manner which is as similar as possible in terms and
effect as the original provision and which preserves substantially the intended
purpose of the original provision, but which is not inconsistent with, or
prohibited by, such Applicable Laws.
ARTICLE 8.
BUY-OUT RIGHTS
Section 8.1 Buy-Out Rights. The following shall be "Buy-Out
Events" with respect to the Joint Venture:
(a) a Party shall have exercised its right to terminate the term
of the Joint Venture pursuant to Section 2.5 (in which case such Party shall
deliver a written notice (a "Buy-Out Notice") in accordance with Section 8.2);
(b) a Material Default has occurred (in which case the
non-defaulting Party may deliver a Buy-Out Notice in accordance with Section
8.2);
(c) the Bankruptcy of a Party (in which case the non-bankrupt
Party may deliver a Buy-Out Notice in accordance with Section 8.2);
(d) a Change of Control shall occur with respect to Rock-Tenn or
Sonoco (in which case such Party shall deliver a Buy-Out Notice in accordance
with Section 8.2); and
(e) written mutual consent of all of the Parties (in which case
any Party may deliver a Buy-Out Notice in accordance with Section 8.2).
Section 8.2 Buy-Out Notice.
(a) If a Buy-Out Event occurs under Sections 8.1(a) or (d), the
Party delivering a Buy-Out Notice pursuant to Sections 8.1(a) or (d) shall give
such Buy-Out Notice to the other Party and to the Managing Board within thirty
(30) days after (i) an election to terminate the Joint Venture in the case of a
Buy-Out Notice delivered pursuant to Section 8.1(a) or (ii) the date of the
Change of Control with respect to such Party in the case of a Buy-Out Notice
delivered pursuant to Section 8.1(d).
(b) If a Buy-Out Event occurs under Sections 8.1(b), (c) or (e),
the Party which is entitled to deliver a Buy-Out Notice pursuant to Sections
8.1(b), (c) or (e) may give such Buy-Out Notice to the other Party and to the
Managing Board (i) within thirty (30) days after the Parties execute a mutual
consent to terminate the Joint Venture in the case of a Buy-Out Notice delivered
pursuant
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to Section 8.1(e), and (ii) within one hundred eighty (180) days following the
date upon which such Party becomes aware of the occurrence of any Buy-Out Event
under Sections 8.1(b) or (c).
Section 8.3 Buy-Out Upon Default, Etc.
(a) In the case of a Buy-Out Event under Section 8.1(b) resulting
from a Material Default by Sonoco, Sonoco Partitions or any other Wholly Owned
Subsidiary of Sonoco holding any Venture Interest (each a "Sonoco Party"), or
under Section 8.1(c) resulting from a Bankruptcy of a Sonoco Party, Rock-Tenn
and Rock-Tenn Partition shall have the option to purchase all, but not less than
all, of the Venture Interests of the Sonoco Parties. In order to determine the
option price, the Parties shall cause the Appraised Value of the Venture
Interests of the Sonoco Parties to be determined pursuant to Section 8.6. If
Rock-Tenn and Rock-Tenn Partition elect to exercise their option to purchase the
Venture Interests of the Sonoco Parties, Rock-Tenn and Rock-Tenn Partition shall
deliver written notice of such exercise to the Sonoco Parties within ninety (90)
days following receipt of the Value Opinion (as defined in Section 8.6). Such
written notice shall constitute an offer by Rock-Tenn and Rock-Tenn Partition to
purchase the Venture Interests of the Sonoco Parties at the price set forth
below in this Section 8.3(a), and the Sonoco Parties hereby accept any such
offer by Rock-Tenn and Rock-Tenn Partition. If Rock-Tenn and Rock-Tenn
Partition fail to deliver such written notice of such exercise within said
90-day period, they will be deemed to have elected not to purchase the Venture
Interests of the Sonoco Parties. In the event that Rock-Tenn and Rock-Tenn
Partition purchase the Venture Interests of the Sonoco Parties pursuant to this
Section 8.3(a), the purchase price for the Venture Interests shall be an amount
payable in cash equal to 100% of the Appraised Value of such Venture Interests.
(b) In the case of a Buy-Out Event under Section 8.1(b) resulting
from a Material Default by Rock-Tenn, Rock-Tenn Partition or any other Wholly
Owned Subsidiary of Rock-Tenn holding any Venture Interest (each a "Rock-Tenn
Party"), or under Section 8.1(c) resulting from the Bankruptcy of a Rock-Tenn
Party, Sonoco and Sonoco Partitions shall have the option to purchase all, but
not less than all, of the Venture Interests of the Rock-Tenn Parties. In order
to determine the option price, the Parties shall cause the Appraised Value of
the Venture Interests of the Rock-Tenn Parties to be determined pursuant to
Section 8.6. If Sonoco and Sonoco Partitions elect to exercise their option to
purchase the Venture Interests of the Rock-Tenn Parties, Sonoco and Sonoco
Partitions shall deliver written notice of such exercise to the Rock-Tenn
Parties within ninety (90) days following receipt of the Value Opinion. Such
written notice shall constitute an offer by Sonoco and Sonoco Partitions to
purchase the Venture Interests of the Rock-Tenn Parties at the price set forth
below in this Section 8.3(b), and the Rock-Tenn Parties hereby accept any such
offer by Sonoco and Sonoco Partitions. If Sonoco and Sonoco Partitions fail to
deliver such written notice of such exercise within said 90-day period, they
will be deemed to have elected not to purchase the Venture Interests of the
Rock-Tenn Parties. In the event that Sonoco and Sonoco Partitions purchase the
Venture Interests of the Rock-Tenn Parties pursuant to this Section 8.3(b), the
purchase price for the Venture Interests shall be an amount payable in cash
equal to 100% of the Appraised Value of such Venture Interests.
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Section 8.4 Buy/Sell Arrangements. In the case of a Buy-Out Event
under Section 8.1(a), 8.1(d) or 8.1(e), the Party that delivers the Buy-Out
Notice (sometimes in this Article called the "Offeror") shall be deemed to have
made to the other Party (sometimes in this Article called the "Offeree") an
irrevocable offer to purchase the Venture Interest of the Offeree in the Joint
Venture and an irrevocable offer to sell the Venture Interest of the Offeror in
the Joint Venture. In the case of a Buy-Out Event under Sections 8.1(a) or (e),
the Offeror shall specify in the Buy-Out Notice the purchase price offered to be
paid by the Offeror for the Venture Interest of the Offeree. In the case of a
Buy-Out Event under Section 8.1(d), the purchase price shall be the Appraised
Value of the Joint Venture multiplied by the selling Member's Percentage
Interest. The Offeree shall have thirty (30) days from the date of the Buy-Out
Notice to accept the Offeror's offer to sell its Venture Interest to the Offeror
at the purchase price contained in the Buy-Out Notice or to purchase the Venture
Interest of the Offeror at a price equal to the purchase price contained in the
Buy-Out Notice multiplied by the Offeror's Percentage Interest divided by the
Offeree's Percentage Interest. If the Offeree does not respond to the offer of
the Offeror within such thirty (30) day period, the Offeree shall be deemed to
have accepted the offer of the Offeror to purchase the Venture Interest of the
Offeree.
Section 8.5 Waiver of Buy-Out Rights. Notwithstanding the
foregoing, in the event that a Party fails to give a Buy-Out Notice within the
time period set forth in Section 8.2, such Party shall be deemed to have waived
its right to terminate with respect to the event or events which gave rise to
such right to terminate.
Section 8.6 Determination of Appraised Value.
(a) For purposes of this Agreement, the "Appraised Value" of a
business or the interest of a Person in a business shall mean the total amount
in U.S. Dollars, determined, unless otherwise specified herein, as of the end of
the month immediately preceding the date on which the appraisal is made by an
investment banking firm selected in accordance with Section 8.6(b), which a
willing buyer would pay to a willing seller for such business or interest,
determined as a whole (and, in the case of a business, as a going concern) in an
arms' length negotiated transaction without undue time constraints. In
determining the Appraised Value, no discounts for lack of control or lack of
marketability shall be applied.
(b) The Appraised Value shall be determined by an investment
banking firm of international standing, jointly selected by the selling Party
and the purchasing Party, that is independent of both Rock-Tenn and Sonoco and
their respective Affiliates. If the selling Party and the purchasing Party are
unable to mutually agree on an investment banking firm, each shall choose an
investment banking firm and the two firms so chosen shall, in good faith, select
a third investment banking firm of international standing that is independent of
both Rock-Tenn and Sonoco and their respective Affiliates. The three firms so
appointed shall jointly determine the Appraised Value, provided that if such
firms are unable to agree upon the Appraised Value, each firm shall individually
propose an Appraised Value, and the Appraised Value shall be deemed to be the
average of the two proposed values which are closest together. If either the
selling Party or the purchasing
33
<PAGE> 40
Party fails to select an investment banking firm within ten (10) Business Days
of receipt of a notice specifying such failure from such other Party, such
other party may select in its sole discretion an investment banking firm that
is independent of both Rock-Tenn and Sonoco and their respective Affiliates to
determine the Appraised Value, which determination shall be final and binding
on the parties. The Parties shall instruct each investment banking firm so
retained to deliver a written opinion (the "Value Opinion") as to the Appraised
Value to such parties within sixty (60) days following the selection of such
firm. The cost of determining the Appraised Value, including the fees and
expenses of such investment banking firms, shall, unless otherwise agreed by
the Parties, be borne equally by the selling Party and the purchasing Party;
provided that if the Appraised Value of the Joint Venture is being determined
because of a Material Default, then the Party which committed such Material
Default shall be responsible for all of the costs of determining such Appraised
Value, including the fees and expenses of such investment banking firms. For
purposes of this Agreement, an investment banking firm shall be deemed to be
"independent" if (i) such firm is not an Affiliate of Rock-Tenn or Sonoco and
(ii) such firm has not derived any of its revenues within the five (5) years
prior to the selection of such investment banking firm from Rock-Tenn, Sonoco
or any of their respective Affiliates and at the time of the selection of such
investment banking firm it has no active engagement with Rock-Tenn, Sonoco or
any of their respective Affiliates. Rock-Tenn and Sonoco agree that they will,
and will cause each of their respective Affiliates to, disclose all
relationships and engagements and other relevant information about investment
banking firms under consideration by the Parties and cooperate with each other
in all other respects in the selection of an investment banking firm pursuant
to this Section 8.6.
Section 8.7 Parties. For purposes of this Article 8, "Party" shall
mean Rock-Tenn and Rock-Tenn Partition on the one hand, and Sonoco and Sonoco
Partitions on the other hand.
ARTICLE 9.
DISPUTE RESOLUTION
Section 9.1 Dispute Resolution. Each Party to this Agreement
irrevocably consents and agrees that any legal action, suit or proceeding by it
against any of the other Parties with respect to its rights, obligations or
liabilities under or arising out of or in connection with this Agreement shall
be brought by such Party only in the United States District Court for the
District of Delaware or, in the event (but only in the event) such court does
not have subject matter jurisdiction over such action, suit or proceeding, in
the courts of the State of Delaware sitting in the City of Wilmington, and each
Party to this Agreement hereby irrevocably accepts and submits to the
jurisdiction of each of the aforesaid courts in personam, with respect to any
such action, suit or proceeding (including, without limitation, claims for
interim relief, counterclaims, actions with multiple defendants and actions in
which such party is implied). Each party hereto irrevocably and unconditionally
waives any right that it may have to a jury trial in any legal action, suite or
proceeding with respect to, or arising out of or in connection with this
Agreement. Each of the Parties hereby irrevocably designates National
Registered Agents, Inc. (in such capacity, the "Process Agent"), with an office
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<PAGE> 41
at 9 East Loockerman Street, Kent County, Dover, Delaware 19901, as its
designee, appointee and agent to receive, for and on its behalf service of
process in such jurisdiction in any legal action or proceedings with respect to
this Agreement, and such service shall be deemed complete upon delivery thereof
to the Process Agent, provided that in the case of any such service upon the
Process Agent, the Party effecting such service shall also deliver a copy
thereof to the other Parties in the manner provided in Section 11.1. The
Parties shall take all such action as may be necessary to continue said
appointment in full force and effect or to appoint another agent so that the
Parties will at all time have an agent for service of process for the above
purposes in Delaware. In the event of the transfer of all or substantially all
of the assets and business of the process agent to any other corporation by
consolidation, merger, sale of assets or otherwise, such other corporation
shall be substituted hereunder for the process agent with the same effect as if
named herein in place of National Registered Agents, Inc. Each of the Parties
further irrevocably consents to the service of process out of any of the
aforementioned courts in any such action or proceeding by the mailing of copies
thereof by registered airmail, postage prepaid, to such Party at its address
set forth in this Agreement, such service of process to be effective upon
acknowledgment of receipt of such registered mail. Nothing herein shall affect
the right of any Party to serve process in any other manner permitted by
Applicable Law. Each of the Parties expressly acknowledges that the foregoing
waiver is intended to be irrevocable under the laws of the State of Delaware
and of the United States of America.
Section 9.2 Equitable Relief. Each Party hereto agrees that money
damages would not be a sufficient remedy for the other Parties hereto for any
breach of this Agreement by it, and that in addition to all other remedies the
other Parties hereto may have, they shall be entitled to specific performance
and to injunctive or other equitable relief as a remedy for any such breach.
Each Party hereto agrees not to oppose the granting of such relief in the event
a court determines that such a breach has occurred, and to waive any requirement
for the securing or posting of any bond in connection with such remedy.
ARTICLE 10.
POST-TERMINATION PROVISIONS
Section 10.1 Consequences of Termination. Upon the termination of
the Joint Venture in accordance with this Agreement and the Operating Agreement,
this Agreement and the other Operative Agreements shall forthwith cease to have
effect as between the Parties, except to the extent that any such Operative
Agreement shall expressly provide otherwise, and all further obligations of the
Parties to each other and to the Joint Venture shall terminate under this
Agreement and the other Operative Agreements without further liability, except
that:
(a) such termination shall not constitute a waiver of any rights
that any Party may have by reason of a breach of this Agreement or any other
Operative Agreement, subject to any limitations thereon in this Agreement or the
other Operative Agreements; and
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<PAGE> 42
(b) the provisions of this Article 10, Sections 1.3, 7.5 and 7.7,
and Articles 4, 9 and 11 of this Agreement shall continue in full force and
effect.
ARTICLE 11.
MISCELLANEOUS
Section 11.1 Notices. Except as expressly provided herein, notices
and other communications provided for herein shall be in writing and shall be
delivered by hand or courier service, mailed or sent by telex, graphic scanning
or other telegraphic communications equipment of the sending Party, as follows:
Rock-Tenn: Rock-Tenn Company
504 Thrasher Street
Norcross, Georgia 30071
Attn: Chief Financial Officer
Tel: 770-368-7676
Fax: 770-263-3582
with a copy to: Rock-Tenn Company
504 Thrasher Street
Norcross, Georgia 30071
Attn: General Counsel
Tel: 770-263-4456
Fax: 770-248-4402
Rock-Tenn Partition: Rock-Tenn Partition Company
504 Thrasher Street
Norcross, Georgia 30071
Attn: Chief Financial Officer
Tel: 770-368-7676
Fax: 770-263-3582
with a copy to: Rock-Tenn Partition Company
504 Thrasher Street
Norcross, Georgia 30071
Attn: General Counsel
Tel: 770-263-4456
Fax: 770-248-4402
36
<PAGE> 43
Sonoco: Sonoco Products Company
One North Second Street
Hartsville, South Carolina 29550
Attn: President
Tel: 803-383-7000
Fax: 803-383-7478
with a copy to: Sinkler & Boyd, P.A.
1426 Main Street, Suite 1200
Columbia, South Carolina 29201
Attn: William C. Boyd, Esquire
Tel: 803-779-3080
Fax: 803-540-7878
Sonoco Partitions: One North Second Street
Hartsville, South Carolina 29550
Attn: President
Tel: 803-383-7000
Fax: 803-383-7478
with a copy to: Sinkler & Boyd, P.A.
1426 Main Street, Suite 1200
Columbia, South Carolina 29201
Attn: William C. Boyd, Esquire
Tel: 803-779-3080
Fax: 803-540-7878
or to such other address or attention of such other Person as such Party shall
advise the other Parties in writing. All notices and other communications
given to the Parties hereto in accordance with the provisions of this Agreement
shall be deemed to have been given on the date of receipt. Communications sent
by telex, graphic scanning or other telegraphic communications equipment shall
be deemed to have been received when confirmation of their delivery is received
by the sender.
Section 11.2 Applicable Law. The validity, construction and
performance of this Agreement shall be governed by and construed in accordance
with the laws of the State of Delaware, regardless of the laws that might
otherwise govern under applicable principles of conflicts of law.
Section 11.3 Severability. If any provision of this Agreement shall
be held to be illegal, invalid or unenforceable, the Parties agree that such
provision will be enforced to the maximum extent permissible so as to effect the
intent of the Parties, and the validity, legality and enforceability of the
remaining provisions of this Agreement shall not in any way be affected or
impaired thereby. If necessary to effect the intent of the Parties, the Parties
will negotiate in good faith to amend this
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<PAGE> 44
Agreement to replace the unenforceable language with enforceable language which
as closely as possible reflects such intent.
Section 11.4 Amendments. This Agreement may be modified only by a
written amendment signed by all of the Parties.
Section 11.5 Waiver. The waiver by a Party of any instance of any
other Party's noncompliance with any obligation or responsibility herein shall
be in writing and signed by the waiving Party and shall not be deemed a waiver
of other instances of such other Party's noncompliance.
Section 11.6 Counterparts. This Agreement may be executed in one
or more counterparts, all of which shall be considered one and the same
agreement, and shall become effective when one or more counterparts shall have
been signed by each Party and delivered to the other Parties.
Section 11.7 Entire Agreement. The provisions of this Agreement
set forth the entire agreement and understanding among the Parties as to the
subject matter hereof and supersede all prior agreements, oral or written, and
all other prior communications between the Parties relating to the subject
matter hereof, other than those written agreements executed and delivered
contemporaneously herewith.
Section 11.8 No Assignment.
(a) Except as specifically provided herein and except in connection
with a Transfer of a Venture Interest pursuant to Article 10 of the Operating
Agreement, no Party shall, directly or indirectly, assign this Agreement or any
of its rights or obligations hereunder without the prior written consent of the
other Parties.
(b) Any attempted assignment of this Agreement in violation of this
Section 11.8 shall be void and of no effect.
(c) This Agreement shall be binding upon, inure to the benefit of
and be enforceable by the Parties and their respective successors and permitted
assigns.
Section 11.9 Expenses. Except as otherwise provided in this
Agreement, all costs and expenses (including the fees and expenses of any
attorneys, accountants, investment bankers, brokers, finders or other
intermediaries) incurred in connection with this Agreement and the other
Operative Agreements and the consummation of the Transactions contemplated by
Article 5 to be consummated on the date hereof shall be paid by the Party
incurring such cost or expense.
Section 11.10 No Third-Party Beneficiaries. This Agreement is for
the sole benefit of the Parties and their permitted assigns, and nothing
herein express or implied shall give or be construed to give to any Person,
other than the Parties and such assigns, any legal or equitable rights
hereunder.
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<PAGE> 45
Section 11.11 Publicity. No Party will issue any press release or
make any other public announcement relating to the existence of this Agreement
or the Transactions contemplated hereby, except that a Party may make any
disclosure required to be made under Applicable Law or the rules of the New
York Stock Exchange or any other applicable stock exchange if such Party
determines in good faith that it is necessary to do so and gives prior notice
to the other Parties.
Section 11.12 Construction. This Agreement has been negotiated by
the Parties and their respective counsel and shall be fairly interpreted in
accordance with its terms and without any strict construction in favor of or
against any of the Parties.
Section 11.13 Disclaimer of Agency. Except for provisions herein
expressly authorizing one Party to act for another, this Agreement shall not
constitute any Party as a legal representative or agent of any other Party, nor
shall a Party have the right or authority to assume, create or incur any
liability or any obligation of any kind, expressed or implied, against or in the
name or on behalf of any other Party or any of its Subsidiaries or the Joint
Venture unless otherwise expressly permitted by such Party.
Section 11.14 Fiduciary Duties. Subject to Applicable Law, no Party
or any of its Subsidiaries nor any officer, director, employee or former
employee of any Party or its Subsidiary shall have any obligation, or be liable,
to any Party or the Joint Venture for exercising any of the rights of such Party
or such Subsidiary under this Agreement or any other Operative Agreement to
which it is or will be a party, for exercising or failing to exercise its rights
as a member of the Company or for breach of any fiduciary or other similar duty
to any Party or the Joint Venture by reason of such conduct, other than a breach
of any Operative Agreement.
39
<PAGE> 46
IN WITNESS WHEREOF, Rock-Tenn, Rock-Tenn Partition, Sonoco and Sonoco
Partitions have caused their respective duly authorized officers to execute
this Agreement as of the day and year first above written.
ROCK-TENN COMPANY
By:
---------------------------------
Name:
----------------------------
Title:
---------------------------
ROCK-TENN PARTITION COMPANY
By:
---------------------------------
Name:
----------------------------
Title:
---------------------------
SONOCO PRODUCTS COMPANY
By:
---------------------------------
Name:
----------------------------
Title:
---------------------------
SONOCO PARTITIONS, INC.
By:
---------------------------------
Name:
----------------------------
Title:
---------------------------
40
<PAGE> 47
EXHIBIT A
Opinion of King & Spalding
King & Spalding shall deliver to Sonoco and Sonoco Partitions their
legal opinion under the laws of the State of Georgia and the United States of
America to the following effect, based upon and subject to reasonable and
customary assumptions and qualifications:
1. Each of Rock-Tenn and Rock-Tenn Partition is a corporation
validly existing and in good standing under the laws of the State of Georgia,
and has full corporate power and authority to execute and deliver each of the
Operative Agreements to which it is a party and to perform its obligations
thereunder and to consummate the transactions contemplated thereby.
2. The execution and delivery of each of the Operative Agreements
to which Rock-Tenn and Rock-Tenn Partition is a party and of all of the other
documents and instruments required thereby and the performance by Rock-Tenn and
Rock-Tenn Partition of their respective obligations thereunder, have been duly
and validly authorized by the respective Boards of Directors of Rock-Tenn and
Rock-Tenn Partition, no other corporate action on the part of Rock-Tenn and
Rock-Tenn Partition being necessary.
3. Each of the Operative Agreements to which Rock-Tenn or
Rock-Tenn Partition is party has been duly and validly executed and delivered
by Rock-Tenn or Rock-Tenn Partition and constitutes the valid and binding
obligation of Rock-Tenn or Rock-Tenn Partition, enforceable against Rock-Tenn
or Rock-Tenn Partition in accordance with its terms, except to the extent
enforceability may be limited by bankruptcy, insolvency, reorganization or
other laws of general applicability relating to or affecting creditors' rights
or by general equity principles, whether considered at law or in equity.
4. The execution and delivery by Rock-Tenn and Rock-Tenn
Partition of the Operative Agreements do not, and the performance by Rock-Tenn
and Rock-Tenn Partition of their respective obligations under the Operative
Agreements and the consummation of the transactions contemplated thereby will
not:
(i) conflict with or result in a violation or breach of
the articles of incorporation and bylaws of
Rock-Tenn or Rock-Tenn Partition; or
(ii) conflict with or result in a violation or breach of
any law of the State of Georgia or the United States
of America applicable to Rock-Tenn or Rock-Tenn
Partition.
5. No further consent, approval or action of, filing with or
notice to any Governmental Authority of the United States of America or the
State of Georgia is required on the part of Rock-Tenn or Rock-Tenn Partition in
connection with the execution, delivery and performance of each of
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<PAGE> 48
the Operative Agreements to which Rock-Tenn or Rock-Tenn Partition is a party
or the consummation of the transactions consummated thereby.
6. To our knowledge, there are no Proceedings pending or
threatened against, relating to or affecting Rock-Tenn or Rock-Tenn Partition
or any of their respective assets or properties which (i) could reasonably be
expected to result in the issuance of an order restraining, enjoining or
otherwise prohibiting or making illegal the consummation of any of the
transactions contemplated by the Operative Agreements, or (ii) could
individually or in the aggregate have a Material Adverse Effect on the business
or condition of Rock-Tenn or Rock-Tenn Partition.
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<PAGE> 49
EXHIBIT B
Opinion of Sinkler & Boyd
Sinkler & Boyd shall deliver to Rock-Tenn and Rock-Tenn Partition
their legal opinion under the laws of the State of South Carolina and the
United States of America to the following effect, based upon and subject to
reasonable and customary assumptions and qualifications:
1. Each of Sonoco and Sonoco Partitions is a corporation validly
existing and in good standing under the laws of the State of
South Carolina, and has full corporate power and authority to
execute and deliver each of the Operative Agreements to which
it is a party and to perform its obligations thereunder and to
consummate the transactions contemplated thereby.
2. The execution and delivery of each of the Operative Agreements
to which Sonoco or Sonoco Partitions is a party and of all of
the other documents and instruments required thereby and the
performance by Sonoco and Sonoco Partitions of their
respective obligations thereunder, have been duly and validly
authorized by the respective Boards of Directors of Sonoco and
Sonoco Partitions, no other corporate action on the part of
Sonoco and Sonoco Partition being necessary.
3. Each of the Operative Agreements to which Sonoco or Sonoco
Partitions is party has been duly and validly executed and
delivered by Sonoco and Sonoco Partitions and constitutes the
valid and binding obligation of Sonoco and Sonoco Partitions,
enforceable against Sonoco and Sonoco Partition in accordance
with its terms, except to the extent enforceability may be
limited by bankruptcy, insolvency, reorganization or other
laws of general applicability relating to or affecting
creditors' rights or by general equity principles, whether
considered at law or in equity.
4. The execution and delivery by Sonoco and Sonoco Partitions of
the Operative Agreements do not, and the performance by Sonoco
and Sonoco Partitions of their respective obligations under
the Operative Agreements and the consummation of the
transactions contemplated thereby will not:
(i) conflict with or result in a violation or breach of
the articles of incorporation and bylaws of Sonoco
or Sonoco Partitions; or
(ii) conflict with or result in a violation or breach of
any law of the State of South Carolina or the United
States of America applicable to Sonoco or Sonoco
Partitions.
5. No further consent, approval or action of, filing with or
notice to any Governmental Authority of the United States of
America or the State of South Carolina is required
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<PAGE> 50
on the part of Sonoco or Sonoco Partitions in connection with the
execution, delivery and performance of each of the Operative
Agreements to which Sonoco or Sonoco Partitions is a party or the
consummation of the transactions consummated thereby.
6. To our knowledge, there are no Proceedings pending or
threatened against, relating to or affecting Sonoco or Sonoco
Partitions or any of their respective assets or properties
which (i) could reasonably be expected to result in the
issuance of an order restraining, enjoining or otherwise
prohibiting or making illegal the consummation of any of the
transactions contemplated by the Operative Agreements, or (ii)
could individually or in the aggregate have a Material Adverse
Effect on the business or condition of Sonoco or Sonoco
Partitions.
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<PAGE> 1
EXHIBIT 10.9
- -------------------------------------------------------------------------------
CONTRIBUTION AGREEMENT
DATED AS OF SEPTEMBER 5, 1997
BY AND AMONG
ROCK-TENN COMPANY,
ROCK-TENN PARTITION COMPANY
AND
RTS PACKAGING, LLC
- ------------------------------------------------------------------------------
<PAGE> 2
EXHIBITS
Exhibit 1.1(a)(i) Real Property
Exhibit 1.1(a)(ii) Real Property Leases
Exhibit 1.1(a)(iii) Equipment
Exhibit 1.1(a)(v) Leases
Exhibit 1.1(a)(xi) Intangible Property
Exhibit 1.1(a)(xii) Licenses
Exhibit 1.2(a)(i) Excluded Real Property
Exhibit 1.2(a)(ii) Excluded Equipment
Exhibit 1.2(a)(iii) Excluded Intangible Property
Exhibit 1.4(a)(2) Certain Assumed Liabilities
Exhibit 2.6 Excluded Necessary Intangible Property
Exhibit 2.8 Contracts
Exhibit 2.11 Permits
Exhibit 2.12 Litigation
Exhibit 2.13(a) Compliance with Applicable Permits and Law
Exhibit 2.13(b) Notice of Failure to Comply with Law
Exhibit 2.14 Environmental Matters
Exhibit 2.14(g) Fines for Environmental Matters
Exhibit 2.15 Customers
Exhibit 3.10(c) Sketch of Real Property
-i-
<PAGE> 3
CONTRIBUTION AGREEMENT
THIS CONTRIBUTION AGREEMENT (this "Agreement"), dated as of
September 5, 1997 by and among ROCK-TENN COMPANY, a Georgia corporation
("Rock-Tenn"), ROCK-TENN PARTITION COMPANY, a Georgia corporation ("Rock-Tenn
Partition"), and RTS PACKAGING, LLC, a Delaware limited liability company (the
"Company");
W I T N E S S E T H:
WHEREAS, Rock-Tenn is engaged in the solid fiber partition
business (the "Solid Fiber Partition Business");
WHEREAS, Rock-Tenn and Rock-Tenn Partition have entered into
the Joint Venture Agreement, dated as of the date hereof (the "Joint Venture
Agreement"), with Sonoco Products Company and Sonoco Partitions, Inc.,
providing for the formation of the Company to engage in the Solid Fiber
Partition Business on a worldwide basis; and
WHEREAS, Rock-Tenn Partition has agreed to contribute to the
Company certain of its assets related to the Solid Fiber Partition Business;
NOW, THEREFORE, in consideration of the premises and the
representations, warranties, covenants and agreements contained herein and in
the Joint Venture Agreement, and for other good and valuable consideration, the
receipt and sufficiency of which are hereby acknowledged, the parties intending
to be legally bound, hereby agree as follows:
ARTICLE 1.
CONTRIBUTION OF ASSETS BY ROCK-TENN PARTITION
Section 1.1 Contribution of the Assets.
(a) Subject to the terms and conditions of the Joint
Venture Agreement, the Operating Agreement and this Agreement, effective as of
the date hereof (the "Contribution Date"), Rock-Tenn Partition hereby assigns,
transfers and delivers to the Company, as a contribution to the capital of the
Company, free and clear of all title defects, objections, liens, pledges,
claims, rights of first refusal, options, charges, security interests,
mortgages and other encumbrances of any nature whatsoever (collectively,
"Encumbrances"), other than "Permitted Encumbrances" (as defined in Section
1.1(b) of this Agreement), all of the assets, properties and business
(excepting only the "Excluded Assets," as defined in Section 1.2 of this
Agreement) of every kind and description, wherever located, real, personal or
mixed, tangible or intangible, owned or used or held for use primarily in the
conduct of the Solid Fiber Partition Business by Rock-Tenn Partition and its
Affiliates as the same shall exist on the Contribution Date (collectively, the
"Assets"), including, without limitation, all right, title, and interest of
Rock-Tenn Partition in, to, and under:
<PAGE> 4
(i) Subject to Section 3.10(c) of this Agreement, the
parcels of land described in Exhibit 1.1(a)(i) hereto used or held for
use primarily in connection with the Solid Fiber Partition Business
(collectively, the "Real Property") and all buildings, fixtures and
improvements located thereon (collectively, the "Improvements");
(ii) The leases described in Exhibit 1.1(a)(ii)
(collectively, the "Real Property Leases") with respect to the parcels
of land described therein (the "Leased Real Property") and the
Improvements located thereon (the Real Property, the Leased Real
Property and the Improvements together with the Tucker Site and the
Home Office Site (as such terms are defined in Section 1.2 hereof) and
the improvements thereon are hereinafter collectively referred to as
the "Subject Property");
(iii) The machinery, equipment, furniture, vehicles and other
tangible property (including, without limitation, maintenance and
operating supplies, fuel and spare parts for such machinery and
equipment) located at the Subject Property or otherwise used or held for
use primarily in connection with the Solid Fiber Partition Business and
described in Exhibit 1.1(a)(iii) of this Agreement (collectively, the
"Equipment");
(iv) The raw materials, finished goods, work-in-process,
supplies and inventories located at the Subject Property or otherwise
used or held for use primarily in connection with the Solid Fiber
Partition Business (collectively, the "Inventory");
(v) The leases described in Exhibit 1.1(a)(v) (collectively,
the "Leases") with respect to office equipment, furnishings, furniture
and other tangible property located at the Subject Property or otherwise
used or held for use primarily in connection with the Solid Fiber
Partition Business (collectively, the "Leased Property");
(vi) All rights, claims, credits, causes of action and rights
of setoff against third parties relating to the assets used or held for
use primarily in connection with the Solid Fiber Partition Business,
including, without limitation, unliquidated rights under manufacturers'
and vendors' warranties but excluding all amounts representing
reimbursements for items paid by Rock-Tenn Partition or its Affiliates
(collectively, the "Claims");
(vii) All contracts, agreements, licenses and other
instruments, arrangements and commitments primarily relating to the
Solid Fiber Partition Business (collectively, the "Contracts");
(viii) All certificates of occupancy and other transferable
licenses, permits, registrations, authorizations, use agreements, orders
and approvals of governmental and quasi-governmental agencies and
authorities (whether federal, state, local, municipal or foreign) or
private parties relating to the Solid Fiber Partition Business
(collectively, the "Permits");
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(ix) All prepaid rentals and other prepaid expenses (other
than prepaid insurance premiums) arising from payments made by Rock-Tenn
Partition or its Affiliates in the ordinary and usual course of the
operation of the Solid Fiber Partition Business for goods and services
prior to the close of business on the Contribution Date;
(x) Originals or copies of all books, records, files and
papers, whether in hard copy or computer format, used or held for use
primarily in connection within the Solid Fiber Partition Business,
including without limitation, engineering information, manuals and data,
sales and advertising materials, sales and purchase correspondence,
lists of present and, to the extent available, former suppliers
(collectively, "Files and Records");
(xi) All patents, copyrights, trademarks, trade names,
technology, know-how, processes, trade secrets, inventions, proprietary
data and other intangible properties, and all applications for the same,
used or held for use primarily in connection with the Solid Fiber
Partition Business and listed in Exhibit 1.1(a)(xi) (collectively, the
"Intangible Property");
(xii) All licenses with respect to the Intangible Property and
described in Exhibit 1.1(a)(xii) (collectively, the "Licenses");
(xiii) The lists of present and, to the extent available,
former customers and goodwill associated with the Solid Fiber Partition
Business; and
(xiv) All accounts receivable existing on the Contribution
Date and arising out of the ordinary and usual course of the operation
of the Solid Fiber Partition Business prior to the close of business on
the Contribution Date (collectively, the "Accounts Receivable").
(b) For purposes of this Agreement, "Permitted Encumbrances"
shall mean (i) the "Assumed Liabilities" (as defined in Section 1.4 of this
Agreement); (ii) liens for current "Taxes" (as defined in Section 4.1 of this
Agreement) not yet due and payable; (iii) the Real Property Leases and the
Leases; and (iv) in the case of the Real Property and the Improvements thereon,
items subsequently disclosed pursuant to title reports and surveys to be
obtained pursuant to Section 3.10(c) of this Agreement, building and use
restrictions and other easements, right of ways, encumbrances or restrictions of
any nature whatsoever which do not interfere in any material respect with the
current use made of the Real Property or such Improvements in connection with
the Solid Fiber Partition Business.
Section 1.2 Excluded Assets.
(a) The Company expressly understands and agrees that
there shall be excluded from the Assets the following assets and properties (or
rights with respect thereto) of Rock-Tenn Partition and its Affiliates which
are used or held for use in connection with the Solid Fiber Partition Business:
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(i) The parcels of land described in Exhibit 1.2(a)(i)
hereto (the "Tucker Site" and the "Home Office Site" and collectively
referred to herein as the "Excluded Real Property") and the buildings,
fixtures and improvements erected on the Excluded Real Property
(collectively, the "Excluded Improvements") (the Excluded Real Property
and Excluded Improvements hereinafter sometimes collectively referred to
as the "Excluded Facilities")
(ii) All machinery, equipment and other tangible property
described in Exhibit 1.2(a)(ii) (collectively, the "Excluded
Equipment");
(iii) The trademarks and trade names described in Exhibit
1.2(a)(iii) hereto, and all goodwill associated with such trademarks and
trade names (collectively, the "Excluded Intangible Property");
(iv) All claims against third parties relating to the
Excluded Assets and the related unliquidated rights under manufacturers'
and vendors' warranties, including all amounts representing
reimbursements for items paid by Rock-Tenn Partition or its Affiliates;
(v) All of the capital stock issued by Rock-Tenn Recycling
Company ("Rock-Tenn Recycling"), a corporation organized under the laws
of Quebec (formerly known as Dominion Paperboard Product, Ltd.), and all
of the assets of Rock-Tenn Recycling; and
(vi) Refunds relating to prepaid insurance.
(b) The Excluded Facilities, Excluded Equipment, Excluded
Intangible Property and other assets described in Section 1.2(a) not being
contributed to the Company by Rock-Tenn Partition pursuant to this Agreement are
herein collectively referred to as the "Excluded Assets."
Section 1.3 Conveyance Instruments. In order to effectuate the
contribution of the Assets as contemplated by this Article 1, Rock-Tenn
Partition has, or will hereafter, execute and deliver, or cause to be executed
and delivered, all such documents or instruments of assignment, transfer or
conveyance, in each case dated as of the Contribution Date (collectively, the
"Conveyance Instruments"), as the Company and its counsel shall reasonably deem
necessary or appropriate to vest in or confirm title to the Assets to the
Company.
Section 1.4 Assumed Liabilities.
(a) General. Subject to the terms and conditions of this
Agreement, the Operating Agreement and the Joint Venture Agreement, in reliance
on the representations, warranties, covenants and agreements of the parties
contained herein, effective as of the Contribution Date, the Company hereby
assumes and agrees to pay, discharge or fulfill the following liabilities and
obligations relating to the Solid Fiber Partition Business: (1) all of the
liabilities and obligations in
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respect of the Contracts, the Real Property Leases and the Leases; (2) the
liabilities and obligations listed in Exhibit 1.4(a)(2); and (3) all of the
liabilities and obligations described in Section 1.4(b) (collectively, the
"Assumed Liabilities")
(b) PIUMPF Withdrawal Liability.
(i) General. Rock-Tenn, Rock-Tenn Partition and the Company
intend that the contribution of assets by Rock-Tenn and Rock-Tenn
Partition to the Company as contemplated in this Agreement in exchange
for the ownership interest in the Company described in the Joint Venture
Agreement shall constitute a sale of assets by Rock-Tenn and Rock-Tenn
Partition to the Company under Section 4204 of the Employee Retirement
Income Security Act of 1974, as amended ("ERISA"), and that neither Rock
Tenn nor Rock-Tenn Partition shall have a complete withdrawal or a
partial withdrawal from the Paper Industry Union-Management Pension Fund
("PIUMPF") by reason of the application of ERISA Section 4204 to such
contribution of assets to the Company and the transactions related to
such contribution of assets to the Company.
(ii) PIUMPF. Rock-Tenn and Rock-Tenn Partition immediately
prior to the Contribution Date have terminated the employment of all
Rock-Tenn and Rock-Tenn Partition employees who are represented by the
United Paperworkers International Union, AFL-CIO, Local Union Number 826
at the Merced, California Plant and Local Union Number 1106 at the
Eaton, Indiana Partition Plant ("PIUMPF Participants") and who have been
transferred to the Company as part of the contribution of assets
contemplated in this Agreement and on whose behalf Rock-Tenn or
Rock-Tenn Partition made contributions to PIUMPF, the Company has
offered employment to all such PIUMPF Participants effective as of the
Contribution Date and the Company has assumed as of the Contribution
Date Rock-Tenn's obligation and Rock-Tenn Partition's obligation to make
contributions to PIUMPF on and after the Contribution Date for all such
PIUMPF Participants who have accepted the Company's offer of employment.
(iii) Bond. Subject to the grant of a variance requested
under Section 1.4(b)(v), the Company shall purchase and maintain a bond
sufficient to satisfy the requirements of ERISA Section 4204(a)(1)(B).
(iv) Secondary Liability. Subject to the grant of a variance
requested under Section 1.4(b)(v), Rock-Tenn and Rock-Tenn Partition
shall remain secondarily liable for any withdrawal liability that either
Rock-Tenn or Rock-Tenn Partition would have had to PIUMPF with respect
to the transactions described in this Section 1.4(b) if the Company
withdraws from PIUMPF in a complete withdrawal during the five plan
years of PIUMPF which immediately follow the Contribution Date or has a
partial withdrawal with respect to the transaction described in this
Section 1.4(b) during such five plan year period if the Company's
liability to PIUMPF with respect to any such withdrawal or partial
withdrawal is not paid. Further, if the Company withdraws from PIUMPF
before the last day of the five
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plan year period of PIUMPF which begins after the Contribution Date and
the Company fails to make any withdrawal liability payment when due,
Rock-Tenn and Rock-Tenn Partition shall pay to PIUMPF an amount equal to
the payment that would have been due from Rock-Tenn or Rock-Tenn
Partition but for the application of ERISA Section 4204 to the
transaction described in this Section 1.4(b).
(v) Variance. Rock-Tenn and the Company shall decide
whether to request a variance from PIUMPF from the bond requirement
described in Section 1.4(b)(iii) or the secondary liability requirement
described in Section 1.4(b)(iv), or both, and, if a decision is made to
request a variance, Rock-Tenn and the Company agree to cooperate in the
preparation and filing of any such request and, further, agree to take
such further action, if any, as Rock-Tenn and the Company agree is
reasonable and appropriate under the circumstances to secure any
variance which is requested from PIUMPF.
(vi) Interpretation and Implementation. Rock-Tenn, Rock-Tenn
Partition and the Company agree that this Section 1.4(b) shall be
interpreted and implemented such that ERISA Section 4204 shall apply to
the transaction described in this Section 1.4(b).
Section 1.5 Excluded Liabilities. Notwithstanding any provision
of this Agreement or any Conveyance Instrument to the contrary, the Company is
assuming only the Assumed Liabilities and is not assuming any other liability
or obligation of Rock-Tenn Partition or any of its Affiliates (or any
predecessor owner of all or part of the Solid Fiber Partition Business or the
Assets) of whatever nature whether presently in existence or arising hereafter
with respect to the Solid Fiber Partition Business, and Rock-Tenn Partition and
its Affiliates shall retain responsibility for all of their respective
liabilities and obligations accrued as of the date hereof arising from the
operation of the Solid Fiber Partition Business prior to the date hereof (all
of such liabilities and obligations not being assumed hereinafter referred to
as the "Excluded Liabilities"). By way of example only, none of the following
shall be "Assumed Liabilities" for purposes of this Agreement:
(a) Any liability for "Tax" (as defined in Section 4.1 of
this Agreement) arising from or with respect to the Assets or the operation of
the Solid Fiber Partition Business, other than as described in Section
1.4(a)(2) hereof, which is incurred in or attributable to the "Tax
Indemnification Period" (as defined in Section 4.1 of this Agreement) (the
"Excluded Tax Liabilities");
(b) Any liabilities or obligations relating to employee
benefits or compensation, including, without limitation, any liabilities or
obligations under any employee benefit agreements, plans or other arrangements
of Rock-Tenn Partition or any of its Affiliates; or
(c) Any liabilities relating to the Excluded Assets (it
being understood that any Tax Liability relating to the Excluded Assets shall
be an Excluded Tax Liability for purposes of this Agreement).
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If the Company pays or performs any such Excluded Liability relating
to the Solid Fiber Partition Business, then Rock-Tenn and Rock-Tenn Partition,
jointly and severally, shall indemnify and hold harmless the Company for such
payment or performance and any costs or expenses incurred in connection
therewith.
ARTICLE 2.
REPRESENTATIONS AND WARRANTIES OF ROCK-TENN
AND ROCK-TENN PARTITION
Rock-Tenn and Rock-Tenn Partition hereby jointly and severally
represent to the Company as follows:
Section 2.1 Sufficiency of Assets. The Assets, together with (i)
the assets of Rock-Tenn Recycling, (ii) the assets to be made available to the
Company pursuant to the Trademark License Agreement and the Rock-Tenn Services
Agreement and (iii) the Excluded Assets, comprise all of the assets (or rights
with respect thereto) necessary for the Company to conduct the Solid Fiber
Partition Business as it is presently conducted. As a result of the delivery
to the Company of the Conveyance Instruments, all of the Assets (or rights with
respect thereto) are owned by the Company free and clear of all Encumbrances,
except Permitted Encumbrances and except as provided in Section 3.10 with
respect to the Real Property.
Section 2.2 Condition of Assets. The plants, structures and
equipment owned, operated or leased by Rock- Tenn Partition which are included
in the Assets are, to the knowledge of Rock-Tenn and Rock-Tenn Partition,
structurally sound and in good repair and operating condition, normal wear and
tear excepted, have been maintained in accordance with normal industry practice
and are, to the knowledge of Rock-Tenn and Rock-Tenn Partition, adequate for
the continued conduct of the Solid Fiber Partition Business as it is presently
conducted.
Section 2.3 Subject Property. With respect to the Subject
Property included in the Assets, (i) there are no pending or, to the knowledge
of Rock-Tenn and Rock-Tenn Partition, threatened condemnation actions, suits or
proceedings relating to the Subject Property or other matters adversely
affecting the present use, occupancy or value thereof; (ii) there are no
leases, subleases, licenses, concessions or other agreements, written or oral,
granting to any person the right of occupancy or use thereof or any part
thereof, other than the Real Property Leases and the Leases; (iii) there are
no outstanding options or rights of first refusal to purchase the Subject
Property or any right therein; and (iv) the Subject Property has water supply,
storm and sanitary sewer facilities, access to telephone, gas and electrical
connections, fire protection, drainage, means of ingress and egress to and from
public highways and, without limitation, other public utilities, all of which
are adequate for the continued conduct of the Solid Fiber Partition Business as
it is presently conducted.
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Section 2.4 Accounts Receivable. The Accounts Receivable
included in the Assets have arisen from bona fide transactions in the ordinary
course of the operation of the Solid Fiber Partition Business and, to the
knowledge of Rock-Tenn and Rock-Tenn Partition, are good and collectible in
accordance with their terms at the recorded amounts thereof, and are not
subject to any counterclaims or set-offs.
Section 2.5 Inventory. The Inventory included in the Assets
consist of items which are good and merchantable within normal trade tolerances
and of a quality and quantity presently usable or salable in the ordinary
course of business. To the knowledge of Rock-Tenn and Rock-Tenn Partition,
neither Rock-Tenn Partition nor any of its Affiliates is under any liability or
obligation with respect to the return of any Inventory in the possession of
wholesalers, distributors or other customers other than in the ordinary course
of business.
Section 2.6 Patents, Trademarks and Trade Names. Except as
described in Exhibit 2.6, the patents, trademarks, trade names, copyrights,
technology, know-how, processes, trade secrets, inventions, proprietary data
and other intangible property included in the Assets constitute all patents,
trademarks, trade names, copyrights, technology, know-how, processes, trade
secrets, inventions, proprietary data and other intangible property used in or
necessary for the continued conduct of the Solid Fiber Partition Business as it
is presently conducted. No claims have been asserted during the past year by
any person against the use of any such intangible property or any license
related thereto, and to the knowledge of Rock-Tenn and Rock-Tenn Partition,
there is no valid basis for any such claim.
Section 2.7 Real Property Leases and Leases.
(a) Rock-Tenn and Rock-Tenn Partition heretofore have
delivered to the Company a true and complete copy of each Real Property Lease
and Lease.
(b) Each of the Real Property Leases and the Leases is
valid and in full force and effect in accordance with its terms; no Lease has
been modified or amended in writing or otherwise; there are no existing
defaults or claims of default by Rock-Tenn Partition or any of its Affiliates
under any Real Property Lease or Lease or, to the knowledge of Rock-Tenn and
Rock-Tenn Partition, by any other party to any such Real Property Lease or
Lease. To the knowledge of Rock-Tenn and Rock-Tenn Partition, no event has
occurred which (whether with notice, lapse of time or both) would constitute a
default by Rock-Tenn Partition or any of its Affiliates under any Real Property
Lease or Lease or, to the knowledge of Rock-Tenn and Rock-Tenn Partition, by
any other party to any such Real Property Lease or Lease and, to the knowledge
of Rock-Tenn and Rock-Tenn Partition, no party to any such Real Property Lease
or Lease intends to cancel, terminate or exercise any option under any such
Real Property Lease or Lease.
Section 2.8 Contracts. Except as set forth in Exhibit 2.8, with
respect to the Solid Fiber Partition Business only:
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(a) Neither Rock-Tenn nor Rock-Tenn Partition is a party
to or subject to any "Material Contract" (as hereinafter defined) (which does
not terminate, or is not terminable by the Company or Rock-Tenn Partition or
their respective Affiliates without payment of any penalty or other amount to
any third party, prior to December 31, 1997);
(b) Neither Rock-Tenn nor Rock-Tenn Partition is a party
to or subject to any collective bargaining agreement that covers any employee
of Rock-Tenn Partition.
(c) Neither Rock-Tenn nor Rock-Tenn Partition is a party
to or subject to any Contract involving the sharing of profits;
(d) Neither Rock-Tenn nor Rock-Tenn Partition is a party
to or subject to any Material Contract for the sale of its products or any
sales agency, broker, distribution or similar contracts;
(e) Neither Rock-Tenn nor Rock-Tenn Partition is bound by
any Contract restricting it or otherwise limiting its freedom to compete in any
line of business or with any person, or from otherwise carrying on its business
anywhere in the world; and
(f) There are no persons holding powers of attorney from
Rock-Tenn Partition or any of its Affiliates.
Rock-Tenn and Rock-Tenn Partition heretofore have delivered to the Company a
true and correct copy of each of the Contracts. Each of the Contracts is valid
and is in full force and effect in accordance with its terms; no Contract has
been modified or amended in writing or otherwise; there are no outstanding
defaults or claims of default by Rock-Tenn Partition or any of its Affiliates
under any Contract or, to the knowledge of Rock-Tenn and Rock-Tenn Partition,
by any other party to any such Contract. To the knowledge of Rock-Tenn and
Rock-Tenn Partition, no event has occurred which (whether with notice, lapse of
time or both) would constitute a default by Rock-Tenn Partition or any of its
Affiliates under any Contract or, to the knowledge of Rock-Tenn and Rock-Tenn
Partition, by any other party to any such Contract and, to the knowledge of
Rock-Tenn and Rock-Tenn Partition, no party to any such Contract intends to
cancel, terminate or exercise any option under any such Contract. As used
herein, "Material Contract" shall mean any Contract with respect to the Solid
Fiber Partition Business that could reasonably be anticipated to involve sales
by Rock-Tenn Partition or any of its Affiliates in any twelve (12) month period
in excess of an aggregate of $50,000, or any Contract that by its terms
requires Rock-Tenn Partition or any of its Affiliates to make payments
thereunder in any twelve (12) month period in excess of an aggregate of
$50,000.
Section 2.9 Licenses.
(a) Rock-Tenn and Rock-Tenn Partition heretofore have
delivered to the Company a true and correct copy of each License.
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(b) Each of the Licenses is valid and in full force and
effect in accordance with its terms; no License has been modified or amended in
writing or otherwise; there are no existing defaults or claims of default by
Rock-Tenn Partition or any of its Affiliates under any License or, to the
knowledge of Rock-Tenn and Rock-Tenn Partition, by any other party to any such
License. To the knowledge of Rock-Tenn and Rock-Tenn Partition, no event has
occurred which (whether with notice, lapse of time or both) would constitute a
default by Rock-Tenn Partition or any of its Affiliates under any License or,
to the knowledge of Rock-Tenn and Rock-Tenn Partition, by any other party to
any such License and, to the knowledge of Rock-Tenn and Rock-Tenn Partition, no
party to any such License intends to cancel, terminate or exercise any option
under any such License.
Section 2.10 Assumed Liabilities. The Assumed Liabilities consist
only of liabilities incurred by Rock-Tenn and its Affiliates in the ordinary
course of conducting the Solid Fiber Partition Business.
Section 2.11 Permits. The Permits listed on Exhibit 2.11 are
current and in good standing and constitute all material licenses, permits,
registrations, authorizations, use agreements, orders or approvals of
Governmental Authorities (whether federal, state, local, municipal or foreign)
or third parties necessary for the continued conduct of the Solid Fiber
Partition Business as it is presently conducted.
Section 2.12 Litigation. Except as set forth in Exhibit 2.12,
there are no actions, suits or proceedings before or by any court or
Governmental Authority pending or, to the knowledge of Rock-Tenn and Rock-Tenn
Partition, threatened by or against or involving Rock-Tenn or any of its
Affiliates or any directors, officers or employees thereof in their capacity as
such, which question or challenge the validity of this Agreement, the Joint
Venture Agreement or any other Operative Agreement or any action taken or to be
taken by Rock-Tenn Partition or any of its Affiliates pursuant to this
Agreement or which would, if adversely decided, have a material adverse affect
on the Solid Fiber Partition Business or affect the ability of the Company to
continue to conduct the Solid Fiber Partition Business as it is presently
conducted.
Section 2.13 Compliance With Applicable Law. Except as and to the
extent set forth in Exhibit 2.13(a), with respect to the Solid Fiber Partition
Business only, the operations of Rock-Tenn and Rock-Tenn Partition have been
and are being conducted in material compliance with (i) all applicable Permits,
orders, writs, injunctions, judgments, decrees or awards of all courts and
Governmental Authorities, and (ii) to the knowledge of Rock-Tenn and Rock-Tenn
Partition, all laws (statutory or otherwise), ordinances, rules, regulations,
bylaws and codes of all Governmental Authorities, whether federal, state,
local or foreign (collectively, "Laws"), which are applicable to, and have a
material effect on, the Solid Fiber Partition Business. Except as and to the
extent set forth in Exhibit 2.13(b), neither Rock-Tenn nor Rock-Tenn Partition
has received any written notification of any asserted present failure to comply
with any Law, except for failures which will not, in the reasonable judgment of
Rock-Tenn and Rock-Tenn Partition, have any material adverse effect on the
Solid Fiber Partition Business. Rock-Tenn and Rock-Tenn Partition heretofore
have
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delivered to the Company a true and correct copy of each Permit, order, writ,
injunction, judgment, decree and award of any court or governmental or
regulatory agency applicable to the Solid Fiber Partition Business.
Section 2.14 Environmental Matters. Except as set forth in
Exhibit 2.14:
(a) Rock-Tenn Partition and its Affiliates possess, and
are in material compliance with, all permits, licenses and government
authorizations and have filed all material notices that are required under any
Environmental Law in respect of the Solid Fiber Partition Business of
Rock-Tenn, and Rock-Tenn and Rock-Tenn Partition are in material compliance
with all applicable limitations, restrictions, conditions, standards,
prohibitions, requirements, obligations, schedules and timetables contained in
those laws or contained in any law, regulation, code, plan, order, decree,
judgment, notice, permit or demand letter issued, entered, promulgated or
approved thereunder in respect of the Solid Fiber Partition Business of
Rock-Tenn;
(b) Neither Rock-Tenn Partition nor any of its Affiliates
have received notice of actual or threatened liability under "CERCLA" (as
hereinafter defined) or any similar state or local statute or ordinance from
any Governmental Authority or any third party, and, to the knowledge of
Rock-Tenn Partition and its Affiliates, there are no facts or circumstances
which would reasonably be expected to form the basis for the assertion of any
claim against Rock-Tenn Partition or its Affiliates under any Environmental
Laws in respect of the Solid Fiber Partition Business of Rock-Tenn, including,
without limitation, the Federal Comprehensive Environmental Response,
Compensation and Liability Act ("CERCLA") or any similar local, state or
foreign law with respect to any on-site or off-site location;
(c) Neither Rock-Tenn Partition nor any of its Affiliates
have entered into, agreed to or contemplates entering into any consent decree
or order in respect of the Solid Fiber Partition Business of Rock-Tenn, and
neither Rock-Tenn Partition nor any of its Affiliates are subject to any
judgment, decree or judicial or administrative order relating to compliance
with, or the cleanup of hazardous materials under, any applicable Environmental
Laws in respect of the Solid Fiber Partition Business of Rock-Tenn;
(d) To the knowledge of Rock-Tenn Partition and its
Affiliates, none of the Subject Property is subject to any, and neither
Rock-Tenn Partition nor any of its Affiliates is alleged to be in violation of
any, administrative or judicial proceeding pursuant to applicable Environmental
Laws or regulations;
(e) To the knowledge of Rock-Tenn Partition and its
Affiliates, none of the Subject Property is subject to any material claim,
obligation, liability, loss, damage or expense of whatever kind or nature,
contingent or otherwise, incurred or imposed or based upon any provision of any
Environmental Law and arising out of any act or omission of Rock-Tenn Partition
or its Affiliates or their respective employees, agents or representatives or
arising out of the ownership, use, control or operation by any of Rock-Tenn
Partition or its Affiliates of any plant, facility, site,
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area or property (including, without limitation, any plant, facility, site,
area or property currently or previously owned or leased by Rock-Tenn Partition
or its Affiliates) in respect of the Solid Fiber Partition Business of
Rock-Tenn, from which any Hazardous Materials were released into the
environment (the term "release" meaning any spilling, leaking, pumping,
pouring, emitting, emptying, discharging, injecting, escaping, leaching,
dumping or disposing into the environment, and the term "environment" meaning
any surface or ground water, drinking water supply, soil, surface or subsurface
strata or medium, or the ambient air);
(f) To the knowledge of Rock-Tenn Partition and its
Affiliates, none of the Subject Property contains any friable asbestos, PCBs or
underground storage tanks.
(g) Exhibit 2.14(g) sets forth the amount of all fines,
penalties or assessments paid within the last five years by Rock-Tenn Partition
and its Affiliates with respect to environmental matters relating to the Solid
Fiber Partition Business of Rock-Tenn, including the date of payment and the
basis for the assertions of liability; and
Section 2.15 Customers, etc. Except as set forth in Exhibit 2.15,
since December 31, 1996, there has not been any adverse change in the business
relationship of Rock-Tenn Partition or any of its Affiliates with any customer,
distributor or supplier which is material to the Solid Fiber Partition
Business.
Section 2.16 No Brokers. Neither Rock-Tenn nor Rock-Tenn
Partition has incurred or will incur any broker's, finder's, investment banking
or similar fee in connection with the transactions contemplated by this
Agreement, and neither Rock-Tenn nor Rock-Tenn Partition has made any statement
or representation that could form the basis for any claim for any such fee.
ARTICLE 3.
COVENANTS
Section 3.1 Indemnification.
(a) Except as provided herein, the remedies provided in
Section 7.1 of the Joint Venture Agreement, and the enforcement of such
remedies pursuant to Section 9.1 of the Joint Venture Agreement, shall
constitute the sole and exclusive remedies for recovery by a Party against the
other for any breach of any representation, warranty, covenant or agreement
contained in this Agreement by such other Party.
(b) All representations, warranties, covenants and
agreements contained herein shall survive without limitation as to time,
subject to Applicable Law (including any applicable statute of limitations),
except that the representations in Section 2.14 shall survive without
limitation as to time and without regard to any limitation as to time under
Applicable Law.
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(c) In no event shall either Party be liable for
consequential, special, incidental or punitive losses, damages or expenses
(including lost profits and opportunity costs).
Section 3.2 Tax Indemnification and Other Tax Matters.
(a) Notwithstanding Section 3.1, Rock-Tenn and Rock-Tenn
Partition jointly and severally shall indemnify and hold harmless each
"Indemnitee" (as defined in Section 4.1 of this Agreement) from:
(i) Any liability for Tax of Rock-Tenn and Rock-Tenn
Partition which is incurred in or attributable to the Tax
Indemnification Period; and
(ii) Any liability, cost, expense (including, without
limitation, reasonable expenses of investigation and reasonable
attorneys' fees and expenses), loss, damages, assessment, settlement,
or judgment arising out of or incident to the imposition, assessment
or assertion of any liability described in subclause (i) hereof,
including those incurred in the contest in good faith of appropriate
proceedings for the imposition, assessment or assertion of any Tax
(subject to the provisions of Section 3.2(e) hereof), and any
liability of any Indemnitee by reason of being a transferee of the
Assets of Rock-Tenn and Rock-Tenn Partition which is incurred or
attributable to the Tax Indemnification Period.
The sum of (i) and (ii) above is referred to herein as a "Tax Loss."
(b) In the case of any Taxes that are imposed, assessed
or asserted on a periodic basis and are payable with respect to the Solid Fiber
Partition Business or the Assets for a taxable period that includes (but does
not end on) the Contribution Date, the portion of such Taxes related to the
portion of such taxable period ending on the Contribution Date and the portion
of such Taxes that is incurred in or attributable to the Pre-Contribution Tax
Period shall (i) in the case of any Tax other than a Tax imposed on, measured
by, or related to revenues, gross or net income, receipts, gains or
compensation from the operation of the Solid Fiber Partition Business, be
deemed to be the amount of such Tax for the entire taxable period multiplied by
a fraction, the numerator of which is the number of days in the
Pre-Contribution Tax Period and the denominator of which is the number of days
in the entire taxable period, and (ii) in the case of any Tax imposed on,
measured by, or related to revenues, gross or net income, receipts, gains or
compensation from the operation of the Solid Fiber Partition Business, be
deemed equal to the amount of such Tax for the entire taxable period multiplied
by a fraction, the numerator of which is the revenues, gross or net income,
receipts, gains or compensation, as the case may be, attributable to the Tax
Indemnification Period and the denominator of which is the total amount of
revenues, gross or net income, receipts, gains or compensation for the entire
taxable period.
(c) Upon the incurrence by any Indemnitee of any Tax Loss
or any Loss relating to an "Excluded Tax Liability" (as defined in Section
1.5(a) hereof), Rock-Tenn and Rock-Tenn Partition jointly and severally shall
discharge its obligations to indemnify such Indemnitee against
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<PAGE> 16
such Tax Loss or Loss by paying to the Indemnitee in cash an amount equal to
the amount of such Tax Loss or Loss. Any payment pursuant to this Section
3.2(c) relating to an Excluded Tax Liability shall be delivered no later than
five (5) days prior to the first date on which such Indemnitee is required
(without incurring interest or penalties) under applicable Law to make any
payment with respect to or as a result of such Tax Loss or Loss. The Company
shall deliver to Rock-Tenn and Rock-Tenn Partition, upon the incurrence of a
Tax Loss or any Loss relating to an Excluded Tax Liability by any Indemnitee,
written notice describing such Tax Loss or Loss and stating the amount thereof,
the amount of the indemnity payment requested, and the first date on which such
Indemnitee is required (without incurring interest or penalties) to make any
payment with respect to or as a result of such Tax Loss or Loss. Any payment
required under this Section 3.2(c) or any Loss relating to an Excluded Tax
Liability and not made when due shall bear interest at the federal short-term
rate under Section 1274 of the Code for each day until paid.
(d) If any Indemnitee receives a refund or reduces its
Tax Liability by using a credit of any Tax in respect of the Tax
Indemnification Period or any Excluded Tax Liability, such Indemnitee shall pay
to Rock-Tenn and Rock-Tenn Partition the amount of such refund or credit within
thirty (30) days of the date on which such refund or credit is received or used
by such Indemnitee. The Company agrees that, upon the request of Rock-Tenn or
Rock-Tenn Partition, the Company shall file, or cause an Indemnitee to file, a
claim for refund in such form as Rock-Tenn or Rock-Tenn Partition may
reasonably request of any Tax in respect of the Tax Indemnification Period or
any Excluded Tax Liability, provided that the Company or an Indemnitee shall
not be required to file such a claim if such claim would adversely affect the
Tax liability of the Company or any of its Affiliates. The Company agrees that
it will cooperate, and cause each Indemnitee to cooperate, fully with Rock-Tenn
and Rock-Tenn Partition and its counsel in connection therewith.
(e) (i) If any adjustments shall be made to any Tax
return relating to Rock-Tenn or Rock-Tenn Partition in respect of the Solid
Fiber Partition Business or the Assets for any Pre-Contribution Tax Period
which result in any Tax detriment to Rock-Tenn or any Affiliate thereof with
respect to such period and any Tax benefit to the Company or any Affiliate
thereof for any Taxable period ending after the Contribution Date, Rock-Tenn
shall be entitled to the benefit of such Tax benefit, and the Company shall pay
to Rock-Tenn and Rock-Tenn Partition the amount of such Tax benefit at such
time or times as and to the extent that the Company or any Affiliate thereof
actually realizes such benefit through a refund of Tax or reduction in the
amount of Tax which the Company or any Affiliate thereof otherwise would have
had to pay if such adjustment had not been made.
(ii) If any adjustments (including any adjustment
arising by reason of a refund claim) shall be made to any Tax return relating
to the Company for any Taxable period after the Contribution Date which result
in any Tax detriment to the Company or any Affiliate thereof with respect to
such period and any Tax benefit to Rock-Tenn or any Affiliate thereof for any
Pre-Contribution Tax Period, the Company shall be entitled to the benefit of
such Tax benefit, and Rock-Tenn and Rock-Tenn Partition shall be obligated
jointly and severally to pay to the Company the amount of such Tax benefit at
such time or times as and to the extent that Rock-Tenn or any
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<PAGE> 17
Affiliate thereof actually realizes such benefit through a refund of Tax or
reduction in the amount of Tax which Rock-Tenn or any such Affiliate otherwise
would have had to pay if such adjustment had not been made.
(f) If the Company or any Affiliate thereof realizes a
Tax benefit in a Taxable period as described in Section 3.2(e) ending after the
Contribution Date with respect to a Tax Loss through a refund of Tax or
reduction in the amount of Tax which the Company or any Affiliate thereof
otherwise would have to pay then, (i) if such benefit is actually realized
prior to the indemnity payment being made, the amount of such benefit shall
reduce the amount of the indemnity payment otherwise required to be made
hereunder, and (ii) if such benefit is actually realized subsequent to the
indemnity payment or contribution being made, the Company or such Affiliate
shall pay the amount of such benefit to Rock-Tenn and Rock-Tenn Partition at
such time as such benefit is actually realized.
(g) With respect to liability for Tax of Rock-Tenn or any
of its Affiliates incurred in or attributable to the Pre-Contribution Tax
Period in respect of any item which gave rise to an amount included in the
provision for deferred income taxes on Rock-Tenn's consolidated financial
statements as of the Contribution Date, Rock-Tenn and Rock-Tenn Partition
shall be obligated jointly and severally to pay to an Indemnitee an amount
equal to the amount of such Tax liability, minus the present value of (i) any
deduction, amortization, exclusion from income, or tax credit allowable to such
Indemnitee which would not be allowable but for an adjustment with respect to
which Rock-Tenn and Rock-Tenn Partition are obligated to indemnify such
Indemnitee ("the Tax Benefit"), multiplied (ii) by the maximum applicable tax
rate in effect at such time or, in the case of a credit, by 100 percent (the
product of (i) and (ii) in the preceding clause shall be referred to as the
"Hypothetical Tax Benefit"). The present value of the Hypothetical Tax Benefit
shall be determined based on the federal mid-term rate under Section 1274 of
the Code in effect at the time the indemnification payment is made, compounded
annually for the number of years between the year to which the adjustment
relates and the year on which such Tax Benefit would be allowable under Law
whether or not the Indemnitee could derive any actual Tax savings as a result
thereof.
Section 3.3 Control of Litigation.
(a) The Indemnitees agree to give prompt notice to the
Indemnitors of the assertion of any claim and the commencement of any suit,
action or proceeding in respect of which indemnity may be sought under Section
3 of this Agreement and of any Loss in respect of which indemnity may be sought
under Section 3 of this Agreement (specifying with reasonable particularity the
basis therefor) and will give the Indemnitors such information with respect
thereto as the Indemnitors may reasonably request. The Indemnitors may, at
their own expense, participate in and, upon notice to such Indemnitee, assume
the defense of any such suit, action or proceeding; provided that the
Indemnitors' counsel is reasonably satisfactory to such Indemnitee. The
Indemnitors shall thereafter consult with such Indemnitee upon such
Indemnitee's reasonable request for such consultation from time to time with
respect to such suit, action or proceeding, and the Indemnitors shall not,
without such Indemnitee's consent, which consent shall not be unreasonably
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<PAGE> 18
withheld, settle or compromise any such suit, action or claim. If the
Indemnitors assume such defense, such Indemnitees shall have the right (but not
the duty) to participate in the defense thereof and to employ counsel, at their
own expense, separate from the counsel employed by the Indemnitors. For any
period during which the Indemnitors have not assumed the defense thereof, the
Indemnitors shall be liable for the fees and expenses of counsel employed by
any Indemnitee; provided, however, that the Indemnitors shall not be liable for
the fees or expenses of more than one counsel employed for all Indemnitees. If
the Indemnitees assume the defense thereof, the Indemnitees shall thereafter
consult with the Indemnitors upon the Indemnitors' reasonable request for such
consultation from time to time with respect to such suit, action or proceeding
and the Indemnitees shall not, without the Indemnitors' consent, which consent
shall not be unreasonably withheld, settle or compromise any such suit, action
or claim. Whether or not the Indemnitors choose to defend or prosecute any
claim, all of the parties hereto shall cooperate in the defense or prosecution
thereof.
(b) The Indemnitors shall not be liable under Section
3.2(a) hereof with respect to any Loss resulting from a claim or demand the
defense of which the Indemnitors were not offered the opportunity to assume as
provided under Section 3.2(a) hereof to the extent the Indemnitors' liability
under Section 3 hereof is prejudiced as a result thereof. No investigation by
any Indemnitee prior to the Contribution Date shall relieve any Indemnitor of
any liability hereunder.
Section 3.4 Transfer Taxes. Rock-Tenn and Rock-Tenn Partition
shall be obligated jointly and severally to pay, or cause to be paid, all Taxes
or recording fees imposed on any transfers of the Assets contemplated by this
Agreement and all sales and use Taxes applicable to transfers by Rock-Tenn or
Rock-Tenn Partition of the Assets contemplated by this Agreement.
Section 3.5 Cooperation on Tax Matters. Rock-Tenn, Rock-Tenn
Partition and the Company shall cooperate fully, as and to the extent
reasonably requested by the other party, in connection with any audit,
litigation or other proceeding with respect to Taxes. Such cooperation shall
include the retention and (upon the other party's request) the provision of
records and information which are reasonably relevant to any such audit,
litigation or other proceeding and making employees available on a mutually
convenient basis to provide additional information and explanation of any
material provided hereunder. The Company, Rock-Tenn and Rock-Tenn Partition
agree (a) to retain all books and records which are relevant to the
determination of the Tax liabilities relating to the Solid Fiber Partition
Business or the Assets in respect of any Pre-Contribution Tax Period until the
expiration of the applicable statute of limitations and to abide by all record
retention agreements entered into with any Taxing Authority, and (b) to give
the other party reasonable written notice prior to destroying or discarding any
such books and records and, if the other party so requests, the Company (on the
one hand) or Rock-Tenn or Rock-Tenn Partition (on the other) shall allow the
other party to take possession of such books and records.
Section 3.6 Elections. Without the prior written consent of the
Company, neither Rock-Tenn nor any Affiliate of Rock-Tenn shall surrender any
right to claim a refund of Taxes, consent to any extension or waiver of the
limitation period applicable to an Tax claim or assessment relating
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<PAGE> 19
to Rock-Tenn or any such Affiliate take any other action, or omit to take any
action, if any such election, adoption, change, amendment, agreement,
settlement, surrender, consent or other action or omission had (or will have)
the effect of increasing the Tax liability of the Company or any Affiliate of
the Company.
Section 3.7 Reserved.
Section 3.8 Tax Returns of Rock-Tenn. With respect to any Tax
return required to be filed by the Company for its Taxable period which
includes (but does not end on) the Contribution Date, the Company shall provide
Rock-Tenn and its authorized representatives with copies of such completed Tax
return and a statement (with which the Company will supply supporting schedules
and information) setting forth the amount of Tax shown on such Tax return that
is allocable to Rock-Tenn pursuant to Section 3.2 hereof (the "Statement") at
least forty-five (45) business days prior to the due date (including any
extension thereof) for the filing of such Tax return. Reasonable costs, fees
and expenses relating to the preparation of such Tax return shall be borne
equally by Rock-Tenn and the Company. Rock-Tenn shall have the right at its
own expense to review such Tax return and Statement prior to the filing of such
Tax return. If Rock-Tenn, within ten (10) business days after delivery of the
Statement, notifies the Company in writing that it objects to any items on such
Statement, specifying with particularity any such item and stating the specific
factual or legal basis for any such objection, the Company and Rock-Tenn shall
resolve in good faith and use their best efforts to resolve such items. If the
dispute is not resolved within twenty (20) days after receipt by the Company of
such notice, the disputed items shall be resolved pursuant to Section 3.9
hereof and such Tax return shall be filed consistently therewith. Not later
than the later of five (5) days before the due date for payment of Taxes with
respect to such Tax return or, in the event of a dispute, five (5) days after
notice to Rock-Tenn of the resolution thereof, Rock-Tenn shall contribute to
the Company or the Company shall distribute to Rock-Tenn, as the case may be,
an amount equal to the difference between (a) the Taxes shown on the Statement
as being allocable to Rock-Tenn pursuant to this Section 3.8 or in such notice
(as the case may be) and (b) any payment made by Rock-Tenn or any Affiliate
thereof prior to the Contribution Date in respect of such Taxes.
Section 3.9 Certain Disputes. To the extent provided in Section
3.8 hereof, disputes arising under such Section and not resolved by mutual
agreement as stated therein shall be resolved by a nationally recognized
accounting firm with no affiliation or relationship whatsoever with the Company
or Rock-Tenn or any of their respective Affiliates (the "Accounting Referee"),
chosen and mutually acceptable to both the Company and Rock-Tenn within five
(5) days of the date on which the need to choose the Accounting Referee arises.
The Accounting Referee shall resolve any disputed items within thirty (30) days
of having the item referred to it pursuant to such procedures as it may
require. The costs, fees and expenses of the Accounting Referee shall be borne
equally by the Company and Rock-Tenn.
Section 3.10 Covenants Regarding Certain Assets.
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<PAGE> 20
(a) Notwithstanding anything contained herein to the
contrary, this Agreement does not constitute an agreement by Rock-Tenn or
Rock-Tenn Partition to contribute to the Company any Asset to the extent that
such contribution would violate Applicable Law, require the consent of a third
party or Governmental Authority which has not been obtained as of the date
hereof, or require completion of ministerial formalities to perfect the
transfer of title to such Asset to the Company until, in any such event, such
time as such contribution would not violate Applicable Law or such third party
consent or consent of such Governmental Authority shall have been obtained or
such ministerial formality shall have been completed. Following the date
hereof, Rock-Tenn, Rock-Tenn Partition and the Company shall cooperate with
each other to obtain any necessary third party consent or consent of
Governmental Authority or to complete any required ministerial formalities at
the earliest practicable date. Until any such necessary consent has been
obtained or any such required ministerial formalities have been completed,
Rock-Tenn shall take all appropriate steps to provide the Company with the
benefits of the Assets.
(b) From and after the date hereof, Rock-Tenn and
Rock-Tenn Partition may notify the Company in writing that an asset which was
not intended to be included in the Assets was mistakenly transferred to the
Company pursuant to Section 1.1 hereof. The Company shall, within thirty (30)
days following the receipt of such notice, take such steps as may be reasonably
necessary to transfer such asset to Rock-Tenn or Rock-Tenn Partition (as the
case may be), unless, prior to the end of such thirty (30)-day period, the
Company delivers a notice to Rock-Tenn, Rock-Tenn Partition stating that such
asset should have been included in the Assets that were transferred to the
Company on the date hereof. If such a notice is delivered, Rock-Tenn,
Rock-Tenn Partition and the Company shall discuss in good faith the appropriate
disposition of the matter. It shall not be deemed a breach of this Agreement
for Rock-Tenn, Rock-Tenn Partition to fail or otherwise make available any such
asset in dispute pursuant to this Section, unless Rock-Tenn or Rock-Tenn
Partition and the Company shall have failed to come to an agreement as to the
appropriate disposition of such matter within ninety (90) days following the
date hereof. The reasonable out-of-pocket expenses incurred by the Company in
connection with any such disputed asset shall be reimbursed to the Company by
Rock-Tenn and Rock-Tenn Partition.
(c) As promptly as practicable after the date hereof, but
in any event within ninety (90) days after the date hereof, Rock-Tenn and
Rock-Tenn Partition shall deliver to the Company with respect to each of those
parcels of Real Property described on Exhibit 1.1(a)(i) hereto and identified
as being located in Indiana, Texas, California and Maine (i) a current title
report and (ii) a new or recent, as reasonably determined by the Company,
survey of each such parcel of the Real Property prepared by a licensed surveyor
reasonably acceptable to the Company, which survey shall contain a metes and
bounds description of the Real Property. The descriptions of the parcels of
Real Property set forth in such title reports and surveys shall conform in all
material respects with the descriptions attached hereto as Exhibit 1.1(a)(i)
(or with respect to the Real Property located in Eaton, Indiana with the sketch
attached hereto as Exhibit 3.10(c)), subject only to such changes in the
boundaries of the Real Property and to such encumbrances such as easements or
rights of way as do not materially interfere with the conduct of the Solid
Fiber Partition Business on the Real Property as it is presently conducted.
Promptly after delivery of such title reports and surveys, Rock-
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Tenn and Rock-Tenn Partition shall deliver to the Company such Conveyance
Instruments as are necessary to convey the Real Property to the Company free and
clear of all Encumbrances, except Permitted Encumbrances.
ARTICLE 4.
MISCELLANEOUS PROVISIONS
Section 4.1 Definitions. Capitalized terms used herein and not
otherwise defined herein shall have the meanings ascribed thereto in the Joint
Venture Agreement. As used in this Agreement, the following terms have the
meanings specified below:
"Affiliate" with respect to any person shall mean (i) any
other person directly, or indirectly through one or more intermediaries,
controlling, controlled by or under common control with such person; (ii) any
officer, director, partner, employer or direct or indirect beneficial owner of
any 10% or greater equity or voting interest of such person; or (iii) any other
person for which a person described in clause (ii) acts in any such capacity.
"Code" means the Internal Revenue Code of 1986, as amended.
"Indemnitee" means the Company and the Members other than
Rock-Tenn, Rock-Tenn Partition and their respective Indemnitee Affiliates,
officers, directors and employees.
"Indemnitee Affiliate" means the employees, successors and
assigns of each Indemnitee and, with respect to each corporate Indemnitee, its
directors, officers and shareholders.
"Parties" shall mean Rock-Tenn, Rock-Tenn Partition and the
Company, and upon any Transfer of a Venture Interest pursuant to Article 10 of
the Operating Agreement, such permitted transferee.
"Pre-Contribution Tax Period" means any Tax Period ending on
or before the close of business on the Contribution Date or, in the case of any
Tax period which includes, but does not end on, the Contribution Date, the
portion of such period up to and including the Contribution Date.
"Tax" means any net income, alternative or add-on minimum tax,
gross income, gross receipts, sales, use, ad valorem, franchise, capital,
paid-up capital, profits, greenmail, license, withholding, payroll, employment,
excise, severance, stamp, occupation, premium, property, environmental or
windfall profit tax, custom, duty or other tax, governmental fee or other like
assessment or charge of any kind whatsoever, together with any interest or any
penalty, addition to tax or additional amount imposed by any Governmental
Authority (a "Taxing Authority") responsible for the imposition of any such tax
(domestic or foreign).
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<PAGE> 22
"Tax Asset" means any net operating loss or other Tax loss,
net capital loss, investment Tax credit, foreign Tax credit, charitable
deduction or any other credit or Tax attribute of Rock-Tenn or any of its
Affiliates which could reduce Taxes (including, without limitation, deductions
and credits related to alternative minimum Taxes) with respect to the Solid
Fiber Partition Business or the Assets.
"Tax Indemnification Period" means (i) any Pre-Contribution
Tax Period and (ii) with respect to any Tax described in clause (ii) of the
definition of "Tax" in this Section 4.1, the survival period of the
indemnification obligation under the applicable contract.
Section 4.2 Notices. Except as expressly provided herein,
notices and other communications provided for herein shall be in writing and
shall be delivered by hand or courier, service, mail or sent by telex, graphics
scanning or other telegraphic communications equipment of the sending Party, as
follows:
If to Rock-Tenn or Rock-Tenn Company
Rock-Tenn Partition: 504 Thrasher Street
Norcross, GA 30071
Attn: Chief Financial Officer
Tel: 770-368-7676
Fax: 770-263-3582
with a copy to: Rock-Tenn Company
504 Thrasher Street
Norcross, GA 30071
Attn: General Counsel
Tel: 770-263-4456
Fax: 770-248-4402
If to the Company: RTS Packaging, LLC
504D Thrasher Street
Norcross, GA 30071
Attn: Chief Executive Officer
Tel: 800/558-6984
Fax: 770/368-7651
with a copy to: Sonoco Products Company
One North Second Street
Hartsville, South Carolina 29550
Attn: President
Tel: 803-383-7000
Fax: 803-383-7478
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<PAGE> 23
or to such other address or attention of such other Person as such Party shall
advise the other Parties in writing. All notices and other communications
given to the Parties hereto and accordance with the provisions of this
Agreement shall be deemed to have been given on the date of receipt.
Communications sent by telex, graphics scanning or other telegraphic
communications equipment shall be deemed to have been received when
confirmation of their delivery is received by the sender.
Section 4.3 Applicable Law. The validity, construction and
performance of this Agreement shall be governed by and construed in accordance
with the laws of the State of Delaware, regardless of the laws that might
otherwise govern under applicable principles of conflicts of law.
Section 4.4 Severability. If any provision of this Agreement
shall be held to be illegal, invalid or unenforceable, the Parties agree that
such provision will be enforced to the maximum extent permissible so as to
effect the intent of the Parties, and the validity, legality and enforceability
of the remaining provisions of this Agreement shall not in any way be affected
or impaired thereby. If necessary to affect the intent of the Parties, the
Parties will negotiate in good faith to amend this Agreement to replace the
unenforceable language with enforceable language which as closely as possible
reflects such intent.
Section 4.5 Amendments. This Agreement may be modified only by a
written amendment signed by all of the Parties.
Section 4.6 Waiver. The waiver by a Party of any instance of any
other Party's non-compliance with any obligation or responsibility herein shall
be in writing and signed by the waiving Party and shall not be deemed a waiver
of other instances of such other Party's non-compliance.
Section 4.7 Counterparts. This Agreement may be executed in one
or more counterparts, all of which shall be considered one and the same
agreement, and shall become effective when one or more counterparts shall have
been signed by each Party and delivered to the other Parties.
Section 4.8 Entire Agreement. The provisions of this Agreement
set forth the entire agreement and understanding among the Parties as to the
subject matter hereof and supersede all prior agreements, oral or written, and
all other prior communications between the Parties relating to the subject
matter hereof, other than those written agreements executed and delivered
contemporaneously herewith.
Section 4.9 No Assignment.
(a) Except as specifically provided herein, no Party
shall, directly or indirectly, assign this Agreement or any of its rights or
obligations hereunder without the prior written consent of the other Parties.
(b) Any attempted assignment of this Agreement in
violation of this Section 4.9 shall be void and of no effect.
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<PAGE> 24
(c) This Agreement shall be binding upon, inure to the
benefit of and be enforceable by the Parties and their respective successors
and permitted assigns.
Section 4.10 Expenses. Except as otherwise provided in this
Agreement, all costs and expenses (including the fees and expenses of any
attorneys, accountants, investment bankers, brokers, finders or other
intermediaries) incurred in connection with this Agreement and the other
Operative Agreements and the consummation of the transactions contemplated by
Article 5 of the Joint Venture Agreement to be consummated on the date hereof
shall be paid by the Party incurring such cost or expense.
Section 4.11 Further Assurances. From time to time, at the
request of Rock-Tenn or Rock-Tenn Partition or the Company and without further
consideration, each party, at its own expense, will execute and deliver such
other documents, and take such other action, as Rock-Tenn or Rock-Tenn
Partition or the Company may reasonably request in order to consummate more
effectively the transactions contemplated hereby and to vest in the Company
good and marketable title to the Assets (or rights with respect thereto).
Section 4.12 Publicity. No Party will issue any press release or
make any other public announcement relating to the existence of this Agreement
or the transactions contemplated by this Agreement or any of the Operative
Agreements, except that a Party may make any disclosure required to be made
under Applicable Law or the rules of the New York Stock Exchange or any other
applicable stock exchange if such Party determines in good faith that it is
necessary to do so and gives prior notice to the other Parties.
Section 4.13 Construction. This Agreement shall be interpreted
and construed in accordance with Section 1.3 of the Joint Venture Agreement.
Section 4.14 Specific Performance. Each of the Parties
acknowledge that money damages would not be a sufficient remedy for any breach
of this Agreement and that irreparable harm would result if this Agreement were
not specifically enforced. Therefore, the rights and obligations of the
Parties under this Agreement shall be enforceable by a decree of specific
performance issued by any court of competent jurisdiction, and appropriate
injunctive relief may be applied for and granted in connection therewith. A
Party's right to specific performance shall be in addition to all other legal
or equitable remedies available to such Party.
Section 4.15 Headings. The article and section headings contained
in this Agreement are for reference purposes only and shall not affect in any
way the meaning or interpretation of this Agreement.
Section 4.16 Inconsistency or Conflict. In the event of any
inconsistency or conflict between any provision of this Agreement and any
provision of the Operating Agreement, the provision of the Operating Agreement
shall govern.
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<PAGE> 25
Section 4.17 Exhibits. All Exhibits attached hereto are hereby
incorporated in and made a part as if set forth in full herein.
Section 4.18 No Third-Party Beneficiaries. This Agreement is for
the sole benefit of the Parties and their permitted assigns, and nothing herein
expressed or implied shall give or be construed to give to any Person, other
than the Parties and such assigns, any legal or equitable rights hereunder.
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<PAGE> 26
IN WITNESS WHEREOF, the parties hereto have duly executed this
Agreement as of the day and year first above written.
ROCK-TENN COMPANY
By:
----------------------------------
Name:
-----------------------------
Title:
----------------------------
ROCK-TENN PARTITION COMPANY
By:
----------------------------------
Name:
-----------------------------
Title:
----------------------------
RTS PACKAGING, LLC
By:
----------------------------------
Name:
-----------------------------
Title:
----------------------------
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<PAGE> 1
EXHIBIT 10.10
- ------------------------------------------------------------------------------
AMENDED AND RESTATED OPERATING AGREEMENT
DATED AS OF SEPTEMBER 5, 1997
BETWEEN
ROCK-TENN PARTITION COMPANY
AND
SONOCO PARTITIONS, INC.
- ------------------------------------------------------------------------------
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
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<S> <C>
ARTICLE 1
DEFINITIONS AND CONSTRUCTION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
Section 1.1. Certain Definitions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
Section 1.2. Interpretation and Construction of this Agreement. . . . . . . . . . . . . . . . . . . . . . . . 9
ARTICLE 2
THE COMPANY . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
Section 2.1. Formation of the Company. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
Section 2.2. Name and Place of Business. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
Section 2.3. Purpose of the Company. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
Section 2.4. Term. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
Section 2.5. Powers of the Company . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
Section 2.6. Title to Property. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
Section 2.7. Business Dealings with the Company . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
ARTICLE 3
CAPITAL CONTRIBUTIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
Section 3.1. Contributions to the Company . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
Section 3.2. Assumed Liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
Section 3.3. Additional Capital Contributions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
Section 3.4. Withdrawal of Capital Contributions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
Section 3.5. Interest on Capital Contributions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
Section 3.6. Loans by Members to the Company . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
ARTICLE 4
DISTRIBUTIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
Section 4.1. Distributions. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
Section 4.2. Amounts Withheld . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
ARTICLE 5
ALLOCATIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
Section 5.1. Profits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
Section 5.2. Losses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
Section 5.2A Special Adjustments for
Depreciation and Section 1231 Gains . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
</TABLE>
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Section 5.3. Special Allocations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
Section 5.4. Curative Allocations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
Section 5.5. Loss Limitation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
Section 5.6. Other Allocation Rules . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
Section 5.7. Tax Allocations: Code Section 704(c) . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
ARTICLE 6
MANAGEMENT . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
Section 6.1. Managing Board. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
Section 6.2. Board Meetings; Quorum; Voting; Notice. . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
Section 6.3. Removal; Resignation; Vacancies. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
Section 6.4. No Remuneration. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
Section 6.5. Officers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
ARTICLE 7
ROLE OF MEMBERS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
Section 7.1. Rights or Powers. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
Section 7.2. Voting Rights. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
Section 7.3. Meetings of Members. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
Section 7.4. Withdrawal/Resignation. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
Section 7.5. Member Compensation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
Section 7.6. Partition . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
Section 7.7. Other Instruments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
ARTICLE 8
MATTERS REQUIRING APPROVAL OF THE MANAGING BOARD . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
Section 8.1. Matters Requiring the Consent of the Managing Board. . . . . . . . . . . . . . . . . . . . . . 21
ARTICLE 9
BUSINESS PLAN, ACCOUNTING, TAXATION AND
CERTAIN OTHER OPERATIONAL PROVISIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
Section 9.1. Business Plans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
Section 9.2. Accrual Basis . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
Section 9.3. Maintenance of Books of Account . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
Section 9.4. Financial Statements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
Section 9.5. Other Reports and Inspections . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
Section 9.6. Deposit of Funds . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
Section 9.7. Fiscal Year . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
Section 9.8. Accountants . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
</TABLE>
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Section 9.9. Attorneys . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
Section 9.10. Preparation of Tax Returns. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
Section 9.11. Partnership Tax Election . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
ARTICLE 10
TRANSFERS OF VENTURE INTEREST . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
Section 10.1. No Transfer . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
Section 10.2. Transfer to Wholly Owned Subsidiary . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
Section 10.3. Right of First Refusal . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
Section 10.4. Buy-Out Rights . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
ARTICLE 11
INDEMNIFICATION OF OFFICERS AND MANAGERS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
Section 11.1. Right to Indemnification. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
Section 11.2. Prepayment of Expenses. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
Section 11.3. Claims. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30
Section 11.4. Nonexclusivity of Rights . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30
Section 11.5. Insurance. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30
Section 11.6. Other Indemnification. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30
Section 11.7. Amendment or Repeal. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30
ARTICLE 12
DISSOLUTION AND LIQUIDATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30
Section 12.1. Liquidating Events. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30
Section 12.2. Distributions Upon Liquidation. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31
Section 12.3. Deficit Capital Accounts. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31
Section 12.4. Rights of Members. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31
ARTICLE 13
MISCELLANEOUS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32
Section 13.1. Notices . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32
Section 13.2. Applicable Law. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33
Section 13.3. Severability. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33
Section 13.4. Amendments. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33
Section 13.5. Waiver. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33
Section 13.6. Counterparts. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33
Section 13.7. Entire Agreement. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33
Section 13.8. No Assignment. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33
Section 13.9. Expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34
</TABLE>
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Section 13.10. No Third-Party Beneficiaries . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34
Section 13.11. Publicity. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34
Section 13.12. Construction. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34
Section 13.13. Disclaimer of Agency. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34
Section 13.14. Further Actions. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34
Section 13.15. Indemnification. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34
Section 13.16. Settlement of Disputes. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35
</TABLE>
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<PAGE> 6
AMENDED AND RESTATED OPERATING AGREEMENT
THIS AMENDED AND RESTATED OPERATING AGREEMENT (this
"Agreement") of RTS PACKAGING, LLC (the "Company") is entered into and shall be
effective as of September 5, 1997, by and between ROCK-TENN PARTITION COMPANY,
a Georgia corporation ("Rock-Tenn Partition"), and SONOCO PARTITIONS, INC., a
South Carolina corporation ("Sonoco Partitions"), as Members;
W I T N E S S E T H:
WHEREAS, Rock-Tenn Company ("Rock-Tenn"), Rock-Tenn Partition,
Sonoco Products Company ("Sonoco") and Sonoco Partitions, Inc. have entered
into that certain Joint Venture Agreement dated as of the date hereof (the
"Joint Venture Agreement");
WHEREAS, under the terms of the Joint Venture Agreement,
Rock-Tenn Partition and Sonoco Partitions have agreed to form the Joint Venture
to jointly conduct their respective solid fiber partition businesses;
WHEREAS, under the terms of the Joint Venture Agreement,
Rock-Tenn Partition and Sonoco Partitions have agreed to form a Delaware
limited liability company for the purpose of conducting the business of the
Joint Venture; and
WHEREAS, in contemplation of the formation of the Joint
Venture, Rock-Tenn Partition and Sonoco Partitions have formed the Company as a
Delaware limited liability company; and
WHEREAS, pursuant to Section 2.2 of the Joint Venture
Agreement, Rock-Tenn Partition and Sonoco Partitions have agreed to enter into
this Agreement for the purpose of setting forth certain of the rights and
obligations of Rock-Tenn Partition and Sonoco Partitions with respect to
various organizational, governance and operational matters relating to the
Company; and
WHEREAS, the parties intend that this Agreement will amend and
restate entirely any prior agreement of the parties regarding the formation of
the Company;
NOW, THEREFORE, in consideration of the premises and the
representations, warranties, covenants and agreements contained herein and in
the other Operative Agreements and the Joint Venture Agreement, and for other
good and valuable consideration, the receipt and sufficiency of which are
hereby acknowledged, the Members, intending to be legally bound, hereby agree
as follows:
<PAGE> 7
ARTICLE 1
DEFINITIONS AND CONSTRUCTION
Section 1.1. Certain Definitions Capitalized terms used
herein and not otherwise defined herein shall have the meanings ascribed
thereto in the Joint Venture Agreement. As used in this Agreement, the
following terms shall have the meaning specified below;
"Accountants" shall have the meaning provided in Section 9.8.
"Act" shall mean the Delaware Limited Liability Company Act, 6
Del. C Section 18-101, et seq., as amended from time to time.
"Adjusted Capital Account Deficit" shall mean, with respect to
any Member, the deficit balance, if any, in such Member's Capital Account as of
the end of the relevant Allocation Year, after giving effect to the following
adjustments:
(i) Credit to such Capital Account any amounts which such
Member is deemed to be obligated to restore pursuant to the penultimate
sentences in Sections 1.704-2(g)(1) and 1.704-2(i)(5) of the Regulations; and
(ii) Debit to such Capital Account the items described in
Sections 1.704-1(b)(2)(ii)(d)(4), 1.704- 1(b)(2)(ii)(d)(5) and
1.704-1(b)(2)(ii)(d)(6) of the Regulations.
The foregoing definition of Adjusted Capital Account Deficit is intended to
comply with the provisions of Section 1.704-1(b)(2)(ii)(d) of the Regulations
and shall be interpreted consistently therewith.
"Agreement" shall have the meaning provided in the
introductory paragraph.
"Allocation Year" shall mean (i) the period commencing on the
date of this Agreement and ending on September 30, 1997, (ii) any subsequent
twelve (12) month period commencing on October 1 and ending on September 30 or
(iii) any portion of the period described in clauses (i) or (ii) for which the
Company is required to allocate Profits, Losses and other items of Company
income, gain, loss or deduction pursuant to Section 5 hereof.
"Capital Account" shall mean, with respect to any Member, the
Capital Account maintained for such Member in accordance with the following
provisions:
(i) To each Member's Capital Account there shall be credited
(A) such Member's Capital Contributions, (B) such Member's distributive share
of Profits and any items in the nature of income or gain which are specially
allocated pursuant to Section 5.2A, 5.3 or 5.4 hereof, and (C) the amount of
any Company liabilities assumed by such Member or which are secured by any
2
<PAGE> 8
Property distributed to such Member. The principal amount of a promissory note
which is not readily traded on an established securities market and which is
contributed to the Company by the maker of the note (or a Member related to the
maker of the note within the meaning of Regulations Section
1.704-1(b)(2)(ii)(c)) shall not be included in the Capital Account of any
Member until the Company makes a taxable disposition of the note or until (and
to the extent) principal payments are made on the note, all in accordance with
Regulations Section 1.704-1(b)(2)(iv)(d)(2);
(ii) To each Member's Capital Account there shall be debited
(A) the amount of money and the Gross Asset Value of any Property distributed
to such Member pursuant to any provision of this Agreement, (B) such Member's
distributive share of Losses and any items in the nature of expenses or losses
which are specially allocated pursuant to Section 5.2A, 5.3 or 5.4 hereof, and
(C) the amount of any liabilities of such Member assumed by the Company or
which are secured by any Property contributed by such Member to the Company;
and
(iii) In determining the amount of any liability for purposes
of subparagraphs (i) and (ii) above there shall be taken into account Code
Section 752(c) and any other applicable provisions of the Code and Regulations.
The foregoing provisions and the other provisions of this Agreement
relating to the maintenance of Capital Accounts are intended to comply with
Regulations Section 1.704-1(b), and shall be interpreted and applied in a
manner consistent with such Regulations. In the event the Managing Board shall
determine that it is prudent to modify the manner in which the Capital
Accounts, or any debits or credits thereto (including, without limitation,
debits or credits relating to liabilities which are secured by contributed or
distributed property or which are assumed by the Company or any Members) are
computed in order to comply with such Regulations, the Managing Board may make
such modification, provided that it is not likely to have a material effect on
the amounts distributed to any Person pursuant to Section 12 hereof upon the
dissolution of the Company. The Managing Board also shall (i) make any
adjustments that are necessary or appropriate to maintain equality between the
Capital Accounts of the Members and the amount of capital reflected on the
Company's balance sheet, as computed for book purposes, in accordance with
Regulations Section 1.704-1(b)(2)(iv)(q), and (ii) make any appropriate
modifications in the event unanticipated events might otherwise cause this
Agreement not to comply with Regulations Section 1.704-1(b).
"Capital Contributions" shall mean, with respect to any
Member, the amount of money and the initial Gross Asset Value of any Property
(other than money) contributed to the Company, including any Capital
Contributions made after the date of this Agreement.
"CEO" shall have the meaning provided in Section 6.5(a).
"CFO" shall have the meaning provided in Section 6.5(c).
"COO" shall have the meaning provided in Section 6.5(b).
3
<PAGE> 9
"Class A Managers" shall have the meaning provided in Section
6.1(b).
"Class A Member" shall mean Rock-Tenn Partition or any
permitted transferee of Rock-Tenn Partition to which Rock-Tenn Partition's
interest in the capital accounts of the Company is transferred in accordance
with this Agreement.
"Class B Managers" shall have the meaning provided in Section
6.1(b).
"Class B Member" shall mean Sonoco Partitions or any permitted
transferee of Sonoco Partitions to which Sonoco Partitions' interest in the
capital accounts of the Company is transferred in accordance with this
Agreement.
"Code" shall mean the United States Internal Revenue Code of
1986, as amended from time to time.
"Come Along Right" shall have the meaning provided in Section
10.3(b).
"Company" shall have the meaning provided in the introductory
paragraph.
"Company Minimum Gain" has the meaning assigned to the term
"partnership minimum gain" in Section 1.704-2(d) of the Regulations.
"Contribution Agreement" shall mean (i) the Contribution
Agreement dated the date hereof among Rock- Tenn, Rock-Tenn Partition and the
Company and (ii) the Contribution Agreement dated the date hereof among Sonoco,
Sonoco Partitions and the Company.
"Depreciation" shall mean, for each Allocation Year, an amount
equal to the depreciation, amortization or other cost recovery deduction
allowable with respect to an asset for such Allocation Year, except that if the
Gross Asset Value of an asset differs from its adjusted basis for federal
income tax purposes at the beginning of such Allocation Year, Depreciation
shall be an amount which bears the same ratio to such beginning Gross Asset
Value as the federal income tax depreciation, amortization or other cost
recovery deduction for such Allocation Year bears to such beginning adjusted
tax basis; provided, however, that if the adjusted basis for federal income tax
purposes of an asset at the beginning of such Allocation Year is zero,
Depreciation shall be determined with reference to such beginning Gross Asset
Value using any reasonable method selected by the Managing Board.
"Excluded Liabilities" shall have the meaning provided in
Section 3.2.
"Fiscal Quarter of the Company" shall mean the quarterly
periods in each Fiscal Year of the Company commencing on October 1, January 1,
April 1 and July 1 and ending on September
4
<PAGE> 10
30, December 31, March 31 and June 30, respectively, except that the first
Fiscal Quarter of the Company shall commence on the date of this Agreement and
end on September 30, 1997.
"Fiscal Year of the Company" shall mean the period commencing
October 1 in any year and ending on September 30 in such year, except that the
first Fiscal Year of the Company shall commence on the date of this Agreement
and end on September 30, 1997.
"Gross Asset Value" shall mean with respect to any asset, the
asset's adjusted basis for federal income tax purposes, except as follows:
(i) The initial Gross Asset Value of any asset contributed
by a Member to the Company shall be the gross fair market value of such asset,
as determined by the Managing Board, provided that the initial Gross Asset
Values of the assets contributed to the Company pursuant to Section 3.1 hereof
shall be as set forth in such section;
(ii) The Gross Asset Values of all Company assets shall be
adjusted to equal their respective gross fair market values (taking Code
Section 7701(g) into account), as determined by the Managing Board as of the
following times: (A) the acquisition of an additional interest in the Company
by any new or existing Member in exchange for more than a de minimis Capital
Contribution; (B) the distribution by the Company to a Member of more than a
de minimis amount of Company property as consideration for an interest in the
Company; and (C) the liquidation of the Company within the meaning of
Regulations Section 1.704-1(b)(2)(ii)(g), provided that an adjustment
described in clauses (A) and (B) of this paragraph shall be made only if the
Managing Board reasonably determines that such adjustment is necessary to
reflect the relative economic interests of the Members in the Company;
(iii) The Gross Asset Value of any item of Company assets
distributed to any Member shall be adjusted to equal the gross fair market
value (taking Code Section 7701(g) into account) of such asset on the date of
distribution as determined by the Managing Board; and
(iv) The Gross Asset Values of Company assets shall be
increased (or decreased) to reflect any adjustments to the adjusted basis of
such assets pursuant to Code Section 734(b) or Code Section 743(b), but only to
the extent that such adjustments are taken into account in determining Capital
Accounts pursuant to Regulations Section 1.704-1(b)(2)(iv)(m) and subparagraph
(vi) of the definition of "Profits" and "Losses" or Section 3.3(c) hereof;
provided, however, that Gross Asset Values shall not be adjusted pursuant to
this subparagraph (iv) to the extent that an adjustment pursuant to
subparagraph (ii) is required in connection with a transaction that would
otherwise result in an adjustment pursuant to this subparagraph (iv).
If the Gross Asset Value of an asset has been determined or adjusted pursuant
to subparagraph (ii) or (iv), such Gross Asset Value shall thereafter be
adjusted by the Depreciation taken into account with respect to such asset, for
purposes of computing Profits and Losses.
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<PAGE> 11
"Initial Business Plan" shall mean the strategic business plan
of the Company in the form attached as Schedule A to the Joint Venture
Agreement.
"Issuance Items" shall have the meaning provided in Section
5.3(h).
"Joint Venture Agreement" shall have the meaning provided in
the first recital.
"LLC Constituent Documents" shall mean the certificate of
formation filed with the Secretary of State to form the Company and this
Agreement.
"License Agreement" shall mean the Trademark License Agreement
dated the date hereof between Rock-Tenn and the Company.
"Liquidating Event" shall have the meaning provided in Section
12.1.
"Managers" shall have the meaning provided in Section 6.1(b).
"Managing Board" shall mean the Governing Board of the Company
established pursuant to Section 6.1.
"Members" shall mean the Class A Member and the Class B
Member.
"Member Nonrecourse Debt" shall have the same meaning as the
term "partner nonrecourse debt" in Section 1.704-2(b)(4) of the Regulations.
"Member Nonrecourse Debt Minimum Gain" shall mean an amount,
with respect to each Member Nonrecourse Debt, equal to the Company Minimum Gain
that would result if such Member Nonrecourse Debt were treated as a Nonrecourse
Liability, determined in accordance with Section 1.704-2(i)(3) of the
Regulations.
"Member Nonrecourse Deductions" shall have the same meaning as
the term "partner nonrecourse deductions" in Sections 1.704-2(i)(1) and
1.704-2(i)(2) of the Regulations.
"Net Cash Flow" shall mean, as of any date, the gross cash
proceeds of the Company as of such date less the portion thereof used to pay or
establish reserves for all Company expenses, debt payments, capital
improvements, replacements, and contingencies, all as determined by the
Managing Board. "Net Cash Flow" shall not be reduced by depreciation,
amortization, cost recovery deductions, or similar allowances, but shall be
increased by any reductions of reserves previously established pursuant to the
first sentence of this definition.
"Nonrecourse Deductions" shall have the meaning set forth in
Section 1.704-2(b)(1) of the Regulations.
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"Nonrecourse Liability" shall have the meaning set forth in
Section 1.704-2(b)(3) of the Regulations.
"Non-Transferring Member" shall have the meaning provided in
Section 10.3(a).
"Notice of Exercise" shall have the meaning provided in
Section 10.3(a).
"Offer" shall have the meaning provided in Section 10.3(a).
"Operative Agreements" shall mean this Agreement, the License
Agreement, the Supply Agreement, the Services Agreements, the Joint Venture
Agreement, the Contribution Agreements and the Assignment Agreements.
"Percentage Interest" shall mean (a) in the case of the Class
A Member, 65%, and (b) in the case of the Class B Member, 35%.
"Profits" and "Losses" shall mean, for each Allocation Year,
an amount equal to the Company's taxable income or loss for such Allocation
Year, determined in accordance with Code Section 703(a) (for this purpose, all
items of income, gain, loss, or deduction required to be stated separately
pursuant to Code Section 703(a)(1) shall be included in taxable income or
loss), with the following adjustments (without duplication):
(i) Any income of the Company that is exempt from federal
income tax and not otherwise taken into account in computing Profits or Losses
pursuant to this definition of "Profits" and "Losses" shall be added to such
taxable income or loss;
(ii) Any expenditures of the Company described in Code
Section 705(a)(2)(B) or treated as Code Section 705(a)(2)(B) expenditures
pursuant to Regulations Section 1.704-1(b)(2)(iv)(i), and not otherwise taken
into account in computing Profits or Losses pursuant to this definition of
"Profits" and "Losses" shall be subtracted from such taxable income or loss;
(iii) In the event the Gross Asset Value of any Company asset
is adjusted pursuant to subparagraphs (ii) or (iii) of the definition of Gross
Asset Value, the amount of such adjustment shall be treated as an item of gain
(if the adjustment increases the Gross Asset Value of the asset) or an item of
loss (if the adjustment decreases the Gross Asset Value of the asset) from the
disposition of such asset and shall be taken into account for purposes of
computing Profits or Losses;
(iv) Gain or loss resulting from any disposition of Property
with respect to which gain or loss is recognized for federal income tax
purposes shall be computed by reference to the Gross Asset Value of the
Property disposed of, notwithstanding that the adjusted tax basis of such
Property differs from its Gross Asset Value;
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(v) In lieu of the depreciation, amortization and other cost
recovery deductions taken into account in computing such taxable income or
loss, there shall be taken into account Depreciation for such Allocation Year,
computed in accordance with the definition of Depreciation;
(vi) To the extent an adjustment to the adjusted tax basis of
any Company asset pursuant to Code Section 734(b) is required, pursuant to
Regulations Section 1.704-(b)(2)(iv)(m)(4), to be taken into account in
determining Capital Accounts as a result of a distribution other than in
liquidation of a Member's interest in the Company, the amount of such
adjustment shall be treated as an item of gain (if the adjustment increases the
basis of the asset) or loss (if the adjustment decreases such basis) from the
disposition of such asset and shall be taken into account for purposes of
computing Profits or Losses; and
(vii) Notwithstanding any other provision of this definition,
any items which are specially allocated pursuant to Section 5.3 or Section 5.4
hereof shall not be taken into account in computing Profits or Losses.
The amounts of the items of Company income, gain, loss or deduction
available to be specially allocated pursuant to Sections 5.3 and 5.4 hereof
shall be determined by applying rules analogous to those set forth in
subparagraphs (i) through (vi) above.
"Property" shall mean all real and personal property acquired
from time to time by the Company, including cash, and any improvements thereto,
and shall include both tangible and intangible property.
"Regulations" shall mean the Income Tax Regulations, including
Temporary Regulations, promulgated under the Code, as such regulations are
amended from time to time.
"Regulatory Allocations" shall have the meaning set forth in
Section 5.4 hereof.
"Right of First Refusal Option" shall have the meaning
provided in Section 10.3(a).
"Rock-Tenn" shall mean Rock-Tenn Company, a Georgia
corporation.
"Rock-Tenn Partition" shall mean Rock-Tenn Partition Company,
a Georgia corporation.
"Secretary of State" shall mean the Secretary of State of the
State of Delaware.
"Section 1231 Gains" shall mean any gains realized from the
sale or exchange of Property by the Company which are treated as "section 1231
gain" under Code Section 1231(a)(3)(A), except that such gains shall be
determined without regard to the holding period thereof and shall be computed
with reference to the Gross Asset Value of the Property disposed of rather than
the adjusted tax basis of such property.
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"Sonoco" shall mean Sonoco Products Company, a South Carolina
corporation.
"Sonoco Partitions" shall mean Sonoco Partitions, Inc., a
South Carolina corporation.
"Special Depreciation Adjustment" shall have the meaning for
each Allocation Year as provided in Section 5.2A(a).
"Transfer" shall mean to sell, exchange, assign, transfer,
pledge, hypothecate or otherwise dispose of.
"Transferring Partner" shall have the meaning provided in
Section 10.3(a).
Section 1.2. Interpretation and Construction of this
Agreement. The definitions in Section 1.1 shall apply equally to both the
singular and plural forms of the terms defined. Whenever the context may
require, any pronoun shall include the corresponding masculine, feminine and
neuter forms. The words "include," "includes" and "including" shall be deemed
to be followed by the phrase "without limitation." All references herein to
Articles, Sections, Exhibits and Schedules shall be deemed to be references to
Articles and Sections of, and Exhibits and Schedules to, this Agreement unless
the context shall otherwise require. The table of contents and the headings of
the Articles and Sections are inserted for convenience of reference only and
are not intended to be a part of or to affect the meaning or interpretation of
this Agreement. Unless the context shall otherwise require, any reference to
any agreement, or other instrument or statute or regulation is to such
agreement, instrument, statute or regulation as amended and supplemented from
time to time (and, in the case of a statute or regulation, to any successor
provision). Any reference in this Agreement to a "day " or number of "days"
(without the explicit qualification of "Business") shall be interpreted as a
reference to a calendar day or number of calendar days. If any action or
notice is to be taken or given on or by a particular calendar day, and such
calendar day is not a Business Day, then such action or notice shall be
deferred until, or may be taken or given on the next Business Day.
ARTICLE 2
THE COMPANY
Section 2.1. Formation of the Company. The Company has been
formed as a limited liability company under the laws of the State of Delaware
by the filing of a certificate of formation with the Secretary of State in
accordance with the provisions of the Act.
Section 2.2. Name and Place of Business. The name of the
Company shall be RTS Packaging, LLC. If required by Applicable Law, (i) the
Company shall cause appropriate certificates or fictitious or assumed business
name certificates to be filed with the appropriate Governmental Authorities,
and (ii) the Company shall as expeditiously as possible qualify to do business
in all
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appropriate jurisdictions. The principal place of business of the Company
initially shall be located at 504D Thrasher Street, Norcross, Georgia 30071.
The principal place of business of the Company may be changed from time to time
by the Managing Board. The Parties hereby agree that the Company shall be
permitted to refer to the Company by the name "RTS Packaging, LLC, a Joint
Venture Between Rock-Tenn Company and Sonoco Products Company."
Section 2.3. Purpose of the Company. The purpose of the
Company shall be to conduct the Venture Business in accordance with the
Business Plan and the Joint Venture Agreement. The Company shall have the
following additional purposes:
(a) to perform the agreements and arrangements referred to in this
Agreement and the other Operative Agreements;
(b) to engage in any other lawful activity, business conduct or
transaction as approved by the Managing Board.
Section 2.4. Term. The term of the Company shall be
indefinite, unless earlier liquidated and dissolved in accordance with the
provisions of this Agreement or the Joint Venture Agreement.
Section 2.5. Powers of the Company. Subject to the
restrictions set forth in this Agreement, the Company shall have the power to
exercise all of the powers and privileges granted by this Agreement and by the
laws of the State of Delaware concerning limited liability companies formed
under such laws, together with any powers incidental thereto, so far as such
powers and privileges are necessary or convenient to the purpose and scope of
the Company.
Section 2.6. Title to Property. All property owned by the
Company shall be owned by the Company as an entity and no Member shall have any
ownership interest in such property in its individual name, and each Member's
interest in the Company shall be personal property for all purposes. The
Company shall hold title to all of its property in the name of the Company and
not in the name of any Member.
Section 2.7. Business Dealings with the Company. Rock-Tenn
Partition, Sonoco Partitions or any of their respective Affiliates may enter
into any contract with the Company or otherwise enter into any transaction or
dealing with the Company on terms and conditions that, in the aggregate, are
not less favorable to the Company than those the Company could obtain from an
unrelated third party, and derive and retain profits therefrom; provided,
however, that any such contract or other transaction or dealing is approved by
the Managing Board. The validity of any such contract or transaction or
dealing shall not be affected by any relationship between the Company and
Rock-Tenn Partition, Sonoco Partitions or any of their respective Affiliates.
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ARTICLE 3
CAPITAL CONTRIBUTIONS
Section 3.1. Contributions to the Company. Concurrently with
the execution and delivery of this Agreement,
(a) the Class A Member and the Class B Member have
contributed, and have caused each of their respective Subsidiaries to
contribute, to the Company the Rock-Tenn Contributed Assets, the Sonoco
Contributed Assets and the Sonoco Contributed Sub Assets pursuant to the
Contribution Agreements, which contributions will result in the Members having
initial Capital Accounts in proportion to their respective Percentage
Interests; and
(b) the Class A Member has licensed, and has caused its
Subsidiaries to license, to the Company the Rock-Tenn Licensed Assets pursuant
to the License Agreement.
Section 3.2. Assumed Liabilities. Concurrently with the
execution and delivery of this Agreement, the Company has assumed and agreed to
be responsible for the Assumed Liabilities pursuant to the Assignment
Agreements. The Company shall not assume, in connection with the Joint Venture,
any liability or obligation of the Class A Member or any Subsidiary of the Class
A Member or any liability or obligation of the Class B Member or any Subsidiary
of the Class B Member, other than the Assumed Liabilities, and the Members and
their respective Subsidiaries shall retain responsibility for all of their
respective liabilities and obligations accrued as of the date hereof arising
from the operation of their respective Solid Fiber Partition Business prior to
the date hereof (collectively, the "Excluded Liabilities"), except the Assumed
Liabilities. If the Company pays or performs any Excluded Liability, then the
Member responsible for such Excluded Liability shall indemnify and hold harmless
the Company for such payment or performance and any costs or expenses incurred
in connection therewith.
Section 3.3. Additional Capital Contributions. The CEO may,
without any further action by the Managing Board, request that the Members make
additional capital contributions that are specifically provided for in the
approved Business Plan of the Company in effect at such time. All other
additional capital contributions may be authorized from time to time by the
Managing Board. Except as otherwise provided herein or in the Business Plan,
additional capital contributions shall be provided by the Members in proportion
to their respective Percentage Interests.
Section 3.4. Withdrawal of Capital Contributions. Except as
otherwise provided herein or in the Joint Venture Agreement, no portion of a
Member's capital contributions to the Company may be withdrawn by that Member
without the prior written consent of the other Member.
Section 3.5. Interest on Capital Contributions. No Member
shall be entitled to interest on its capital contributions or otherwise in
respect of the capital of the Company.
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Section 3.6. Loans by Members to the Company. The Managing
Board may, from time to time, decide to seek additional funds to support the
Company's activities through loans or debt financings (including, but not
limited to, lines of credit and credit support) from the Members, their
respective Parents or third parties. Payments of principal of and interest on
any loan by a Member to the Company shall not be considered distributions for
purposes of Article 4.
ARTICLE 4
DISTRIBUTIONS
Section 4.1. Distributions. To the extent permissible under
the Act, the Company shall distribute cash from operations in proportion to the
Percentage Interests of the Members in such amounts and at such times as
provided for in the Business Plan or as otherwise determined by the Managing
Board; provided, however, that the Company shall distribute, in respect of each
Fiscal Year, an amount not less than 75% of the Net Cash Flow determined as of
the end of such Fiscal Year.
Section 4.2. Amounts Withheld. All amounts withheld pursuant
to the Code or any provision of any state or local tax law with respect to any
distribution or allocation to the Member shall be treated as amounts
distributed to the Members pursuant to Section 4.1 for all purposes under this
Agreement. The Company is authorized to withhold from such distributions or
allocations and to pay over to any federal, state or local government any
amounts required to be so withheld pursuant to the Code or any provisions of
any other federal, state or local law and shall allocate such amounts to the
Members with respect to which such amount was withheld.
ARTICLE 5
ALLOCATIONS
Section 5.1. Profits. After giving effect to the special
allocations set forth in Sections 5.3 and 5.4, Profits for any Allocation Year
shall be allocated to the Members in proportion to their Percentage Interests,
subject to the special adjustments provided in Section 5.2A.
Section 5.2. Losses. After giving effect to the special
allocations set forth in Sections 5.3 and 5.4 and subject to Section 5.5,
Losses for any Allocation Year shall be allocated to the Members in proportion
to their Percentage Interests, subject to the special adjustments provided in
Section 5.2A.
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Section 5.2A Special Adjustments for Depreciation and Section
1231 Gains.
(a) Special Depreciation Adjustment. Following the initial
allocation of Profits and Losses for each Allocation Year as provided in
Sections 5.1 and 5.2, deductions allowable to the Company under Code Sections
167 and 168 for such Allocation Year in an amount equal to the Special
Depreciation Adjustment for such Allocation Year shall be reallocated from
Sonoco Partition to Rock-Tenn Partition. The "Special Depreciation Adjustment"
for each Allocation Year shall be an amount equal to the excess, if any, of (i)
the deductions that would have been allowable to Rock-Tenn Partition for such
Allocation Year under Code Sections 167 and 168 with respect to Property
contributed by Rock-Tenn Partition to the Company as a Capital Contribution,
determined as if such Property has not been so contributed, over (ii) the
aggregate amount of deductions under Code Sections 167 and 168 with respect to
all Property contributed to the Company as Capital Contributions by all Members
that are effectively passed through to Rock-Tenn Partition under this Article 5
for such Allocation Year, determined without regard to the special allocation
under this Section 5.2A(a). In the event that the Company makes a taxable sale
or exchange of any Property contributed by Rock-Tenn Partition, the Special
Depreciation Adjustment shall be appropriately reduced to reflect the fact that
the adjusted basis of such property for income tax purposes shall have been
taken into account in determining the taxable gain allocated to Rock-Tenn
Partition pursuant to Section 5.7
(b) Section 1231 Gains. Following the initial allocation of
Profits and Losses for each Allocation Year as provided in Sections 5.1 and
5.2, Section 1231 Gains for such Allocation Year shall be reallocated from
Sonoco Partition to Rock-Tenn Partition in an amount equal to (i) the aggregate
amount of deductions reallocated from Sonoco Partition to Rock-Tenn Partition
under Section 5.2A(a) for such Allocation Year and all previous Allocation
Years over (ii) the aggregate amount of Section 1231 Gains reallocated from
Sonoco Partition to Rock-Tenn Partition under this Section 5.2A(b) for all
previous Allocation Years.
Section 5.3. Special Allocations. The following special
allocations shall be made in the following order:
(a) Minimum Gain Chargeback. Except as otherwise provided in
Section 1.704-2(f) of the Regulations, notwithstanding any other provision of
this Section 5, if there is a net decrease in Company Minimum Gain during any
Allocation Year, each Member shall be specially allocated items of Company
income and gain for such Allocation Year (and, if necessary, subsequent
Allocation Years) in an amount equal to such Member's share of the net decrease
in Company Minimum Gain, determined in accordance with Regulations Section
1.704-2(g). Allocations pursuant to the previous sentence shall be made in
proportion to the respective amounts required to be allocated to each Member
pursuant thereto. The items to be so allocated shall be determined in
accordance with Sections 1.704-2(f) (6) and 1.704-2(j) (2) of the Regulations.
This Section 5.3(a) is intended to comply with the minimum gain chargeback
requirement in Section 1.704-2(f) of the Regulations and shall be interpreted
consistently therewith.
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(b) Member Minimum Gain Chargeback. Except as otherwise
provided in Section 1.704-2(i) (4) of the Regulations, notwithstanding any
other provision of this Section 5, if there is a net decrease in Member
Nonrecourse Debt Minimum Gain attributable to a Member Nonrecourse Debt during
any Allocation Year, each Member who has a share of the Member Nonrecourse Debt
Minimum Gain attributable to such Member Nonrecourse Debt, determined in
accordance with Section 1.704-2(i) (5) of the Regulations, shall be specially
allocated items of Company income and gain for such Allocation Year (and, if
necessary, subsequent Allocation Years) in an amount equal to such Member's
share of the net decrease in Member Nonrecourse Debt Minimum Gain, determined
in accordance with Regulations Section 1.704-2(i) (4). Allocations pursuant to
the previous sentence shall be made in proportion to the respective amounts
required to be allocated to each Member pursuant thereto. The items to be so
allocated shall be determined in accordance with Sections 1.704-2(i) (4) and
1.704-2(j) (2) of the Regulations. This Section 5.3(b) is intended to comply
with the minimum gain chargeback requirement in Section 1.704-2(i) (4) of the
Regulations and shall be interpreted consistently therewith.
(c) Qualified Income Offset. In the event any Member
unexpectedly receives any adjustments, allocations, or distributions described
in Sections 1.704-1(b)(2)(ii)(d)(4), 1.704-1(b)(2)(ii)(d)(5), or 1.704-
1(b)(2)(ii)(d)(6) of the Regulations, items of Company income and gain shall be
specially allocated to such Member in an amount and manner sufficient to
eliminate, to the extent required by the Regulations, the Adjusted Capital
Account Deficit of the Member as quickly as possible, provided that an
allocation pursuant to this Section 5.3(c) shall be made only if and to the
extent that the Member would have an Adjusted Capital Account Deficit after all
other allocations provided for in this Section 5 have been tentatively made as
if this Section 5.3(c) were not in the Agreement.
(d) Gross Income Allocation. In the event any Member has a
deficit Capital Account at the end of any Allocation Year which is in excess of
the amount such Member is obligated to restore pursuant to the penultimate
sentences of Regulations Sections 1.704-2(g)(1) and 1.704-2(i)(5), each such
Member shall be specially allocated items of Company income and gain in the
amount of such excess as quickly as possible, provided that an allocation
pursuant to this Section 5.3(d) shall be made only if and to the extent that
such Member would have a deficit Capital Account in excess of such sum after
all other allocations provided for in this Section 5 have been made as if
Section 5.3(c) and this Section 5.3(d) were not in the Agreement.
(e) Nonrecourse Deductions. Nonrecourse Deductions for any
Allocation Year shall be specially allocated to the Members in proportion to
their respective Percentage Interests.
(f) Member Nonrecourse Deductions. Any Member Nonrecourse
Deductions for any Allocation Year shall be specially allocated to the Member
who bears the economic risk of loss with respect to the Member Nonrecourse Debt
to which such Member Nonrecourse Deductions are attributable in accordance with
Regulations Section 1.704-2(i) (1).
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(g) Section 754 Adjustments. To the extent an adjustment to
the adjusted tax basis of any Company asset, pursuant to Code Section 734(b) or
Code Section 743(b) is required, pursuant to Regulations Section
1.704-1(b)(2)(iv)(m)(2) or 1.704-1(b)(2)(iv)(m)(4), to be taken into account in
determining Capital Accounts as the result of a distribution to a Member in
complete liquidation of such Member's interest in the Company, the amount of
such adjustment to Capital Accounts shall be treated as an item of gain (if the
adjustment increases the basis of the asset) or loss (if the adjustment
decreases such basis) and such gain or loss shall be specially allocated to the
Members in accordance with their interests in the Company in the event
Regulations Section 1.704-1(b)(2)(iv)(m)(2) applies, or to the Member to whom
such distribution was made in the event Regulations Section
1.704-1(b)(2)(iv)(m)(4) applies.
(h) Allocations Relating to Taxable Issuance of Ownership
Interests. Any income, gain, loss or deduction realized by the Company as a
direct or indirect result of the issuance of ownership interests by the Company
to a Member (the "Issuance Items") shall be allocated among the Members so
that, to the extent possible, the net amount of such Issuance Items, together
with all other allocations under this Agreement to each Member shall be equal
to the net amount that would have been allocated to each such Member if the
Issuance Items had not been realized.
Section 5.4. Curative Allocations. The allocations set forth
in Sections 5.3(a), 5.3(b), 5.3(c), 5.3(d), 5.3(e), 5.3(f), 5.3(g) and 5.5 (the
"Regulatory Allocations") are intended to comply with certain requirements of
the Regulations. It is the intent of the Members that, to the extent possible,
all Regulatory Allocations shall be offset either with other Regulatory
Allocations or with special allocations of other items of Company income, gain,
loss or deduction pursuant to this Section 5.4. Therefore, notwithstanding any
other provision of this Section 5 (other than the Regulatory Allocations), the
Managing Board shall make such offsetting special allocations of Company
income, gain, loss or deduction in whatever manner it determines appropriate so
that, after such offsetting allocations are made, each Member's Capital Account
balance is, to the extent possible, equal to the Capital Account balance such
Member would have had if the Regulatory Allocations were not part of the
Agreement and all Company items were allocated pursuant to Sections 5.1, 5.2,
and 5.3(h).
Section 5.5. Loss Limitation. Losses allocated pursuant to
Section 5.2 hereof shall not exceed the maximum amount of Losses that can be
allocated without causing any Member to have an Adjusted Capital Account
Deficit at the end of any Allocation Year. In the event some but not all of
the Members would have Adjusted Capital Account Deficits as a consequence of an
allocation of Losses pursuant to Section 5.2 hereof, the limitation set forth
in this Section 5.5 shall be applied on a Member by Member basis and Losses not
allocable to any Member as a result of such limitation shall be allocated to
the other Members in accordance with the positive balances in such Member's
Capital Accounts so as to allocate the maximum permissible Losses to each
Member under Section 1.704-1(b)(2)(ii)(d) of the Regulations.
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Section 5.6. Other Allocation Rules.
(a) For purposes of determining the Profits, Losses, or any
other items allocable to any period, Profits, Losses, and any such other items
shall be determined on a daily, monthly, or other basis, as determined by the
Managing Board using any permissible method under Code Section 706 and the
Regulations thereunder.
(b) The Members are aware of the income tax consequences of
the allocations made by this Section 5 and hereby agree to be bound by the
provisions of this Section 5 in reporting their shares of Company income and
loss for income tax purposes.
(c) Solely for purposes of determining a Member's
proportionate share of the "excess nonrecourse liabilities" of the Company
within the meaning of Regulations Section 1.752-3(a) (3), the Members'
interests in Company profits are in proportion to their Percentage Interests.
To the extent permitted by Section 1.704-2(h) (3) of the Regulations,
the Managing Board shall endeavor to treat distributions of Net Cash Flow as
having been made from the proceeds of a Nonrecourse Liability or a Member
Nonrecourse Debt only to the extent that such distributions would cause or
increase an Adjusted Capital Account Deficit for any Member.
Section 5.7. Tax Allocations: Code Section 704(c). In
accordance with Code Section 704(c) and the Regulations thereunder, income,
gain, loss, and deduction with respect to any Property contributed to the
capital of the Company shall, solely for tax purposes, be allocated among the
Members so as to take account of any variation between the adjusted basis of
such Property to the Company for federal income tax purposes and its initial
Gross Asset Value (computed in accordance with the definition of Gross Asset
Value) using the traditional method with curative allocations described in
Section 1.704-3(c) of the Regulations.
In the event the Gross Asset Value of any Company asset is adjusted
pursuant to subparagraph (ii) of the definition of Gross Asset Value,
subsequent allocations of income, gain, loss, and deduction with respect to
such asset shall take account of any variation between the adjusted basis of
such asset for federal income tax purposes and its Gross Asset Value in the
same manner as under Code Section 704(c) and the Regulations thereunder.
Any elections or other decisions relating to such allocations shall be
made by the Managing Board in any manner that reasonably reflects the purpose
and intention of this Agreement. Allocations pursuant to this Section 5.7 are
solely for purposes of federal, state, and local taxes and shall not affect, or
in any way be taken into account in computing, any Member's Capital Account or
share of Profits, Losses, other items, or distributions pursuant to any
provision of this Agreement.
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ARTICLE 6
MANAGEMENT
Section 6.1. Managing Board.
(a) Except as provided herein or in the Joint Venture
Agreement, the Managing Board shall have full and complete authority, power and
discretion to manage and control the business, affairs and properties of the
Company, to make all decisions regarding those matters and to perform any and
all other acts or activities which the Managing Board deems necessary, useful
or appropriate for the management and conduct of the Company's business and
affairs.
(b) The Managing Board shall consist of five members,
three of which shall be designated "Class A Managers" and two of which shall be
designated "Class B Managers." The Class A Managers and the Class B Managers
are collectively referred to as the "Managers." The Class A Member shall
appoint the Class A Managers, and the Class B Member shall appoint the Class B
Managers.
(c) The Class A Member agrees to cause the Class A
Managers, and the Class B Member agrees to cause the Class B Managers, in each
case to act in accordance with this Agreement and the Joint Venture Agreement.
(d) On the Closing Date and annually thereafter, the
Managing Board shall elect a Chairman in accordance with procedures agreed to
from time to time by the Members.
(e) The Managing Board shall take all actions which may
be necessary or appropriate (i) for the continuation of the Company's valid
existence as a limited liability company under the laws of the State of
Delaware and of each other jurisdiction in which such existence is necessary to
protect the limited liability of the Members or to enable the Company to
conduct the business in which it is engaged and (ii) for the accomplishment of
the Company's purposes.
(f) Each Manager shall be under a fiduciary duty to
conduct the affairs of the Company in the best interests of the Company and of
the Members, except that no Manager shall be deemed in violation of such
fiduciary duty solely by causing the Company to fulfill its obligations under
any of the Operative Agreements.
Section 6.2. Board Meetings; Quorum; Voting; Notice.
(a) The Chairman of the Managing Board shall prepare or
direct the preparation of the agenda for, and preside over, meetings of the
Managing Board. The Chairman shall deliver such agenda to each other Manager
at least two Business Days prior to the giving of notice of a regular or
special meeting, and any Manager may add items to such agenda.
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(b) Unless otherwise agreed by the Members, regular
meetings of the Managing Board shall be held once every three months at such
places and at such times as the Managing Board may from time to time determine.
Special meetings of the Managing Board may be called by the Chairman and shall
be called promptly by the Chairman at the request of any Manager and shall be
held at such place as may be determined by the Managing Board. Written notice
of the time and place of each regular and special meeting of the Managing Board
shall be given by, or at the direction of, the Chairman to each other Manager,
in the case of a regular or special meeting, at least two Business Days before
such meeting. The required notice to any Manager may be waived by such Manager
in writing. Attendance by a Manager at a meeting shall constitute a waiver of
any required notice of such meeting by such Manager, except when such Manager
attends such meeting for the express purpose of objecting, at the beginning of
the meeting, to the transaction of any business because the meeting is not
properly called or convened.
(c) The presence (in person or by proxy) of at least one
of the Class A Managers and at least one of the Class B Managers shall be
required to constitute a quorum for the transaction of any business by the
Managing Board; provided, however, that if a quorum is not obtained because at
least one Class B Manager fails to attend a meeting of the Managing Board after
two (2) proper notices, then a quorum shall be deemed upon the attendance of
the three (3) Class A Managers. Each Member shall use its reasonable efforts
to ensure the existence of a quorum at any duly convened meeting of the
Managing Board. Except as provided in Section 8.1, all actions taken by the
Managing Board shall be effective upon the affirmative vote of a simple
majority of the Managers present at a duly constituted meeting. The Class A
Member shall cause each Class A Manager to grant a revocable proxy to each
other Class A Manager to vote at any meeting of the Managing Board at which
such Class A Manager is not present or is present but cannot vote with respect
to such matter. The Class B Member shall cause each Class B Manager to grant a
revocable proxy to each other Class B Manager to vote at any meeting of the
Managing Board at which such Class B Manager is not present or is present but
cannot vote with respect to such matter.
(d) While the Members intend that the Managers shall
attend meetings of the Managing Board in person, the Members acknowledge that
Managers may from time to time be prevented from doing so due to various
circumstances. Managers may, therefore, participate in a meeting of the
Managing Board by means of conference telephone or similar communications
equipment by means of which all persons participating in the meeting can hear
each other, and participation in a meeting pursuant to this Section 6.2(d)
shall constitute presence in person at such meeting, except where a Manager
participates in the meeting for the express purpose of objecting, at the
beginning of the meeting, to the transaction of any business on the ground that
the meeting is not properly called or convened.
(e) Any action required or permitted to be taken at a
meeting of the Managing Board may be taken without a meeting if a written
consent, setting forth the action so taken, is signed by the number of Class A
Managers and/or Class B Managers required by the Act or this Agreement in order
to take such action, and is filed with the minutes of the proceedings of the
Managing Board; provided, however, that if the Managers take any action by less
than unanimous written consent, the
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Company shall provide notice of the taking of such action to the non-consenting
Manager(s) promptly thereafter in accordance with the Act.
Section 6.3. Removal; Resignation; Vacancies. The Class A
Member may at any time, by written notice to the Class B Member and to the
Managing Board, remove (with or without cause) any Class A Manager and appoint
a new Class A Manager. The Class B Member may at any time, by written notice
to the Class A Member and to the Managing Board, remove (with or without cause)
any Class B Manager and appoint a new Class B Manager. Any Class A Manager may
resign at any time by giving written notice to the Class A Member and to the
Managing Board. Any Class B Manager may resign at any time by giving written
notice to the Class B Member and to the Managing Board. Any such resignation
shall take effect on the date of, or date specified in, such notice or, if such
notice is not dated and the date of resignation is not specified in such
notice, on the date of the receipt of such notice by the Managing Board. No
acceptance of such resignation shall be necessary to make it effective. Upon
any such resignation as a Class A Manager, the Class A Member shall appoint a
new Class A Manager. Upon any such resignation by a Class B Manager, the Class
B Member shall appoint a new Class B Manager.
Section 6.4. No Remuneration. No person shall be entitled to
any fee, remuneration or compensation in connection with his service as a
Manager. The Company shall bear the cost and expenses of the Managers
appointed by such Member in connection with such Managers' participation on the
Managing Board.
Section 6.5. Officers.
(a) Subject to the voting requirements set forth in
Article 8, the Managing Board shall select the Chief Executive Officer ("CEO")
of the Company. The CEO shall report to the Managing Board periodically on the
business and affairs of the Company and, subject to the direction of the
Managing Board, shall have general supervision over the business and affairs of
the Company.
(b) The Managing Board shall select the Chief Operating
Officer (the "COO") of the Company. The COO shall report to the CEO of the
Company and shall generally oversee the operations of the Company.
(c) The Managing Board shall select the Chief Financial
Officer (the "CFO") of the Company. The CFO shall report to the CEO
periodically on the financial condition of the Company and, subject to the
direction of the CEO, shall have general supervision over the financial affairs
of the Company and shall serve as its principal accounting officer.
(d) Except as otherwise provided herein, the Managing
Board, after due consideration of the recommendations of Rock-Tenn Partition
and Sonoco Partitions shall have the right at any time to designate, remove and
replace all officers and designate permanent or temporary replacements for such
officers as may be determined by the Managing Board from time to time as
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necessary or advisable in the conduct of the business and affairs of the
Company. All officers of the Company shall (i) have the powers and duties set
forth in this Section 6.5 or as otherwise prescribed by the Managing Board and
(ii) serve for the term designated by the Managing Board, subject to removal as
provided above. The initial officers of the Company shall have the power and
authority to execute and deliver in the name and on behalf of the Company each
of the Operative Agreements to which the Company is a party.
ARTICLE 7
ROLE OF MEMBERS
Section 7.1. Rights or Powers. The Members shall not have
any right or power to take part in the management or control of the Company or
its business and affairs or to act for or bind the Company in any way.
Notwithstanding the foregoing, the Members have all of the rights and powers
specifically set forth in this Agreement and, to the extent not inconsistent
with this Agreement, in the Act.
Section 7.2. Voting Rights. The Members shall have voting
rights with respect solely to matters for which the approval of the Members is
affirmatively required by the Act.
Section 7.3. Meetings of Members.
(a) Meetings of the Members may be called by the Chairman
of the Managing Board and shall be called upon the written request of any
Member. Notice of any such meeting shall be given to all Members not less than
ten (10) Business Days nor more than thirty (30) days prior to the date of such
meeting and shall state the nature of the business to be conducted at such
meeting. Members may vote in person, by proxy or by telephone at such meeting
and may at any time waive advance notice of such meeting.
(b) Each Member may authorize any Person or Persons to
act for it by proxy on all matters in which a Member is entitled to
participate, including waiving notice of any meeting, or voting or
participating at a meeting. Every proxy must be signed by the Member or its
attorney-in-fact. No proxy shall be valid after the expiration of eleven
months from the date thereof unless otherwise provided in the proxy. Every
proxy shall be revocable at the pleasure of the Member executing it.
(c) Any action required or permitted to be taken at a
meeting of the Members may be taken without a meeting if a written consent,
setting forth the action so taken, is signed by all of the Members and is filed
with the minutes of the proceedings of the Members. Such consent shall have
the same force and effect as a unanimous affirmative vote of the Members.
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Section 7.4. Withdrawal/Resignation. Except as otherwise
provided herein, no Member shall demand or receive a return on or of its
capital contributions or withdraw or resign from the Company without the
consent of all Members. If any Member resigns or withdraws from the Company in
breach of this Section 7.4, such resigning or withdrawing Member shall not be
entitled to receive any distribution under this Agreement. Under circumstances
requiring a return of any capital contributions, no Member has the right to
receive property other than cash except as may be specifically provided herein.
Section 7.5. Member Compensation. No Member shall receive
any interest, salary or drawing with respect to its capital contributions or
its capital account or for services rendered on behalf of the Company, or
otherwise, in its capacity as a Member, except as otherwise provided in this
Agreement.
Section 7.6. Partition. While the Company remains in effect
or is continued, each Member agrees and waives its rights to have any Company
property partitioned, or to file a complaint or to institute any suit, action
or proceeding at law or in equity to have any Company property partitioned, and
each Member, on behalf of itself, its successors and its assigns hereby waives
any such right.
Section 7.7. Other Instruments. Each Member hereby agrees to
execute and deliver to the Company within five (5) days after receipt of a
written request therefor, such other and further documents and instruments,
statements of interest and holdings, designations, powers of attorney and other
instruments and to take such other action as the Managing Board deems
necessary, useful or appropriate to comply with any laws, rules or regulations
as may be necessary to enable the Company to fulfill its responsibilities under
this Agreement.
ARTICLE 8
MATTERS REQUIRING APPROVAL OF THE MANAGING BOARD
Section 8.1. Matters Requiring the Consent of the Managing
Board. Except as otherwise provided herein or in the Business Plan, no action
may be taken by the Company or any Subsidiary of the Company in connection with
any of the following matters without the approval of at least four (4) Managers
of the Managing Board:
(a) the appointment and replacement of the CEO; provided,
however, that in the event that two candidates who have been presented to the
Managing Board do not receive the requisite vote, then upon the presentation of
any additional candidate or candidates, such candidate shall be approved upon
the vote of three Managers of the Managing Board;
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(b) the acquisition of any Property or interest therein
which requires an investment by the Company in excess of twenty percent (20%)
of the market value of the total assets of the Company, and the disposition of
any Property or interest therein which has a value in excess of twenty percent
(20%) of the market value of the total assets of the Company;
(c) the approval for each year's Business Plan (and
amendments thereto); provided, however, that in the event that such Business
Plan does not receive the requisite vote, the Business Plan for the immediately
prior year shall automatically be approved and be effective as provided in
Section 9.1;
(d) the issuance of additional equity interests which
would dilute the ownership interests of any Member (other than equity interests
and options for equity interests issued to employees of the Company); and
(e) except for (i) contracts entered into on the date
hereof pursuant to the Joint Venture Agreement and (ii) loans between the
Company and a Member on at least market terms, any contract between a Member
and the Company.
Except as noted above, if the Managing Board fails to agree by the requisite
vote upon any proposal relating to the any of the matters set forth above, the
Company shall continue to operate after such proposal as if such matter had
been rejected by the Managing Board.
ARTICLE 9
BUSINESS PLAN, ACCOUNTING, TAXATION AND
CERTAIN OTHER OPERATIONAL PROVISIONS
Section 9.1. Business Plans.
(a) The Initial Business Plan for the Fiscal Year ended
September 30, 1998 is attached to the Joint Venture Agreement as Schedule A.
Not later than sixty (60) days prior to the beginning of each succeeding Fiscal
Year, a proposed business plan relating to such succeeding Fiscal Year shall be
prepared in compliance with this Section 9.1 under the direction of the CEO,
the COO and the CFO of the Company and shall be submitted to the Managing Board
for approval. Each Member shall cause the Managers on the Managing Board
appointed by such Member to cooperate in good faith to approve any proposed
business plan not later than thirty (30) days prior to the beginning of the
Fiscal Year to which such proposed business plan relates.
When a proposed business plan for a Fiscal Year has been
approved as the Business Plan by the Managing Board, the Company, the Managers
and the officers and employees of the Company shall implement such Business
Plan. No Business Plan shall be deemed an amendment of this Agreement. To the
extent that any provision of the Business Plan deals with the same matter
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as any Operative Agreement, the provisions of such Operative Agreement shall
control, unless the Members shall otherwise agree. The Company shall furnish
to each Manager on the Managing Board any other budget or plan that the Company
may prepare and any revisions of previously furnished budgets or plans
(including any Business Plan) promptly upon preparation or revision of such
budgets, plans or revisions thereto.
If, on October 1 of any Fiscal Year, the Managers have not
approved any required portion of the proposed business plan as the Business
Plan for such Fiscal Year, the portion of the proposed business plan which has
been approved by the Managers, together with that portion of the Business Plan
for the prior Fiscal Year which relates to the portion of the proposed business
plan which has not been approved, adjusted (without duplication) to reflect
increases or decreases resulting from the following events, shall govern until
such time as the Managing Board approves a complete Business Plan for such
Fiscal Year, including the portion of the proposed business plan which was not
approved by October 1:
(i) increases or decreases in commitments under
contracts of the Company which will be outstanding during such Fiscal Year;
(ii) increases or decreases in expenses
attributable to the number of employees expected to be employed by the Company
during such Fiscal Year and increases and decreases in salaries and other
benefits payable to employees covered by union contracts expected to be
employed by the Company during such Fiscal Year;
(iii) increases or decreases in interest expense
attributable to loans of the Company which will be outstanding during such
Fiscal Year;
(iv) increases or decreases in costs and expenses
attributable to non-recurring items in the Business Plan for the prior Fiscal
Year;
(v) increases or decreases in paperboard costs
and the costs of other raw materials used in the Company's business to reflect
current market prices for such materials; and
(vi) increases or decreases in partition prices.
All other expenses in the Business Plan for the prior Fiscal
Year shall be increased by the increase in the Consumer Price Index for the
twelve (12) month period ending on the July 31 preceding each such October 1.
(b) Each Business Plan shall contain at a minimum (i) a
quarterly and annual operating budget for the Company for the succeeding Fiscal
Year, containing projections of sales, profit and loss, cash flow and ending
balance sheets for each quarter of such Fiscal Year, (ii) a business plan for
the Company relating to the succeeding Fiscal Year, and (iii) long-range plans
for the next three succeeding Fiscal Years.
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(c) The senior officers of the Company shall at all times
use their best efforts to conduct the operations of the Company within the
Business Plan adopted by the Managing Board. Following the end of each Fiscal
Year, the CEO and the CFO of the Company will analyze any variance between the
actual and planned performance under the Business Plan and report to the
Managing Board the results of such analysis.
Section 9.2. Accrual Basis. The books and records of the
Company shall be kept on an accrual basis.
Section 9.3. Maintenance of Books of Account. The Company
shall keep or cause to be kept full and complete books of account in accordance
with Rock-Tenn's accounting policies and procedures in effect from time to time
at its principal office or at such other location as the Managing Board
designates. The books of accounts shall be maintained in a manner that
provides sufficient assurance that transactions of the Company are reported so
as to comply with all Applicable Laws and to permit the preparation of the
Company's financial statements in accordance with GAAP.
Section 9.4. Financial Statements.
(a) As soon as practicable following the end of each
Fiscal Year (and in any event not later than ninety (90) days after the end of
each such Fiscal Year), the Company shall prepare and deliver to each Member
and the Managing Board a consolidated balance sheet of the Company and its
consolidated subsidiaries as of the end of such Fiscal Year and the related
statements of results of operations, Members' capital accounts and cash flow of
the Company for such Fiscal Year (or similar statements if such statements
change as a result of changes in GAAP), together with appropriate notes to such
financial statements, and in each case setting forth in comparative form the
corresponding figures for the preceding Fiscal Year. Such financial statements
shall be approved by the Managing Board and, if requested by any two members of
the Managing Board, shall be audited by the Accountants and accompanied by a
report stating that such financial statements have been prepared in accordance
with GAAP applied on a basis consistent with prior years (except for the
initial year of the Company or as otherwise specified in such report). The
Company shall conduct its business so that any such report of the Accountants
shall not contain any qualifications as to the scope of the audit or with
respect to the Company's compliance with GAAP, except for the initial year of
the Company or for changes in methods of accounting.
(b) As soon as practicable following the end of each
Fiscal Quarter (and in any event not later than thirty (30) days after the end
of such Fiscal Quarter), the Company shall prepare and deliver to each Member
and the Managing Board an unaudited consolidated income statement of the
Company and its consolidated subsidiaries as of the end of such Fiscal Quarter
and the related unaudited statements of results of operations, Members' capital
accounts and cash flow of the Company for such Fiscal Quarter and for the
Fiscal Year to date (or similar statements if such statements change as a
result of changes in GAAP), in each case setting forth in comparative form the
corresponding figures for the preceding Fiscal Quarter, or the Fiscal Quarter
corresponding to
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the Fiscal Quarter just completed and for the budget for such Fiscal Quarter
and for the Fiscal Year to date, which statement shall be approved by the
Managing Board. Such financial statements shall be accompanied by certificate
of the CFO of the Company to the effect that such financial statements have
been prepared under the CFO's supervision and that, although such financial
statements do not contain the footnotes and other disclosures required to be
presented in interim financial statements by GAAP, such financial statements,
in the CFO's judgment, fairly present the financial condition and results of
operations of the Company as of the date and for the periods indicated, subject
to normal recurring year-end audit adjustments.
(c) As soon as practicable following the end of each
calendar month (and in any event not later than thirty (30) days after the end
of such month), the Company shall prepare and deliver to each Member and the
Managing Board unaudited statements of results of operations for such month and
for the Fiscal Year to date.
Section 9.5. Other Reports and Inspections. The Company
shall furnish promptly to either Member such financial data and information as
such Member may reasonably request, including monthly, quarterly and annual
projections of results of operations and financial position. The Company
shall, upon reasonable prior notice and during normal business hours without
unreasonably interfering with the normal day-to-day activities of the Company
and its employees, make available to either Member or its representatives or
designees all books of account and other financial records of the Company for
inspection and, in the case of books of account, copying and shall use its best
efforts to make available to such Member and the officers, employees and
independent accounts of the Company for reviews to verify any information
furnished hereunder.
Section 9.6. Deposit of Funds. All funds of the Company not
otherwise employed shall be promptly (a) deposited from time to time to its
credit in such banks or trust companies or other depositories or (b) invested
in such other short-term investments as the Managing Board shall select, or as
may be selected by any authorized officer of the Company. The funds of the
Company shall not be commingled with the funds of either Member or any
Affiliate of either Member.
Section 9.7. Fiscal Year. The Fiscal Year of the Company
shall be the Fiscal Year of Rock-Tenn, which currently is the twelve-month
period ending September 30.
Section 9.8. Accountants. The independent auditors of the
Company shall be, for the first Fiscal Year, Ernst & Young LLP and thereafter
the Managing Board shall approve the appointment of the independent auditors on
an annual basis (the "Accountants").
Section 9.9. Attorneys. The Company shall be represented by
such counsel as may be selected from time to time by the Managing Board.
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Section 9.10. Preparation of Tax Returns.
(a) The Managing Board shall, at the expense of the
Company, cause to be prepared and delivered to the Members, in a timely fashion
after the end of each Fiscal Year, copies of all federal and state income tax
returns for the Company for such Fiscal Year, one copy of which shall be filed
by the Managing Board. Such returns shall be prepared on the accrual basis,
and shall accurately reflect the results of operations of the Company for such
Fiscal Year. The Class A Member is designated as the "tax matters partner" (as
defined in the Code) of the Company and is authorized and required to represent
the Company (at the expense of the Company) in connection with all examinations
of the affairs of the Company by any federal, state, or local tax authorities,
including any resulting administrative and judicial proceedings, and to expend
funds of the Company for professional services and costs associated therewith.
(b) The "tax matters partner" shall keep all Members
fully informed of the progress of any such examination, audits or other
proceeding. Each Member agrees to cooperate with the Managing Board and the
"tax matters partner" and to do or refrain from doing any or all things
reasonably required by the Managing Board in connection with the conduct of
such proceedings.
Section 9.11. Partnership Tax Election. The Company shall be
classified as a partnership for federal, state and local tax purposes and shall
make all filings and elections necessary to obtain such classification as a
partnership pursuant to Section 301.7701-3 of the Regulations and any other
applicable provisions of state or local law.
ARTICLE 10
TRANSFERS OF VENTURE INTEREST
Section 10.1. No Transfer. Except as provided herein, a
Member shall not Transfer its Venture Interest in whole or in part, directly or
indirectly, and any purported Transfer of all or any part of a Member's Venture
Interest (including such Member's interest in the capital accounts of the
Company) shall be void and of no effect against the Company, the other Member,
any creditor of the Company or any person claiming against the Company, unless:
(a) The Member proposing to make a Transfer of all (but
not less than all) of its Venture Interest has made full disclosure of the
identity of the proposed transferee and the terms and conditions of the
proposed Transfer to the other Member and has received the prior written
consent of the other Member;
(b) The Member proposing the Transfer of all (but not
less than all) of its Venture Interest has complied with its obligations under
Section 10.3 and the other Member has not exercised either of its rights under
Section 10.3;
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(c) All (but not less than all) of such Member's Venture
Interest (including such Member's interest in the capital accounts of the
Company) are Transferred simultaneously to the Transferee of the Venture
Interest; and
(d) If requested by the Company, the Member proposing to
make such Transfer shall unconditionally guarantee the obligations of the
proposed transferee in respect of such Member's transferred Venture Interest;
provided, however, that, notwithstanding this Section 10.1, neither Member
shall be permitted to make any Transfer of its Venture Interest to any
competitor of Rock-Tenn or Sonoco in the Solid Fiber Partition Business without
the prior written consent of the other Member after full disclosure of the
terms and conditions of the proposed Transfer.
Section 10.2. Transfer to Wholly Owned Subsidiary.
Notwithstanding the provisions of Section 10.1, a Member may, without complying
with the provisions of Section 10.1, Transfer all (but not less than all) of
its Venture Interest (including such Member's interest in the capital accounts
of the Company) to any Wholly Owned Subsidiary of such Member if (i) such
Subsidiary becomes a party to this Agreement, (ii) such Member guarantees the
obligations under this Agreement of such Subsidiary and its successors and
assigns, (iii) such Subsidiary agrees in writing to reassign its Venture
Interest to such Member in the event that such Subsidiary is no longer a Wholly
Owned Subsidiary of such Member, (iv) such Member simultaneously Transfers to
such Subsidiary all of such Member's interest in the capital accounts of the
Company, and (v) if the proposed Transfer would cause a termination of the
Company for federal income tax purposes under Section 708 of the Code, obtains
the prior written consent of the other Member.
Section 10.3. Right of First Refusal.
(a) If a Member (the "Transferring Partner") desires to
Transfer all (but not less than all) of its Venture Interest to an unrelated
third party on the basis of that third party's binding, bona fide written offer
providing for an all-cash purchase price to acquire all (but not less than all)
of the Transferring Members' Venture Interest (including such Member's interest
in the capital accounts of the Company) (an "Offer"), the other Member (the
"Non-Transferring Member") shall have the rights set forth in this Section
10.3. A copy of the Offer shall be provided by the Transferring Member to the
Non-Transferring Member and the Non-Transferring Member shall give a "Notice of
Exercise" to the Transferring Member within sixty (60) days of receipt of the
Offer if the Non-Transferring Partner wishes to exercise its right (the "Right
of First Refusal Option") to buy all but not less than all of the Transferring
Member's Venture Interest by matching the price, terms and conditions of the
Offer (including the simultaneous purchase of all of the Transferring Member's
interest in the capital accounts of the Company). If the Non-Transferring
Member provides the Transferring Member with a Notice of Exercise, the
Non-Transferring Member must complete the purchase of the Venture Interest of
the Transferring Member within sixty (60) days of the Transferring Member's
receipt of the Notice of Exercise (or, if the Transferring Member was required
for any reason to receive Government Approval of such transfer, then within
thirty (30)
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days following the receipt of such required Governmental Approval), solely in
accordance with the price, terms and conditions of the Offer (including the
simultaneous purchase of all of the Transferring Member's interest in the
capital accounts of the Company).
(b) The Non-Transferring Partner shall also have the
alternative right (the "Come Along Right") exercisable by giving a Notice of
Exercise within sixty (60) days after receipt of a copy of the Offer, to
require that the Non-Transferring Member's Venture Interest also be sold to the
offeror of the Offer at the same price (per percentage point of the
Transferring Member's Venture Interest), terms and conditions of the Offer
(including the simultaneous purchase of all of the Non-Transferring Member's
interest in the capital accounts of the Company). If the Non-Transferring
Member elects to exercise the Come Along Right, the Transferring Member shall
not be entitled to make any Transfer of its Venture Interest except
simultaneously with the Non-Transferring Member's Transfer of this Venture
Interest pursuant to the Offer (including the simultaneous Transfer of all of
the Non-Transferring Partner's interest in the capital accounts of the
Company).
(c) If the Non-Transferring Member fails to give a Notice
of Exercise under Section 10.3(a) or (b) within the applicable sixty (60) day
period described therein, the Transferring Member will be permitted to Transfer
its entire Venture Interest; provided, however, that (i) such Transfer is made
to the Transferee and solely in accordance with the price, terms and conditions
described in the Offer, (ii) such Transfer is consummated one hundred and
twenty (120) days following the date of delivery of the Offer to the
Non-Transferring Member, (iii) the Transferee takes all necessary steps to
become a substitute Member under this Agreement, and (iv) the Transferring
Member simultaneously Transfers all of its interest in the capital accounts of
the Company to the Transferee.
Section 10.4. Buy-Out Rights. The ownership interests of the
Parties and their permitted successors and assigns in the Company are subject
to the buy-out rights provided for in Article 8 of the Joint Venture Agreement.
ARTICLE 11
INDEMNIFICATION OF OFFICERS
AND MANAGERS
Section 11.1. Right to Indemnification.
(a) The Company shall indemnify and hold harmless, to the
fullest extent permitted by Applicable Law as it presently exists or may
hereafter be amended, any person who was or is made or is threatened to be made
a party to or is otherwise involved in any action, suit or proceeding, whether
civil, criminal, administrative or investigative (hereinafter, a "proceeding")
by reason of fact that he or she, or a person for whom he or she is the legal
representative, is or was a Manager or officer of the Company or is or was
serving at the request of the Company as a director,
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officer, employee or agent of another corporation or of a partnership, joint
venture, trust, enterprise or nonprofit entity against all liability and loss
suffered and expenses (including attorneys' fees) reasonably incurred by such
person if such person acted in good faith and in a manner such person
reasonably believed to be in or not opposed to the best interests of the
Company, and, with respect to any criminal proceeding, had no reasonable cause
to believe his or her action was unlawful; provided that the Company shall not
indemnify any person for any liability resulting or arising from the gross
negligence or willful misconduct of any such person. The termination of any
proceeding by judgment, order, settlement, conviction or upon a plea of nolo
contendere or its equivalent, shall not, of itself, create a presumption that
the person did not act in good faith and in a manner in which he or she
reasonably believed to be in or not opposed to the best interests of the
Company or, that he or she was grossly negligent or that he or she engaged in
wilful misconduct, and, with respect to any criminal proceeding, had reasonable
cause to believe that his or her conduct was unlawful. The Company shall be
required to indemnify any such person seeking indemnification in connection
with a proceeding (or part thereof) initiated by such person only if such
proceeding (or part thereof) was authorized by the Managing Board. In the
event a Manager or officer of the Company shall serve as a director, officer,
employee or agent of any corporation, partnership, joint venture, trust,
enterprise or nonprofit entity in which the Company maintains an investment, it
shall be conclusively presumed for purposes of the indemnification provided for
in this Section 11.1 that such service has been undertaken at the request of
the Company. The foregoing presumption shall apply regardless of whether such
Manager, or officer is serving such entity at the request of a third party or
that his or her service with such entity was commenced prior to the
effectiveness of this Article 11 or prior to his or her becoming a Manager or
officer of the Company. The Company may, by action of the Managing Board,
provide indemnification to employees or agents of the Company with the same
scope and effect as the foregoing indemnification of Managers and officers
provided for in this Section 11.1.
(b) The right to indemnification conferred by this
Section 11.1 shall be a contract right based upon an offer from the Company
which shall be deemed to be accepted and acknowledged by each person who
becomes a Manager or officer of the Company or who serves at the request of the
Company as a director, officer, employee or agent of another corporation or of
a partnership, joint venture, trust enterprise or nonprofit entity by accepting
such position.
(c) Any indemnification made under this Section 11.1
(unless ordered by a court) shall be made by the Company only as authorized in
the specific case upon a determination that such indemnification is proper in
the circumstances because the person seeking indemnification has met the
applicable standard of conduct set forth in Section 11.1(a). Such
determination shall be made by (i) a majority vote of the Managers who are not
parties to such proceeding, even though less than a quorum, (ii) if there are
no such Managers, or if such Managers so direct, by independent legal counsel
in a written opinion, or (iii) by the Members.
Section 11.2. Prepayment of Expenses. The Company may, in
its discretion, pay the expenses (including attorneys' fees) incurred by such
Manager or officer in defending any such proceeding in advance of its final
disposition, provided that such advance payment shall be made
29
<PAGE> 35
only upon receipt of an undertaking, by or on behalf of such Manager or
officer, to repay all amounts so advanced if it shall ultimately be determined
that such Manager or officer is not entitled to be indemnified under this
Article 11 or otherwise.
Section 11.3. Claims. If a claim for indemnification or
payment of expenses under this Article 11 is not paid in full by the Company
within thirty (30) days after a written claim has been received by the Company,
the claimant may at any time thereafter bring suit against the Company to
recover the unpaid amount of the claim and, if successful in whole or in part,
the claimant shall be entitled to be paid also the expenses (including
attorneys' fees) of prosecuting such claim.
Section 11.4. Nonexclusivity of Rights. The rights conferred
on any person by this Article 11 shall not be exclusive of any other rights
which such person may have or hereafter acquire under any statute, provision of
the LLC Constituent Documents, this Agreement or any other agreement, vote of
the Members or otherwise.
Section 11.5. Insurance. The Company may maintain insurance,
at its expense, to protect itself and any Manager, officer, employee or agent
of the Company or another corporation, partnership, joint venture, trust,
enterprise or nonprofit entity against any such expense, liability or loss,
whether or not the Company would have the power to indemnify such person
against expense, liability or loss under Applicable Law.
Section 11.6. Other Indemnification. The Company's
obligation, if any, to indemnify any person who was or is serving at its
request as director, officer, employee or agent of another corporation,
partnership, joint venture, trust, enterprise or nonprofit entity shall be
reduced by any amount such person may collect as indemnification from such
other corporation, partnership, joint venture, trust, enterprise or nonprofit
entity.
Section 11.7. Amendment or Repeal. Any repeal or
modification of this Article 11 by the Members shall not adversely affect any
right or protection of a Manager or officer existing at the time of such repeal
or modification.
ARTICLE 12
DISSOLUTION AND LIQUIDATION
Section 12.1. Liquidating Events. Upon the first to occur of
any of the following ("Liquidating Events"):
(a) the sale of all or substantially all of the assets of
the Company;
30
<PAGE> 36
(b) the written consent of the Members to dissolve, wind
up and liquidate the Company;
(c) the happening of any event that makes it unlawful or
impossible to carry on the business of the Company; or
(d) any event which causes there to be only one Member;
the Company shall dissolve and commence winding up and liquidating in
accordance with Section 12.2.
Section 12.2. Distributions Upon Liquidation. Upon the
dissolution of the Company, the Company shall continue solely for the purposes
of winding up its affairs in an orderly manner, liquidating its assets, and
satisfying the claims of its creditors and Members, and no Member shall take
any action that is inconsistent with, or not necessary to or appropriate for,
the winding up of the Company's business and affairs. To the extent not
inconsistent with the foregoing, all covenants and obligations in this
Agreement shall continue in full force and effect until such time as the
Company's assets have been distributed pursuant to this Section 12.2 and the
existence of the Company has been terminated in accordance with the Act. The
Managing Board shall be responsible for overseeing the winding up and
dissolution of the Company, shall take full account of the Company's
liabilities and assets, shall cause the assets to be liquidated as promptly as
is consistent with obtaining the fair value thereof unless it elects to make
distributions of all or any part of the assets in kind and except as otherwise
provided in this Section 12.2, and shall cause the assets or the proceeds
therefrom, to the extent sufficient therefor, to be applied, first, to
creditors (including, to the extent permitted by law, Members who are
creditors) in satisfaction of all of the Company's debts and liabilities
(whether by payment or the making of reasonable provision for payment thereof),
other than liabilities for which reasonable provision or payment has been made.
Section 12.3. Deficit Capital Accounts. If any Member has a
deficit balance in its capital account (after giving effect to all
contributions, distributions and allocations for all allocation years,
including the allocation year during which such liquidation occurs), such
Member shall have no obligation to make any contribution to the capital of the
Company with respect to such deficit, and such deficit shall not be considered
a debt owed to the Company or to any other Person for any purpose whatsoever.
Section 12.4. Rights of Members. Except as otherwise
provided in this Agreement, (a) each Member shall look solely to the assets of
the Company for the return of its Capital Contribution and shall have no right
or power to demand or receive property other than cash from the Company, and
(b) no Member shall have priority over any other Member as to the return of its
Capital Contributions, distributions or allocations.
31
<PAGE> 37
ARTICLE 13
MISCELLANEOUS
Section 13.1. Notices. Except as expressly provided herein,
notices and other communications provided for herein shall be in writing and
shall be delivered by hand or courier service, mailed or sent by telex, graphic
scanning or other telegraphic communications equipment of the sending Member,
as follows:
Rock-Tenn Partition: Rock-Tenn Company
504 Thrasher Street
Norcross, Georgia 30071
Attn: Chief Financial Officer
Tel: 770-368-7676
Fax: 770-263-3582
with a copy to: Rock-Tenn Partition Company
504D Thrasher Street
Norcross, Georgia 30071
Attn: General Counsel
Tel: 770-263-4456
Fax: 770-248-4402
Sonoco Partitions: Sonoco Partitions, Inc.
One North Second Street
Hartsville, South Carolina 29550
Attn: President
Tel: 803-383-7000
Fax: 803-383-7478
with a copy to: Sinkler & Boyd, P.A.
1426 Main Street, Suite 1200
Columbia, South Carolina 29201
Attn: William C. Boyd, Esquire
Tel: 803-779-3080
Fax: 803-540-7878
or to such other address or attention of such other Person as such Member shall
advise the other Members in writing. All notices and other communications
given to the Members hereto in accordance with the provisions of this Agreement
shall be deemed to have been given on the date of receipt. Communications sent
by telex, graphic scanning or other telegraphic communications equipment shall
be deemed to have been received when confirmation of their delivery is received
by the sender.
32
<PAGE> 38
Section 13.2. Applicable Law. The validity, construction and
performance of this Agreement shall be governed by and construed in accordance
with the laws of the State of Delaware, regardless of the laws that might
otherwise govern under applicable principles of conflicts of law.
Section 13.3. Severability. If any provision of this
Agreement shall be held to be illegal, invalid or unenforceable, the Members
agree that such provision will be enforced to the maximum extent permissible so
as to effect the intent of the Members, and the validity, legality and
enforceability of the remaining provisions of this Agreement shall not in any
way be affected or impaired thereby. If necessary to effect the intent of the
Members, the Members will negotiate in good faith to amend this Agreement to
replace the unenforceable language with enforceable language which as closely
as possible reflects such intent.
Section 13.4. Amendments. This Agreement may be modified
only by a written amendment signed by all of the Members.
Section 13.5. Waiver. The waiver by a Member of any instance
of any other Member's noncompliance with any obligation or responsibility
herein shall be in writing and signed by the waiving Member and shall not be
deemed a waiver of other instances of such other Member's noncompliance.
Section 13.6. Counterparts. This Agreement may be executed
in one or more counterparts, all of which shall be considered one and the same
agreement, and shall become effective when one or more counterparts shall have
been signed by each Member and delivered to the other Members.
Section 13.7. Entire Agreement. The provisions of this
Agreement set forth the entire agreement and understanding among the Members as
to the subject matter hereof and supersede all prior agreements, oral or
written, and all other prior communications between the Members relating to the
subject matter hereof, other than (i) the Joint Venture Agreement, (ii) the
other Operative Agreements and (iii) any other written agreements executed and
delivered contemporaneously herewith.
Section 13.8. No Assignment.
(a) Except as specifically provided herein or in the
Joint Venture Agreement and except in connection with a Transfer of a Venture
Interest pursuant to Article 10, no Member shall, directly or indirectly,
assign this Agreement or any of its rights or obligations hereunder without the
prior written consent of the Members.
(b) Any attempted assignment of this Agreement in
violation of this Section 13.8 shall be void and of no effect.
33
<PAGE> 39
(c) This Agreement shall be binding upon, inure to the
benefit of and be enforceable by the Members and their respective successors
and permitted assigns.
Section 13.9. Expenses. Except as otherwise provided in this
Agreement, the Joint Venture Agreement or the other Operative Agreements, all
costs and expenses (including the fees and expenses of any attorneys,
accountants, investment bankers, brokers, finders or other intermediaries)
incurred in connection with this Agreement, the other Operative Agreements and
the consummation of the transactions contemplated by Article 5 of the Joint
Venture Agreement to be consummated on the date hereof shall be paid by the
Member incurring such cost or expense.
Section 13.10. No Third-Party Beneficiaries. This Agreement
is for the sole benefit of the Members and their permitted assigns, and nothing
herein express or implied shall give or be construed to give to any Person,
other than (i) the Members and their permitted assigns and (ii) the persons
entitled to indemnification pursuant to Section 11.1 hereof, any legal or
equitable rights hereunder.
Section 13.11. Publicity. No Member will issue any press
release or make any other public announcement relating to the existence of this
Agreement or the matters contemplated hereby, except that a Member may make any
disclosure required to be made under Applicable Law or the rules of the New
York Stock Exchange or any other applicable stock exchange if such Member
determines in good faith that it is necessary to do so and gives prior notice
to the other Members.
Section 13.12. Construction. This Agreement has been
negotiated by the Members and their respective counsel and shall be fairly
interpreted in accordance with its terms and without any strict construction in
favor of or against any of the Members.
Section 13.13. Disclaimer of Agency. Except for provisions
herein expressly authorizing one Member to act for another, this Agreement
shall not constitute any Member as a legal representative or agent of any other
Member, nor shall a Member have the right or authority to assume, create or
incur any liability or any obligation of any kind, express or implied, against
or in the name or on behalf of any other Member or any of its Affiliates unless
otherwise expressly permitted by such Member.
Section 13.14. Further Actions. The Members hereby agree to
vote their Percentage Interests in favor of, and cause the Managing Board to
approve, any proposal or action necessary to implement any of the provisions of
this Agreement.
Section 13.15. Indemnification. The remedies provided in
Section 7.1 of the Joint Venture Agreement constitute the sole and exclusive
remedies for recovery against another Member for breaches of any of the
representations, warranties, covenants and agreements in this Agreement.
34
<PAGE> 40
Section 13.16. Settlement of Disputes. Any and all disputes
arising out of or in connection with the execution, interpretation, performance
and nonperformance of this Agreement shall be solely and finally resolved as
provided in Article 9 of the Joint Venture Agreement.
35
<PAGE> 41
IN WITNESS WHEREOF, Rock-Tenn Partition and Sonoco Partitions
have caused their respective duly authorized officers to execute this Agreement
as of the day and year first above written.
ROCK-TENN PARTITION COMPANY
By:
-----------------------------------
Name:
---------------------------------
Title:
--------------------------------
SONOCO PARTITIONS, INC.
By:
-----------------------------------
Name:
---------------------------------
Title:
--------------------------------
36
<PAGE> 1
EXHIBIT 10.11
CONSULTING AGREEMENT
THIS AGREEMENT ("Agreement"), made and entered into this ___ day
of January, 1997, by and between EUGENE U. FREY, an individual resident of the
State of Florida ("Consultant"); and ROCK-TENN COMPANY, a Georgia corporation
("Company");
W I T N E S S E T H:
WHEREAS, Consultant has significant experience in the paper and
packaging business in the United States and Canada;
WHEREAS, Company acknowledges that Consultant is engaged in other
business and personal activities that comprise his primary business activities;
and
WHEREAS, Company desires to engage Consultant as a consultant on
behalf of Company and its subsidiaries, including Waldorf Corporation
(collectively, the "Rock-Tenn Group"), and Consultant desires to be engaged by
Company on the terms and conditions set forth in this Agreement; and
NOW, THEREFORE, in consideration of the premises and the mutual
promises and agreements contained herein, the parties hereto, intending to be
legally bound, hereby agree as follows:
Section 1. Engagement.
Subject to the terms hereof, Company hereby engages Consultant as
a consultant, and Consultant hereby accepts such engagement. Throughout the term
hereof, Consultant shall provide consulting and advisory services to the
Rock-Tenn Group as Company shall reasonably request. The consulting and advisory
services provided by Consultant shall be rendered at such times and from such
locations as are mutually agreeable to Company and Consultant.
Section 2. Term of Engagement.
The engagement of Consultant hereunder shall commence as of the
date hereof and continue until the third anniversary of the date hereof. During
the Term of Engagement, Consultant will not be required by Company to provide
consulting services for more than 20 hours per month, or for more than such
hours per month as are mutually agreeable to Company and Consultant.
<PAGE> 2
Section 3. Consulting Fees; Expenses.
In consideration of the consulting services to be rendered by
Consultant under this Agreement, Consultant shall be paid a consulting fee of
Two Hundred Sixty-Four Thousand Dollars ($264,000) per year, which fee shall be
payable in equal monthly installments on or before the 15th day of each month
during the term hereof. Consultant shall also be reimbursed for any reasonable
business expenses incurred by him on behalf of, and at the request of, Company,
subject to Company's expense reimbursement policies and procedures in effect
from time to time.
Section 4. Consulting Payments.
Company and Consultant hereby acknowledge that the compensation
payable to Consultant hereunder has been fully negotiated and represents fair
consideration for the consulting services to be rendered by Consultant.
Consultant further acknowledges that he is aware of the federal and state income
tax consequences which are applicable to income received for consulting
services. Neither Consultant nor Company shall report the compensation received
by Consultant hereunder on any federal or state income tax return in any manner
other than as payment for consulting services, and neither Consultant nor
Company shall assert in connection with any claim for a refund for income taxes
paid, in connection with any administrative or judicial proceeding, or in
connection with any proposed or actual assessments of additional income taxes
that the compensation received by Consultant hereunder was paid by Company other
than in consideration for the consulting services which Consultant is to render
hereunder.
Section 5. Independent Contractor.
In rendering services hereunder, Consultant shall be acting as an
independent contractor. This Agreement is not an employment agreement and
Consultant is not and will not become by performance of services hereunder an
employee of Company. Contractor acknowledges that, as a consultant, he shall not
be entitled to any employee benefits, retirement benefits, stock option
benefits, health benefits, or other benefits which are customarily made
available to employees of Company.
Section 6. Partial Restrictive Covenants.
6.1 Definitions. For the purposes of this Agreement:
(a) "Company Activities" means the manufacture, distribution
and sale of paper and packaging products and other activities engaged in by the
Rock-Tenn Group for which Consultant provides consulting services hereunder;
(b) "Confidential Information" means any data or information of
the Rock- Tenn Group other than Trade Secrets, which is valuable to the
Rock-Tenn Group and not generally known to competitors, including, without
limitation, general business information,
2
<PAGE> 3
industry information, analysis and other information of a proprietary nature
that relates to the Rock-Tenn Group or was developed or compiled by the
Rock-Tenn Group;
(c) "Noncompetition Period" or "Nonsolicitation Period" means
the period beginning the date hereof and ending on the second anniversary of the
end of the term of engagement of Consultant under this Agreement;
(d) "Territory" means the United States of America (excluding
the states of Alaska and Hawaii) and the province of Ontario, Canada and all
provinces in Canada east of Ontario, such area being where customers and
actively sought prospective customers of the Rock-Tenn Group are located; and
(e) "Trade Secrets" means information of the Rock-Tenn Group,
without regard to form, including, but not limited to, technical or nontechnical
data, a formula, a pattern, a compilation, a program, a device, a method, a
technique, a drawing, a process, financial data, financial plans, product plans,
or a list of actual or potential customers or suppliers which is not commonly
known by or available to the public and which information: (1) derives economic
value, actual or potential, from not being generally known to, and not being
readily ascertainable by proper means by, other persons who can obtain economic
value from its disclosure or use; and (2) is the subject of efforts that are
reasonable under the circumstances to maintain its secrecy.
6.2 Trade Secrets and Confidential Information.
(a) Trade Secrets. Except in the course of providing consulting
services hereunder, Consultant will not use or disclose any Trade Secrets for so
long as the pertinent information remains Trade Secret information, regardless
of whether the Trade Secrets are in written or tangible form. Nothing in this
Agreement shall diminish the rights of Company or the Rock-Tenn Group regarding
the protection of Trade Secrets and other intellectual property pursuant to
applicable law.
(b) Confidential Information. Consultant agrees that during the
Noncompetition Period, Consultant will hold in confidence all Confidential
Information and will not will disclose, publish or make use of Confidential
Information except in the course of providing consulting services hereunder.
6.3 Noncompetition.
(a) Acknowledgment. Consultant acknowledges that the Rock-Tenn
Group conducts Company Activities throughout the Territory and that to
adequately protect the interests of Company in the business and goodwill of the
Rock-Tenn Group, it is essential that any noncompetition covenant with respect
thereto cover all Company Activities and the entire Territory for the duration
of the Noncompetition Period.
3
<PAGE> 4
(b) Trade Name. Consultant agrees that during the
Noncompetition Period, Consultant will not, directly or by assisting others,
own, manage, operate, join, control or participate in the ownership, management,
operation or control of any business conducted under any corporate, product or
trade name or trademark of, the Rock-Tenn Group, or name or mark similar
thereto, without the prior written consent of Company. Notwithstanding anything
in this Agreement to the contrary, Consultant may use the trade name "Wabash" in
any business or venture not engaged in Company Activities.
(c) Noncompetition Covenant. Consultant agrees that Consultant
will not, during the Noncompetition Period, directly or by assisting others,
conduct Company Activities in the Territory or otherwise engage in, have an
equity or profit interest in, or render services (of an executive, marketing,
manufacturing, research and development, administrative, financial or consulting
nature) to any business that conducts any of the Company Activities in the
Territory.
Notwithstanding anything in this Agreement to the contrary,
Consultant may acquire, collectively (directly or indirectly, through trusts or
otherwise), up to two percent (2%) of any company whose common stock is publicly
traded on a national securities exchange or in the over-the-counter market.
(d) Nonsolicitation. Consultant will not, during the
Nonsolicitation Period, directly or by assisting others, except in the course of
providing consulting services hereunder:
(i) solicit or attempt to solicit, any business from any of the
Rock-Tenn Group's customers, including actively sought prospective
customers, for purposes of providing products or services that are
competitive with those provided by the Rock-Tenn Group, or
(ii) recruit or solicit or attempt to recruit or solicit, on
Consultant's behalf or on behalf of any other person, firm or
corporation, any employee of the Rock-Tenn Group.
6.4 Severability. If a judicial or arbitral determination is
made that any of the provisions of this Agreement constitutes an unreasonable or
otherwise unenforceable restriction against Consultant, the provisions of this
Agreement shall be rendered void only to the extent that such judicial or
arbitral determination finds such provisions to be unreasonable or otherwise
unenforceable with respect to Consultant. In this regard, Consultant hereby
agrees that any judicial authority construing this Agreement shall be empowered
to sever any portion of the Territory, any prohibited business activity or any
time period from the coverage of this Agreement and to apply the provisions of
this Agreement to the remaining portion of the Territory, the remaining business
activities and the remaining time period not so severed by such judicial or
arbitral authority. Moreover, notwithstanding the fact that any provision of
this Agreement is determined not to be specifically enforceable, Company shall
nevertheless be entitled to recover monetary damages as a result of the breach
of such provision by Consultant.
4
<PAGE> 5
6.5 Injunctive Relief. Consultant hereby agrees that any remedy at law
for any breach of the provisions contained this Agreement shall be inadequate
and that Company shall be entitled to injunctive relief in addition to any other
remedy Company might have under this Agreement. Consultant agrees that any court
of competent jurisdiction should immediately enjoin any breach of this Agreement
upon the request of Company, and Consultant specifically releases Company from
the requirement of posting bond in connection with temporary or interlocutory
injunctive relief, to the extent permitted by law.
Section 7. Miscellaneous.
7.1 Binding Effect. This Agreement shall inure to the benefit
of and shall be binding upon Consultant and his executor, administrator, heirs,
personal representative and assigns, and Company and its successors and assigns;
provided, however, that Consultant shall not be entitled to assign or delegate
any of his rights or obligations hereunder without the prior written consent of
Company.
7.2 No Conflict or Breach. Consultant represents and warrants
that neither this Agreement nor the performance by Consultant of the consulting
services hereunder breaches any agreement to which Consultant is bound or
infringes upon the intellectual property rights, including trade secrets, of any
person.
7.3 Governing Law. This Agreement shall be deemed to be made
in, and in all respects shall be interpreted, construed and governed by and in
accordance with, the laws of the State of Minnesota.
7.4 Headings. The section and paragraph headings contained in
this Agreement are for reference purposes only and shall not affect in any way
the meaning or interpretation of this Agreement.
7.5 Notices. Unless otherwise agreed to in writing by the
parties hereto, all communications provided for hereunder shall be in writing
and shall be deemed to be given when delivered if delivered in person, on the
next business day if delivered by telecopy, or five business days after being
sent by first-class mail, registered or certified, return receipt requested,
with proper postage prepaid, and
(a) If to Consultant, addressed to:
Mr. Eugene U. Frey
4351 Gulf Shore Boulevard North
Unit No. 6, South
Naples, Florida 34103
Telecopy No.: (941) 434-2879
5
<PAGE> 6
with a copy to:
Mr. Morris M. Sherman
Leonard, Street and Deinard
Suite 2300
150 South Fifth Street
Minneapolis, Minnesota 55402
Telecopy No.: (612) 335-1500
(b) If to Company, addressed to:
Rock-Tenn Company
504 Thrasher Street
Norcross, Georgia 30071
Attention: Chief Financial Officer
Telecopy No.: (770) 263-3582
with a copy to:
Rock-Tenn Company
504 Thrasher Street
Norcross, Georgia 30071
Attention: General Counsel
Telecopy No.: (770) 248-4402
or to such other person or address as shall be furnished in writing by any party
to the other prior to the giving of the applicable notice or communication.
7.7 Counterparts. This Agreement may be executed in two or more
counterparts, each of which shall be deemed to be an original but all of which
together shall constitute one and the same instrument.
7.8 Entire Agreement. This Agreement is intended by the parties
hereto to be the final expression of their agreement with respect to the subject
matter hereof and is the complete and exclusive statement of the terms thereof,
notwithstanding any representations, statements or agreements to the contrary
heretofore made. This Agreement may be modified only by a written instrument
signed by each of the parties hereto.
7.9 Dispute Resolution. Any dispute arising in connection with
this Agreement shall be resolved in the manner set forth in Section 13.12 of the
Stock Purchase Agreement dated the date hereof, by and among the Company,
Consultant and the other shareholders of Wabash Corporation, a Delaware
corporation, relating to the sale of the capital stock of Wabash Corporation.
6
<PAGE> 7
IN WITNESS WHEREOF, the parties hereto have executed this
Agreement as of the date first above written.
ROCK-TENN COMPANY
By: /s/ Bradley Currey, Jr.
--------------------------------------
Bradley Currey, Jr.
Chief Executive Officer
CONSULTANT
/s/ Eugene U. Frey
------------------------------------------
Eugene U. Frey
7
<PAGE> 1
EXHIBIT 11
ROCK-TENN COMPANY
COMPUTATION OF EARNINGS PER SHARE
(AMOUNTS IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
Years Ended September 30,
------------------------------------------------
1997 1996 1995
------------------------------------------------
<S> <C> <C> <C>
Primary:
Average shares outstanding......................................... 33,514 33,201 33,281
Net effect of dilutive stock options -
based on the treasury stock method
using average market price.................................... 830 813 885
---------- --------- ---------
Total................................................. 34,344 34,014 34,166
========== ========= =========
Net income available to common shareholders........................ $ 16,101 $ 51,125 $ 41,432
========== ========= =========
Per share amount................................................... $ .47 $ 1.50 $ 1.21
========== ========= =========
Fully diluted:
Average shares outstanding......................................... 33,514 33,201 33,281
Net effect of dilutive stock options -
based on the treasury stock method
using the year-end market price if
higher than the average market price.......................... 923 918 902
---------- --------- ---------
Total................................................. 34,437 34,119 34,183
========== ========= =========
Net income available to common shareholders........................ $ 16,101 $ 51,125 $ 41,432
========== ========= =========
Per share amount................................................... $ .47 $ 1.50 $ 1.21
========== ========= =========
</TABLE>
<PAGE> 1
EXHIBIT 12
ROCK-TENN COMPANY
STATEMENT REGARDING COMPUTATION OF RATIO OF EARNINGS
TO FIXED CHARGES
(Amounts in thousands, except ratios)
<TABLE>
<CAPTION>
Years Ended September 30,
----------------------------------------------------------
1993 1994 1995 1996 1997
--------- --------- -------- ---------- ----------
<S> <C> <C> <C> <C> <C>
Fixed Charges:
Interest expense............................... $ 3,917 $ 2,736 $ 8,122 $ 10,772 $ 26,466
Amortization of debt issuance costs............ 75 91 265 206 320
Interest capitalized during period............. -- -- -- -- 1,214
Portion of rent expenses representative
of interest.................................. $ 1,216 $ 1,035 $ 1,443 $ 2,316 $ 2,584
------- ------- ------- -------- --------
Fixed Charges.................................. $ 5,208 $ 3,862 $ 9,830 $ 13,294 $ 30,584
======= ======= ======= ======== ========
Earnings:
Pretax income from continuing operations....... $41,470 $60,978 $67,922 $ 82,469 $ 37,756
Fixed charges.................................. 5,208 3,862 9,830 13,294 30,584
------- ------- ------- -------- --------
Earnings....................................... $46,678 $64,840 $77,752 $ 95,763 $ 68,340
======= ======= ======= ======== ========
Ratio of Earnings to Fixed Charges...................... 8.96 16.79 7.91 7.20 2.23
======= ======= ======= ======== ========
</TABLE>
<PAGE> 1
FIVE YEAR SELECTED FINANCIAL AND OPERATING HIGHLIGHTS EXHIBIT 13
ROCK-TENN COMPANY
<TABLE>
<CAPTION>
Years ended September 30,
(In Thousands, Except Ratios and Per Share Amounts) 1997(B),(C) 1996 1995(d) 1994(e) 1993(f)
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net sales $1,109,693 $876,111 $902,878 $705,849 $650,673
Income before income taxes 37,756 82,469 67,922 60,978 41,470
Net income 16,101 51,125 41,432 37,501 25,460
- ----------------------------------------------------------------------------------------------------------------------
Cash provided by operating activities 106,377 123,530 77,604 57,955 58,428
Capital expenditures 87,016 71,795 73,844 71,672 53,151
Cash paid for purchases of businesses 301,287 - 61,579 34,978 -
- ----------------------------------------------------------------------------------------------------------------------
Total assets 1,113,686 581,688 555,254 413,748 355,092
Long-term debt and redeemable
preferred stock (debt) 492,340 139,344 144,245 52,090 51,617
Shareholders' equity 371,212 349,155 307,898 281,959 235,030
Ratio of debt to debt plus equity 57.0% 28.5% 31.9% 15.6% 18.0%
- ----------------------------------------------------------------------------------------------------------------------
Earnings per common share(a) $ .47 $ 1.50 $ 1.21 $ 1.10 $ .76
Dividends paid per common share(a) .30 .27 .27 .15 .07
Book value per common share(a) 10.80 10.54 9.29 8.46 7.40
- ----------------------------------------------------------------------------------------------------------------------
</TABLE>
Notes:
(a) Gives effect to a 10% stock dividend paid on November 15, 1996.
(b) Effective October 1, 1996, the Company changed its method of depreciation
for assets placed in service after September 30, 1996 to the straight-line
method. This change was applied on a prospective basis to such assets
acquired after that date. The effect of this change was to increase net
income by $3,011,000 or $.09 per share in fiscal 1997.
(c) Reflects (i) the results of operations of Waldorf Corporation, Rite Paper
Products, Inc. and The Davey Company beginning from the respective dates
of acquisition, (ii) the results of operations of RTS Packaging, LLC from
the date of formation and (iii) a $16.2 million charge to earnings ($14.9
million after tax) for plant closing and other costs.
(d) Reflects the results of operations of Olympic Packaging, Inc., beginning
January 17, 1995, and Alliance Display and Packaging, beginning January
31, 1995, the dates on which the Company acquired all of the outstanding
stock of Olympic and substantially all of the net assets of Alliance,
respectively.
(e) Reflects the results of operations of Les Industries Ling, Inc., beginning
December 3, 1993, the date on which the Company acquired the assets of
this business.
(f) Income amounts shown are net of $11.8 million of pretax ($7.2 million
after tax) of unusual expenses incurred by the Company in connection with
certain employee stock option and other transactions.
ROCK-TENN COMPANY 17
<PAGE> 2
MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL
CONDITION
ROCK-TENN COMPANY
GENERAL
- -------------------------------------------------------------------------------
The Company's core businesses are somewhat seasonal with the
first fiscal quarter experiencing generally lower sales and
earnings due to reduced demand from customers during the
period. See Note 11 of Notes to Consolidated Financial
Statements. The converted products and paperboard industries
are also somewhat cyclical due to industry supply and demand
factors and tend to fluctuate with the general business cycle
of the U.S. economy.
The Company's operations are fixed cost intensive. The
Company's converting operations do not have the ability to
mitigate the effects of high fixed costs. As a result, unit
production costs and earnings from converted products
generally vary significantly with shipment levels. However, as
a result of its vertical integration, the Company can maintain
operating rates at the Company's paperboard mills during
periods of reduced demand for recycled paperboard because the
Company's paperboard mills can supply an increased portion of
the recycled paperboard consumed by the Company's converting
operations. The Company's strategy has been to operate its
paperboard mills at high operating rates in order to lower
unit production costs. During fiscal 1997, 1996 and 1995, the
Company's paperboard mills ran at operating rates of 88.8%,
85.72% and 96.72%, respectively.
Historically, costs of recovered paper, virgin paperboard
and containerboard, the Company's principal raw materials, and
the Company's selling prices have fluctuated significantly due
to market conditions. The Company is not able to predict
whether these costs or selling prices will rise or fall in the
future. The Company seeks to manage its raw materials costs
through the following measures. First, the Company's ongoing
modernization of its manufacturing facilities has reduced
waste, which has helped reduce raw materials costs. Second,
the Company has sought to maximize its use of the expertise
developed by the Recycled Fiber Division's recovered paper
buyers in order to purchase recovered paper at lower costs.
Third, the Company has invested in equipment that has enabled
it to use lower cost grades of recovered paper in the
production of its recycled paperboard while maintaining the
quality of the end product.
On January 21, 1997, the Company acquired all of the
outstanding capital stock of the parent of Waldorf Corporation
("Waldorf"), a manufacturer of folding cartons and 100%
recycled paperboard and a manufacturer of corrugating medium.
On June 9, 1997, the Company acquired substantially all of the
assets of Rite Paper Products, Inc. ("Rite Paper"), a
manufacturer of laminated paperboard components primarily for
the ready-to-assemble furniture industry. On July 9, 1997, the
Company acquired substantially all of the assets and certain
of the liabilities of The Davey Company ("Davey"), a
manufacturer of recycled paperboard used by the book
manufacturing industry for book covers. On September 5, 1997,
the Company and Sonoco Products Company combined their
respective fiber partition businesses into a new entity named
RTS Packaging, LLC ("RTS Packaging") which is owned 65% by the
Company. See Note 2 of Notes to Consolidated Financial
Statements.
ROCK-TENN COMPANY 18
<PAGE> 3
MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL
CONDITION
ROCK-TENN COMPANY
SEGMENT DATA
- -------------------------------------------------------------------------------
The Company operates in two industry segments: converted
products and paperboard. See Note 10 of Notes to Consolidated
Financial Statements. The converted products segment is
comprised of facilities that produce folding cartons,
laminated paperboard products, fiber partitions, corrugated
containers, corrugated displays and thermoformed plastic
products. The paperboard segment consists of facilities that
manufacture 100% recycled clay-coated and uncoated paperboard
and recycled corrugating medium and that collect recovered
paper. Intersegment sales are accounted for at prices that
approximate market prices.
<TABLE>
<CAPTION>
Fiscal Years Ended September 30,
(In Millions) 1997 1996 1995
- ----------------------------------------------------------------------------------------
<S> <C> <C> <C>
Net sales (aggregate):
Converted products $ 938.7 $ 779.7 $ 757.7
Paperboard 391.8 281.4 329.4
- ----------------------------------------------------------------------------------------
Total $ 1,330.5 $ 1,061.1 $ 1,087.1
- ----------------------------------------------------------------------------------------
Net sales (intersegment):
Converted products $ 1.2 $ 0.4 $ 0.4
Paperboard 219.6 184.6 183.8
- ----------------------------------------------------------------------------------------
Total $ 220.8 $ 185.0 $ 184.2
- ----------------------------------------------------------------------------------------
Net sales (unaffiliated customers):
Converted products $ 937.5 $ 779.3 $ 757.3
Paperboard 172.2 96.8 145.6
- ----------------------------------------------------------------------------------------
Total $ 1,109.7 $ 876.1 $ 902.9
- ----------------------------------------------------------------------------------------
Operating income:
Converted products $ 26.4 $ 35.2 $ 31.2
Paperboard 46.4 64.4 51.4
- ----------------------------------------------------------------------------------------
72.8 99.6 82.6
Corporate expense (8.6) (7.5) (6.6)
- ----------------------------------------------------------------------------------------
Income from operations 64.2 92.1 76.0
Interest expense (26.8) (10.9) (8.4)
Interest income 0.7 1.3 0.3
Minority interest in income
of consolidated subsidiary (0.4) - -
- ----------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------
Income before income taxes $ 37.7 $ 82.5 $ 67.9
- ----------------------------------------------------------------------------------------
RESULTS OF OPERATIONS
- ----------------------------------------------------------------------------------------
</TABLE>
FISCAL 1997 COMPARED TO FISCAL 1996
Net Sales (Unaffiliated Customers). Net sales for fiscal 1997
increased 26.7% to $1,109.7 million from $876.1 million for
fiscal 1996. Net sales increased primarily as a result of the
Waldorf acquisition.
Net Sales (Aggregate) - Converted Products Segment. Net sales
of converted products before intersegment eliminations for
fiscal 1997 increased 20.4% to $938.7 from $779.7 for fiscal
1996. The increase was primarily the result of the Waldorf
acquisition.
Net Sales (Aggregate) - Paperboard Segment. Net sales of
paperboard before intersegment eliminations for fiscal 1997
increased 39.2% to $391.8 million from $281.4 million for
fiscal 1996. The
ROCK-TENN COMPANY 19
<PAGE> 4
MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL
CONDITION
ROCK-TENN COMPANY
increase was primarily the result of the Waldorf acquisition.
Cost of Goods Sold. Cost of goods sold for fiscal 1997
increased 32.4% to $832.2 million from $628.6 million for
fiscal 1996. Cost of goods sold as a percentage of net sales
for fiscal 1997 increased to 75.0% from 71.7% for fiscal 1996.
The increase in cost of goods sold as a percentage of net
sales is primarily the result of lower average selling prices
during fiscal 1997 and a higher cost of goods sold as a
percentage of net sales for the business acquired in the
Waldorf acquisition compared to the Company's existing
business. In addition, the corrugating medium business
acquired in the Waldorf acquisition incurred losses during
fiscal 1997.
Substantially all U.S. inventories of the Company are
valued at the lower of cost or market with cost determined on
the last-in, first-out (LIFO) inventory valuation method,
which management believes generally results in a better
matching of current costs and revenues than under the
first-in, first-out (FIFO) inventory valuation method. In
periods of decreasing costs, the LIFO method generally results
in lower cost of goods sold than under the FIFO method. In
periods of increasing costs, the results are generally the
opposite.
Since some of the Company's competitors principally
use the FIFO method, the following supplemental data is
presented to illustrate the comparative effect of LIFO and
FIFO accounting on the Company's results of operations. Cost
of goods sold determined under the LIFO method was the same as
it would have been and $5.9 million lower than it would have
been under the FIFO method for fiscal 1997 and 1996,
respectively. Net income was the same as it would have been
and $3.7 million higher than it would have been under the FIFO
method for fiscal 1997 and 1996, respectively. These
supplemental FIFO earnings reflect the after tax effect of
LIFO each year.
Gross Profit. Gross profit for fiscal 1997 increased 12.1% to
$277.5 million from $247.5 million for fiscal 1996. Gross
profit as a percentage of net sales decreased to 25.0% for
fiscal 1997 from 28.3% for fiscal 1996. The decrease in gross
profit as a percentage of net sales for fiscal 1997 was
primarily the result of reductions in average selling prices
and the impact of the Waldorf acquisition discussed above.
Selling, General and Administrative Expenses. Selling, general
and administrative expenses for fiscal 1997 increased 29.8% to
$197.1 million from $151.8 million for fiscal 1996. Selling,
general and administrative expenses as a percentage of net
sales for fiscal 1997 increased to 17.8% from 17.3% for fiscal
1996. The increase in selling, general and administrative
expenses as a percentage of net sales for fiscal 1997 resulted
from decreased average selling prices and increased freight
costs, increased salary and benefit costs and an increase in
goodwill amortization expense resulting from the Waldorf
acquisition.
Plant Closings and Other Costs. In connection with the Waldorf
acquisition, the Company reviewed the combined operations of
Rock-Tenn and Waldorf in order to most efficiently serve its
markets, eliminate geographic overlaps and coordinate
production. In connection with this review, management decided
to close the Company's existing folding carton plant at
Mundelein, Illinois. The Mundelein facility was acquired in
the acquisition of Olympic Packaging in 1995. In connection
with this closing and considering the impact of the Waldorf
acquisition, the Company incurred a charge to net income of
approximately $12.8 million during fiscal 1997 which consisted
primarily of the non-cash write-off of goodwill associated
with the Company's Olympic Packaging subsidiary. The write-off
of goodwill was required based upon the decision to close the
Mundelein facility and the determination that such goodwill
would not be recoverable. The Company incurred additional
costs of approximately $1.6 million ($1.0 million after tax)
during fiscal 1997 principally for
ROCK-TENN COMPANY 20
<PAGE> 5
MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL
CONDITION
ROCK-TENN COMPANY
employee termination and related charges associated with
closing the Mundelein facility.
In June of 1997, management decided to close a plastics
recycling facility located in Indianapolis, Indiana. As a
result, the Company recorded charges of approximately $1.8
million ($1.1 million after tax) related to the estimated
losses on disposal of the machinery and equipment.
SEGMENT OPERATING INCOME
Operating Income - Converted Products Segment. Operating
income attributable to the converted products segment for
fiscal 1997 decreased 25.0% to $26.4 million from $35.2
million for fiscal 1996. Operating margin for fiscal 1997 was
2.8% and was 4.5% for fiscal 1996. Excluding $16.2 million of
plant closing and other related costs, operating income
attributable to the converted products segment for fiscal 1997
increased 21.0% to $42.6 million from $35.2 million for fiscal
1996. Excluding the effect of $16.2 million of plant closing
and other related costs, operating margin for fiscal 1997 and
fiscal 1996 was 4.5%. The converted products business acquired
in the Waldorf acquisition experienced a lower operating
margin in fiscal 1997 than the Company's converted products
segment in fiscal 1996. The Company's folding carton
(excluding those facilities acquired in the Waldorf
acquisition), partition and plastics businesses experienced a
higher operating margin in fiscal 1997 than in fiscal 1996.
The higher operating margin achieved in these businesses was
primarily the result of increased productivity and higher
volumes which resulted in better absorption of fixed overhead
costs. During the fourth quarter of fiscal 1997, the Company
began implementing price increases with respect to most of its
converted products to recover cost increases in paperboard.
Historically, the Company's Lynchburg converting facility
has incurred significant operating losses. During the fourth
quarter of fiscal 1996, the laminated recycled paperboard book
cover panels operation at this facility was closed and
relocated to other manufacturing facilities. A second
converting operation which manufactures laminated recycled
paperboard furniture panels continues to operate in Lynchburg.
This remaining operation continues to incur significant
operating losses. The Company is currently evaluating
alternatives to reduce these losses, including relocation of
this operation to other manufacturing facilities. While the
Company has not yet determined which alternative to pursue,
the cost of some alternatives may have a significant one-time
negative effect on the results of operations of the converted
products segment.
Operating Income - Paperboard Segment. Operating income
attributable to the paperboard segment for fiscal 1997
decreased 28.0% to $46.4 million from $64.4 million for fiscal
1996. Operating margins for fiscal 1997 declined to 11.8% from
22.9% in fiscal 1996. The decrease in operating income and
margin for fiscal 1997 was primarily the result of significant
losses incurred by the corrugating medium business acquired in
the Waldorf acquisition, an increase in the weighted average
cost of recovered paper, the segment's primary raw material,
and lower average selling prices, which were partially offset
by higher volumes shipped. Weighted average paperboard net
selling prices (excluding corrugating medium) decreased to
$397 per ton for fiscal 1997 from $425 per ton for fiscal
1996. The Company's weighted average cost per ton of recovered
paper during fiscal 1997 increased to $56 per ton compared to
$51 per ton during fiscal 1996. Tons of paperboard shipped
(excluding corrugating medium) increased to 864,000 for fiscal
1997 from 627,000 for fiscal 1996, primarily as a result of
the Waldorf acquisition. In July 1997, the Company announced
price increases for coated and uncoated recycled paperboard
averaging $45 per ton. These price increases will generally
become effective in the first and second fiscal quarters of
1998. During fiscal 1997, the Company shipped 98,000 tons of
corrugating medium at a weighted average net selling price of
$247. A majority of the Company's recycled corrugating medium
is sold under contracts under which prices are based on the
price published in an industry publication, Pulp and Paper
Week ("PPW Price"). The applicable PPW Price increased by $40
in July 1997, $50 in August 1997 and $50 in October 1997.
ROCK-TENN COMPANY 21
<PAGE> 6
MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL
CONDITION
ROCK-TENN COMPANY
Interest Expense. Interest expense for fiscal 1997 increased
to $26.8 million from $10.9 million for fiscal 1996. The
increase in interest expense was primarily due to an increase
in the average outstanding borrowings resulting from the
Waldorf acquisition and the Rite Paper acquisition.
Provision for Income Taxes. Provision for income taxes for
fiscal 1997 decreased to $21.7 million from $31.4 million for
fiscal 1996. Excluding the effect of the $12.8 million
non-cash write-off of the goodwill associated with the Olympic
Packaging acquisition, which is not deductible for income tax
purposes, the Company's effective tax rate increased to 42.8%
for fiscal 1997 compared to 38.0% for fiscal 1996. This
increase in the effective tax rate was primarily due to the
effect of amortization of goodwill associated with the Waldorf
acquisition that is not deductible for income tax purposes.
Net Income and Earnings Per Common and Common Equivalent
Share. Net income for fiscal 1997 decreased 68.5% to $16.1
million from $51.1 million for fiscal 1996. Net income as a
percentage of net sales decreased to 1.5% for fiscal 1997 from
5.8% for fiscal 1996. Earnings per common and common
equivalent share for fiscal 1997 decreased to $.47 from $1.50
for fiscal 1996.
FISCAL 1996 COMPARED TO FISCAL 1995
Net Sales (Unaffiliated Customers). Net sales for fiscal 1996
decreased 3.0% to $876.1 million from $902.9 million for
fiscal 1995. This decrease resulted from reduced customer
demand and reduced selling prices, which were offset partially
by sales increases resulting from the acquisitions of Olympic
Packaging, Inc. ("Olympic") and Alliance Display and Packaging
("Alliance") during January 1995. See Note 2 of Notes to
Consolidated Financial Statements.
Net Sales (Aggregate) - Converted Products Segment. Net sales
of converted products before intersegment eliminations for
fiscal 1996 increased 2.9% to $779.7 million from $757.7
million for fiscal 1995. This increase was primarily the
result of the acquisitions of Alliance and Olympic during
January 1995, which was partially offset by reduced customer
demand for converted products.
Net Sales (Aggregate) - Paperboard Segment. Net sales of
paperboard before intersegment eliminations for fiscal 1996
decreased 14.6% to $281.4 million from $329.4 million for
fiscal 1995. This decrease resulted from a 10.2% decrease in
tons shipped and a 1.3% decrease in average selling prices for
fiscal 1996. The decrease in tons shipped was primarily the
result of (i) a reduction by several outside customers of
their purchases of paperboard manufactured by the Company as
they increased consumption of internally manufactured
paperboard and (ii) reduced customer demand. Average
paperboard prices decreased throughout fiscal 1996 and
increased throughout fiscal 1995.
Cost of Goods Sold. Cost of goods sold for fiscal 1996
decreased 8.6% to $628.6 million from $687.4 million for
fiscal 1995. Cost of goods sold as a percentage of net sales
for fiscal 1996 decreased to 71.7% from 76.1% for fiscal 1995.
The decrease in cost of goods sold and cost of goods sold as a
percentage of net sales was primarily the result of a decrease
in the cost of raw materials including recovered paper.
Substantially all U.S. inventories of the Company are
valued at the lower of cost or market with cost determined on
the last-in, first-out (LIFO) inventory valuation method,
which management believes generally results in a better
matching of current costs and revenues than under the
first-in, first-out (FIFO) inventory valuation method. In
periods of decreasing costs, the LIFO method generally
results in lower cost of goods sold than under the FIFO
method. In periods of increasing costs, the results are
generally the opposite.
Since some of the Company's competitors principally use
the FIFO method, the following supplemental data is presented
to illustrate the comparative effect of LIFO and FIFO
accounting on the Company's results of operations. Cost of
goods sold determined under the LIFO method was
ROCK-TENN COMPANY 22
<PAGE> 7
MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL
CONDITION
ROCK-TENN COMPANY
$5.9 million lower and $9.4 million higher than it would have
been under the FIFO method for fiscal 1996 and 1995,
respectively. Net income was $3.7 million ($.11 per share)
higher and $5.7 million ($.17 per share) lower than it would
have been under the FIFO method for fiscal 1996 and 1995,
respectively. These supplemental FIFO earnings reflect the
after tax effect of LIFO each year.
Gross Profit. Gross profit for fiscal 1996 increased 14.8% to
$247.5 million from $215.5 million for fiscal 1995. Gross
profit as a percentage of net sales increased to 28.3% for
fiscal 1996 from 23.9% for fiscal 1995. The increase in gross
profit as a percentage of net sales was primarily the result
of the decreased cost of recovered paper, the Company's
primary raw material, and increased manufacturing efficiencies
in the Company's laminated paperboard products converting
division and at the Company's Missisquoi mill in Vermont,
which were partially offset by the impact of reduced volumes
in several divisions.
Selling, General and Administrative Expenses. Selling, general
and administrative expenses for fiscal 1996 increased 8.8% to
$151.8 million from $139.5 million for fiscal 1995. Selling,
general and administrative expenses as a percentage of net
sales for fiscal 1996 increased to 17.3% from 15.5% for fiscal
1995. This increase in selling, general and administrative
expenses as a percentage of net sales resulted primarily from
an increase in selling and personnel costs as well as a
decrease in net sales for fiscal 1996 as compared to fiscal
1995.
SEGMENT OPERATING INCOME
Operating Income - Converted Products Segment. Operating
income attributable to the converted products segment for
fiscal 1996 increased 12.8% to $35.2 million from $31.2
million for fiscal 1995. Operating margin for fiscal 1996 was
4.5% compared to 4.1% for fiscal 1995. The increases in
operating income and operating margin were primarily the
result of (i) improvements in productivity and efficiency in
the production of laminated paperboard products as a result of
further implementation of equipment with new technology, (ii)
an increase in customer demand for converted products in the
fourth quarter and (iii) increases in operating income earned
at the Alliance facility, all of which were partially offset
by nonrecurring expenses of approximately $3.6 million ($.07
per share after taxes) consisting primarily of employee
severance, employee relocation and training costs, asset
impairment, equipment and inventory relocation costs and lease
termination costs related to a facility closure and
consolidation plan. This plan involved the closing of the
Company's laminated recycled paperboard book cover panels
operation in Lynchburg, Virginia and the relocation of such
operations to other Rock-Tenn manufacturing facilities, the
conversion of the Company's Vineland, New Jersey recycled
paperboard partition plant to a manufacturer of book cover
panels and other recycled paperboard products, the closing of
the Macon, Georgia partition plant and the start-up of a
recently purchased partition plant in Hartwell, Georgia to
absorb some of the Vineland, New Jersey and most of the Macon,
Georgia partition production. See Note 2 of Notes to
Consolidated Financial Statements.
Operating Income - Paperboard Segment. Operating income
attributable to the paperboard segment for fiscal 1996
increased 25.3% to $64.4 million from $51.4 million for fiscal
1995. Operating margin for fiscal 1996 was 22.9% compared to
15.6% for fiscal 1995. The increase in operating income and
margin was the result of decreases in the cost of recovered
paper, the primary raw material utilized in this segment,
which were partially offset by decreases in tons of paperboard
shipped. The Company's weighted average cost per ton of
recovered paper during fiscal 1996 was $51 compared to $132
for fiscal 1995.
Interest Expense. Interest expense for fiscal 1996 increased
29.8% to $10.9 million from $8.4 million for fiscal 1995. The
increase in interest expense is primarily due to an increase
in the Company's average borrowing rate and an increase in
average borrowings.
ROCK-TENN COMPANY 23
<PAGE> 8
MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL
CONDITION
ROCK-TENN COMPANY
Provision for Income Taxes. Provision for income taxes
increased 18.1% to $31.4 million for fiscal 1996 from $26.5
million for fiscal 1995. The Company's effective tax rate
decreased to 38.0% for fiscal 1996 compared to 39.0% for
fiscal 1995. This decrease is partially attributable to a
lower estimated effective state income tax rate during fiscal
1996.
Net Income and Earnings Per Common and Common Equivalent
Share. Net income for fiscal 1996 increased 23.4% to $51.1
million from $41.1 million for fiscal 1995. Net income as a
percentage of net sales increased to 5.8% for fiscal 1996 from
4.6% for fiscal 1995. Earnings per common and common
equivalent share for fiscal 1996 increased 24.0% to $1.50 from
$1.21 for fiscal 1995.
LIQUIDITY AND CAPITAL RESOURCES
- -------------------------------------------------------------------------------
The Company has funded its working capital requirements and
capital expenditures (including acquisitions) from net cash
provided by operating activities, borrowings under term notes
and bank credit facilities and proceeds received in connection
with the issuance of industrial revenue bonds and debt and
equity securities. In January 1997, the Company entered into a
new revolving credit facility, which it amended in June 1997
to increase the aggregate borrowing availability thereunder to
$450.0 million. At September 30, 1997, the Company had $386.0
million outstanding under its new revolving credit facility.
Cash and cash equivalents, $3.3 million at September 30, 1997,
decreased from $50.9 million at September 30, 1996.
Net cash provided by operating activities for fiscal 1997
was $106.4 million compared to $123.5 million for fiscal 1996.
This decrease was primarily the result of decreased earnings
before depreciation and amortization and less significant
decreases in net operating asset requirements than compared to
fiscal 1996. Net cash provided by financing activities
aggregated $233.7 million for fiscal 1997 and consisted
primarily of borrowings under the Company's $450.0 million
revolving credit facility, net of scheduled repayments of
long-term debt, repayments of certain acquired indebtedness of
Waldorf and Davey and dividend payments. Net cash used for
financing activities aggregated $26.4 million for fiscal 1996
and consisted primarily of repayments of long-term debt and
dividend payments. Net cash used for investing activities was
$387.5 million for fiscal 1997 compared to $67.8 million for
fiscal 1996 and consisted primarily of cash paid for the
Waldorf acquisition, the Rite Paper acquisition and capital
expenditures for fiscal 1997 and capital expenditures for
fiscal 1996.
Net cash provided by operating activities for fiscal 1996
was $123.5 million compared to $77.6 million for fiscal 1995.
This increase was primarily the result of reduced net
operating asset requirements as well as increased earnings
before depreciation and amortization. Net cash used for
financing activities aggregated $26.4 million including $17.9
million for repayment of scheduled maturities of term notes
and $9.1 million for dividends paid on outstanding capital
stock.
The Company's capital expenditures aggregated $87.0
million for fiscal 1997. These expenditures were used
primarily for the purchase and upgrading of certain machinery
and equipment in essentially all of the Company's divisions,
warehouse expansions and facility relocations in two of the
Company's divisions and a new building at the Company's home
office.
The Company estimates that its capital expenditures will
aggregate approximately $75.0 million in fiscal 1998. These
expenditures will be used for the purchase and upgrading of
certain machinery and equipment in essentially all of the
Company's divisions and building expansions and improvements
in two of the Company's divisions.
The Company historically has expanded its business through
the acquisition of other related businesses. The recycled
paperboard and converted paperboard products industries have
undergone significant consolidation in recent years, and the
Company believes it will be able to capitalize on this trend
in the future.
ROCK-TENN COMPANY 24
<PAGE> 9
MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL
CONDITION
ROCK-TENN COMPANY
The Company, however, is currently in the process of
integrating the operations it acquired during fiscal 1997 into
the Company's other operations and rationalizing the
operations contributed to RTS Packaging. Consequently,
although the Company cannot predict the extent to which it
will pursue future acquisitions, the Company currently expects
that it will be less likely to pursue additional acquisitions
in the near term.
On January 21, 1997, the Company completed the Waldorf
acquisition for approximately $239.0 million in cash. In
addition, in connection with the Waldorf acquisition, the
Company (i) made certain payments on the closing date
aggregating $32.6 million relating to the settlement of a
contingent interest agreement with a former creditor of
Waldorf and the termination of Waldorf's Stock Appreciation
Rights Plan and (ii) accrued as a cost of the purchase $4.9
million in connection with the planned termination of
approximately 120 employees of Waldorf, principally certain
senior executives and other employees at the Waldorf corporate
office. The Waldorf acquisition was financed with available
cash and borrowings under the Company's $450.0 million
revolving credit facility.
On June 9, 1997, the Company completed the Rite Paper
acquisition. This acquisition was financed with borrowings
under the Company's $450.0 million revolving credit facility.
On July 9, 1997, the Company completed the Davey
acquisition. The acquisition was financed through the issuance
of 863,500 shares of the Company's Class A common stock
subject to certain final adjustments.
On September 5, 1997, the Company and Sonoco Products
Company combined their respective fiber businesses into a new
entity named RTS Packaging, LLC. No cash was contributed by
the Company. Pursuant to the agreement, the Company owns 65%
of the entity and supplies at least 65% of the entity's
paperboard needs.
The Board of Directors has authorized the Company to
repurchase from time to time prior to July 31, 1998 up to 1.5
million shares of Class A common stock in open market
transactions on the New York Stock Exchange. In addition, the
Board has authorized the Company to repurchase from time to
time shares of Class B common stock pursuant to certain first
offer rights contained in the Company's Restated and Amended
Articles of Incorporation, provided that the aggregate number
of shares of Class A and Class B common stock purchased under
these programs may not exceed 1.5 million shares. During
fiscal 1997, the Company did not repurchase any shares of
Class A or Class B common stock. As of September 30, 1997, an
aggregate of 716,500 shares had been repurchased under these
programs.
The Company anticipates that it will be able to fund its
capital expenditures, acquisitions, interest expense, stock
repurchases, dividends and working capital needs for the
foreseeable future from cash generated from operations,
borrowings under its revolving credit facility, proceeds from
the issuance of debt or equity securities or other additional
long-term debt financing.
The Company is utilizing both internal and external
resources to evaluate the potential impact of the situation
commonly referred to as the "Year 2000 problem." The Year 2000
problem, which is common to most businesses, concerns the
inability of computer systems and devices to properly
recognize and process date-sensitive information when the year
changes to 2000. The Company currently believes it will be
able to modify, upgrade or replace its affected systems and
devices in time to minimize any detrimental effects on
operations. While it is not possible at present to give an
accurate estimate of the cost of this work, the Company
expects that such costs may be material to the Company's
results of operations in one or more fiscal quarters or years,
but will not have a material adverse impact on the long-term
results of operations, liquidity or financial position of the
Company.
EXPENDITURES FOR ENVIRONMENTAL COMPLIANCE
- -------------------------------------------------------------------------------
The Company does not believe that future compliance with
environmental and health and safety laws and regulations will
have any material adverse effect on its results of operations
or financial con-
ROCK-TENN COMPANY 25
<PAGE> 10
MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL
CONDITION
ROCK-TENN COMPANY
dition. However, environmental, health and safety laws and
regulations are becoming increasingly stringent. Consequently,
unforeseen expenditures required to comply with such laws and
regulations, including remediation costs, or unforeseen
environmental liabilities could have a material adverse effect
on the Company's financial condition or results of operations.
In addition, the Company cannot with certainty assess at this
time the impact upon its operations or capital expenditure
requirements of the future emissions standards and enforcement
practices under the 1990 amendments to the Clean Air Act.
However, although there can be no assurance, the Company
believes that any such impact or capital expenditures will not
have a material adverse effect on the Company's financial
condition or results of operations.
The Company may choose to modify or replace the coal fired
boilers at two of its facilities in order to operate cost
effectively while complying with emissions regulations under
the Clean Air Act. The Company estimates these improvements
will cost approximately $3.0 million; however, the Company may
spend more on these improvements to reduce its energy costs at
such facilities. In addition, the Company estimates that it
will spend an additional $0.5 million for capital expenditures
during fiscal 1998 in connection with other matters relating
to environmental compliance.
The Company has been identified as a potentially
responsible party ("PRP") at ten Superfund sites pursuant to
the Comprehensive Environmental Response, Compensation and
Liability Act of 1980, as amended ("CERCLA"), or comparable
state statutes. Except with respect to the Muncie Racetrack
site ("Muncie Site"), no remediation costs or allocations have
been determined with respect to such sites. With respect to
the Muncie Site, approximately $3.2 million has been spent to
date by certain PRPs other than the Company in connection with
soil remediation activities and studies. The Company was
notified of its final allocation of liability of approximately
$9,300 on September 23, 1996 for the surface contamination at
the site. This amount represents 0.3% of the site remediation
costs. The Company believes that no further soil remediation
activities will be required. However, additional costs may be
required in connection with the investigation and remediation
of groundwater contamination, and the Company does not
currently have sufficient information to estimate such costs.
In addition, a water treatment lagoon at one of the
Company's facilities is included with an adjacent former
landfill owned by a third party that is being investigated as
a CERCLA site for potential addition to the National Priority
List ("NPL"). Based upon information currently available, the
Company believes that it has no material liability at this
site. However, there can be no assurance that such lagoon,
together with the landfill, will not be added to the NPL as a
Superfund site or that the Company will not be required to
conduct some remediation in the future.
Based upon currently available information and the
opinions of the Company's environmental compliance managers
and General Counsel, although there can be no assurance, the
Company believes that any liability it may have at any site
will not have a material adverse effect on the Company's
financial condition or results of operations.
On December 1, 1995, a suit was filed by a private party
against, among others, the Company in the United States
District Court for the Western District of Michigan alleging
that the Company is jointly and severally liable under federal
and state law for the release of certain hazardous materials
at the Allied Paper, Inc./Portage Creek/Kalamazoo River
Superfund Site. No specific amounts have been asserted by the
plaintiff with respect to this matter, however, the eventual
amounts could be material. The Company has responded to and
denies any liability with respect to this matter and is
vigorously defending against these claims. The Company cannot
currently predict whether the plaintiff will prevail on its
claims or the magnitude of any potential recovery, if any.
ROCK-TENN COMPANY 26
<PAGE> 11
MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL
CONDITION
ROCK-TENN COMPANY
NEW ACCOUNTING STANDARDS AND DEPRECIATION METHOD
- -------------------------------------------------------------------------------
DEPRECIATION CHANGE
Effective October 1, 1996, the Company changed its method of
depreciation for machinery and equipment placed in service
after September 30, 1996 to the straight-line method. This
change was applied on a prospective basis to such assets
acquired after that date. The Company's previous policy of
depreciation for additions of machinery and equipment was the
150% declining balance method. Assets placed in service prior
to the effective date of the change continue to be depreciated
using accelerated methods. The Company changed its method of
depreciation based upon 1) management's shift in operating
style over the last several years to focus on capital and
technological improvements and related changes in maintenance,
2) management's belief that straight-line provides a better
matching of costs and revenues and 3) the fact that the
straight-line method is the predominant industry practice.
Given these circumstances, management believes the
straight-line method is preferable. There is no cumulative
effect of this change. The effect of this change on net income
for fiscal 1997 was to increase net income by approximately
$3,011,000, or $.09 per share.
NEW ACCOUNTING STANDARDS
Statement of Financial Accounting Standards No. 128 ("SFAS
128") establishes accounting standards for computation,
presentation and disclosure requirements for earnings per
share for entities with publicly held common stock. The
Company is required to adopt this statement in fiscal 1998.
See Note 1 of Notes to Consolidated Financial Statements for
the disclosure of the pro forma effect of SFAS 128 on the
periods presented.
Statement of Financial Accounting Standards No. 130 ("SFAS
130") establishes standards for the reporting and display of
comprehensive income and its components in a full set of
general purpose financial statements. Statement of Financial
Accounting Standards No. 131 ("SFAS 131") establishes
standards for disclosures of segment information about
products and services, geographic areas, major customers and
certain interim disclosures of segment information which is
not required by accounting standards currently applied by the
Company. These statements are required to be adopted as of
October 1, 1998. The Company does not anticipate that SFAS 130
will have a material impact on the Company's consolidated
financial statements. The Company is currently evaluating SFAS
131 and has not yet determined its impact on the Company's
consolidated financial statements. In October 1996, the
Accounting Standards Executive Committee of the AICPA issued
Statement of Position 96-1 ("SOP 96-1"). SOP 96-1 provides
accounting guidance on issues relating to the recognition,
measurement and disclosure of environmental liabilities. The
Company is required to adopt this statement in the first
quarter of fiscal 1998. The Company does not anticipate that
SOP 96-1 will have a material impact on the Company's
consolidated financial statements.
FORWARD-LOOKING STATEMENTS
- -------------------------------------------------------------------------------
Statements herein regarding, among other things, estimated
capital expenditures for fiscal 1998, expected expenditures
for environmental, health and safety law compliance and the
expected impact of announced price increases for the Company's
converted products and paperboard constitute forward-looking
statements within the meaning of the Securities Act of 1933
and the Securities Exchange Act of 1934. Such statements are
subject to certain risks and uncertainties that could cause
actual amounts to differ materially from those projected. With
respect to such forward-looking statements, management has
made assumptions regarding, among other things, the amount and
timing of expected capital expenditures, the estimated cost of
compliance with environmental, health and safety laws, the
expected resolution of various pending environmental matters
and the extent and timing of, and customer response to,
announced price increases. Such statements are subject to
certain risks including, among others, that the amount of
necessary capital expenditures has been underestimated, the
cost of compliance with environmental, health and safety laws
has been underestimated, expected outcomes of various pending
environmental matters are inaccurate and that announced price
increases will not be fully realized. In addition, the
Company's performance in future periods is subject to other
risks including, among others, decreases in demand for the
Company's products, increases in raw material costs,
fluctuations in selling prices and adverse changes in general
market and industry conditions. Management believes these
estimates are reasonable; however, undue reliance should not
be placed on such estimates, which are based on current
expectations.
ROCK-TENN COMPANY 27
<PAGE> 12
CONSOLIDATED STATEMENTS OF INCOME
ROCK-TENN COMPANY
<TABLE>
<CAPTION>
Years Ended September 30,
(In Thousands, Except Per Share Data) 1997 1996 1995
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Net sales $1,109,693 $ 876,111 $ 902,878
Cost of goods sold 832,157 628,622 687,377
- ----------------------------------------------------------------------------------------------------------------------
Gross profit 277,536 247,489 215,501
Selling, general and administrative expenses 197,109 151,752 139,534
Plant closing and other costs 16,251 3,580 -
- ----------------------------------------------------------------------------------------------------------------------
Income from operations 64,176 92,157 75,967
Interest expense (26,787) (10,978) (8,387)
Interest income 718 1,290 342
Minority interest in income of consolidated subsidiary (351) - -
- ----------------------------------------------------------------------------------------------------------------------
Income before income taxes 37,756 82,469 67,922
Provision for income taxes (Note 6) 21,655 31,344 26,490
- ----------------------------------------------------------------------------------------------------------------------
Net income $ 16,101 $ 51,125 $ 41,432
- ----------------------------------------------------------------------------------------------------------------------
Earnings per common and common equivalent share (Note 1) $ .47 $ 1.50 $ 1.21
- ----------------------------------------------------------------------------------------------------------------------
</TABLE>
See accompanying notes.
ROCK-TENN COMPANY 28
<PAGE> 13
CONSOLIDATED BALANCE SHEETS
ROCK-TENN COMPANY
<TABLE>
<CAPTION>
September 30,
(In Thousands, Except Share and Per Share Data) 1997 1996
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 3,345 $ 50,876
Accounts receivable (net of allowances of $3,632 and $3,094) 115,162 78,041
Inventories (Note 1) 94,035 58,505
Other current assets 5,073 1,908
- ----------------------------------------------------------------------------------------------------------------------
Total current assets 217,615 189,330
Property, plant and equipment, at cost (Note 1):
Land and buildings 163,528 113,059
Machinery and equipment 696,039 478,181
Transportation equipment 13,636 12,106
Leasehold improvements 4,117 4,049
- ----------------------------------------------------------------------------------------------------------------------
877,320 607,395
Less accumulated depreciation and amortization (326,146) (272,541)
- ----------------------------------------------------------------------------------------------------------------------
Net property, plant and equipment 551,174 334,854
Goodwill (net of accumulated amortization of $10,321 and $5,015) 325,697 48,632
Other assets 19,200 8,872
- ----------------------------------------------------------------------------------------------------------------------
$1,113,686 $ 581,688
- ----------------------------------------------------------------------------------------------------------------------
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 54,471 $ 28,555
Accrued compensation and benefits 34,500 21,838
Current maturities of long-term debt (Note 4) 41,282 7,260
Other current liabilities 21,892 11,296
- ----------------------------------------------------------------------------------------------------------------------
Total current liabilities 152,145 68,949
Long-term debt due after one year (Note 4) 492,340 139,344
Deferred income taxes (Note 6) 78,288 23,136
Other liabilities 6,296 1,104
Commitments and contingencies (Notes 5 and 9)
Minority interest 13,405 -
Shareholders' equity (Note 3):
Preferred stock, $.01 par value; 50,000,000 shares authorized;
no shares outstanding at September 30, 1997 and 1996 - -
Class A common stock, $.01 par value; 175,000,000 shares authorized;
22,582,976 outstanding at September 30, 1997 and 21,178,313 outstanding at
September 30, 1996, Class B common stock, $.01 par value; 60,000,000 shares
authorized; 11,791,350 outstanding at September 30,
1997 and 11,949,097 outstanding at September 30, 1996 344 331
Capital in excess of par value 126,363 109,879
Retained earnings 245,592 239,561
Other (1,087) (616)
- ----------------------------------------------------------------------------------------------------------------------
Total shareholders' equity 371,212 349,155
- ----------------------------------------------------------------------------------------------------------------------
$ 1,113,686 $ 581,688
- ----------------------------------------------------------------------------------------------------------------------
</TABLE>
See accompanying notes.
ROCK-TENN COMPANY 29
<PAGE> 14
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
ROCK-TENN COMPANY
<TABLE>
<CAPTION>
Class A and Class B
common stock Capital in
------------------- excess of Retained
(In Thousands, Except Share and Per Share Data) Shares Amount par value earnings Other Total
- -----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
BALANCE AT SEPTEMBER 30, 1994 30,278,837 $303 $ 47,377 $234,710 $ (431) $281,959
Net income - - - 41,432 - 41,432
Cash dividends - $.27 per share - - - (9,078) - (9,078)
Sales of common stock 314,370 3 1,696 - - 1,699
Purchases of Class A common stock (459,500) (5) (728) (6,812) - (7,545)
Purchases of Class B common stock (13,446) - (214) - - (214)
Income tax benefit from exercise
of stock options - - 551 - - 551
Foreign currency translation adjustments - - - - 317 317
Pension adjustments - - - - (1,223) (1,223)
- -----------------------------------------------------------------------------------------------------------------------
BALANCE AT SEPTEMBER 30, 1995 30,120,261 301 48,682 260,252 (1,337) 307,898
Net income - - - 51,125 - 51,125
Cash dividends - $.27 per share - - - (9,064) - (9,064)
Sales of common stock 212,566 2 2,489 - - 2,491
Purchases of Class A common stock (217,000) (2) (364) (3,650) - (4,016)
Foreign currency translation adjustments - - - - (658) (658)
Pension adjustments - - - - 1,379 1,379
Effect of 10% stock dividend paid on
November 15, 1996 3,011,583 30 59,072 (59,102) - -
- -----------------------------------------------------------------------------------------------------------------------
BALANCE AT SEPTEMBER 30, 1996 33,127,410 331 109,879 239,561 (616) 349,155
Net income - - - 16,101 - 16,101
Cash dividends - $.30 per share - - - (10,070) - (10,070)
Sales of common stock 383,416 4 4,055 - - 4,059
Income tax benefit from exercise
of stock options - - 272 - - 272
Stock issued in conjunction with acquisition 863,500 9 12,157 - - 12,166
Foreign currency translation adjustments - - - - (520) (520)
Pension adjustments - - - - 49 49
- -----------------------------------------------------------------------------------------------------------------------
BALANCE AT SEPTEMBER 30, 1997 34,374,326 $344 $126,363 $245,592 $(1,087) $371,212
- -----------------------------------------------------------------------------------------------------------------------
</TABLE>
See accompanying notes.
ROCK-TENN COMPANY 30
<PAGE> 15
CONSOLIDATED STATEMENTS OF CASH FLOWS
ROCK-TENN COMPANY
<TABLE>
<CAPTION>
Years Ended September 30,
(In Thousands) 1997 1996 1995
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
OPERATING ACTIVITIES:
Net income $ 16,101 $ 51,125 $ 41,432
Items in income not affecting cash:
Depreciation and amortization 62,117 48,564 43,191
Plant closing and other costs 14,686 - -
Deferred income taxes 5,017 5,105 6,398
(Gain) loss on sale of property, plant and equipment (373) (459) 66
Minority interest in income of consolidated subsidiary 351 - -
Change in operating assets and liabilities (excluding acquisitions):
Accounts receivable (7,343) 10,043 (10,760)
Inventories (253) 4,990 3,593
Other assets 17,408 5,657 (9,676)
Accounts payable 7,484 (1,238) 1,761
Accrued liabilities (8,818) (257) 942
Income taxes payable - - 657
- ----------------------------------------------------------------------------------------------------------------------
Cash provided by operating activities 106,377 123,530 77,604
FINANCING ACTIVITIES:
Net additions to revolving credit facilities 385,570 432 -
Additions to long-term debt 5,000 1,933 105,106
Repayment of long-term debt (150,775) (17,863) (22,685)
Debt issuance costs (124) (281) (627)
Sales of common stock 4,059 2,491 1,699
Purchases of common stock - (4,016) (7,759)
Cash dividends paid (10,070) (9,064) (9,078)
- ----------------------------------------------------------------------------------------------------------------------
Cash provided by (used for) financing activities 233,660 (26,368) 66,656
INVESTING ACTIVITIES:
Cash paid for purchases of businesses, net of cash received (301,287) - (61,579)
Capital expenditures (87,016) (71,795) (73,844)
Proceeds from sale of property, plant and equipment 1,364 2,172 1,721
(Increase) decrease in unexpended industrial revenue bond proceeds (610) 2,210 (2,067)
Cash paid for intangibles - (356) (2,280)
- ----------------------------------------------------------------------------------------------------------------------
Cash used for investing activities (387,549) (67,769) (138,049)
Effect of exchange rate changes on cash (19) (49) 94
- ----------------------------------------------------------------------------------------------------------------------
(Decrease) increase in cash and cash equivalents (47,531) 29,344 6,305
Cash and cash equivalents at beginning of year 50,876 21,532 15,227
- ----------------------------------------------------------------------------------------------------------------------
Cash and cash equivalents at end of year $ 3,345 $ 50,876 $ 21,532
- ----------------------------------------------------------------------------------------------------------------------
Supplemental disclosure of cash flow information:
Cash paid during the period for:
Income taxes, net of refunds $ 784 $ 22,288 $ 23,810
Interest, net of amounts capitalized 29,249 10,719 7,213
Supplemental disclosure of noncash investing and financing activities:
Indebtedness assumed in connection with acquisitions 147,226 - 25,616
Fair value of common stock issued to acquire assets 12,166 - -
Assets contributed by minority interest 13,054 - -
</TABLE>
See accompanying notes.
ROCK-TENN COMPANY 31
<PAGE> 16
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
ROCK-TENN COMPANY
1. DESCRIPTION OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
- -------------------------------------------------------------------------------
DESCRIPTION OF BUSINESS. The Company manufactures and
distributes 100% recycled paperboard, converted paperboard
products and recycled corrugating medium primarily to
nondurable goods producers. The Company performs periodic
credit evaluations of its customers' financial condition and
generally does not require collateral. Receivables generally
are due within 30 days. The Company services a diverse
customer base primarily in North America and, therefore, has
limited exposure from credit loss to any particular customer
or industry segment.
CONSOLIDATION. The consolidated financial statements include
the accounts of the Company and all of its majority-owned
subsidiaries. All significant intercompany accounts and
transactions have been eliminated.
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 will
differ from those estimates and the differences could be
material.
REVENUE RECOGNITION POLICY. The Company recognizes revenue
when title to the goods sold passes to the buyer, which is
generally at the time of shipment.
CASH EQUIVALENTS. The Company considers all highly liquid
investments with a maturity of three months or less from the
date of purchase to be cash equivalents. The carrying amounts
reported in the consolidated balance sheets for cash and cash
equivalents approximate fair market values.
INVENTORIES. Substantially all U.S. inventories are stated at
the lower of cost or market, with cost determined on the
last-in, first-out (LIFO) basis. All other inventories are
valued at lower of cost or market, with cost determined using
methods which approximate cost computed on a first-in,
first-out (FIFO) basis. These other inventories represent
approximately 12.2% and 10.5% of FIFO cost at September 30,
1997 and 1996, respectively.
Inventories at September 30, 1997 and 1996 are as follows
(in thousands):
<TABLE>
<CAPTION>
September 30,
1997 1996
----------------------------------------------------------------------
<S> <C> <C>
Finished goods and work in process $ 64,933 $ 46,796
Raw materials 37,474 26,583
Supplies 12,318 5,816
----------------------------------------------------------------------
Inventories at FIFO cost 114,725 79,195
LIFO reserve (20,690) (20,690)
----------------------------------------------------------------------
Net inventories $ 94,035 $ 58,505
----------------------------------------------------------------------
</TABLE>
It is impracticable to segregate the LIFO reserve between raw
materials, finished goods and work in process.
ROCK-TENN COMPANY 32
<PAGE> 17
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
ROCK-TENN COMPANY
PROPERTY, PLANT AND EQUIPMENT. Property, plant and equipment
are stated at cost. Cost includes major expenditures for
improvements and replacements which extend useful lives or
increase capacity and interest costs associated with
significant capital additions. For the year ended September
30, 1997, the Company capitalized interest of approximately
$1,214,000 and none in fiscal years 1996 and 1995. For
financial reporting purposes, depreciation and amortization is
provided on both the declining balance and straight-line
methods over the estimated useful lives of the assets as
follows:
<TABLE>
-------------------------------------------------------------
<S> <C>
Buildings and building improvements 15-40 years
Machinery and equipment 3-20 years
Leasehold improvements Term of lease
Transportation equipment 3-8 years
-------------------------------------------------------------
</TABLE>
Depreciation expense for the years ended September 30,
1997, 1996 and 1995 was approximately $53,698,000, $44,889,000
and $40,069,000, respectively.
Effective October 1, 1996, the Company changed its method
of depreciation for machinery and equipment placed in service
after September 30, 1996 to the straight-line method. This
change was applied on a prospective basis to assets acquired
after that date. The Company's previous policy of depreciation
for additions of machinery and equipment was the 150%
declining balance method. Assets placed in service prior to
the effective date of the change continue to be depreciated
using accelerated methods. The Company changed its method of
depreciation based upon 1) management's shift in operating
style over the last several years to focus on capital and
technological improvements and related changes in maintenance,
2) management's belief that the straight-line method provides
a better matching of costs and revenues and 3) the fact that
the straight-line method is the predominant industry practice.
Given the Company's circumstances, management believes the
straight-line method is preferable. There is no cumulative
effect of this change. The effect of this change on net income
for the year ended September 30, 1997 was to increase net
income by approximately $3,011,000 or $.09 per share.
EARNINGS PER SHARE. Earnings per common and common equivalent
share are based on the weighted average number of common and
common equivalent shares outstanding during the periods.
Because fully diluted earnings per common and common
equivalent share are not materially different than primary
earnings per common and common equivalent share, such amounts
have not been presented. The following amounts reflect the
effect of a 10% stock dividend paid on November 15, 1996.
<TABLE>
<CAPTION>
Years Ended September 30,
1997 1996 1995
------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Average number of shares outstanding 33,513,557 33,201,461 33,281,092
Assumed exercise of options with proceeds
used to repurchase shares 829,841 812,597 884,522
----------------------------------------------------------------------------------------------------
Total common and common equivalent shares 34,343,398 34,014,058 34,165,614
----------------------------------------------------------------------------------------------------
</TABLE>
GOODWILL AND OTHER INTANGIBLE ASSETS. The Company has
classified as goodwill the excess of the acquisition cost over
the fair value of the net assets of businesses acquired.
Goodwill is amortized on a straight-line basis over periods
ranging from 20 to 40 years. The carrying value of goodwill is
reviewed if the facts and circumstances suggest that it may be
impaired. If this review indicates that goodwill will not be
recoverable, the Company's carrying value of the goodwill will
be reduced. Accumulated amortization relating to goodwill at
September 30, 1997 and 1996 was $10,321,000 and $5,015,000,
respectively.
ROCK-TENN COMPANY 33
<PAGE> 18
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
ROCK-TENN COMPANY
Other intangible assets primarily represent costs
allocated to non-compete agreements, financing costs and
patents. These assets are amortized on a straight-line basis
over their estimated useful lives. Accumulated amortization
relating to intangible assets, excluding goodwill, was
approximately $3,440,000 and $2,032,000 at September 30, 1997
and 1996, respectively.
FOREIGN CURRENCY TRANSLATION. Assets and liabilities of the
Company's foreign operations are generally translated from the
foreign currency at the rate of exchange in effect as of the
balance sheet date. Revenues and expenses are generally
translated at average monthly exchange rates prevailing during
the year. Resulting translation adjustments are reflected in
shareholders' equity.
NEW ACCOUNTING STANDARDS. In 1997, the Financial Accounting
Standards Board (the "FASB") issued Statement of Financial
Accounting Standards No. 128 ("SFAS 128"). SFAS 128
establishes accounting standards for computation, presentation
and disclosure requirements for earnings per share for
entities with publicly held common stock. The Company is
required to adopt this statement in fiscal 1998. Earnings per
common and common equivalent shares for the years ended
September 30, 1997, 1996 and 1995 under this new standard are
the following:
<TABLE>
<CAPTION>
Years Ended September 30,
1997 1996 1995
----------------------------------------------------------------------------
<S> <C> <C> <C>
Basic earnings per common share $.48 $1.54 $1.24
Diluted earnings per common and
common equivalent share $.47 $1.50 $1.21
</TABLE>
In 1997, the FASB issued Statement of Financial Accounting
Standards No. 130 ("SFAS 130") and Statement of Financial
Accounting Standards No. 131 ("SFAS 131"). SFAS 130
establishes standards for the reporting and display of
comprehensive income and its components in a full set of
general purpose financial statements. SFAS 131 establishes
standards for disclosures of segment information about
products and services, geographic areas, major customers and
certain interim disclosures of segment information which is
not required by accounting standards currently used by the
Company. These statements are required to be adopted in fiscal
1998. The Company does not anticipate that SFAS 130 will have
a material impact on the Company's consolidated financial
statements. The Company is currently evaluating SFAS 131 and
has not yet determined its impact on the Company's
consolidated financial statements. In October 1996, the
Accounting Standards Executive Committee of the AICPA issued
Statement of Position 96-1 ("SOP 96-1"). SOP 96-1 provides
accounting guidance on issues relating to the recognition,
measurement and disclosure of environmental liabilities. The
Company is required to adopt this statement in the first
quarter of fiscal 1998. The Company does not anticipate that
SOP 96-1 will have a material impact on the Company's
consolidated financial statements.
RECLASSIFICATIONS. Certain reclassifications have been made
to prior year amounts to conform with the current year
presentation.
2. ACQUISITIONS OF BUSINESSES AND OTHER MATTERS
- -------------------------------------------------------------------------------
FISCAL 1997
On January 21, 1997, the Company acquired all of the
outstanding capital stock of the parent of Waldorf Corporation
("Waldorf"), a manufacturer of folding cartons and 100%
recycled paperboard and a manufacturer of corrugating medium,
for approximately $239,000,000, financed primarily with
borrowings under the Company's credit facility. In addition,
the Company (i) made certain payments aggregating $32,600,000
in connection with the settlement of a contingent interest
ROCK-TENN COMPANY 34
<PAGE> 19
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
ROCK-TENN COMPANY
agreement with a former creditor of Waldorf and the
termination of Waldorf's Stock Appreciation Rights Plan and
(ii) accrued as a cost of the purchase $4,893,000 in
connection with the planned termination of approximately 120
employees of Waldorf, principally certain senior executives
and other employees at the Waldorf corporate office.
On June 9, 1997, the Company acquired substantially all of
the assets of Rite Paper Products, Inc. ("Rite Paper"), a
manufacturer of component paperboard pieces primarily for the
ready-to-assemble furniture industry.
On July 9, 1997, the Company acquired substantially all of
the assets and certain of the liabilities of The Davey Company
("Davey"), a manufacturer of recycled paperboard book covers
used by the book manufacturing industry. The acquisition was
financed through the issuance of 863,500 shares of the
Company's Class A common stock subject to certain final
adjustments.
On September 5, 1997, the Company and Sonoco Products
Company combined their respective fiber partition businesses
into a new entity named RTS Packaging, LLC ("RTS Packaging").
The Company owns 65% of RTS Packaging.
The consolidated statements of income for fiscal 1997
include the results of operations of Waldorf, Rite Paper,
Davey and RTS Packaging from the respective dates of
acquisition or formation, as the case may be, and all of the
transactions have been accounted for under the purchase method
of accounting. The assets acquired and liabilities assumed are
as follows (in thousands):
<TABLE>
-----------------------------------------------------
<S> <C>
Net working capital $ 35,180
Property, plant, equipment and other 185,145
Goodwill 296,803
Other intangible assets 7,028
Deferred tax liabilities (50,423)
Long-term debt assumed (147,226)
-----------------------------------------------------
Net purchase price $ 326,507
-----------------------------------------------------
</TABLE>
The following pro forma information gives effect to the
acquisitions of Waldorf and Davey as if each had occurred at
the beginning of the years presented below. The pro forma
information is provided for informational purposes only. It is
based on historical information and does not necessarily
reflect the actual results of operations that would have
occurred had such acquisitions actually occurred at the
beginning of such years nor is it necessarily indicative of
future results of operations of the combined enterprise (in
thousands, except per share data, unaudited):
<TABLE>
<CAPTION>
Years Ended September 30,
1997 1996
----------------------------------------------------------------------------------------------------
<S> <C> <C>
Net sales $1,231,215 $1,252,797
Net income 14,402 57,811
Earnings per common and common equivalent share .41 1.66
----------------------------------------------------------------------------------------------------
</TABLE>
The Rite Paper and RTS Packaging transactions are
immaterial for pro forma presentation purposes and are not
reflected in the aforementioned pro forma financial
information.
In connection with the Waldorf acquisition, the Company
reviewed the combined operations of Rock-Tenn and Waldorf in
order, most efficiently, to serve its markets, eliminate
geographic overlaps and coordinate production. In connection
with this review, management decided to close the Company's
existing folding carton plant at Mundelein, Illinois. The
Mundelein facility was acquired in the acquisition of Olympic
Packaging in 1995. In connection with this closing and
considering the impact of the Waldorf acquisition, the
Company charged to net income approximately $12,784,000 ($.37
per share) during fiscal 1997, which consisted primarily of
the non-cash write-
ROCK-TENN COMPANY 35
<PAGE> 20
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
ROCK-TENN COMPANY
off of goodwill associated with the Company's Olympic
Packaging subsidiary. The write-off of goodwill was required
based upon the decision to close the Mundelein facility and
the determination that such goodwill would not be recoverable.
For the year ended September 30, 1997, the Company incurred
additional costs of approximately $1,622,000 ($989,000 or $.03
per share after tax), principally for the termination of
approximately 150 employees and other related charges
associated with closing the Mundelein facility.
During fiscal 1997, management decided to close a plastics
recycling facility located in Indianapolis, Indiana. For the
year ended September 30, 1997, the Company recorded costs of
approximately $1,750,000 ($1,068,000 or $.03 per share after
tax) related to this closing, primarily relating to the
estimated losses on disposal of the equipment.
As of September 30, 1997, the Company had a remaining
liability of approximately $2,297,000 related to the Mundelein
and Indianapolis plant closings. See "Management's Discussion
and Analysis of Financial Condition and Results of Operations
- Forward-Looking Statements."
FISCAL 1996
On June 24, 1996, the Company announced a facility closing and
consolidation plan. This plan was developed to reduce the
operating losses historically incurred at the Company's
Lynchburg converting facility and is intended to optimize the
utilization of certain other Company assets. As part of this
plan, the Company closed two fiber partition plants, opened
one new fiber partition plant and relocated a laminated
paperboard book cover panels operation from Lynchburg to one
of the closed plants.
In connection with this plan, the Company incurred
expenses of approximately $3,600,000 ($2,232,000 or $.07 per
share after taxes) consisting primarily of employee severance,
employee relocation and training costs, operating losses in
excess of amounts normally expected to occur, asset
impairment, equipment and inventory relocation costs and lease
termination costs. All such expenses were charged to income
from operations. All amounts accrued as of September 30, 1997
related to this plan were immaterial. The employment of
approximately 150 employees was terminated in connection with
these closures and consolidation.
FISCAL 1995
On January 17, 1995, the Company acquired all of the
outstanding capital stock of Olympic Packaging, Inc.
("Olympic"), a folding carton manufacturer. On January 31,
1995, the Company acquired substantially all of the assets of
Alliance Display and Packaging ("Alliance"), a corrugated
display and packaging manufacturer located in Winston-Salem,
North Carolina. These acquisitions were financed with
borrowings under the Company's revolving credit facilities and
the issuance of an $18,500,000 promissory note to a seller.
Both acquisitions were accounted for under the purchase
method. The consolidated statement of income for fiscal 1995
includes the results of operations of Olympic and Alliance
from the respective dates of acquisition.
The detail of the net assets acquired is as follows (in
thousands):
<TABLE>
<S> <C>
Net working capital $15,152
Property, plant, equipment and other 21,140
Intangible assets 43,787
------------------------------------------------------------
Net assets acquired $80,079
============================================================
</TABLE>
ROCK-TENN COMPANY 36
<PAGE> 21
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
ROCK-TENN COMPANY
3. SHAREHOLDERS' EQUITY
- -------------------------------------------------------------------------------
CAPITALIZATION
The Company's capital stock consists of Class A common stock
("Class A Common") and Class B common stock ("Class B
Common"). Holders of Class A Common have one vote per share
and holders of Class B Common have 10 votes per share. Holders
of Class B Common are entitled to convert their shares into
Class A Common at any time on a share-for-share basis, subject
to certain rights of first refusal by the Company and its
management committee.
The Company also has authorized preferred stock, of which
no shares have been issued. The terms and provisions of such
shares will be determined by the Board of Directors upon any
issuance of such shares.
STOCK OPTION PLANS
The Company's 1993 Stock Option Plan allows for the granting
of options to certain key employees for the purchase of a
maximum of 2,200,000 shares of Class A Common. Options which
have been granted under this plan vest in increments over a
period of up to three years.
The Incentive Stock Option Plan, the 1987 Stock Option
Plan and the 1989 Stock Option Plan provided for the granting
of options to certain key employees for an aggregate of
4,320,000 shares of Class A Common and 1,440,000 shares of
Class B Common. The Company will not grant any additional
options under the Incentive Stock Option Plan, the 1987 Stock
Option Plan or the 1989 Stock Option Plan.
The Company has elected to follow Accounting Principles
Board Opinion No. 25, "Accounting for Stock Issued to
Employees" (APB 25) and related interpretations in accounting
for its employee stock options. Under APB 25, because the
exercise price of the Company's employee stock options equals
the market price of the underlying stock on the date of grant,
generally no compensation expense is recognized.
Pro forma information regarding net income and earnings
per share is required by FASB Statement No. 123, "Accounting
for Stock-Based Compensation," which also requires that the
information be determined as if the Company had accounted for
its employee stock options granted subsequent to September 30,
1995 under the fair value method of that Statement. The fair
value for these options was estimated at the date of grant
using a Black-Scholes option pricing model with the following
weighted average assumptions for fiscal 1997: risk-free
interest rate of 6.3%, a dividend yield of 2.0%, volatility
factor of the expected market price of the Company's common
stock of .28, and an expected life of the option of 10 years.
The Black-Scholes option valuation model was developed for
use in estimating the fair value of traded options which have
no vesting restrictions and are fully transferable. In
addition, option valuation models require the input of highly
subjective assumptions including the expected stock price
volatility. Because the Company's employee stock options have
characteristics significantly different from those of traded
options, and because changes in the subjective input
assumptions can materially affect the fair value estimate, in
management's opinion, the existing models do not necessarily
provide a reliable single measure of the fair value of its
employee stock options.
For purposes of pro forma disclosures, the estimated fair
value of the options is amortized to expense over the options'
vesting period. The Company's pro forma information follows
(in thousands except for earnings per share information):
<TABLE>
<CAPTION>
1997 1996
-------------------------------------------------------------
<S> <C> <C>
Pro forma net income $14,979 $50,434
Pro forma earnings per share
Primary $ .44 $ 1.48
Fully diluted .43 1.48
</TABLE>
ROCK-TENN COMPANY 37
<PAGE> 22
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
ROCK-TENN COMPANY
The table below summarizes the changes in all stock options during the periods
indicated:
<TABLE>
<CAPTION>
Class B Common Class A Common
Shares Price Range Shares Price Range
-------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Options outstanding at September 30, 1994 349,063 $2.77-8.20 1,211,216 $ 1.79-16.75
Exercised (38,628) $3.58-6.70 (215,416) $ 1.79-6.70
Granted - - 269,000 $17.00-18.25
-------------------------------------------------------------------------------------------------------------
Options outstanding at September 30, 1995 310,435 $2.77-8.20 1,264,800 $ 2.75-18.25
Exercised (23,200) $3.60-8.20 (42,000) $ 4.75-8.20
Effect of stock dividend issued
November 15, 1996 28,724 $2.52-7.45 122,280 $ 2.50-16.59
-------------------------------------------------------------------------------------------------------------
Options outstanding at September 30, 1996 315,959 $2.52-7.45 1,345,080 $ 2.50-16.59
Exercised or forfeited (14,080) $2.52-3.27 (124,520) $ 2.50-18.30
Granted - - 757,100 $17.50-20.31
-------------------------------------------------------------------------------------------------------------
OPTIONS OUTSTANDING AT
SEPTEMBER 30, 1997 301,879 $2.52-7.45 1,977,660 $ 2.50-20.31
OPTIONS EXERCISABLE AT
SEPTEMBER 30, 1997 301,879 $2.52-7.45 1,224,585 $ 2.50-18.30
OPTIONS AVAILABLE FOR FUTURE GRANT
AT SEPTEMBER 30, 1997 - - 834,600 -
-------------------------------------------------------------------------------------------------------------
</TABLE>
The following table summarizes information concerning
options outstanding and exercisable at September 30, 1997:
<TABLE>
<CAPTION>
CLASS B COMMON CLASS A COMMON
---------------------- -----------------------------------------------
WEIGHTED
AVERAGE
NUMBER WEIGHTED WEIGHTED WEIGHTED REMAINING
RANGE OF OUTSTANDING AVERAGE AVERAGE AVERAGE CONTRACTUAL
EXERCISE AND EXERCISE NUMBER EXERCISE NUMBER EXERCISE LIFE (BOTH
PRICES EXERCISABLE PRICE OUTSTANDING PRICE EXERCISABLE PRICE CLASSES)
-----------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
$2.50-$4.33 176,880 $ 3.60 377,300 $ 3.43 377,300 $ 3.43 2
$6.06-$7.45 124,999 6.67 243,760 6.70 243,760 6.70 5
$15.23-$18.30 - - 901,600 16.32 603,525 15.70 8
$20.31 - - 455,000 20.31 - - 10
-----------------------------------------------------------------------------------------------------
301,879 $ 4.87 1,977,660 $ 13.59 1,224,585 $ 10.13 6
-----------------------------------------------------------------------------------------------------
</TABLE>
The weighted average exercise price for Class B Common
options exercised or forfeited during fiscal 1997 was $2.74.
The weighted average exercise price for Class A Common options
exercised or forfeited and granted during fiscal 1997 was
$4.21 and $19.49, respectively. The estimated weighted average
fair value of options granted during fiscal 1997 with option
prices equal to the market price on the date of grant was
$7.61.
EMPLOYEE STOCK PURCHASE PLAN
Under the 1993 Employee Stock Purchase Plan, 660,000 shares of
Class A Common are reserved for purchase by substantially all
qualifying employees of the Company. In fiscal 1997, 1996 and
1995, approximately 196,000, 147,000 and 86,000 shares,
respectively, were purchased by employees under this plan.
ROCK-TENN COMPANY 38
<PAGE> 23
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
ROCK-TENN COMPANY
4. LONG-TERM DEBT
- -------------------------------------------------------------------------------
Long-term debt at September 30, 1997 and 1996 consists of the
following:
<TABLE>
<CAPTION>
September 30,
(Dollars In Thousands) 1997 1996
----------------------------------------------------------------------------------------------------
<S> <C> <C>
Revolving credit facility(a) $386,000 $ -
7.25% notes, due August 2005, net of unamortized
discount of $108 and $122(b) 99,892 99,878
Industrial revenue bonds, bearing interest at variable rates
(4.25% at September 30, 1997), due through December 2015(c) 32,150 28,250
Other notes 15,580 18,476
----------------------------------------------------------------------------------------------------
533,622 146,604
Less current maturities of long-term debt 41,282 7,260
----------------------------------------------------------------------------------------------------
Long-term debt due after one year $492,340 $139,344
----------------------------------------------------------------------------------------------------
</TABLE>
(a) In fiscal 1997, the Company replaced its $100,000,000
revolving credit facility with a new revolving credit
facility, provided by a syndicate of banks, which
provides aggregate borrowing availability of up to
$450,000,000 through 2002. Borrowings outstanding under
the facility bear interest based upon LIBOR plus an
applicable margin. This rate was 6.24% at September 30,
1997. Annual facility fees range from .075% to .3% of the
aggregate borrowing availability, based on the Company's
consolidated funded debt to total capitalization ratio.
Under the agreements covering this loan, restrictions
exist as to the maintenance of financial ratios, creation
of additional long-term and short-term debt, certain
leasing arrangements, mergers, acquisitions, disposals and
other matters. The agreements also provide that the
payment of cash dividends, acquisition of common shares
and redemption of preferred stock cannot exceed amounts
based on an earnings formula. The Company is in compliance
with such restrictions. In October 1997, the Company
entered into two interest rate agreements effectively to
cap the interest rate on portions of the amount
outstanding under the revolving credit facility. Under the
agreements, $75 million is capped at 8.00% per annum until
October 7, 2000 while another $75 million is capped at
7.50% per annum until October 7, 1999. The costs
associated with these interest rate agreements are being
amortized over the terms of the agreements.
(b) In August 1995, the Company sold $100,000,000 in
aggregate principal amount of its 7.25% notes due August
1, 2005 (the "Notes"). The Notes are not redeemable prior
to maturity and are not subject to any sinking fund
requirements. The Notes are unsubordinated, unsecured
obligations. The indenture related to the Notes restricts
the Company and its subsidiaries from incurring certain
liens and entering into certain sale and leaseback
transactions, subject to a number of exceptions. Debt
issuance costs of approximately $908,000 are being
amortized over the term of the Notes. In May 1995, the
Company entered into an interest rate adjustment
transaction in order effectively to fix the interest rate
on the Notes subsequently issued in August 1995. The costs
associated with the interest rate adjustment transaction
of $1,530,000 are being amortized over the term of the
Notes. Giving effect to the amortization of the original
issue discount, the debt issuance costs and the costs
associated with the interest rate adjustment transaction,
the effective interest rate on the Notes is approximately
7.51%.
(c) Payments of principal and interest on these industrial
revenue bonds are guaranteed by a letter of credit issued
by a bank. Restrictions on the Company similar to those
described in (a) above exist under the terms of the
agreements. The bonds are remarketed periodically based
on the interest rate period selected by the Company. In
the event the bonds cannot be remarketed, the bank has
agreed to extend long-term financing to the Company in an
amount sufficient to retire the bonds.
At September 30, 1997, the fair market value of the Notes
was approximately $102,310,000 based on quoted market prices.
The carrying amounts reported in the consolidated balance
sheet for all other fixed rate long-term debt approximate fair
market value. At September 30, 1997, the carrying amount for
variable rate long-term debt also approximates fair market
value since the interest rates on these instruments are reset
periodically.
ROCK-TENN COMPANY 39
<PAGE> 24
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
ROCK-TENN COMPANY
The amount of consolidated net earnings available for
dividends and other restricted payments, as defined in debt
agreements, was approximately $162,393,000 at September 30,
1997.
As of September 30, 1997, $353,000,000 of the $386,000,000
outstanding under the revolving credit facility was classified
as long-term debt since the Company has the ability to
continue to finance this amount pursuant to the terms of the
revolving credit facility and does not intend to repay this
amount with cash from operations during the ensuing year. As
of September 30, 1997, the aggregate maturities of long-term
debt for the succeeding five years are as follows (in
thousands):
<TABLE>
-----------------------------------
<S> <C>
1998 $ 41,282
1999 9,310
2000 330
2001 197
2002 353,218
Thereafter 129,285
-----------------------------------
Total long-term debt $533,622
-----------------------------------
</TABLE>
In fiscal 1996, one of the Company's Canadian subsidiaries
entered into a revolving credit facility with a Canadian bank.
The facility provides borrowing availability of up to Canadian
$2,000,000 and can be renewed on an annual basis. There are no
facility fees related to this arrangement. As of September 30,
1997, there were no amounts outstanding under this facility.
As of September 30, 1996, there was approximately U.S.
$432,000 outstanding under this facility at an average
interest rate of 6.5%.
5. LEASES
- -------------------------------------------------------------------------------
The Company leases certain manufacturing and warehousing
facilities and equipment (primarily transportation equipment)
under various operating leases.
As of September 30, 1997, future minimum lease payments,
including certain maintenance charges on transportation
equipment, under all noncancelable leases, are as follows (in
thousands):
<TABLE>
------------------------------------------------------
<S> <C>
1998 $ 4,104
1999 3,517
2000 2,426
2001 1,493
2002 678
Thereafter 2,012
------------------------------------------------------
Total future minimum lease payments $ 14,230
------------------------------------------------------
</TABLE>
Rental expense for the years ended September 30, 1997,
1996 and 1995 was approximately $10,503,000, $8,653,000 and
$7,351,000, respectively, including lease payments under
cancelable leases.
6. INCOME TAXES
- -------------------------------------------------------------------------------
The Company accounts for income taxes under the liability
method which requires the recognition of deferred tax assets
and liabilities for the future tax consequences attributable
to differences between the financial statement carrying
amount of existing assets and liabilities and their respective
tax bases. The recognition of future tax benefits is required
to the extent that realization of such benefits is more likely
than not.
ROCK-TENN COMPANY 40
<PAGE> 25
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
ROCK-TENN COMPANY
The provisions for income taxes consist of the following
components (in thousands):
<TABLE>
<CAPTION>
Years Ended September 30,
1997 1996 1995
----------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Current income taxes:
Federal $13,676 $23,552 $16,939
State 2,694 2,927 3,108
Foreign 268 (240) 45
----------------------------------------------------------------------------------------------------
Total current 16,638 26,239 20,092
----------------------------------------------------------------------------------------------------
Deferred income taxes:
Federal 3,989 3,912 4,904
State 349 46 561
Foreign 679 1,147 933
----------------------------------------------------------------------------------------------------
Total deferred 5,017 5,105 6,398
----------------------------------------------------------------------------------------------------
Provision for income taxes $21,655 $31,344 $26,490
----------------------------------------------------------------------------------------------------
</TABLE>
The differences between the statutory federal income tax
rate and the Company's effective income tax rate are as
follows:
<TABLE>
<CAPTION>
Years Ended September 30,
1997 1996 1995
---------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Statutory federal tax rate 35.0% 35.0% 35.0%
State taxes, net of federal benefit 3.9 2.7 3.5
Non-deductible amortization and write-off of
goodwill (See Note 2) 18.3 - -
Other, net 0.2 0.3 0.5
---------------------------------------------------------------------------------------------------
Effective tax rate 57.4% 38.0% 39.0%
---------------------------------------------------------------------------------------------------
</TABLE>
The tax effects of temporary differences that give rise to
significant portions of deferred income tax assets and
liabilities consist of the following (in thousands):
<TABLE>
<CAPTION>
September 30,
1997 1996
----------------------------------------------------------------------------------------------------
<S> <C> <C>
Deferred income tax assets:
Accruals and allowances $10,077 $ 4,560
Other 4,002 1,677
----------------------------------------------------------------------------------------------------
Total 14,079 6,237
----------------------------------------------------------------------------------------------------
Deferred income tax liabilities:
Property, plant and equipment 74,281 24,583
Deductible intangibles 2,533 -
Accrued pension and other 15,553 4,790
----------------------------------------------------------------------------------------------------
Total 92,367 29,373
----------------------------------------------------------------------------------------------------
Net deferred income tax liability $78,288 $23,136
----------------------------------------------------------------------------------------------------
</TABLE>
The Company has not recorded any valuation allowances for
deferred income tax assets. The components of the income
before income taxes and minority interest are (in
thousands):
<TABLE>
<CAPTION>
Years Ended September 30,
1997 1996 1995
----------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
United States $35,267 $80,798 $65,289
----------------------------------------------------------------------------------------------------
Foreign 2,840 1,671 2,633
----------------------------------------------------------------------------------------------------
Income before income taxes and minority interest $38,107 $82,469 $67,922
----------------------------------------------------------------------------------------------------
</TABLE>
ROCK-TENN COMPANY 41
<PAGE> 26
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
ROCK-TENN COMPANY
7. RETIREMENT PLANS
- -------------------------------------------------------------------------------
The Company has a number of defined benefit pension plans
covering essentially all employees who are not covered by
certain collective bargaining agreements. The benefits are
based on years of service and, for certain plans,
compensation. The Company's practice is to fund amounts
deductible for federal income tax purposes.
In addition, under several labor contracts the Company
makes payments based on hours worked into multi-employer
pension plan trusts established for the benefit of certain
collective bargaining employees.
The Company's net periodic pension cost includes the
following components (in thousands):
<TABLE>
<CAPTION>
Years Ended September 30,
1997 1996 1995
-----------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Service cost $ 6,027 $ 4,327 $ 3,266
Interest cost on projected benefit obligations 9,647 7,235 6,140
Actual return on plan assets (26,063) (17,311) (11,492)
Net amortization of the initial asset (399) (395) (395)
Net amortization and deferral 15,964 10,226 5,780
-----------------------------------------------------------------------------------------------------
Total Company defined benefit plan expense 5,176 4,082 3,299
Multi-employer plans for collective bargaining employees 163 166 159
-----------------------------------------------------------------------------------------------------
Net periodic pension cost $ 5,339 $ 4,248 $ 3,458
-----------------------------------------------------------------------------------------------------
</TABLE>
The reconciliation of the Company's defined benefit plans'
funded status to the amount reported in the Company's
consolidated balance sheets at September 30, 1997 and 1996 is
as follows (in thousands):
<TABLE>
<CAPTION>
September 30,
1997 1996
--------------------------------------------------------------------------------------------------------
PLANS WHERE Plans where Plans where
ASSETS EXCEED assets exceed accumulated
ACCUMULATED accumulated benefits
BENEFITS benefits exceed assets
--------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Actuarial present value of projected benefit obligations for
services rendered to date:
Actuarial present value of accumulated benefit obligations:
Vested $ 117,138 $ 77,960 $ 1,240
Nonvested 8,699 6,617 72
---------------------------------------------------------------------------------------------------
125,837 84,577 1,312
Additional amounts related to projected compensation levels 20,971 16,279 -
---------------------------------------------------------------------------------------------------
146,808 100,856 1,312
Plan assets at fair value, primarily equities, fixed income
securities, common trust funds and cash equivalents 159,048 100,599 1,244
---------------------------------------------------------------------------------------------------
Funded status 12,240 (257) (68)
Unrecognized prior service cost 2,638 2,911 63
Unrecognized net actuarial (gain) loss-difference in
assumptions and actual experience (16,466) (700) 49
Initial unrecognized net (asset) liability being recognized
over periods ranging from 12 to 19 years (1,360) (1,770) 29
Additional minimum liability - - (141)
---------------------------------------------------------------------------------------------------
(Accrued) prepaid pension cost included in
consolidated balance sheets $ (2,948) $ 184 $ (68)
---------------------------------------------------------------------------------------------------
</TABLE>
ROCK-TENN COMPANY 42
<PAGE> 27
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
ROCK-TENN COMPANY
The discount rate used in determining the actuarial
present value of the projected benefit obligations was 7.5% as
of September 30, 1997 and 1996. The expected increase in
compensation levels used in determining the actuarial present
value of the projected benefit obligations was 4% as of
September 30, 1997 and 1996. The expected long-term rate of
return on assets, net of administrative expenses, used in
determining net pension expense was 9% for all years
presented.
The Company has a Supplemental Executive Retirement Plan
("SERP") which provides unfunded supplemental retirement
benefits to certain executives of the Company. The SERP
provides for incremental pension payments to partially offset
the reduction in amounts that would have been payable from the
Company's principal pension plan if it were not for
limitations imposed by federal income tax regulations. Expense
relating to the plan of $174,000, $162,000 and $169,000 was
recorded for the years ended September 30, 1997, 1996 and
1995, respectively.
Effective October 1, 1997 the Company implemented an
employee savings plan which permits participants to make
contributions by salary reduction pursuant to Section 401(k)
of the Internal Revenue Code. The Company matches
contributions up to a maximum of 6% of compensation as defined
by the plan. As a result of the new employee savings plan, the
Company has amended its defined benefit plans to essentially
lower pension benefits.
8. RELATED PARTY TRANSACTIONS
- -------------------------------------------------------------------------------
A director of the Company is the chairman and a significant
shareholder of the insurance agency that brokers substantially
all insurance for the Company. The insurance premiums paid by
the Company may vary significantly from year to year with the
claims arising during such years. For the years ended
September 30, 1997, 1996 and 1995, payments were approximately
$3,831,000, $3,239,000 and $3,355,000, respectively.
A director of the Company is the former Chairman of the
construction company that is constructing a new building at
the Company's home office. For the year ended September 30,
1997, payments approximated $5,335,000 and were capitalized as
property, plant and equipment.
9. COMMITMENTS AND CONTINGENCIES
- -------------------------------------------------------------------------------
CAPITAL ADDITIONS
Estimated costs for completion of authorized capital additions
under construction as of September 30, 1997 totaled
approximately $32,000,000.
STOCK REPURCHASE PLAN
The Board of Directors has approved a stock repurchase plan
for the repurchase of a maximum of 1,500,000 shares in
aggregate of Class A Common or Class B Common prior to July
31, 1998. In fiscal 1997, the Company made no repurchases of
shares. In fiscal 1996 and 1995, the Company repurchased
217,000 and 472,946 shares, respectively, under this plan.
ENVIRONMENTAL AND OTHER MATTERS
The Company is subject to many federal, state, local and
foreign environmental laws and regulations. The Company is
currently involved in the assessment of various sites, two of
which the Company has an ownership interest in and all others
of which are owned by third parties. Environmental
expenditures which relate to an existing condition caused by
past operations and which have no significant future economic
benefit to the Company are expensed. Future
environmental-related expenditures cannot be reliably
determined in many circumstances due to the early stages of
investigations, the uncertainty of specific remediation
methods, changing environmental laws and
ROCK-TENN COMPANY 43
<PAGE> 28
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
ROCK-TENN COMPANY
interpretations and other matters. Such costs are accrued at
the time the expenditure becomes probable and the costs can be
reasonably estimated. Costs are accrued based upon estimates
determined by management.
Currently, the Company has been named as a potentially
responsible party at ten sites. At such sites, a variety of
potentially responsible parties are involved. Management
believes that it is probable that the parties associated with
these sites will fulfill their obligations.
Expenses associated with and amounts accrued for
environmental assessment and remediation have not been
material for the three years ended September 30, 1997. It is
possible that costs in excess of amounts accrued may be
incurred, however, management believes that such additional
amounts will not have a material effect on the Company's
financial position and results of operations.
On December 1, 1995, a suit was filed by a private party
against, among others, the Company in the United States
District Court for the Western District of Michigan alleging
that the Company is jointly and severally liable under federal
and state law for the release of certain hazardous materials
at the Allied Paper, Inc./Portage Creek/Kalamazoo River
Superfund Site. No specific amounts have been asserted by the
plaintiff with respect to this matter, however, the eventual
amounts could be material. The Company has responded to, and
denies any liability with respect to, this matter and is
vigorously defending itself. The Company cannot currently
predict whether the plaintiff will prevail on its claims or
the magnitude of any potential recovery, if any.
In addition, the Company is involved in various other
legal proceedings and matters arising in the normal course of
business. It is the opinion of management, after consultation
with legal counsel, that the resolutions of these matters
would not have a material adverse effect on the financial
position or the results of operations of the Company.
10. SEGMENT INFORMATION
- -------------------------------------------------------------------------------
The Company operates principally in two business segments. The
converted products segment is comprised of facilities that
produce folding cartons, laminated paperboard products, fiber
partitions, corrugated containers, corrugated displays and
thermoformed plastic products. The paperboard segment consists
of facilities that manufacture 100% recycled clay-coated and
uncoated paperboard and corrugating medium and that collect
recovered paper. Intersegment sales are accounted for at
prices that approximate market prices. Certain operations
included in the converted products segment are located in
foreign countries and had operating income of $4,483,000,
$2,944,000 and $4,369,000 for fiscal years ended September 30,
1997, 1996 and 1995, respectively. For fiscal 1997, foreign
operations represented approximately 4.8%, 7.0% and 5.3% of
total net sales to unaffiliated customers, total income from
operations and total identifiable assets, respectively. In
fiscal 1996, these operations represented approximately 6.1%,
3.2% and 8.9% of total net sales to unaffiliated customers,
total income from operations and total identifiable assets,
respectively. In fiscal 1995, these operations represented
approximately 5.6%, 5.8% and 9.9% of total net sales to
unaffiliated customers, total income from operations and total
identifiable assets, respectively.
Operating profit includes all costs and expenses directly
related to the segment involved. The
ROCK-TENN COMPANY 44
<PAGE> 29
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
ROCK-TENN COMPANY
corporate portion of operating profit includes corporate
general and administrative expenses.
Assets are assigned to segments based on use. Corporate
assets primarily consist of cash and cash equivalents and
property, plant and equipment.
Following is a tabulation of business segment information
for each of the past three fiscal years (in thousands):
<TABLE>
<CAPTION>
Years Ended September 30,
1997 1996 1995
----------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Net sales (aggregate):
Converted products $ 938,711 $ 779,696 $ 757,704
Paperboard 391,805 281,402 329,368
----------------------------------------------------------------------------------------------------
Total $ 1,330,516 $ 1,061,098 $ 1,087,072
----------------------------------------------------------------------------------------------------
Less net sales (intersegment):
Converted products $ 1,194 $ 429 $ 390
Paperboard 219,629 184,558 183,804
----------------------------------------------------------------------------------------------------
Total $ 220,823 $ 184,987 $ 184,194
----------------------------------------------------------------------------------------------------
Net sales (unaffiliated customers):
Converted products $ 937,517 $ 779,267 $ 757,314
Paperboard 172,176 96,844 145,564
----------------------------------------------------------------------------------------------------
Total $ 1,109,693 $ 876,111 $ 902,878
----------------------------------------------------------------------------------------------------
Operating income (expense):
Converted products(a) $ 26,412 $ 35,218 $ 31,163
Paperboard 46,382 64,431 51,364
----------------------------------------------------------------------------------------------------
72,794 99,649 82,527
Corporate expense (8,618) (7,492) (6,560)
----------------------------------------------------------------------------------------------------
Income from operations 64,176 92,157 75,967
Minority interest in consolidated subsidiary (351) - -
Interest expense (26,787) (10,978) (8,387)
Interest income 718 1,290 342
----------------------------------------------------------------------------------------------------
Income before income taxes $ 37,756 $ 82,469 $ 67,922
----------------------------------------------------------------------------------------------------
Identifiable assets:
Converted products $ 644,339 $ 414,331 $ 421,685
Paperboard 457,845 110,769 100,366
Corporate 11,502 56,588 33,203
----------------------------------------------------------------------------------------------------
Total $ 1,113,686 $ 581,688 $ 555,254
----------------------------------------------------------------------------------------------------
Depreciation and amortization:(a), (b)
Converted products $ 55,143 $ 35,262 $ 30,414
Paperboard 21,101 12,855 12,239
Corporate 559 447 538
----------------------------------------------------------------------------------------------------
Total $ 76,803 $ 48,564 $ 43,191
----------------------------------------------------------------------------------------------------
Capital expenditures, including assets acquired:
Converted products $ 135,825 $ 45,077 $ 72,164
Paperboard 135,365 26,480 23,205
Corporate 210 238 805
----------------------------------------------------------------------------------------------------
Total $ 271,400 $ 71,795 $ 96,174
----------------------------------------------------------------------------------------------------
</TABLE>
(a) The Company incurred $16,251,000 in fiscal 1997 in plant
closing and other costs (see Note 2). These costs related
to the converted products segment and the applicable
amounts are reflected in the segment's operating income
and depreciation and amortization.
(b) The effect of the change in depreciation methods from the
150% declining balance method to the straight-line method
ROCK-TENN COMPANY 45
<PAGE> 30
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
ROCK-TENN COMPANY
for machinery and equipment placed in service during fiscal
1997 was to increase operating income by $4,936,000. The
depreciation change resulted in a decrease in depreciation
expense in each of the segments as follows: $2,689,000 in the
converted products segment, $2,227,000 in the paperboard
segment and $20,000 in the corporate expenses.
11. FINANCIAL RESULTS BY QUARTER (UNAUDITED)
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
FIRST SECOND THIRD FOURTH
1997 QUARTER QUARTER QUARTER QUARTER
----------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Net sales $208,318 $275,397 $300,302 $325,676
Gross profit 53,593 65,744 75,239 82,960
Net income (loss) 7,399 (7,191) 6,212 9,681
Earnings (loss) per common and
common equivalent share .22 (.22) .18 .28
----------------------------------------------------------------------------------------------------
First Second Third Fourth
1996 Quarter Quarter Quarter Quarter
----------------------------------------------------------------------------------------------------
Net sales $219,362 $216,477 $216,211 $224,061
Gross profit 58,159 60,187 62,563 63,000
Net income 11,785 12,267 13,525 13,548
Earnings per common and
common equivalent share .35 .36 .40 .40
----------------------------------------------------------------------------------------------------
</TABLE>
The interim earnings per common and common equivalent share
amounts were computed as if each quarter was a discrete
period. As a result, the sum of the earnings per common and
common equivalent share by quarter will not necessarily total
the annual earnings per common and common equivalent share.
The results of operations for the second, third and fourth
quarters of fiscal 1997 include expenses of approximately
$12,784,000, $2,700,000 and $767,000, respectively, incurred
by the Company as a result of the facility closings and
related items (see Note 2).
The results of operations for the third and fourth
quarters of fiscal 1996 include expenses of approximately
$1,300,000 and $2,300,000, respectively, incurred by the
Company as a result of the facility closing and consolidation
plan (see Note 2).
ROCK-TENN COMPANY 46
<PAGE> 31
REPORT OF INDEPENDENT AUDITORS
The Board of Directors and Shareholders
Rock-Tenn Company
We have audited the accompanying consolidated balance sheets
of Rock-Tenn Company as of September 30, 1997 and 1996, and
the related consolidated statements of income, shareholders'
equity and cash flows for each of the three years in the
period ended September 30, 1997. These financial statements
are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with generally
accepted auditing standards. Those standards require that we
plan and perform the audit to obtain reasonable assurance
about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the
financial statements. An audit also includes assessing the
accounting principles used and significant estimates made by
management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the financial statements referred to above
present fairly, in all material respects, the consolidated
financial position of Rock-Tenn Company at September 30, 1997
and 1996, and the consolidated results of its operations and
its cash flows for each of the three years in the period ended
September 30, 1997, in conformity with generally accepted
accounting principles.
As discussed in Note 1 to the consolidated financial
statements, effective October 1, 1996, the Company changed its
method of accounting for depreciation of machinery and
equipment placed in service subsequent to September 30, 1996.
Atlanta, Georgia
October 21, 1997
ROCK-TENN COMPANY 47
<PAGE> 32
MANAGEMENT'S STATEMENT OF RESPONSIBILITY FOR FINANCIAL INFORMATION
ROCK-TENN COMPANY
The management of Rock-Tenn Company has the responsibility for
preparing the accompanying consolidated financial statements
and for their integrity and objectivity. The statements were
prepared in accordance with generally accepted accounting
principles. The financial statements include amounts that are
based on management's best estimates and judgments. Management
also prepared the other information in the annual report and
is responsible for its accuracy and consistency with the
financial statements.
Rock-Tenn Company has established and maintains a system
of internal control to safeguard assets against loss or
unauthorized use and to ensure the proper authorization and
accounting for all transactions. This system includes
appropriate reviews by the Company's internal audit department
and management as well as written policies and procedures that
are communicated to employees with significant roles in the
financial reporting process and updated as necessary.
The Board of Directors, through its Audit Committee, is
responsible for ensuring that both management and the
independent auditors fulfill their respective responsibilities
with regard to the financial statements. The Audit Committee,
composed entirely of directors who are not officers or
employees of the Company, meets periodically with both
management and the independent auditors to assure that each is
carrying out its responsibilities. The independent auditors
and the Company's internal audit department have full and free
access to the Audit Committee and meet with it, with and
without management present, to discuss auditing and financial
reporting matters.
The Company's financial statements have been audited by
Ernst & Young LLP, independent auditors, elected by the
shareholders. The opinion of the independent auditors, based
upon their audits of the consolidated financial statements, is
contained in this Annual Report.
As part of its audit of the Company's financial
statements, Ernst & Young LLP considered the Company's
internal control structure in determining the nature, timing
and extent of audit tests to be applied. Management has
considered Ernst & Young LLP's recommendations concerning the
Company's system of internal control and has taken actions
that we believe are cost-effective in the circumstances to
respond appropriately to these recommendations. Management
believes that, as of September 30, 1997, the Company's system
of internal control is adequate to accomplish the objectives
discussed herein.
<TABLE>
<S> <C>
Bradley Currey, Jr. David C. Nicholson
Chairman of the Board of Directors Senior Vice President and
and Chief Executive Officer Chief Financial Officer
</TABLE>
ROCK-TENN COMPANY 48
<PAGE> 33
MANAGEMENT'S STATEMENT OF RESPONSIBILITY FOR FINANCIAL INFORMATION
ROCK-TENN COMPANY
The management of Rock-Tenn Company has the responsibility for
preparing the accompanying consolidated financial statements
and for their integrity and objectivity. The statements were
prepared in accordance with generally accepted accounting
principles. The financial statements include amounts that are
based on management's best estimates and judgments. Management
also prepared the other information in the annual report and
is responsible for its accuracy and consistency with the
financial statements.
Rock-Tenn Company has established and maintains a system
of internal control to safeguard assets against loss or
unauthorized use and to ensure the proper authorization and
accounting for all transactions. This system includes
appropriate reviews by the Company's internal audit department
and management as well as written policies and procedures that
are communicated to employees with significant roles in the
financial reporting process and updated as necessary.
The Board of Directors, through its Audit Committee, is
responsible for ensuring that both management and the
independent auditors fulfill their respective responsibilities
with regard to the financial statements. The Audit Committee,
composed entirely of directors who are not officers or
employees of the Company, meets periodically with both
management and the independent auditors to assure that each is
carrying out its responsibilities. The independent auditors
and the Company's internal audit department have full and free
access to the Audit Committee and meet with it, with and
without management present, to discuss auditing and financial
reporting matters.
The Company's financial statements have been audited by
Ernst & Young LLP, independent auditors, elected by the
shareholders. The opinion of the independent auditors, based
upon their audits of the consolidated financial statements, is
contained in this Annual Report.
As part of its audit of the Company's financial
statements, Ernst & Young LLP considered the Company's
internal control structure in determining the nature, timing
and extent of audit tests to be applied. Management has
considered Ernst & Young LLP's recommendations concerning the
Company's system of internal control and has taken actions
that we believe are cost-effective in the circumstances to
respond appropriately to these recommendations. Management
believes that, as of September 30, 1997, the Company's system
of internal control is adequate to accomplish the objectives
discussed herein.
<TABLE>
<S> <C>
Bradley Currey, Jr. David C. Nicholson
Chairman of the Board of Directors Senior Vice President and
and Chief Executive Officer Chief Financial Officer
</TABLE>
ROCK-TENN COMPANY 49
<PAGE> 1
EXHIBIT 21
ROCK-TENN COMPANY
SUBSIDIARIES OF ROCK-TENN COMPANY
<TABLE>
<CAPTION>
Name Jurisdiction of Incorporation
---- -----------------------------
<S> <C> <C>
1. Rock-Tenn Company, Mill Division, Inc. Tennessee
2. Dominion Paperboard Products, Ltd. Quebec, Canada
3. Rock-Tenn Company of Texas Georgia
4. Rock-Tenn Converting Company Georgia
5. Rock-Tenn Company of Arkansas Georgia
6. Ling Industries, Inc. Quebec, Canada
7. Rock-Tenn Company of California, Inc. Delaware
8. Rock-Tenn Company of Illinois, Inc. Illinois
9. Concord Industries, Inc. Illinois
10. Waldorf Corporation Delaware
11. Wabash Corporation Delaware
12. Wabash Development, Inc. Delaware
13. Waldorf Realty Delaware
14. Best Recycling, Inc. Iowa
15. RTS Packaging, LLC Delaware
16. Rock-Tenn Recycling Company Quebec, Canada
17. 9028-9463 Quebec, Inc. Quebec, Canada
18. Rock-Tenn Partition Company Georgia
19. RTS Empaques S. de R.L. de C.V. Mexico
</TABLE>
<PAGE> 1
EXHIBIT 23
REPORT AND CONSENT OF INDEPENDENT AUDITORS
We consent to the incorporation by reference in this Annual Report
(Form 10-K) of Rock-Tenn Company of our report dated October 21, 1997, included
in the 1997 Annual Report to Shareholders of Rock-Tenn Company.
Our audits also included the financial statement schedule of Rock-Tenn
Company listed in Item 14(a). This schedule is the responsibility of the
Company's management. Our responsibility is to express an opinion based on our
audits. In our opinion, the financial statement schedule referred to above, when
considered in relation to the basic financial statements taken as a whole,
presents fairly in all material respects the information set forth therein.
We also consent to the incorporation by reference in the Registration
Statement (Form S-8 No. 33-83304) pertaining to the Rock-Tenn Company 1993
Employee Stock Option Plan, the Rock-Tenn Company 1993 Employee Stock Purchase
Plan, the Rock-Tenn Company Incentive Stock Option Plan, the Rock-Tenn Company
1989 Stock Option Plan, and the Rock-Tenn Company 1987 Stock Option Plan, and
the Registration Statement (Form S-3 No. 33-93934) of Rock-Tenn Company of our
report dated October 21, 1997, with respect to the consolidated financial
statements incorporated herein by reference, and our report included in the
preceding paragraph with respect to the financial statement schedule included in
this Annual Report (Form 10-K) for the year ended September 30, 1997, and our
report dated November 13, 1997, with respect to the financial statements of the
Rock-Tenn Company 1993 Employee Stock Purchase Plan filed as an Exhibit to this
Annual Report (Form 10-K) for the year ended September 30, 1997.
Ernst & Young LLP
Atlanta, Georgia
December 12, 1997
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED BALANCE SHEET AND THE CONSOLIDATED STATEMENT OF INCOME FILED AS
PART OF THE ANNUAL REPORT ON FORM 10-K AND IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO SUCH ANNUAL REPORT ON FORM 10-K.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> SEP-30-1997
<PERIOD-START> OCT-01-1996
<PERIOD-END> SEP-30-1997
<CASH> 3,345
<SECURITIES> 0
<RECEIVABLES> 118,794
<ALLOWANCES> 3,632
<INVENTORY> 94,035
<CURRENT-ASSETS> 217,615
<PP&E> 877,320
<DEPRECIATION> 326,146
<TOTAL-ASSETS> 1,113,686
<CURRENT-LIABILITIES> 152,145
<BONDS> 492,340
0
0
<COMMON> 344
<OTHER-SE> 370,868
<TOTAL-LIABILITY-AND-EQUITY> 1,113,686
<SALES> 1,109,693
<TOTAL-REVENUES> 1,109,693
<CGS> 832,157
<TOTAL-COSTS> 832,157
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 26,787
<INCOME-PRETAX> 37,756
<INCOME-TAX> 21,655
<INCOME-CONTINUING> 16,101
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 16,101
<EPS-PRIMARY> .47
<EPS-DILUTED> 0
</TABLE>
<PAGE> 1
EXHIBIT 99
ROCK-TENN COMPANY
1993 EMPLOYEE STOCK PURCHASE PLAN
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<S> <C>
Report of Independent Auditors 1
Statements of Financial Condition as of September 30, 1997 and 1996 2
Statements of Changes in Plan Equity for the three years ended
September 30, 1997 3
Notes to Financial Statements 4
</TABLE>
<PAGE> 2
REPORT OF INDEPENDENT AUDITORS
Compensation and Options Committee of the Board of Directors
Rock-Tenn Company
We have audited the accompanying statements of financial condition of the
Rock-Tenn Company 1993 Employee Stock Purchase Plan as of September 30, 1997 and
1996 and the related statements of changes in plan equity for each of the three
years in the period ended September 30, 1997. These financial statements are the
responsibility of the Plan's management. Our responsibility is to express an
opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of the Rock-Tenn Company 1993
Employee Stock Purchase Plan at September 30, 1997 and 1996 and the changes in
Plan equity for each of the three years in the period ended September 30, 1997,
in conformity with generally accepted accounting principles.
ERNST & YOUNG LLP
Atlanta, Georgia
November 13, 1997
<PAGE> 3
ROCK-TENN COMPANY
1993 EMPLOYEE STOCK PURCHASE PLAN
STATEMENTS OF FINANCIAL CONDITION
<TABLE>
<CAPTION>
September 30,
1997 1996
----------------------
<S> <C> <C>
Plan assets:
Receivable from Rock-Tenn Company
Notes 1 and 2 $510,348 $380,701
======== ========
Plan liabilities and equity:
Obligations to purchase Rock-Tenn Company
common stock - Notes 1 and 2 $510,348 $380,701
Plan equity -- --
-------- --------
Total plan liabilities and equity $510,348 $380,701
======== ========
</TABLE>
See notes to financial statements
2
<PAGE> 4
ROCK-TENN COMPANY
1993 EMPLOYEE STOCK PURCHASE PLAN
STATEMENTS OF CHANGES IN PLAN EQUITY
<TABLE>
<CAPTION>
Years Ended September 30,
1997 1996 1995
---------------------------------------
(Restated)
<S> <C> <C> <C>
Participant contributions $2,834,682 $2,107,505 $1,579,387
Purchases of Rock-Tenn Company
common stock - Note 1 2,789,931 2,106,192 1,566,735
Amounts refunded to plan participants 44,751 1,313 12,652
---------- ---------- ----------
Plan equity at end of year $ -- $ -- $ --
========== ========== ==========
</TABLE>
See notes to financial statements
3
<PAGE> 5
ROCK-TENN COMPANY
1993 EMPLOYEES STOCK PURCHASE PLAN
NOTES TO FINANCIAL STATEMENTS
NOTE 1 - DESCRIPTION OF THE PLAN:
In 1993, the Board of Directors of Rock-Tenn Company (the "Company") adopted the
Rock-Tenn Company 1993 Employee Stock Purchase Plan (the "Plan"). The Plan was
effective beginning on January 1, 1994, however, the first purchase period
commenced on November 1, 1994. Under the Plan, there were 600,000 shares of the
Company's Class A common stock reserved for purchase. In October 1996, the
Company's Board of Directors increased the number of shares reserved for
purchase under the Plan to 660,000 shares, as a result of a 10% stock dividend
declared on October 24, 1996 and paid on November 4, 1996.
The Plan permits eligible employees to make regular, systematic purchases of the
Company's Class A common stock directly from the Company through payroll
deductions. Substantially all regular, full-time employees of the Company and
its subsidiaries are eligible to participate in the Plan upon completion of at
least two years of employment as defined by the Plan. Voluntary employee
contributions are deducted from participants' compensation each pay period and
are held for the participants' accounts. All funds held by the Company under the
Plan are included in the general assets of the Company.
On the first day of each of the four purchase periods (November 1, February 1,
May 1 and August 1), participants in the Plan are granted an option to purchase
shares of the Company's Class A common stock. On the last day of each purchase
period (January 31, April 30, July 31 and October 31), the Company uses the
funds accumulated in each participant's account in the Plan to purchase shares
of the Company's Class A common stock for the participant. The purchase price
per share to the participant is equal to 85% of the fair market value, as
defined, of the Company's Class A common stock on the first or last day of the
purchase period, whichever amount is lower. For the purchase periods ending
October 31, 1996, January 31, 1997, April 30, 1997 and July 31, 1997 there was a
total of 195,627 shares of the Company's Class A common stock purchased for
participants under the Plan. For the purchase periods ending October 31, 1995,
January 31, 1996, April 30, 1996 and July 31, 1996, there was a total of 147,366
shares of the Company's Class A common stock purchased for participants under
the Plan. For the purchase periods ending January 31, 1995, April 30, 1995 and
July 31, 1995, there was a total of 86,059 shares of the Company's Class A
common stock purchased for participants under the Plan. A stock certificate
representing any shares of the Company's Class A common stock purchased under
the Plan shall be held for, or at the participant's direction and expense,
delivered to the participant.
Any participant may terminate contributions and withdraw from the Plan at any
time. Even though there are no current intentions to do so, the Board of
Directors can terminate the Plan at any time. Outstanding options at the time of
termination cannot be modified or cancelled without the written consent of the
participants.
4
<PAGE> 6
NOTE 2 - SIGNIFICANT ACCOUNT POLICIES:
Basis of Accounting
The accompanying financial statements have been prepared on the accrual basis of
accounting. Asset valuations are stated at cost which approximates fair value.
Use of Estimates
The preparation of financial statements in conformity with generally accepted
accounting principles requires plan management to make estimates and assumptions
that affect the reported amounts of plan assets and liabilities and disclosure
of any contingent assets and liabilities at the date of the financial statements
and the reported amounts of changes in plan equity during the reporting period.
Actual results will differ from those estimates and the differences could be
material.
Plan Administration
The Plan is administered by the Compensation and Options Committee of the
Company's Board of Directors, which consists of three outside directors.
Plan Expenses
Administrative expenses of the Plan are paid by the Company.
Restatement of 1996 Balances
The Plan has restated its 1996 financial statements as a result of an
overstatement of approximately $335,000 of the amounts shown as participant
contributions and purchases of Rock-Tenn Company common stock as of September
30, 1996. There is no net effect on plan equity or participant accounts.
NOTE 3 - FEDERAL INCOME TAXES:
The Plan qualifies as an Employee Stock Purchase Plan under Section 423 of the
Internal Revenue Code of 1986. Transfers of shares under this Plan are not
intended to result in taxable income to employees under the Plan based on
provisions in Section 423 of the Internal Revenue Code.
NOTE 4 - SUBSEQUENT EVENTS
On October 23, 1997, the Company's Board of Directors voted to increase the
number of shares reserved for purchase under the Plan to 1,320,000. The increase
is subject to shareholder approval.
5
